Express revenues and earnings
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Total operating revenues | 7,053 | 13.6 | 6,208 | ||
| Other income | 12 | 0.0 | 0 | ||
| Operating expenses excluding depreciation, amortisation and impairments | (6,676) | (13.0) | (5,910) | ||
| EBITDA | 389 | 30.5 | 298 | ||
| Depreciation, amortisation and impairments | (209) | 11.8 | (237) | ||
| Total operating income | 180 | 195.1 | 61 | ||
| as % of total operating revenues | 2.6 | 1.0 | |||
| Net financial expense | (37) | 184.6 | (13) | ||
| Income taxes | (57) | (32.6) | (43) | ||
| Results from investments in associates | (17) | (30.8) | (13) | ||
| Profit for the period from continuing operations | 69 | 962.5 | (8) | ||
| Profit from discontinued operations | 0 | 0.0 | 0 | ||
| Profit/(loss) for the period | 69 | 962.5 | (8) | ||
| Attributable to: | |||||
| Non-controlling interests | 3 | 0.0 | 3 | ||
| Equity holders of the parent | 66 | 700.0 | (11) | ||
| (in € millions, except percentages and per share data) | |||||
In 2010, Express revenues grew by 13.6% to €7,053 million. Express’ operating income as percentage of revenue increased from 1.0% in 2009 to 2.6% in 2010.
Revenue growth was mainly due to the economic recovery leading to increased volumes within Express, which resulted in higher operating revenues predominantly from organic growth of €450 million (including €83 million higher fuel surcharge revenue). Furthermore, operating revenues were positively impacted by foreign currency exchange differences of €350 million mainly due to the depreciation of the euro against the Australian dollar, Brazilian real and various Asian currencies and the full-year impact of acquisitions (LIT Cargo in February 2009 and Expresso Araçatuba in May 2009) of €45 million. Higher volumes compared to 2009 contributed to organic revenue growth, partly offset by lower revenue-quality.
Underlying operating income as stated here was €338 million or 41% higher than 2009 (32% at constant foreign exchange rates). Higher volumes and the continuous reduction of Express’ cost per consignment or kilogramme had a positive impact on the operating income development. Lower revenue-quality, higher cost of commercial linehaul, negative contribution of the Brazilian operations, adverse weather conditions in December and increased security costs, all impacted operating income negatively. Restructuring costs and impairment charges decreased compared to 2009. Express maintained its focus on optimising its network with the continuation of various efficiency improvement initiatives.
Express’ 2010 performance can be explained further in the context of the following specific events:
- Express operations in Europe were negatively impacted by exceptionally adverse weather conditions in December. Express’ Liege hub was closed for two days, with extensive disruptions to service and deliveries across Europe. Express’ European road hub in Arnhem and road linehauls, were also significantly impacted due to temporary road closures for trucks. The estimated negative impact on operating income was €15 million.
- Brazil experienced significant margin pressure due to a number of factors, including planned investment in transforming business processes and a statutory 7.5% wage increase. In addition, Brazil had to absorb around €20 million of additional integration-related costs due to claims and provisions. New systems and processes are being implemented in 2011. These are expected to improve efficiency and service level to customers and enhance administrative processes and controls.
- Heightened security requirements addressing the threat of bomb-parcels led to the implementation of additional security measures, reinforcing ground and air security controls, covering Express’ own operation and that of its associates, subcontractors and partner airlines. The additional incurred costs are expected to be recovered from customers through an Enhanced Security Surcharge introduced at the beginning of December 2010.
Other income increased to €12 million (2009: 0) and consists mainly of the book profit of the sale of real estate and aircraft.
Express operating expenses
Total operating expenses, including depreciation, amortisation and impairment increased by €738 million (12.0%) to €6,885 million in 2010. Operating expenses increased by €408 million (6.6%) if excluding for foreign currency exchange impact of €330 million. The increase in operating expenses was mainly due to higher work contracted out and other external expenses driven by increased volumes and an increase in fuel costs of €83 million as well as significant one-off costs related to the demerger of €45 million.
As a result, operating income in Express increased by €119 million or 195.1% in 2010 compared to 2009.
Compared to 2009, the profit for the period increased by €77 million largely due to increased revenues and lower total one-off costs.
