TNT announced earnings on Tuesday. The company outlined a new strategy for profitable growth including pursuing partnerships in Asia and South America. Perhaps if a UPS acquisition does not occur, pursuing a partnership opportunity with TNT may be an option?
Ti's CEO, John Manners-Bell discusses TNT's latest earnings and new strategy below:
With negotiations between TNT and UPS on-going,
the release of TNT’s annual results had more-than-usual significance.
As it turned out, its 2011 performance was
affected once again by its Brazilian operations, an on-going thorn in the side
of management and one of the reasons behind shareholder discontent. Overall the
company saw modest revenue growth with operating income significantly impacted
by impairment charges. TNT’s management also highlighted what it called
‘challenging’ Asia-Europe trading conditions.
On the bright side, Europe & Middle
East Africa region turned in a robust performance, though there was increasing
pressure on revenue and profits as the year progressed.
Management said that its priority
throughout the year was the turnaround of the Brazilian operations, optimising
capacity in Asia Pacific and countering falling yields as a result of
unfavourable customer and product mix changes in the EMEA region.
Overall reported revenues rose by 2.7% to
€7,246m. Reported operating income was a loss of €105m although adjusted
operating income (at constant foreign exchange and excluding one-offs) was
€228m profit. This represented a drop of 29.4% over the previous year.
·
Europe & MEA reported
operating margin of 7.9% (down from 8.3%) on revenue growth of +1.6%. The
reported operating income was €356m (compared with a profit of €371m 2010).
·
In Asia Pacific revenue
increased to €1,797m from €1,656m, an increase of 8.5%. However operating
income dropped from €14m to a loss of €76m – a very worrying state of affairs
for the company, given that another of its regions has now fallen into loss.
·
In the Americas, revenue
dropped by 7% to €467m and operating loss (including the one off impairment)
fell to a staggering €360m loss. Even without the impairment, the loss would
have been €125m, a margin of -26.4%.
TNT’s CEO, Marie-Christine Lombard, also
announced a new corporate strategy, focused around its European operations. Speaking
in a webcast , she said that she wanted Europe to be connected to the rest of
the world with an asset light model, reducing its exposure to fixed
intercontinental capacity through cooperation agreements with leading airlines.
TNT, she said, must also reduce its financial exposure to China and Brazil. To
this end the company was pursuing ‘partnership opportunities’ in these markets
although she did not elaborate on what these could be. One interpretation could
be that the disposal of the loss-making operations is on the cards, to be
replaced by looser agreements with local players.
She went on to stress that, ‘Medium to long
term, I believe in Europe’ and she highlighted the growing B2C market as a
major opportunity for the company. She also identified the potential for TNT to
develop more value adding solutions for its customers.
Lombard then announced a programme of cost
reduction which amounted to €150m by the end of 2013. She said that this could
be achieved in three key ways. Firstly, by optimising its air network to reduce
numbers of aircraft; secondly, by out-sourcing non-customer interfacing
processes and thirdly, addressing employee costs. She said this latter part of
the programme would necessarily have implications on the workforce.
TNT’s ultimate goal is to increase
operating margin in Europe to between 10-11% from the present 8%. Outside
Europe she was targeting a return to profitability.
Although Lombard says she is confident that
TNT can reach these targets, it is highly debatable whether she will get the
chance. Although she stresses the opinion that TNT can survive as a strong,
independent, Europe-focused player, most analysts believe that it is only a
matter of time before the company acquiesces to an increased bid.