Press Release


Half year results 1999

Publish Date : 31 August 1999 at 08:00 CET - TNT Post Group N.V. (TPG) has announced a net income growth of 10.7% in the first half of 1999 compared with the same period last year.

TPG BOARD OF MANAGEMENT CONFIRMS EARLIER OUTLOOK

TNT Post Group N.V. (TPG) has announced a net income growth of 10.7% in the first half of 1999 compared with the same period last year. The growth is in line with the outlook given by TPG at the publication of the annual results on 22 March 1999 (10 % - 15%).

Operating revenues rose by NLG 695 million, an increase of 8.7% compared to the same period last year. The operating income of TPG increased by NLG 39 million (5.7%) in the first half of 1999.

In NLG Millions 1 st half 98 1 st half 97 Variance
Revenues 8,645 7,950 8,7%
Operating income 724 685 5.7%
Net income 404 365 10.7%
Earnings per share (in NLG) 0.85 0.77 10.4%
Interim dividend (in NLG) 0.30 *) 0.30 -
*) The election period starts on 2 September 1999. The dividend is payable as of 27 September 1999.

Outlook

At constant exchange rates, TPG Board of Management expects that both operating income and revenue growth for the remaining period of 1999 will exceed the growth rate already realised in the first half of the year. Net income growth for the full year is expected to be at least in line with the performance achieved in the first half of this year.

Challenging first half year

Chairman and CEO of TPG, Ad Scheepbouwer states that: "The half year results were solid for our Mail business, although operations were marked by quality issues. In the first five months economic activity slowed down in major countries resulting in lower earnings from operations in our Express business in Europe. However, strong foundations were laid in anticipation of further expansion of the business. Together with our new board members we are focusing intensely on service performance and revenue quality in the Express business. We are focusing on key issues and this is already showing results in recent months. We expect this upward trend to continue in the second half of the year. Results of the Express activities outside Europe developed satisfactorily. Strong organic growth resulted in our division Logistics exceeding expectations."

DIVISION MAIL

Revenues in the Mail division increased by 4.1% to NLG 3,918 million in the first half of 1999.

Extra investments and costs were made in order to cope with bottlenecks in the sorting process. The earnings from operations (operating income excluding amortisation of goodwill and non-recurring costs) from the division Mail therefore increased by 2.1% to NLG 823 million.

Domestic Mail

Domestic Mail sales rose by 6.6% to NLG 1,835 million. The growth was mainly the result of increased volumes of the Postage Paid Mixed and Parcel products. Furthermore, acquisition of Rinaldi at the end of 1998 contributed to the increase in revenue.

Direct Mail

The revenues of Direct Mail Services grew by 7.7% to NLG 1,147 million.

This growth was mainly derived from the acquisition of Tesselaar Marketing Services and Germany Mail (GMA) at the end of 1998. Higher mailing volumes (especially in Belgium) and increased Print & Mail and Mailprofs activities also contributed to the revenue growth.

International Mail

International Mail produced growth of 1.2% to NLG 698 million as a result of higher volumes of international mail and new international customers partially offset by a decrease of revenue in the Americas.

Post Offices and Other

The business of Post Offices and Other showed a decrease in operating revenues primarily due to the sale of the Catering Service activity at the end of 1998.

Briefpost 2000

Throughout the first half year of 1999, TPG continued implementing its Briefpost 2000 automation project. Begun in 1992, Briefpost 2000 aims to increase the proportion of mail sorted automatically to more than 90% of the total mail handled by PTT Post. The Briefpost 2000 project includes the replacement of 12 manual sorting centres by 6 new fully automated sorting centres and in the first half year TPG faced some bottlenecks in finalising this project which impacted the quality of service.

Quality performance fell behind expectations for a combination of reasons which include:

  • mail delays in the first quarter due to relocation of the Oosterdokskade sorting centre to the new sorting centre in Amsterdam Sloterdijk
  • training and familiarisation courses for new sorting centre staff took longer than expected and the machines needed a longer adjustment period
  • the volume of postal flows increased by more than had been expected causing capacity problems
  • mail packaging changed with an increased use of plastic seals and enclosures which required the machines to meet different and specific demands

The Board of Management has implemented a number of measures which will improve performance in the second half of the year and these include:

  • expansion of sorting centres and commissioning of extra sorting equipment (21 machines).
  • extension of sorting times. Following consultation with clients the processing of bulk consignments now begins in the afternoon.
  • extra staff training courses and additional checks on error-sensitive parts of the process.

DIVISION EXPRESS

Express revenues, compared with last year, increased by 9.0 % to NLG 3,486 million with the growth being almost entirely derived from higher revenues and acquisitions in Europe. The results of Express activities outside Europe developed satisfactorily, but in the first few months various issues resulted in lower earnings from operations in Europe. Overall, earnings from operations declined by 23.2%, compared with last year. The intense focus on service performance and revenue quality now being applied by new management will pay off in the second half of the year.

