TNT Express unveils survival strategy

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TNT facility 2012 web.jpg TNT facility 2012 web.jpg
TNT facility 2012 web.jpg TNT facility 2012 web.jpg

Struggling express and logistics firm TNT Express has released a plan to improve profitability between now and 2015

TNT Express unveils survival strategy
TNT Express unveils survival strategy

By Anna Game-Lopata | April 9, 2013

Struggling express and logistics firm TNT Express has unveiled a plan to improve profitability between now and 2015.

Faced with challenging trading conditions and continuing price pressure, TNT Express will carry out an extensive set of measures to better leverage its position in Europe, and operate its business more efficiently.

The changes are expected to affect 4,000 positions throughout the company in the next three years.

TNT Express says it will engage in thorough discussions with employees, works councils and unions regarding consequences and the best possible solutions.

The strategy is built around four priorities:

  • Reshaping the portfolio through the sale of China and Brazil Domestic and reducing exposure to fixed intercontinental air capacity
  • Focusing on TNT Express’ distinctive service proposition and increasing growth in its most profitable segments
  • Enhancing execution through a leaner organisation and cost efficiencies generating improvements of €220 million (AUD $274.82million)
    by 2015
  • Investing in infrastructure and in business supporting and customer IT

Interim CEO Bernard Bot says the so-called ‘Deliver!’ program will involve the divestment of domestic operations in China and Brazil.

"The sales process for domestic China is well underway and the outcome should be known imminently," Bot says.

Preparations for the sale of Brazil Domestic have started.

In the meantime, TNT Express is actively pursuing the turnaround plans. Brazil Domestic’s losses have reduced in the first two months of 2013.

"TNT Express is exploring options to reduce its exposure to intercontinental capacity," Bot says.

"Options include capacity-sharing agreements, subleases and lease terminations. These will be carefully weighed against the return on the use of the aircraft, which currently covers cost."

Bot says building on the company's core strengths, which he says include a broad integrated product offering, excellent service to customers, local presence and extensive European coverage combined with intercontinental connections, TNT Express will focus on higher-margin services and customer segments.

The company is a market leader in domestic and intra-European deliveries, with top-three positions in major European markets.

The new strategy will mean targeting smaller businesses (SME) and single-source customers, higher weight parcels and palletised freight Express and Economy shipments, and International and Special Services products.

TNT Express will continue to offer a wider choice of domestic, intra-regional and intercontinental services required by its customers, albeit with increased pricing discipline to ensure adequate returns.

In addition, TNT Express says it will adapt its operating model to improve cost efficiency and discipline.

The company says it is
targeting €220 million recurring savings by consolidating services such as creating shared-service centres for administration .

Bot says this will also involve
optimising infrastructure
through initiatives such as concentrating depots and hubs within certain country regions and increasing productivity such as optimising depot sort and load activities by changing depot configuration and processes.

TNT Express will also reduce
indirect costs
such as
streamlining support functions across the organisation.

"A new management structure will bring focus and alignment to the delivery of these improvements," Bott says.

"At the heart of the new organisation will be the Executive Board and a global Functional Board with cross-company responsibilities."

The previous regional structure will be unwound. New Business Units comprising Australia/New Zealand, Benelux, France, Emerging, Europe/Americas, Germany, Italy and UK/Ireland will report directly to the CEO.

The proposed changes are subject to works council consultation. TNT Express will adjust its reporting segments in line with IFRS per 2Q13.

Finally TNT Express plans an investment in network optimisation and automation of depots and hubs and in business supporting and customer IT.

"For instance, TNT Express’ customer interface technology will be improved by launching new online booking and payment tools, making it easier and quicker for customers to work with the company,’ Bott says.

"Total investments for the period to the end of 2015 are estimated at around €200 million (AUD $160.1 million)."

Bott says TNT Express anticipates restructuring costs of €150m (AUD $120.08 million) between now and the end of 2015.

"The economic climate remains uncertain with limited visibility on the future," he says.

"Assuming a return to normal economic conditions in Europe (moderate growth of the European economy and 2 percent annual inflation), Europe and the Middle East could see an adjusted operating income margin of around 8 percent and sales growth for the period of around 2 percent (CAGR)."

"Other geographic segments will contribute to the company’s profit with non-allocated costs expected to be around €25 million (AUD $31.23 million) working capital around 8 percent of revenues," Bott predicts.

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