Group revenues and earnings group
In this section the positive or negative sign of the variance as shown in the tables is determined by the impact of the variance on the result.
The following table sets out the financial performance of TNT for the past two years.
GROUP CONSOLIDATED RESULTS
Consolidated group results
| Year ended at 31 December | 2009 | variance % | 2008 | |
|---|---|---|---|---|
| Total operating revenues | 10,402 | (6.7) | 11,152 | |
| Other income | 37 | 5.7 | 35 | |
| Operating expenses excluding depreciation, amortisation and impairments | (9,302) | 5.1 | (9,806) | |
| EBITDA | 1,137 | (17.7) | 1,381 | |
| Depreciation, amortisation and impairments | (489) | (22.6) | (399) | |
| Total operating income | 648 | (34.0) | 982 | |
| as % of total operating revenues | 6.2 | 8.8 | ||
| Net financial expense | (161) | 9.5 | (147) | |
| Income taxes | (179) | 26.0 | (242) | |
| Results from investments in associates | (19) | 42.4 | (33) | |
| Profit for the period from continuing operations | 289 | (58.4) | 560 | |
| Profit from discontinued operations | 0 | 0.0 | 0 | |
| Profit for the period | 289 | (49.5) | 560 | |
| Attributable to: | ||||
| Minority interests | 8 | 100.0 | 4 | |
| Equity holders of the parent | 281 | (49.5) | 556 | |
| Earnings per ordinary share (in cents)1 | 76.7 | (49.8) | 152.9 | |
| Earnings per diluted ordinary share (in cents)2 | 76.2 | (50.0) | 152.5 | |
In 2009, TNT had total operating revenues of €10,402 million (2008: 11,152) and total operating income of €648 million (2008: 982). TNT's Express division accounted for 57.3% (2008: 59.7%) of TNT's group operating revenues and 29.8% (2008: 38.3%) of TNT's group operating income. TNT's Mail division accounted for 40.5% (2008: 38.1%) of TNT's group operating revenues and 72.8% (2008: 64.5%) of TNT's group operating income.
Total operating revenues decreased by 6.7% in 2009 compared to 2008 mainly due to the economic downturn leading to reduced volumes within TNT's Express division resulting in lower operating revenues in predominantly in the International & Domestic business cluster. The consolidation effect from acquisitions and the deconsolidation effect from disposals accounted for an increase of €76 million (0.7%).
Furthermore, operating revenues were negatively impacted by foreign currency exchange difference of €164 million mainly as a result of the strengthening of the Euro against the British Pound.
Total operating income decreased by 34.0% in 2009 compared to 2008 mainly due to volume decline within TNT's Express division and significant higher impairments and other fair value adjustments in 2009 compared to 2008 of €123 million partly off set by lower restructuring related charges of €37 million resulting in a net impact for these items of €86 million. The total impairments and other value adjustments amounted €168 million (2008: 45) and restructuring related charges amounted to €65 million (2008: 102).
Compared to 2008, the profit for the period attributable to the shareholder decreased by €275 million largely due to lower operating income of €334 million partly off set by lower income tax of €63 million.
Key factors
Key factors that affect TNT financial results include:
- the number of consignments and kilo's transported through TNT's networks,
- the volumes of mail TNT delivers,
- the mix of services TNT provides to its customers,
- the prices TNT obtains for its services,
- currency development, mainly the exchange rate of the British pound and US dollar against the euro,
- the average number of working and delivery days in a year,
- operating expenses, provisions and impairments, and
- TNT's ability to adapt its operating expenses to shifting volume levels.
TNT's Express and Mail businesses provide services to customers and account for revenues for those services on a daily basis. Results of operations are therefore influenced by the average number of working and delivery days in a year.
TNT uses total revenues, i.e. net sales plus other operating revenues, to assess the performance of its business. TNT believes that other operating revenues, which consist primarily of rental income from temporarily leased-out property and passenger/charter revenues, are a recurring element and TNT allocates them to its businesses when reviewing their performance.
TNT attributes revenues and expenses to its businesses based on the underlying nature of the transaction that gave rise to the revenue or expense and the business involved. TNT calls revenues and expenses that it does not allocate to divisions: "non-allocated". These revenues or expenses occur at group level, and TNT does not consider them part of the businesses operations. This method of allocating revenues and expenses is consistent with how TNT internally manages its businesses.
