TNT Express continues to burn cash

TNT Express reported group revenues of almost €1.6bn and an operating loss of -€1m in the first quarter of 2016 – both “were negatively influenced by fewer working days”, the Dutch express company noted on 25 April.

Quarterly trends show that TNT is slowly returning to a more acceptable level of underlying profitability but it is also burning cash at a relatively fast rate. 

(Q4 coverage can be found here:

Reported revenues in its core European operation rose 2.4% to €679m and represented 42.7% of group sales, while underlying revenue growth – adjusted for currency effects, lower fuel surcharges and the working-day effect – was 7.8%. The adjusted operating income margin (AOIM) of its European assets fell into negative territory from +1.2% one year earlier, which testifies to a more competitive trading environment, among other things. 

Meanwhile, its domestic division turned over €575m (35% of group sales), down 7.4% year-on-year on a reported basis. As happened in the fourth quarter, the unit’s profitability improved as a result of operational efficiencies and reduced indirect costs, pushing up adjusted operating income to €9m from a €4m loss the year before.

“Management continued cost-tightening measures to mitigate the decline in Brazil and Australia, while performance in European units again improved,” the company said.

On the bright side, underlying revenue growth at group level, adjusted for currency effects, lower fuel surcharges and working-day effect, stood at 4.2%. In the first three months of 2016, TNT continued to grow revenues from SMEs (+6.5%) as well as in most countries, including China.

Notably, its €1m operating loss represents a €10m improvement over the prior year. EBIT included one-off charges of €10m, of which €4m was related to the FedEx offer, but excluding those one-off charges, its adjusted operating income came in at €9m, up €8m year-on-year.

In fairness, revenues and EBIT trajectories are not particularly appealing, particularly due to the level of heavy capital investment that will likely have to be injected into the business – quarterly capital expenditures amounted to €51m (3.2% of revenues) compared to €78m (4.8% of revenues) in the prior year. 

TNT is buying time, and it couldn’t be otherwise given its net cash balances. At the end of the first quarter, it had a net cash position €145m, which compares with €330m one year earlier. Its net cash position had already dropped to €231m in the fourth quarter from €449m one year earlier due to falling operating cash flows, which remain negative (-€46m) but have improved in the first quarter on a year-on-year basis. 

Chief executive Tex Gunning said that, “TNT again delivered solid underlying revenue growth”, while its Outlook strategy is on track and delivers good growth from SME customers – “our customer satisfaction scores hit new records in Q1,” he noted, adding that TNT spent significant time and effort towards the completion and preparation of the intended acquisition by FedEx, which is expected to close in the first half of this year.”

Source: Transport Intelligence, 26th April 2016

Author: Alessandro Pasetti