Press Release


1998 Annual Results TPG announces 18% net income growth

Publish Date : 22 March 1999 at 09:07 CET - TNT Post Group N.V. (TPG) announces a net income growth of 18.2% over the year 1998, in line with the outlook given by TPG at the publication of the interim results at 31 August 1998.

At constant exchange rates, the Board of Management expects the revenue growth in 1999 to be at least in line with the 1998 development. The Board of Management expects, again at constant exchange rates, that the growth of operating income will continue to exceed revenue growth. The Board of Management expects a net income growth within the 10 – 15% range in 1999.

Operating revenues increased by 7% in 1998. Excluding the effects of foreign exchange rates, revenues increased by 8.3%, which was the same as in 1997. Operating expenses increased by 6.6% compared to 1997. The increase in operating income thus amounted to 10.1%.

1998 (NLG) 1997 (NLG)
Revenues 16,327 15,267 7%
Operating income 1,458 1,324 10%
Net income 820 694 18%
Earnings per share 1.73 1.46 18%

The Board of Management of TPG has decided to pay a final dividend of NLG 0.50 per ordinary share over the second half of the 1998 financial year, which shareholders may elect to receive either in cash or in ordinary shares. The value of the ordinary share dividend will be 2% to 5% lower than the value of the cash dividend. The election period starts on May 10, 1999. The dividend is payable as of 7 June 1999.

TPG, with its two brands PTT Post and TNT, is a global provider of mail, express and logistic services. TPG has more than 100,000 employees in 55 countries serving over 200 countries. TPG is publicly listed on the Stock Exchanges of Amsterdam, New York, London and Frankfurt.

The Annual General Meeting of Shareholders will be held in Amsterdam on Thursday 6 May 1999.

Important events 1998

Listing

During 1998, much emphasis was placed on the demerger from KPN, on the structural development of the group and on the listing of the company. The listings on the Stock Exchanges of Amsterdam, New York, London and Frankfurt were successfully accomplished. The TPG share price has increased 21% from NLG 50.10 (EUR 22.73) on 30 June 1998, to NLG 60.50 (EUR 27.45) on 31 December 1998. During that period the Amsterdam Exchanges Index has shown a decrease of 1% from 543.57 (in Euro terms) on 30 June 1998, to 538.36 (in Euro terms) at 31 December 1998.

Rating

In June 1998, TPG received credit ratings from both Standard & Poor's and Moody's Investors Service. Standard & Poor's assigned an A/positive corporate credit rating. Moody's assigned a counterparty rating of Aa3 to TPG. These ratings reflect TPG's strong financial position.

Investments and acquisitions

Since the listing, TPG has made several acquistions. In September, Tesselaar Marketing Services, a Dutch call-center company specialising in direct marketing and handling response for direct mailings was acquired. In October, TPG took over Rinaldi Group, an Italian domestic mail provider. In the same month, the company acquired logistics contracts in Italy and Brazil. In November 1998, TPG took over Broos–Fouya, a French express company, mainly active in the Paris region, and GMA, a direct mail delivery company in Germany. Also in November, TPG acquired Spedimacc, an Italian company specialising in the transport and installation of electronic equipment, such as photocopiers. In December TPG signed an agreement to acquire Jet Services, a French domestic express company, and in early 1999 an agreement to acquire Tecnologistica, an important logistics company with a strong European presence in Italy, France, Germany, Austria, Belgium, Spain and Sweden.

European Express network

In April 1998, TNT opened a new purpose-built European Express Centre at Liége Airport, Belgium. Part of this project involved moving operations from Cologne to this new hub. The state-of-the-art Express Centre is one of the most advanced of its kind in Europe, and offers fast and efficient handling services for customer shipments worldwide, giving the company a competitive advantage in a demanding market. As a result of the opening, the air network increased its connections to five new destinations. TPG also announced that it will add 14 Airbus A300B4 aircraft to its fleet. As of September 1998, the aircraft will gradually be introduced to replace 10 B727-200 aircraft.