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Cost of materials | 401 | 38.3 | 290 | ||
| Work contracted out and other external expenses | 3,650 | 15.6 | 3,157 | ||
| Salaries and social security contributions | 2,190 | 9.1 | 2,007 | ||
| Depreciation, amortisation and impairments | 209 | (11.8) | 237 | ||
| Other operating expenses | 435 | (4.6) | 456 | ||
| Total operating expenses | 6,885 | 12.0 | 6,147 | ||
| (In € millions, except percentages) | |||||
Cost of materials increased by €111 million (38.3%) in 2010 compared to 2009. Excluding foreign currency exchange impact, cost of materials increased by €90 million (31.0%) in 2010, mainly due to an increase in fuel costs of €83 million and higher volumes.
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 increased by €493 million (15.6%) in 2010 compared to 2009. Excluding foreign currency exchange impact, work contracted out and other external expenses increased by €295 million (9.3%) in 2010, mainly driven by higher volumes and costs of €45 million related to the anticipated demerger.
Salaries, pensions and social security contributions increased by €183 million to €2,190 million (9.1%) in 2010 compared to 2009. Excluding foreign currency exchange impact, salaries, pensions and social security contributions increased by €61 million (3.0%) in 2010. The increase in salary costs was largely due to the overall increased volumes and annual salary inflation. Included in salaries, pensions and social security contributions is an amount of €16 million relating to restructuring related charges (2009: 37) and €69 million pension costs (2009: 59).
Total depreciation, amortisation and impairment costs decreased by €28 million (-11.8%) in 2010 compared to 2009, due to impairment charges of €22 million in 2009 and lower investments in additional capacity in 2010.
Other operating expenses include items such as marketing expenses and insurance costs. Other operating expenses decreased by €21 million (-4.6%) in 2010 compared to 2009. Excluding foreign currency exchange impact, other operating expenses decreased by €43 million (-9.4%) in 2010, mainly due to the lower impact from profit pooling arrangement (refer to table below).
Underlying development 2010 and 2009
Express operating income in 2010 and 2009, was impacted by various non-recurring items. In the table below the reportable segments presented are Europe & MEA, Asia-Pacific, America’s and Other Networks. Non-allocated represents the head office entities.
In order to analyse the results excluding non-recurring and exceptional items, management assesses the underlying operating income for a deeper understanding of the business performance. Underlying operating income is calculated as operating income after the adjustment of restructuring and other non-recurring or extraordinary items as per the bridge below.
Underlying operating income
| Year ended at 31 December | Reported 2010 | Re- structuring related charges | Other | Brazil | Bad weather | Demerger costs | Profit pooling | Pensions | Under- lying 2010 | Foreign exchange | Underlying 2010 (at constant rates) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Europe & MEA | 371 | 8 | (4) | 15 | 9 | 399 | (4) | 395 | ||||||||||||||
| Asia Pacific | 14 | 14 | (1) | 13 | ||||||||||||||||||
| Americas | (67) | 8 | 20 | (39) | 8 | (31) | ||||||||||||||||
| Other Networks | 18 | 1 | 19 | – | 19 | |||||||||||||||||
| Non-allocated | (156) | 45 | 41 | 15 | (55) | (24) | (79) | |||||||||||||||
| Operating income | 180 | 16 | (4) | 20 | 15 | 45 | 41 | 25 | 338 | (21) | 317 | |||||||||||
| (In € millions) | ||||||||||||||||||||||
Underlying operating income
| Year ended at 31 December | Reported 2009 | Restructuring related charges | Impairments and other value adjustments | Other | Profit pooling | Pensions | Underlying 2009 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Europe & MEA | 281 | 30 | 8 | 11 | 330 | |||||||||
| Asia Pacific | (32) | 3 | 9 | (20) | ||||||||||
| Americas | (32) | 3 | 5 | (24) | ||||||||||
| Other Networks | 18 | 1 | 19 | |||||||||||
| Non-allocated | (174) | 1 | 4 | 92 | 12 | (65) | ||||||||
| Operating income | 61 | 37 | 22 | 4 | 92 | 24 | 240 | |||||||
| (In € millions) | ||||||||||||||
The 2010 underlying operating income amounts to €338 million (2009: 240). Underlying operating income excludes some non-recurring and exceptional items such as restructuring related charges of €16 million (2009: 37), impact of €20 million (2009: 0) related to integration related costs in Brazil, adverse weather conditions had an impact of €15 million, demerger related costs of €45 million (2009: 0), the impact of the profit pooling arrangement of €41 million (2009: 92), pension charges of €25 million (2009: 24) and various other items of -€4 million (2009: 4).