Express Europe

Revenues of the Express Europe business increased in the first half year by 10.9 % to NLG 2,829 million compared to the same period last year. Revenue growth was impacted by inclusion of the activities of the Jet Services acquisition (NLG 167 million).

The main underlying causes of the lower earnings from operations in the first few months of the year are:

  • a slowdown of the economies in major European countries resulting in lower than anticipated volumes and under-recovery of express network costs
  • excessive volumes of low yielding volumetric freight, currency effects and one-off costs

Measures in hand that address lower earnings from operations in Express include:

  • provision of more reliable on-time customer service performance and improved revenue quality
  • development of simplified service and pricing structures that target the market for door to door delivery of high yielding international express parcels
  • elimination of unprofitable traffic from the European Air Express network
  • senior management changes
  • cost efficiency and revenue quality improvement plans implemented as of March

These measures and tight control are already bearing fruit in the last few months

Encouraging recent performances indicate a pick-up in market and economic conditions. The Express business is achieving an uplift in volume compared with earlier months and this has resulted in improved utilisation of the international and domestic networks.

Express International

Revenues of Express International for the first half year increased by 1.4% to NLG 657 million and earnings from operations showed a considerable improvement compared to the previous year.

Australia recorded low revenue growth in comparison to the previous year. A more competitive environment in Australian domestic express markets and the loss of a number of key accounts are seen as having been particularly obstructive to business growth.

Asia generated 15.3% growth in revenue compared with last year spurred by stronger local currencies and improved economic activity. Improved utilisation and higher cost efficiency enabled the growth in revenue to contribute to a considerable improvement in earnings.

DIVISION LOGISTICS

In the first half year of 1999, total revenues of Logistics increased by 28.5% to NLG 1,426 million. An amount of NLG 81 million (7.3%) of the revenue increase was due to the acquisition in this period of Tecnologistica and the logistics activities of Jet Services.

New contracts and increased volumes from existing customers contributed NLG 276 million to the revenue increase but this was partly offset by foreign exchange rates which impacted the revenue negatively by NLG 41 million.

Earnings from operations for the first half year increased by 23.6% to NLG 89 million.

Operating revenue growth in Southern Europe was accelerated by the acquisition of Tecnologistica and Jet Services (Logistics). Growth was also produced by new business that includes the new inbound logistics operation with Fiat in Italy together with warehousing and distribution work for several manufacturers/suppliers in Italy and France.The considerable operating revenue growth achieved in North America was largely produced by organic growth in the automotive business and the commencement of new business-streams for major customers.

Operating revenue quadrupled in Asia and was largely due to early contributions of new contracts won in China and Malaysia. In addition volume increases were achieved from several existing customers.

ADDITIONAL INFORMATION

Capital expenditures

In the first half year TPG made capital expenditures in property, plant and equipment of NLG 344 million compared to NLG 432 million in the first half of 1998.

Mail

The division Mail incurred capital expenditures of NLG 130 million on property, plant and equipment.

The major part of this amount relates to the Briefpost 2000 project and to the rebuilding of sorting centres, as well as expenditures on extra sorting machines, other buildings and equipment.

Express

Total capital expenditure for Express amounted to NLG 171 million in the first six months of 1999 and mainly relates to new depots, road hubs and IT investments.

TPG invested in facilities for new depots (Barking, Edinburgh, Nottingham and Slough), replacement depots (Leicester and Bristol), a new warehouse for hanging garments and the second state-of-the-art national hub at Kingsbury Link in the United Kingdom. Integrated depots in Bielefeld and Dusseldorf Neuss together with a NET hub in Austria were developed in Germany. Several depots in Ancona, Torre Spaccata, Bergamo, Roma via Affile, Napoli and Frosinone were opened in Italy. In Australia capital expenditures were incurred for fleet replacements and new depots.

Logistics

In Logistics capital expenditures on property, plant and equipment amounted to NLG 43 million. These capital expenditures mainly relate to the setting up of tailor made warehousing and distribution facilities for new logistics contracts and expansion of the IBC (Intermediate Bulk Containers) fleets in the UK and Australia respectively.

Employees

In the first half of 1999 the average number of full time equivalents (FTE)'s increased by 7,688 (9.9%) to 85,483 compared to the average number of FTEs in full year 1998.

The increase reflects the growth of business in each of the three divisions. The average number of FTEs in the first six months of 1999 was also impacted by the acquisition of Jet Services and Tecnologistica.

Interim dividend 1999

The Board of Management of TNT Post Group has decided to pay an interim dividend of NLG 0.30 per ordinary share over the first half year 1999. Shareholders may elect to receive the interim dividend 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 2 September 1999. The dividend is payable as of 27 September 1999.

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

Certain information contained in this press release, particularly in the "Outlook" 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 Europe and 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).

