2010 Analysts' Meeting
Amsterdam, 2 December 2010
VISION 2015: SEPARATION PROPOSAL
TNT NV will demerge Express and thereafter only contain Mail activities
Financial stake of 29.9% retained by TNT NV to cover separation requirements
Retained stake by TNT NV to be returned to shareholders as soon as possible
EXPRESS
Strengthening existing business and expanding into adjacent market segments
From European Express into high-end standard parcels and freight; increasing value-added services
In Emerging Platforms enhance domestic services to day/time-definite Express and further grow intercontinental volumes
New reporting segmentation: Europe & MEA, ASPAC, Americas and Other Networks
Current trading continues 3Q 2010 trends; tangible indications from yield-improvement initiatives
2011 and 2015 revenue and EBIT guidance
New Board of Management Express with Marie-Christine Lombard as CEO and Bernard Bot as CFO
MAIL
Discussions with unions continue; adherence to the need for Master plan savings remains
Managing for cash and long-term opportunities
Optimise cash flow in the face of ongoing addressed mail volumes declines
Expanding activities in areas with core competencies
New reporting segmentation: Mail in the Netherlands, International and Parcels
Current trading continues 3Q 2010 trends
New Board of Management announced, headed by CEO Harry Koorstra
SEPARATION PROPOSAL: FURTHER DETAILS
Internal legal and organisational separation will be completed on 1 January 2011
Positive advice received from works councils
Transaction to be proposed to General meeting of shareholders planned for May 2011, including appointments to the new Executive and Supervisory Boards
Second interim dividend targeted for March 2011
Peter Bakker will remain CEO of TNT until completion of the demerger
CEO PETER BAKKER COMMENTS:
'Today, after the most thoughtful preparations, we announce the capital markets transaction that will separate TNT into two strong and successful companies. The proposal realises all stakeholder objectives in a low-risk and efficient demerger transaction and provides shareholders the opportunity to invest in two sector leaders. The value of the 29.9% financial minority stake of Express retained by Mail, required to realise the demerger, will be returned to shareholders as soon as possible, up to the level allowed by Mail's targeted credit rating. I am pleased to announce that TNT has obtained all the required positive advices from its relevant works councils.
Express and Mail today also present robust plans for the future. In Europe, Express has identified profitable growth opportunities in high-end standard parcels and freight and in sector-specific value-added solutions. In emerging markets, Express will continue to lead the way in the development of day-certain express services and further grow its intercontinental business.
Mail Netherlands is currently hampered by an ongoing lack of agreement with the unions on the social consequences of the Master plan restructuring. Discussions with unions are constructive and continuing, while in the meantime the government-appointed investigator has commenced his work. Therefore, TNT today only presents a business update for Mail focusing on the situation in the Netherlands and highlighting the attractive developments in its Parcels and International activities.
Finally, it is a great pleasure to introduce today the top management teams of Express and Mail. Together with them, I will realise the separation plans we are outlining here today and that will be proposed to the General meeting of shareholders planned for May 2011.'
CHAIRMAN OF THE SUPERVISORY BOARD PIET KLAVER COMMENTS:
'Peter Bakker has been with TNT for almost 20 years, of which the last ten as CEO. Under Peter's leadership, TNT has been shaped into a strong, professional, responsible, industry leading organisation with a great reputation for corporate responsibility: a company to be truly proud of.
As a logical next step in the evolution of TNT, Peter has - over the past year - professionally and effectively led the process to split TNT into separate Mail and Express companies, which the Supervisory Board fully endorses.
Peter has decided to pursue other opportunities after the completion of TNT's demerger. With high quality management teams for both Mail and Express in place, Peter's departure at that moment will be logical. Until then, Peter is fully committed and mandated to lead the company towards the completion of the demerger.
The Supervisory Board regrets Peter's decision, but we respect and understand his decision just as we respect and highly appreciate Peter's great contribution to TNT over such a long period.'
SEPARATION MAIL AND EXPRESS - OVERVIEW
Conclusion Vision 2015: separation of Express and Mail
Today during its annual Analysts' Day, TNT presents how it will separate its Express and Mail operations with the aim of realising two strong, independently listed companies. After almost a year of thoughtful analysis on all issues involved, today's proposal delivers the optimal result for all stakeholders. Both the Board of Management and the Supervisory Board of TNT have approved all required decisions for the proposed demerger.
The main reasons for separation are the increasingly divergent strategic profiles of the two units and the limited synergies existing between them. Mail is faced with a continuously declining mail market in the Netherlands and has to focus on sustaining solid cash flows and operational efficiency. Express' priorities are to grow its existing strong European networks, to continue to grow the intercontinental business from and to Europe into adjacent markets and to secure contributions from its existing strong positions in China, South America and India.
Separation will enable greater internal focus on each business, with single-business investment discipline and capital allocation and leaner, more flexible organisations. Externally, separation will provide more transparency and two distinct shareholding opportunities, with a clear choice of investment between a value and growth stock. Separation will also facilitate participation in sector consolidation and M&A.