In 2010, Express recorded non-recurring restructuring charges of €16 million mainly related to restructuring programmes in the Americas of €8 million and Europe & MEA of €8 million.
Express’ operations in Europe were negatively impacted by exceptionally adverse weather conditions in December. Notably, Express’ Liege hub was closed for two days, with extensive disruptions to service. This led to an estimated negative impact on Express’ results of €15 million.
TNT Headoffice BV is included in Express and is the contractual entity for the majority of the services and support related to the demerger. The total demerger cost incurred amounted to €45 million in 2010.
In the past years a profit pooling arrangement was in place, whereby Express’ legal entities absorbed the fiscal losses of Mail International operations in Germany. Given that the new reporting structure is on a legal entity basis, these losses are reflected in Express’ operating income in 2010. In anticipation of the demerger the profit pooling arrangement was terminated at 30 November 2010.
In 2010, Express contributed cash pension contribution towards TNT N.V. for its Dutch Group pension plans. After the demerger the current group pension plan definition in accordance with IAS 19.34a will no longer be valid as a result of which both entities (Mail and Express) will account for their defined benefit pension costs separately. The underlying cost adjustment represents the difference between the IFRS expense and the cash contribution paid by Express to TNT N.V.
The various other items in 2010 consist of a €2 million book gain on the sale of an aircraft and a €2 million impairment reversal on aircraft that will be put back into operation in 2011.
In 2009, operating income was also impacted by impairments and other value adjustments mainly include a €10 million impairment charge related to impaired customer relationships and an impairment on vehicles of €5 million.
Express financial income and expenses
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Interest and similar income | 22 | (65.6) | 64 | ||
| Interest and similar expenses | (59) | 23.4 | (77) | ||
| Net financial expense | (37) | (184.6) | (13) | ||
| (in € millions, except percentages) | |||||
Interest and similar income of €22 million in 2010 (2009: 64) of which €11 million (2009: 45) is income from loans with TNT and €9 million (2009: 19) is interest income on banks, loans and deposits, taxes and interest on foreign currency hedges.
Interest and similar expenses 2010 of €59 million (2009: 77) relate mainly to interest expenses on external financing of €41 million (2009: 54), interest expenses linked to financing in relation to a loan with TNT for an amount of €12 million (2009: 13) and foreign currency exchange effect of €5 million (2009: 7).
Express income taxes
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Current tax expense | 88 | 41.9 | 62 | ||
| Changes in deferred taxes | (31) | (63.2) | (19) | ||
| Total income taxes | 57 | 32.6 | 43 | ||
| (in € millions, except percentages) | |||||
Income taxes amount to €57 million (2009: 43), or 45.2% (2009: 122.9%) of income before income taxes. In 2010, the current tax expense amounted to €88 million (2009: 62). The difference between the total income taxes in the income statement and the current tax expense is due to timing differences. These differences are recognised as deferred tax assets or deferred tax liabilities.
In 2010, the effective income tax rate was 45.2% and is significantly higher than the statutory corporate income tax rate of 25.5% in the Netherlands. The effective income tax rate was impacted by non-deductible costs and current year losses for which no deferred tax assets could be recognised due to uncertainty regarding the recoverability of such assets, partly offset by positive effects from several optimisation projects.
Financial position
| 2010 | variance % | 2009 | |||
|---|---|---|---|---|---|
| Non-current assets | 3,281 | 1.9 | 3,219 | ||
| Current assets | 2,246 | 4.9 | 2,142 | ||
| Assets classified as held for sale | 4 | (60.0) | 10 | ||
| Total assets | 5,531 | 3.0 | 5,371 | ||
| Net in | 3,002 | 9.0 | 2,754 | ||
| Non-current liabilities | 468 | (18.6) | 575 | ||
| Current liabilities | 2,061 | 0.9 | 2,042 | ||
| Total liabilities and net investment | 5,531 | 3.0 | 5,371 | ||
| (in € millions, except percentages) | |||||
The non-current assets of €3,281 million at 31 December 2010 consist mainly of goodwill of € 1,703 million, largely related to the acquisitions of TNT and GD Express Worldwide; and other intangibles of €189 million mainly relate to IT software; property, plant and equipment of €1,089 million relate to depots, aircraft and vehicles and financial fixed assets of €294 million.
