TNT suffers a negative quarter as it gears up for growth

TNT is engaged in a strategy to refocus on its core operations to develop greater capabilities in these areas and generate efficiencies therein to improve its core profitability. Its financial results for the third quarter of 2014, which show year-on-year falls in both its operating income and revenue, would appear to be a direct outcome of the process of implementing this strategy. The company’s announcement that it will invest €185m in its European road network would appear to confirm TNT’s resolve to follow this strategic path.

For Q3 2014 TNT reported an operating loss of €47m, compared to operating income of €3m in the comparable quarter of 2013. Alongside this the company recorded a 2% decline in revenue to €1.65bn. In addition to the costs of restructuring, and the disposal of certain businesses, these results were also adversely affected by a provision of €50m for a fine from the French competition authority.

TNT’s Q3 revenue was significantly reduced by the strategic disposals of China Domestic in November 2013 and TNT Fashion Group B.V. in March 2014. The company stated that revenue adjusted for these disposals actually grew by 2.7%. That adjusted growth came in spite of TNT’s policy of contract pruning and the poor trading conditions across much of the company’s core European market.

Tex Gunning, TNT’s Chief Executive Officer said, “In our recent trading statement, we highlighted the challenging trading conditions in Europe. Despite this, this quarter saw another improvement in our adjusted operating income, with every segment making a positive contribution apart from Europe Other & Americas where performance was broadly flat. Supporting this was the progress made in rolling out Outlook, including ongoing Deliver!-related cost savings, which were €28m during the quarter.”

It was clear that the quarter’s negative operating income was a direct result of the one off €50m fine incurred for anti-competitive behaviour in the French parcel delivery sector, however, TNT also incurred €46m of costs related to the implementation of the Outlook strategy. These losses could not be offset by the savings brought in from restructuring so far.

The quarter has been rocky for TNT but the company states that these costs are necessary to bring about future growth. Maarten De Vries, TNT’s Chief Financial Officer said, “We are losing market share, we have a competitive challenge. We need to catch up. We must improve our service quality, our IT, our brand, our efficiency and productivity.”

The €185m investment in TNT’s European road network forms the new headline feature of this drive to ‘catch up’. The investment will take place over four years and will be implemented as part of the wider Outlook strategy. Research undertaken for Ti’s latest European Road Freight report shows that, though the market is still in a state of relative stagnation, over the period of this investment it is expected to assume a higher rate of growth. The investment represents TNT’s attempt to seize on that new growth as the market finally bounces back.

TNT’s latest results reflect the efforts to change the company’s strategy. The figures adjusted for the quarter’s one off costs offer the company hope that its strategy is working and that, once fully implemented, the Outlook strategy will allow it to extract greater benefit from renewed market growth.