Integration

TPG progressed considerably with the integration of the international and domestic express operations. Notably in Italy, Germany, the Benelux countries and Australia, much progress was made, leading to the reallocation of operations and more efficient use of resources, especially depots and vans. During 1998, TPG's Express business in the United States was restructured. Certain unprofitable operations were terminated and a more flexible cost structure was created.

TNT brand identity

Of great importance was the successful world wide launch of the new TNT brand identity, which aims at communicating the new TNT logo and increasing awareness of TNT's business. Resulting in very strong gains in ownership of the color orange and a very successful introduction of the new house style logo e.g. circles.

Briefpost 2000

In the second half of 1998, the problems arising from the implementation of the new sorting structure in Dutch Mail operations were addressed. The official opening of the six new sorting hubs took place in November 1998. The financial objectives of the project remain unchanged. Full implementation will be in the year 2000.

Business developments 1998

Mail

Mail is transitioning more and more to a high tech business and continues to grow. Operating revenues increased in 1998 by 7.4% (NLG 532 million). Excluding negative foreign exchange effects, revenue growth in 1998 was 7.5%(NLG 544). The rise in mail volumes contributed 4.8% (NLG 350 million), acquisitions accounted for an increase of 1.4% (NLG 102 million). The remaining increase of 1.3% (NLG 92 million) resulted from positive price and mix effects, higher revenues of supporting units and incidental revenues. The acquisitions consisted of Rinaldi, an Italian domestic mail provider and GMA, a direct mail delivery company in Germany. Furthermore, the company increased the shareholding in Dutch direct mail company VSP from 50% to 55%.

The often expected, further substitution of traditional letter-mail, the main exponent of Domestic Mail, by fax and e-mail was not proven, considering its growth. Operating revenues increased by 7% (NLG 236 million), largely due to a higher volume of postal items of 4.6% (NLG 156 million) and to positive price and mix effects of 1.2% (NLG 40 million). The remaining 1.2% (NLG 40 million) derives from other mail revenues. The efficiency measures and quality improvements of Domestic Mail, coupled with a stable price for services, were rewarded by steady growth patterns.

Direct Mail operating revenues were boosted by 12.1% (NLG 228 million). Volume increase and acquisition effects attributed more or less in equal proportions to this growth. Expanding volumes were related to financial services, retail, travel and incidental mailings. In spite of the competitive environment of direct mail in the Netherlands, TPG maintained its strong foothold in this market.

International Mail volumes increased by 4.4% (NLG 60 million). Impact of foreign exchange rates somewhat offset this achievement by 0.9%, thus producing a net revenue growth of 3.5% (NLG 48 million).

The remaining growth in Mail revenues was attributed to Post Offices and other. Higher revenues of 3.2% (NLG 20 million) were achieved by supporting units and incidental revenues.

Earnings from operations

A successful year of growth in Mail resulted in a 6.5% (NLG 94 million) increase in earnings from operations bringing the operating margin in line with 1997 of 19.7%.

Express

TPG renewed, integrated and re-positioned its express activities in the market. Growth in operating revenue was tempered by the focus on restructuring issues and the integration process of domestic and cross border express activities in Italy, Australia, the Benelux countries and Germany and by related alignment of express products. Furthermore, the activities in Australasia were -in NLG values- substantially influenced by the turbulence in foreign exchange markets.

Overall operating revenues in Express increased by 4.5% (NLG 283 million). European Express contributed NLG 429 million (9%), which was partially offset by a decrease in operating revenues of NLG 146 million or -/- 12.3% in Express International. Excluding the effects of foreign exchange rates, the operating revenues in Express increased by 7.1% (NLG 443 million). In 1998, competition in the European Express market continued to grow, which led to pricing pressure. The average weight per consignment increased due to a mix change from documents to other express products. Small acquisitions like Pony Express, a city courier in Italy, acquired at the end of 1997, made a modest contribution to the increase in operating revenues in 1998 compared to 1997. In March 1999, the acquisition of Jet Services in France was finalised.

The growth in operating revenues of Express International was negatively affected by the economic turmoil in Australasia and the Americas. During 1998, TPG's Express business in the United States was restructured. Certain unprofitable operations were terminated and a more flexible cost structure was created.

