TNT Express goodwill write-down verging on the spectacular

TNT Express has made major changes to the structure and outlook of its business which has led to write-downs of over €200m.

The numbers released today for the second quarter 2013 show a fall year-on-year of 3.1% in revenue to €1.7bn. This was driven by falls in the core European market, however all of its business areas saw declining revenues except Brazil, which increased by 1% year-on-year.

Actual operating income for the quarter was €71m. However, TNT management restructured its accounts, introducing a higher level of ‘granularity’ combined with aggressive write –downs composed of €296m goodwill impairments and €53m of ‘fair value’ impairments. The objective appears to be to identify the parts of the business that are making money and those that are not. The short-term effect of this decision has been a quarterly loss before income taxes of €285m.

TNT states that across Europe volumes increased for its core business, but margins were depressed by price competition. Unsurprisingly, France and Italy saw poor market conditions. In the business unit it now calls ‘Europe Other & Americas’ – which includes its Brazilian operations – performance was relatively flat, with some increase in revenue due to better margins. Asia and the Middle East saw falls in revenue on an unadjusted basis of 5.7% with China seeing lower export volumes; although other parts of Asia were healthier. The ‘Pacific’ business – which is largely the Australian express operations – also saw pressure on prices as customers bought cheaper services, although demand still grew.

At this stage, it is difficult to assess the importance of these results. They are clearly heavily influenced by the management’s wish to restructure the business and have only moderate implications for its financial health. Nonetheless, the write-downs are verging on the spectacular and imply that the growth prospects of TNT Express are very much less than previously expected.