Figures 1 st half year results TNT Post Group
Income Statement Overview TNT Post Group (million)

Figures 1 st half year results TNT Post Group Income Statement Overview TNT Post Group (million)
1 st hyr 1 st hyr
Description 1999 1999 1998
EURO NLG NLG
Net sales 3,889 8,570 7,771
Other operating revenues 34 75 179
Total operating revenues 3,923 8,645 7,950
Salaries and social security contributions 1,462 3,222 2,974
Depreciation, amortisation and impairment 102 226 221
Operating expenses 2,030 4,473 4,070
Total oper expenses 3,594 7,921 7,2665
Operating income 329 724 685
Financial income and expenses (23) (49) (48)
Income before income taxes 306 675 637
Income taxes (121) (266) (269)
Results from investments in affiliated companies (1) (2) 0
Net Incomeme 183 404 365
Basic net income per Ordinary Share and per ADS 0.385 1) 0.85 1) 0.77 2)
(in Euro and NLG respectively)
Diluted net income per Ordinary Share and per ADS 0.385 3) 0.85 3) 0.77 2)
(in Euro and NLG respectively)

1) Based on the average amount of 475,942,322 Ordinary Shares, including shares represented by ADS
2) Based on the average amount of 475,173,350 Ordinary Shares, including shares represented by ADS
3) Based on the average amount of 476,150,915 Ordinary Shares, including shares represented by ADS

Mail operating revenues (million)

Mail operating revenues (million)
1 st hyr 1 st hyr 1 st hyr
1999 1999 1998
EURO NLG NLG
Domestic mail 833 1,835 1,721
Direct Mail* 520 1,147 1,065
International Mail* 317 698 690
Post offices and other 108 238 289
Total Mail 1,778 3,918 3,765

*Comparable 1998 changed due to reclassifications

Express operating revenues (million)
1 st hyr 1 st hyr 1 st hyr
1999 1999 1998
EURO NLG NLG
Express Europe 1,284 2,829 2,551
Express International 298 657 648
Total Express 1,582 3,486 3,199
Logistics operating revenues (million)
1 st hyr 1 st hyr 1 st hyr
1999 1999 1998
EURO NLG NLG
Total Logistics 647 1,426 1,110
Operating Revenues (million)
1 st hyr 1 st hyr 1 st hyr Variance
1999 1999 1998 %
EURO NLG NLG
Operating revenues segments
Mail 1,778 3,918 3,765 4.1
Express 1,582 3,486 3,199 9.0
Logistics 647 1,426 1,110 28.5
Intercompany (84) (185) (124)
Total operating revenues 3,923 8,645 7,950 8.7
Total operating expenses 3,594 7,921 7,265 9.0
Total operating income 329 724 685 5.7
Operating income (million)
1 st hyr 1 st hyr 1 st hyr Variance
1999 1999 1998 %
EURO NLG NLG
Mail 373 823 806 2.1
Express 50 109 142 (23.2)
Logistics 40 89 72 23.6
Total eranings from operations 463 1,021 1,020 0.1
Amortisation of goodwill 27 61 62 (1.6)
Non-recurring costs 107 236 273 (13.6)
Total operating income 329 724 685 5.7

Balance sheet after appropriation of net income

Balance sheet (million)
June, 30 June, 30 December, 31
1999 1999 1998
EURO NLG NLG
Fixed Assets
Intangible assets 2,042 4,501 3,253
Property, plant and equipment 1,650 3,636 3,245
Financial fixed assets 506 1,114 940
Current assets 2,016 4,444 4,017
Total Assets 6,214 13,695 11,455
Group equity
shareholders' equity 2,031 4,476 4,088
Minority interests 11 25 16
Provision 1,515 3,338 2,956
Long term liablities 401 884 483
Current liablities 2,256 4,972 3,912
Total Liabilities and Group Equity 6,214 13,695 11,455

Cash Flow Statement

Consolidated Cash Flow Statement (million)
Description June, 30 June, 30 June, 30
1999 1999 1998
EURO NLG NLG
Net Cash Flow
Net cash provided by operating activities 208 459 777
Net cash used in investing activities (558) (1,229) (622)
Net cash provided by financing activities 126 277 33
Changes in cash and cash equivalents (224) (493) 188

US GAAP

Net income (million)
Description June, 30 June, 30 June, 30
1999 1999 1998
EURO NLG NLG
Net Income under Dutch GAAP 183 404 365
Adjustments for:
Emplyoment schemes and group reorganisation (43) (94) 42
Pension costs (54) (119) (82)
Other 44 96 12
Net income under US GAAP 130 287 337
Basic net income per Ordinary Share and per ADS under US GAAP (in guilders) 0.274 1) 0.60 1) 0.71 2)
Diluted net income per Ordinary Share and per ADS under US GAAP (in guilders) 0.274 3) 0.60 3) 0.71 2)

1) based on the average amount of 475,942,322 Ordinary Shares, including shares represented by ADS
2) based on the average amount of 475,173,350 Ordinary Shares, including shares represented by ADS
3) based on the average amount of 476,150,915 Ordinary Shares, including shares represented by ADS

Page publication date: 31 August 1999 at 08:00 CET