Operating revenues by segment
| Year ended at 31 December | 2009 | variance % | 2008 |
|---|---|---|---|
| Express | 5,956 | (10.5) | 6,653 |
| 4,216 | (0.7) | 4,245 | |
| Other networks | 253 | (7.3) | 273 |
| Non-allocated and inter-company | (23) | (21.1) | (19) |
| Total operating revenues | 10,402 | (6.7) | 11,152 |
|
Operating expenses by segment
| Year ended at 31 December | 2009 | variance % | 2008 |
|---|---|---|---|
| Express | 5,761 | (8.3) | 6,284 |
| 3,781 | 3.9 | 3,638 | |
| Other networks | 246 | (6.1) | 262 |
| Non-allocated | 24 | (36.8) | 38 |
| Eliminations | (21) | (23.5) | (17) |
| Total operating expenses | 9,791 | (4.1) | 10,205 |
|
Operating income by segment
| Year ended at 31 December | 2009 | variance % | 2008 |
|---|---|---|---|
| Express | 193 | (48.7) | 376 |
| 472 | (25.4) | 633 | |
| Other networks | 7 | (36.4) | 11 |
| Non-allocated | (24) | 36.8 | (38) |
| Total operating income | 648 | (34.0) | 982 |
|
Group operating revenues
Total operating revenues decreased by €750 million (6.7%) to €10,402 million in 2009 compared to 2008. TNT's Express business showed a decrease of €697 million and the Mail business a decrease of €29 million. Other networks decreased of €20 million.
Organic growth, defined as the growth calculated against 2008 foreign currency exchange rates and excluding the effect from the first time consolidation of acquisitions and the deconsolidation of disposals, was responsible for €662 million (4.1%) of total group operating revenues decrease. The consolidation effect from acquisitions and the deconsolidation effect from disposals accounted for an increase of €76 million (0.7%). Unfavourable changes in foreign currency exchange rates negatively impacted the revenue growth by €164 million (1.5%).
TNT's Express business showed a 10.5% decrease of operating revenues compared to 2008, of which 6.9% was organically. The overall decrease in operating revenues was mainly driven by the volumes declines resulting from the economic slowdown in Europe; being only partially offset by growth in some of the emerging markets. TNT's Express business is further described in The Express division.
In TNT's Mail business, operating revenues decreased by 0.7% compared to 2008, of which 2.5% was organically. The volumes continued to decline in the Netherlands due to volume decline in addressed mail items. The volume decline impact on revenue in Mail Netherlands was accompanied by a negative price-mix effect. Emerging Mail and Parcels operating revenues increased by 8.5%. TNT's Mail business is further described in The Mail division.
GROUP OPERATING EXPENSES
Operating expenses
| Year ended at 31 December | 2009 | variance % | 2008 |
|---|---|---|---|
| Cost of materials | 454 | (6.2) | 484 |
| Work contracted out and other external expenses | 4,653 | (6.5) | 4,978 |
| Salaries and social security contributions | 3,480 | (3.8) | 3,617 |
| Depreciation, amortisation and impairments | 489 | 22.6 | 399 |
| Other operating expenses | 715 | (1.7) | 727 |
| Total operating expenses | 9,791 | (4.1) | 10,205 |
|
Total operating expenses decreased by €414 million (4.1%) to €9,791 million in 2009 compared to 2008. Overall, the operating expenses decreased by 351 million (3.4%) organically. Included in the total operating expenses are impairments and other value adjustments of €168 million (2008: 44) of which €146 million relate to Mail (2008: 7) for the EMN business and the remainder of €22 million to Express (2008: 37). Also included in the operating expenses are restructuring related charges of €65 million (2008: 115), off which €37 million for Express (2008: 33) and €28 million for Mail (2008: 82).
Changes in foreign currency exchange rates caused a decrease of €138 million (-1.4%). The consolidation effect from acquisitions and the deconsolidation effect from disposals accounted for an increase of €75 million (0.7%).
Total cost of materials decreased by €30 million (-6.2%) in 2009 compared to 2008. Organically, cost of materials decreased by €31 million (-6.4%) in 2008, mainly due to lower economic activities in TNT's Express division and lower procured fuel.
Work contracted out and other external expenses relate to fees paid for subcontractors, external temporary staff, rent and leases. Total work contracted out and other external expenses decreased by €325 million (-6.5%) in 2009 compared to 2008 partly due to lower fuel costs for subcontractors.