The current assets of €2,246 million at 31 December 2010 relate to total accounts receivable of €1,241 million, cash and cash equivalents of €807 million and other current asset items of €198 million.
Off-balance sheet items
Express has no off-balance sheet arrangements other than those disclosed in the financial statements of TNT N.V.
Cash flow data
Liquidity Risk
The following table provides a summary of cash flows from Express’ operations.
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Cash generated from operations | 356 | (14.4) | 416 | ||
| Interest paid | (39) | 40.9 | (66) | ||
| Income taxes paid | (76) | (123.5) | (34) | ||
| Net cash from operating activities | 241 | (23.7) | 316 | ||
| Net cash used for other investing activities | 16 | (23.8) | 21 | ||
| Net cash used for acquisitions and disposals | (23) | 70.1 | (77) | ||
| Net cash used for capital investments and disposals | (143) | (10.9) | (129) | ||
| Net cash used in investing activities | (150) | 18.9 | (185) | ||
| Net cash used for dividends and other changes in equity | 0 | 0.0 | 0 | ||
| Net cash from debt financing activities | (121) | (146.4) | 261 | ||
| Net cash used in financing activities | (121) | (146.4) | 261 | ||
| Changes in cash and cash equivalents | (30) | (107.7) | 392 | ||
| (in € millions, except percentages) | |||||
Net cash from operating activities
Cash generated from operations decreased by €60 million. This was due to cash flow impact of €80 million from profit before income taxes adjusted for non-cash items, €19 million from change in provisions and €159 million lower contribution from working capital. The negative cash flow impact from change in working capital was mainly a result of higher revenue and related increase in trade receivables in 2010.
Overall, net cash from operating activities decreased by €75 million from €316 million in 2009 to €241 million in 2010, which is primarily due to significantly higher tax payments in several countries in 2010 and lower cash generated from operations as described above.
Net cash used in investing activities
The total net cash used in investing activities amounts to -€150 million in 2010 (2009: -185). This mainly relates to interest received of €13 million (2009: 22), capital expenditures on property, plant and equipment of €121 million (2009: 120) and intangible assets of €50 million (2009: 36), remaining cash payment of €23 million for the acquisition of Expresso Aracatuba (2009: 62 relating to Expresso Aracatuba and LIT Cargo) and proceeds obtained from the sale of buildings, aircrafts, vehicles and other depot equipment of €26 million (2009: 26). The decrease in net cash used in investing activities was mainly due to lower cash payments for acquisitions in 2010.
Net cash used in financing activities
The net cash from debt financing activities amounted to -€121 million and mainly relates to the repayments on short term borrowings of -€51 million (2009: -377) and settlements in former intercompany balances between TNT N.V. and Express of -€41 million (2009: 612).
Capital expenditures and proceeds
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Property, plant and equipment | 121 | 0.8 | 120 | ||
| Other intangible assets | 50 | 38.9 | 36 | ||
| Cash out | 171 | 9.6 | 156 | ||
| Proceeds from sale of property, plant and equipment | 26 | 0.0 | 26 | ||
| Disposals of other intangible assets | 2 | 100.0 | 1 | ||
| Cash in | 28 | 3.7 | 27 | ||
| Netted total | 143 | 10.9 | 129 | ||
| (in € millions, except percentages) | |||||
Capital expenditure on property, plant and equipment and other intangible assets totalled €171 million in 2010, an increase of 9.6 %. The main capital expenditures in 2010 related to machinery and other depot equipment (€51 million) and software (€45 million).
Working capital
Trade working capital is calculated as trade accounts receivable less trade accounts payable (refer to combined statement of financial position in the Express supplementary report). As a percentage of revenue, trade working capital improved from 10.3% in 2009 to 9.4% in 2010. With the increased volume in 2010, trade accounts receivable remained at 15% of revenue while trade payables as a percentage of revenue increased from 5% to 6%. This is mainly a result of initiatives employed in the past year to improve payment terms with suppliers.
Pensions
In accordance with IFRS, the charge to the income statement for the defined benefit obligations in 2010 amounted to €7 million (2009: 9) in total. The total cash contributions for defined benefit obligations were €13 million (2009: 12). In 2010, amounts expensed in the income statement related to defined contribution plans were €62 million (2009: 50), of which €27 million (2009: 24) related to the cash pension contributions towards TNT N.V. for the Dutch pension plans.