Earnings from operations

Earnings from operations increased by 3.3% to NLG 284 million. In anticipation of further market growth, investments in the European network were accelerated. The operational margin on Express activities remained at the same level as 1997, i.e. 4.4 %.

Logistics

Operating revenues from Logistics increased in 1998 by NLG 361 million (18.3%) compared with 1997. In 1998, the increase in operating revenues was entirely fuelled by organic growth. Excluding foreign exchange rate effects, operating revenues increased by NLG 397 million (20.1%).

The growth in operating revenues was largely generated from increased volumes on an existing contract in Italy, together with the full year effect of contracts begun during 1997 in the United Kingdom, Germany, France and the United States. New business in 1998 also contributed significantly to the growth in operating revenues. New logistics business, primarily in the target industries, was gained in the United Kingdom, Australia and in the Asian region. Early 1999, an agreement was signed to acquire Tecnologistica.

Earnings from operations

The increase in earnings from operations of Logistics was due to the contribution from increased revenues as a result of growth in existing contracts, new business and cost efficiencies. Earnings from operations improved significantly by 21.7% (NLG 28 million), resulting in an operational margin of 6.7%.

Additional information

Operating income

In 1998, operating income increased by 10.1% to NLG 1,458 million compared with 1997.

Capital expenditure on property, plant and equipment

Capital expenditure in 1998 amounted to NLG 942 million and consisted mainly of capital expenditure in the company's infrastructure such as the Briefpost 2000 project in the Netherlands, a new air hub in Liége, Belgium, and three new road hubs in the Netherlands, Italy, and in the United Kingdom. Other capital expenditure was made relating to depots and equipment throughout Europe, IT, upgrading of post offices and relating to logistics contracts.

Employees

In 1998 the number of FTE's increased from 75,600 to 77,800 (+2.9). Total headcount as of 31 December 1998 was 101,582.

Year 2000 issue

TPG has been actively working on the Year 2000 date problem since 1997 and is addressing the millennium issue throughout the organization. The work has been organized using a risk-based project approach. TPG's methodology consists of a clear definition of the scope of the problem and agreed steps to address the compliance issue. TPG's key objective is business as usual and the continuation of quality service to our customers – before, during and after the turn of the century. An amount of NLG 94 million was provided in the consolidated annual accounts of TPG for Year 2000 compliance measures at the end of 1998.

Dividend policy

The Board of Management of TPG intends to pursue a dividend policy with a pay out in a range of 30 to 35% of its profits to reflect its expected growth and investment strategy. In the next few years, TPG intends to pay a stable dividend of NLG 0.80 per ordinary share. During this period, as TPG expects to expands its business, the intended stable dividend of NLG 0.80 per ordinary share is expected to result in a pay out ratio of 30-35%. The dividend policy will be pursued if the financial situation of TPG permits it and will be subject to annual review.

Prospects

At constant exchange rates, the Board of Management expects the revenue growth in 1999 to be at least in line with the 1998 development. The Board of Management expects, again at constant exchange rates, that the growth of operating income will continue to exceed revenue growth. The Board of Management expects a net income growth within the 10 – 15% range in 1999.

TPG expects capital expenditures in 1999 to be at or above the 1998 level. TPG may incur indebtedness to finance certain capital expenditures and business opportunities.

Safe harbor statement under the private securities litigation reform act of 1995

Certain information contained in this press release, particularly in the "Prospects" section, is forward-looking. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. In addition to the assumptions specifically mentioned in the above paragraphs, there are a number of other factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the actual effects of recent and future regulatory changes and technological developments, mail and express usage levels, and competition from alternate technologies, globalization, levels of spending in major economies, the economic climate in Southeast Asia, levels of marketing and promotional expenditure, actions of competitors and joint venture partners, employee costs, future exchange and interest rates, changes in tax rates, uncertainties associated with developments related to the Year 2000 problem and the introduction of the euro, unexpected costs of integrating recently acquired businesses and future business combinations or dispositions. Continuing investment in infrastructure (airplanes, depots, and trucks) is important to maintain and increase market share. Infrastructure investment requires substantial lead time and involves significant fixed costs. Any mismatch between investment in infrastructure and actual market growth (or increases in TPG's market share) could result in costly excess capacity (if investment is too great) or losses of market share (if investment is insufficient).