Salaries, pensions and social security contributions decreased by €137 million to €3,480 million (-3.8%) in 2009 compared to 2008. Salaries, pensions and social security contributions decreased organically by €125 million (-3.5%) whilst the foreign currencies movements lead to a €49 million (-1.4%) decrease. The organic decrease in salary costs was largely due to the overall lower economic activities and restructurings resulting in a net outflow of 2,695 employees (excluding acquisitions). Included in salaries, pensions and social security contributions is an amount of €35 million relating to restructuring related charges (2008: 33) and €60 million pension costs for defined benefits plans (2008: 24).
Depreciation, amortisation and impairments increased by €90 million (22.6%) in 2009 compared to 2008 mainly due to impairments within Mail.
Other operating expenses include items such as marketing expenses, other (non-employee related) restructuring related costs, insurance costs and various other operating costs. Other operating expenses decreased by €12 million (-1.7%) in 2009 compared to 2008. Other operating expenses decreased organically by €10 million (-1.4%) in 2009, mainly due to lower economic activities. Included in other operating expenses is an amount of €30 million of restructuring related costs (2008: 82).
Changes in foreign currency exchange rates caused a decrease of €138 million (-1.4%).
Operating expense are significantly impacted by total costs saving €428 million within Express, €84 million within Mail for Masterplan savings and €15 million Non-allocated. The acquisition and disposal effect of €75 million is mainly due to TNT's acquisition in South America.
Group operating income
Total operating income for the group was €648 million in 2009, a decrease of 34.0% compared to 2008. Express operating income decreased by 48.7%. The decrease was primarily due to the economic downturn resulting in significantly reduced volumes in the international premium product within Express in the International and Domestic business cluster. Operating income of TNT's Mail business decreased by 25.4%.
Underlying development 2009 and 2008
The Group operating income in 2009 and 2008 is impacted by various non recurring items as presented in the tables below. In order to analyse the result of the operations excluding such items, management assesses the underlying operating income for a deeper understanding of the business performance.
Underlying operating income
| reported 2009 | restructuring related charges | impairments and other value adjustments | OPTA penalties | sale of AsPac | other | foreign exchange | Underlying 2009 (excluding one-offs) | Underlying 2008 (excluding one-offs) | |
|---|---|---|---|---|---|---|---|---|---|
| Express | 193 | 37 | 22 | 4 | 26 | 282 | 446 | ||
| 472 | 28 | 146 | 6 | (20) | (1) | 1 | 632 | 722 | |
| Other networks | 7 | 7 | 11 | ||||||
| Non-allocated | (24) | (1) | (25) | (38) | |||||
| Operating income | 648 | 65 | 168 | 6 | (20) | 3 | 26 | 896 | 1,141 |
|
|||||||||
Underlying operating income
| reported 2008 | restructuring related charges | impairments and other value adjustments | Underlying 2008 (excluding one-offs) | |
|---|---|---|---|---|
| Express | 376 | 33 | 37 | 446 |
| 633 | 82 | 7 | 722 | |
| Other networks | 11 | 11 | ||
| Non- allocated | (38) | (38) | ||
| Operating income | 982 | 115 | 44 | 1,141 |
|
Underlying operating income amounts to €896 million (2008: 1,141). Underlying operating income excludes certain non recurring items such as restructuring related charges of €65 million (2008: 115) and impairments and other value adjustments of €168 million (2008: 44) and foreign exchange impact of €26 million.
Furthermore, TNT recognized a book profit following the sale of the AsPac activities within its subsidiaries Spring Global Mail in 2009.
In 2008, Express incurred non-recurring charges for restructuring and the impairment due to the decommissioning of aircraft, while Mail incurred restructuring charges and an impairment of software for Postkantoren.
Cash earnings basis
In the addition to the adjustments for the non recurring items, in the analysis of the underlying performance by management, management also takes into account a correction for the non cash pension cost for defined benefit plans, including transitional plans for early retirement. By replacing the IFRS based defined benefit plan pension cost by the non-IFRS measure of the actual cash contributions for such plans the resulting earnings measurement more closely monitors the underlying cash earnings basis.
The net adjustment of €226 million is the difference between the recorded pension expenses of €60 million for the defined benefit pension plans and the actual cash payments of €286 million for such plans (see note 10).
