Davy Research |
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TNT Express
(TNTE NA)
Revenue environment remains weak in Q2 but cost performance improving
30 July 2012
Stephen Furlong
| Closing Price: | 881c | Rating: | Neutral | 22/03/12 | Previous: | Outperform | 20/02/12 |
FACTS: TNT Express has reported (July 30th) Q2 results.
ANALYSIS: Reported revenues were €1,830m (+1.7%) and adjusted revenues, at constant FX, €1,767m (-1.8%). Reported operating income €77m was (+67.4%) and adjusted operating income, at constant FX and excluding one-offs, €69m (-6.8%). Net cash from operating activities was €39m, while net cash used in investing activities was €10m. Net debt was €(6)m (Q1 2012: €36m net debt). The €50m indirect cost-savings programme is to be fully implemented by year-end. Europe & MEA additional fixed-cost savings are being pursued, with the timing of implementation temporarily adjusted in light of the UPS offer. The UPS offer is expected to complete in Q4 2012, following further European Commission review.
Despite demanding economic conditions in Europe & MEA, volume growth was good. However, customers increasingly opted for non-premium products. The resulting negative product mix, plus general price pressure, were mitigated by cost control initiatives. In Asia Pacific, operating income improved even though international volumes declined. All units performed better, in particular Australia, China domestic (Hoau) and India. The Americas saw an improved performance from Brazil, though challenges remain. Other networks results were ahead of the prior year. Non-allocated costs continue to be contained.
The numbers at the EBIT level compare with median consensus in Q2 of €55m and Davy €50m (Europe & MEA consensus €78m, Davy €80m) which compares with actual underlying operating income of €69m and EMEA of €86m. In EMEA, there was flat adjusted revenue development (-0.1%), a net result of overall good volume growth and yield contraction. Volumes increased in all product segments, with highest growth in International Economy but yield was negatively impacted by product mix changes and pricing pressure.
Cost control measures, including European air network capacity reduction and local savings, partially mitigated the impact of negative yield.
DAVY VIEW: The TNT Express stock will be driven by the UPS bid with a phase-II decision by the EU expected on December 12th.
The outlook statement remains weak with 12 outlook and aims:
Increasingly challenging trading conditions in Europe and Asia Pacific intercontinental;
Europe & MEA: indirect and fixed-cost control initiatives in place to help mitigate impact of negative yield trend;
Asia Pacific: benefit from reduced exposure to fixed intercontinental air capacity and contract portfolio management;
Americas: focus on improving results in Brazil;
Timing of implementation of certain long-term projects that are part of 2012-2013 fixed-cost savings programme temporarily adjusted in light of the proposed UPS offer;
Working capital to be in line with medium-term aims, with capital expenditures lower.
Medium-term outlook and aims remain unchanged;
Europe & MEA revenue to grow organically and through new initiatives in adjacent market segments, with an operating margin increasing to 10-11%;
Positive contributions from other operating segments;
Capital expenditure around 3% of total revenue and trade working capital around 10% of total revenue;
Effective tax rate trending towards 31-33%.
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