1998 results TNT Post Group

Income Statement Overview TNT Post Group
Year ended December 31,
1998 EUR 1998 NLG 1997 NLG
Net sales 7,314 16,118 15,100
Other operating revenues 95 209 167
Total operating revenues 7,409 16,327 15,267
Cost of materials 344 757 640
Work contracted out and other external expenses 2,801 6,173 5,872
Salaries and social security contributions 2,736 6,030 5,824
Depreciation, amortisation and impairments 208 458 415
Other operating expenses 658 1,451 1,192
Total operating expenses 6,747 14,869 13,943
Operating income 662 1,458 1,324
Financial income and expenses (40) (88) (165)
Income before income taxes 622 1,370 1,159
Income taxes (247) (544) (469)
Results from investments in affiliated companies 0 0 (2)
Net income before minority Interests 375 826 688
Minority interests (3) (6) 6
Net Income 372 820 694
Basic net income per Ordinary Share and per ADS (in euro/guilders 1 ) 0.78 1.73 1.46
Amounts in millions

1) Based on the number of 475,339,166 Ordinary Shares

Operating revenues
Year ended December 31,
1998 EUR 1998 NLG 1997 NLG
Operating revenues per business area:
Mail 3,523 7,763 7,231
Epress 2,953 6,507 6,224
Logistics 1,958 2,332 1,971
Intercompany (125) (275) (159)
Total operating revenues 7,409 16,327 15,267
Total operating expenses 6,747 14,869 13,943
Total operating income 662 1,458 1,324
Amounts in millions
Mail operating revenues
Year ended December 31,
1998 1997
Domestic Mail 3,599 3,363
Direct Mail 2,117 1,889
International Mail 1,410 1,362
Post Offices and other 637 617
Total operating revenues 7,763 7,231
Amounts in millions of guilders
Express operating revenues
Year ended December 31,
1998 1997
Express Europe 5,220 4,791
Express International 1,287 1,433
Total operating revenues 6,507 6,224
Amounts in millions of guilders
Logistics operating revenues
Year ended December 31,
1998 1997
Total operating revenues 2,332 1,971
Amounts in millions of guilders
Operating income
Year ended December 31,
1998 1997
Mail 1,532 1,438
Express 284 275
Logistics 157 129
1,973 1,842
Amortization of goodwill (114) (114)
Non-recurring costs (401) (404)
Total operating income 1,458 1,324
Amounts in millions of guilders
Balance sheet after appropriation of net income
Year ended December 31,
1998 1998 1997
EUR NLG NLG
Fixed Assets
Intangible assets 1,476 3,253 3,242
Property, plant and equipment 1,472 3,245 2,847
Financial fixed assets 427 940 842
Current assets 1,823 4,017 3,942
Total Assets 5,198 11,455 10,873
Group equity
Shareholders' equity 1,855 4,088 2,369
Minority interests 7 16 13
Provisions 1,341 2,956 3,064
Long term liabilities 219 483 331
Current liabilities 1,776 3,912 5,096
Total Liabilities and Group Equity 5,198 11,455 10,873
Amounts in millions of guilders
Consolidated Cash Flow Statement
Year ended December 31,
1998 1997
Net Cash flow
Net cash provided by operating activities 1,423 1,153
Net cash used in investing activities (987) (269)
Net cash provided by financing activities (106) (763)
Changes in cash and cash equivalents 330 121
Amounts in millions of guilders
Net income
Year ended December 31,
1998 1997
Net income under Dutch GAAP 820 694
Adjustments for:
Employment schemes and group reorganisation (208) 221
Pension costs (112) (177)
Other 44 61
Tax effect of adjustments 115 (42)
Net income under US GAAP 659 757
Amounts in millions of guilders

Page publication date: 22 March 1999 at 09:07 CET