Underlying cash EBITDA
| Express | Other networks | Non allocated | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Underlying operating income1 | 256 | 631 | 7 | (24) | 870 | ||||
| Depreciation and amortisation | 215 | 116 | 3 | 3 | 337 | ||||
| EBITDA underlying1 | 471 | 747 | 10 | (21) | 1,207 | ||||
| Changes in pension liabilities2 | (16) | (197) | (13) | (226) | |||||
| Underlying cash EBITDA | 455 | 550 | 10 | (34) | 981 | ||||
|
|||||||||
Cash operating income
| Express | Other networks | Non allocated | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Underlying operating income1 | 256 | 631 | 7 | (24) | 870 | ||||
| Changes in pension liabilities2 | (16) | (197) | (13) | (226) | |||||
| Underlying cash operating income | 240 | 434 | 7 | (37) | 644 | ||||
|
|||||||||
Other networks and Non-allocated
Operating revenues in TNT's business entity Other networks decreased by 7.3% compared to 2008 and amounted to €253 million in 2009. Operating income with €7 million was lower (2008: 11) mainly due to the lower economic activities.
In 2009, non-allocated operating costs amounted to €24 million (2008: 38). Included in these costs is €17 million (2008: 14) for new business initiatives, which mainly relate to investigations to optimise TNT's network strategy introduced in 2005 and costs relating to an initiative to further drive value "below the line". Cost made to support the World Food Programme (WFP) and Planet Me amounted to €6 million (2008: 9). Included in the cost for WFP are costs for knowledge transfer, hands on support, raising awareness and funds for the World Food Programme including cash donations. Planet Me is a TNT initiative to have an active contribution to reduce CO2 emission to avoid further global warming. The other costs were €1 million (2008: 15).
GROUP financial income and expenses
Net financial (expense)/income
| Year ended at 31 December | 2009 | variance % | 2008 |
|---|---|---|---|
| Interest and similar income | 23 | (67.1) | 70 |
| Interest and similar expenses | (184) | 15.2 | (217) |
| Net financial expense | (161) | (9.5) | (147) |
|
Interest and similar income in 2009 of €23 million (2008: 70) mainly relates to interest income on banks, loans and deposits of €14 million (2008: 44) of which €9 million (2008: 30) relates to a gross up of interest on notional cash pools, interest on taxes of €2 million (2008: 3) and interest on foreign currency hedges of €3 million (2008: 17).
Interest and similar expenses in 2009 of €184 million mainly relate to interest expense on bank overdrafts and bank loans of €22 million, (2008: 46) of which €9 million (2008: 30) relates to a gross up of interest on notional cash pools, interest expenses on long term borrowings of €110 million (2008: 124), interest on foreign currency hedges of €21 million (2008: 35), interest on provisions of €8 million (2008: 6) and interest on taxes €4 million (2008: 1). Included in the interest and similar expenses is a fair value adjustment of €8 million for our equity stake in Ceva Investments Ltd. which has been sold back to Ceva Investments Ltd. in December 2009, as part of an exchange in a final settlement on various claims as a result of which €3 million cash was received.
In accordance with IFRS interest income and expense on cash pools are reported on a gross basis. From an economic and legal perspective the €9 million (2008: 30) interest income fully nets off against the same amount of interest expense. The amounts are not netted in the income statement because under IFRS such offset needs in practice to be irreversibly exercised from time to time.
Group results from investments in associates
Included in the results from investments in associates is an amount of €10 million for the impairments of underlying investments of Logispring triggered by the deteriorated economic environment for such activities and impairments on EMN associates of €3 million
GROUP income taxes
Income taxes
| Year ended at 31 December | 2009 | variance % | 2008 |
|---|---|---|---|
| Current tax expense | 141 | (30.5) | 203 |
| Changes in deferrred taxes | 38 | (2.6) | 39 |
| Total income taxes | 179 | (26.0) | 242 |
|
Group income taxes amounted to €179 million (2008: 242), a decrease of 26.0% compared to 2008.
Income taxes differ from the amount calculated by multiplying the Dutch statutory corporate income tax rate with the income before income taxes. In 2009, the effective income tax rate was 38.2% (2008: 30.2%), which is higher than the statutory corporate income tax rate of 25.5% in the Netherlands (2008: 25.5%). This difference is caused by several effects. For further details see note 22 of the consolidated financial statements of TNT N.V.
Excluding the 2009 one-off impairments the effective tax rate would have been 28.4%; the non-deductibility of certain impairments caused an increase of the effective tax rate by 9.8%.
Group net income
In 2009, profit for the period attributable to the equity holders of the parent was €281 million, a decrease of €275 million (49.5%) compared to 2008. This decrease was on balance mainly the result of lower operational earnings within the Express division and the impairments within Mail (EMN) relating to the changed view on the long term perspective of these activities, due to the significantly more restrictive liberalising European Mail Markets.
