TNT posts first-quarter loss, expects challenges before FedEx takeover

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The FINANCIAL — TNT on April 28 reported first-quarter revenues of €1,622 million, up 1.3% year-on-year, and an operating loss of €11 million. Adjusted for disposals and foreign exchange, TNT’s revenues declined 1.5%.

The drop in fuel surcharges and a trading day effect lowered first-quarter revenues by 2.1% and 1.5%, respectively. The underlying revenue growth, after correcting for all these factors, was 2.1%, according to TNT.

Reported operating income includes €12 million of restructuring and other charges, in line with guidance. Adjusted operating income decreased to €1 million, reflecting costs related to the execution of the Outlook strategy (€20 million), lower volumes from international accounts and pricing pressures, particularly in Western Europe.

Investments increased to €78 million (4.8% of revenues) in the first quarter, compared with €26 million (1.6% of revenues) the year before. Most capital expenditures went to sorting equipment, hubs, depots, vehicles and IT. Service performance, measured by on time delivery, continued to improve in all segments.

Tex Gunning, TNT’s Chief Executive Officer, said:

“Good progress is being made with the execution of the Outlook strategy. Service performance and revenues from SMEs further improved, supported by ongoing investments in infrastructure and IT. During the FedEx offer process, we will continue to focus on our customers and operational efficiency. The first quarter results were impacted by transition costs associated with the Outlook strategy. Our guidance is unchanged: we expect 2015 to be a challenging year of transition, followed by year-on-year improvements from 2016 onwards.”

International Europe segment

International Europe revenues decreased 1.3% year-on-year. Comparable revenue growth (adjusted for foreign exchange) was -2.5%.

Adjusted for the adverse trading day effect and the reduction in fuel surcharges, the underlying revenue growth was 1.4%.

First quarter revenues reflect weaker sales in large Western Europe markets, partly offset by growth in most other markets. Revenues from large accounts declined, but the segment again achieved higher revenues from SMEs. Consignment volumes and revenue per consignment were essentially flat compared with the same quarter of last year.

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Adjusted operating income decreased by €23 million to €8 million, partly driven by costs related to executing the Outlook strategy (€6 million), namely IT transition and Outlook project costs. In addition, the segment incurred costs of supporting the launch of new air and road connections to upgrade the service to several countries, such as Germany, Italy, Turkey and Israel (€4 million). Profitability was also affected by higher air network costs associated with the stronger US dollar (€6 million) and disappointing sales in large Western Europe markets. As part of implementing the new segments, International Europe is completing changes to the sales function to improve sales and revenue management.
International AMEA segment

International AMEA revenues climbed 17.1% year-on-year to €233 million.

The positive currency effects caused by the appreciation of local currencies against the euro more than offset the drop in fuel surcharge revenue and adverse trading day effect.

Adjusted for these external factors, the segment’s underlying revenue grew by 3.5%.

Revenue per consignment rose 7.3% year-on-year, driven by increased average daily weights (8.3%), a result from the growth in Express Freight, Economy Parcels and Economy Freight shipments. In the International AMEA segment, TNT transported fewer, but heavier consignments.

Adjusted operating income increased by €4m to €9 million, supported by ongoing Outlook improvement initiatives.
Domestics segment

In the Domestics segment, revenues increased 4.4% year-on-year to €621 million. Foreign exchange effects increased first quarter revenues, compensating for the
negative trading day and fuel surcharge impacts. Adjusted for these factors, the underlying revenue growth was 2.2%.

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Revenues from SMEs again improved year-on-year, supported by better service performance. The UK Domestic unit improved during the quarter. The Pacific unit’s revenues decreased year on year.

TNT delivered 4.1% more consignments per day than in the first quarter of 2014. However, revenue per consignment declined 2.6% due to pricing pressures and decline in fuel surcharge.

Adjusted operating income decreased by €19 million to €(4) million, reflecting the pressure on yields, especially in France and Australia, as well as €4 million of operating costs related to the execution of the Outlook strategy (IT transition and Outlook project costs). In addition, the Pacific unit incurred transition costs related to the ramp up of the new hub in Sydney (€3 million). The segment is implementing its plans to increase productivity through new or upgraded facilities and to reduce indirect costs further.
Unallocated segment

The Unallocated segment consists of Other Networks (TNT Innight), Central Networks and corporate head office functions. In the Unallocated segment, revenues were down 22.5% year on year to €107 million, as a result from the sale of the fashion business in 2014. Higher pension costs in Unallocated had a €3 million negative impact on operating income.

TNT reiterates its current financial year and longer-term guidance.

For 2015, TNT expects a continuation of adverse trading conditions, particularly in Western Europe.

TNT expects 2015 to be a challenging year of transition marked by the progressive ramp-up of new and upgraded facilities and other transformation projects, such as the outsourcing of IT.

TNT anticipates restructuring and other charges of between €25 million and €30 million in the second quarter of 2015.


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