Create two successful stand alone companies
The separation will create two strong stand alone companies.
Express will offer attractive high growth opportunities in its existing core businesses and through the development of new activities. In Europe, the focus is to exploit Express' leading position and operating leverage and to grow in high-end standard parcels and freight and value-added services. In Emerging platforms, the priority is profitable expansion, with a focus on day-definite services, which will also feed intercontinental flows. Express' target is to generate an EBIT of €900 - 1,000 million by 2015.
Mail is one of the best postal operators in the world, with a proven track record in operational improvement. In the Netherlands, ongoing constructive dialogue aims to achieve a good resolution with the unions. In the rest of Europe, activities will be concentrated in Germany, the UK and Italy. Growth will be realised through Mail's highly successful Parcels unit and the International activities.
Mail's target in 2015 is stable Cash EBIT (including cash pension contributions and restructuring cash flows) of €300 - 370 million. Expected peaks in the restructuring costs from the Master plans will lead to temporarily lower cash performance in the next coming years.
Internal legal and organisational separation will be completed on 1 January 2011
The internal separation of Express and Mail will be implemented on 1 January 2011:
Separate operational organisations and dedicated head offices
Significant legal and financial separation
Essential prerequisite steps for full separation
The Board of Management and Supervisory Board have agreed interim governance rules to ensure the interests of the group until demerger.
Separation requirements
Separation of Mail and Express requires positive TNT NV distributable equity at and following demerger ('equity gap') and solid funding positions for Express and Mail ('funding gap').
Equity gap
A demerger requires positive distributable equity on TNT NV's balance sheet and the demerger is only possible up to the level of the positive distributable equity. The 100% demerger of Express would result in a shortfall of around €900 million.
In addition, it is foreseen that as a direct result of changes to be introduced in the IAS 19 'Employee benefits' accounting standard, TNT could face an additional write-down against equity in 2012 or 2013 of €900 million (estimated for illustrative purposes on the status of pension accounts as of Q3 2010). The impact of this change must be anticipated at demerger because negative equity in the future would constrain TNT NV's dividend payments and raise listing issues.
Funding gap
Assuming TNT NV net debt at separation of around €1,200 million, the additional required capital to maintain BBB+ credit ratings for Express and Mail is estimated to be between €700 and €900 million. The combined net debt capacity of Express and Mail is lower because the two separated companies are smaller and less diversified than the group today and because of the cyclical nature of Express and restructuring pressure in Mail.
Demerger of Express by TNT NV; proceeds from sell-down of minority retained shareholding to be returned to shareholders over time
Based on an extensive review of alternatives, TNT has concluded that the optimal solution, which meets separation requirements, is the statutory demerger of the Express activities by TNT NV, with the retention of a minority financial shareholding in Express by TNT NV of 29.9%.
The book value of the retained shareholding should secure positive distributable equity in the demerger accounts of TNT NV. The subsequent value step-up for accounting purposes after the demerger will also contribute to offset the assumed potential future equity write-down as a result of the revision of IAS 19.
Sell-down of the minority shareholding is anticipated over time, with proceeds to be used to reduce the debt in TNT NV by €700-900 million and with any excess capital to be returned to shareholders as soon as the equity position allows.
The retained shareholding will have no special governance or voting rights. Mail will tender in the event of a recommended public offer for Express. In the event of an unsolicited public offer for Express, Mail will tender if and when the majority of the shareholders supports such offer.
Demerger with retained minority shareholding best alternative
The Board of Management and Supervisory Board have concluded that the proposed transaction is the best separation alternative as it:
Allows immediate Express and Mail listing
Enables Express and Mail consolidation and M&A
Avoids capital raise or other capital markets transaction prior to demerger
Has received positive works councils advice and is in the best interests of all stakeholders
Retains TNT NV as sponsoring employer for the Dutch pension plans
Is not dependent on market conditions, is fully in TNT's control, with high execution certainty
Does not create any impediment to Mail's and/or Express' strategic agendas
Enables shareholders to vote on the proposed solution
Other capital markets transactions would require a value comparable to that of the proposed shareholding by TNT NV in Express to be retained and are less attractive in regards to one or more of the evaluation criteria identified.
Demerger to be put to shareholder vote at General meeting of shareholders in May 2011
Preparation of the demerger transaction will continue unabatedly, with filing of documentation planned following the Annual Results 2010. A General meeting of shareholders is planned for the end of May 2011 at which shareholders will be able to vote on the proposal. The separation will become effective very shortly thereafter.
A second interim dividend is planned for distribution in March 2011 to precede the 2010 final, to allow for timely dividend payment to shareholders.
Governance
Today TNT has announced the future Boards of Management for Express and Mail. The current CEO, Peter Bakker, will continue to lead the company and its separation process until the completion of the demerger. The existing Supervisory Board of TNT NV will also continue until the completion of the demerger. Thereafter, separate Supervisory Boards for Express and Mail will take over.