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Business transformation at TNT

Business transformation at TNT. Henk van Dalen, CFO 12 December 2007. Business transformation at TNT. TNT today & history ‘’Focus on Networks’’ strategy TNT 2005 - 2007 What is a network Towards a differentiating strategy Phase 1 Phase 2 Finance function Return to stakeholders.

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Business transformation at TNT

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  1. Business transformation at TNT Henk van Dalen, CFO 12 December 2007

  2. Business transformation at TNT • TNT today & history • ‘’Focus on Networks’’ strategy • TNT 2005 - 2007 • What is a network • Towards a differentiating strategy • Phase 1 • Phase 2 • Finance function • Return to stakeholders

  3. express post TNT today Revenue 2006: € 10,060 million*1 -- Mail: € 4,065 million -- Express: € 6,011 million EBITDA 2006: € 1,594 million*2 -- Mail: € 896 million -- Express: € 756 million EBIT 2006: € 1,276 million*2 -- Mail: € 761 million -- Express: € 580 million *1. Including intercompany of € 16 million *2. Including non-allocated costs of € 65 million and €7 million other depreciation *3. As per 31 December 2006

  4. TNT, a history of transformation Dutch State Post Thomas Nationwide Transport (TNT) in Australia 1752 1946 1994 1996 1998 KPN listing on Amsterdam Stock Exchange KPN acquires TNT TPG separate listing AEX Public Company 1998-2005 • Build Contract Logistics • Grow and Build Express • Optimise Mail NL • Build Mail in Europe TNT Brand 2006/2007 • Risk Management & Internal control • Disposal Logistics & Freight Management • Portfolio growth Express and Mail • Capital structure / Share Buy Back • Dutch State sells final stake Focus on Networks 2008-2012 • Grow and Build Value

  5. ‘’Focus on Networks’’ • Slides as announced on 6 December 2005

  6. Evaluation of TNT • Best Postal operator; fast growing European Mail Networks (EMN) • Express leader in Europe, on track for 10% operating margin • Excellent growth opportunitiesin Asia/China • Good track record of acquisitionsin Mail and Express • Logistics non-network based • Consolidation in industry continues TNT has conducteda thorough strategic review of its business and performance Slide of 6 Dec. 2005

  7. 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Network-based business is intrinsically attractive 0 EBIT margin trend Median for sector, 4 years average Same trendfor ROIC Same trend For ROIC • Express • Logistics Slide of 6 Dec. 2005

  8. Today’s announcement is aimed at driving shareholder value at TNT • Focus on Networks • Exit Logistics • Optimise capital structure Slide of 6 Dec. 2005

  9. IC FI SE RU NO EE LV DK LT BY GB IE NL PL BE CZ UA LU DE SK MD HU AT CH FR RO SI HR TKU BA HLB YU NXH QAR BG BZQ HNJ IT DFT MK LGG DNG VIE GNQ AL PT ES MIL SC SC SC SC SC SC GR TR MAD CAS What is a Network? • Dataflow management is essential – people and IT systems & processes • Infrastructure for collection, transport, sortation and handling, warehousing and delivery • Ability to process large numbers of transactions to achieve operational leverage Mail collection and delivery network Collection Depot Depot Depot Depot Depot Depot Express Road Network Depot Depot Depot Depot Depot Depot Depot Depot Depot Depot Depot Depot = sorting centre Delivery SC MAR

  10. Higheroverall marginby improving mix Quality, predictable volume growth Improved transit times and lower costs Increased drop density andmore itemsper drop Networks intrinsic economics Pick-up anddelivery costs/shipment More volume leads to lower costs per unit Combination of networks leads to further cost reduction per unit International network More items per drop Domestic network Volume / Drop density

  11. Different types of products have different operators Market size ~€ 1,100 billion Couriers Same day Time certain Integrators Mail 1st class Day certain (1-3 days) Trucking companies Day certain (3-5 days) Deferred Standard parcel operators Freightforwarders Sea carriers Mail other Day uncertain 1 kg 30 kg 250 kg 1,000 kg 20,000 kg Documents Pallets Full Loads Bulk Parcels Freight Adjacent service and infrastructure operators

  12. Complementary Mail and Express networks + + Mail offers Express B2C delivery capabilities Express offers Mail platform for international growth Shared support functions • IT • Back-office • F&A • HRM Mail customers Express customers Marketing & Sales EMN shares infrastructure with domestic express European express road network European air network Network • Depots • Linehaul Last mile delivery B2C/C2C B2B

  13. Focus on Networks – two phases Focus on Networks Phase 1 Phase 2 6 December 2005- 6 December 2007 6 December 2007 Transforming the Foundations Grow and Build Value

  14. Focus2005 /2007; ‘’transforming the foundations’’ • Business • Carve out • Clean up and comply • Grow the core • Develop new growth platforms • Financial • Risk management, internal control, Integrity and compliance • Carve out & Deal making • Value processes • Sustainably optimise FLAT structure

  15. TNT’s strategy has delivered! Focus on Networks • Successful sale of non-core businesses Exit Logistics & FM Optimisecapital structure • Significant Cash returned to shareholders via buybacks and dividends * Period defined as Q4 2006-Q3 2007 compared with Full Year 2005

  16. Strong growth EMN Mercúrio 2011 EU liberalisation TG+ (Spain) Middle East Road Network New Master plan initiatives 747s VSP next week delivery Hoau (China) Various expansions Speedage (India) Asia Road Network Expansion European network Delivered against strategic priorities Strategic Focus Explore& Build Asia Pacific ExpressEuropeWhite spots Rest ofWorld Parcels BuildFast EMN Int’lExpress Europe SpecialServices GrowInvest Dom. ExpressEurope ActivelyMaintain Mail NL & other Sale Logistics and FM FinancialFocus CashGeneration Growth & Cash ValueCreation Value Creation Growing to WACC

  17. Performance “Transforming the Foundations” Financial strategy Key components Results Q4-05 – Q3-07* • Drive business performance • Maintain financial flexibility • Support growth; Capex and M&A • Keep balance sheet efficient • Target credit rating around BBB+ • Effective Risk Management, Internal Control and Compliance • Aligned legal, funding and tax structure • Shareholder returns • SOx compliant over 2006 • EBITDA up 13% • EBIT up 13% • Revenue up 14% • Effective tax rate down 17% • EPS from continuing operations up 34% • > € 3 billion of dividends and SBB from 6 December 2005 *Period defined as Q4 2006-Q3 2007 compared with Q4 2004-Q3 2005, from continuing operations

  18. Phase 2 Focus on Networks “Grow and Build Value” • Strengthen the core • Grow profitable emerging platforms • Maintain focus on shareholder value 2008 – 2012 Grow and Build Value

  19. TNT has a differentiating strategy… Focus on Networks Focus on European Mail Networks Focus on Domestic and Intra-regional No Logistics No Freight Forwarding An opportunitynot a threat Rather than Inter-continental

  20. Network dynamics shifting Market size: ~€ 1,100 billion Same day Time certain Express Operators Day certain (1-3 days) Day certain (3-5 days) Deferred Freight transportation companies Postal and Parcel Operators Day uncertain 1 kg 30 kg 250 kg 1.000 kg 20.000 kg Documents Pallets Full Loads Bulk Parcels Freight Adjacent service and infrastructure operators

  21. Expand lead in established business • Optimise Network • Strong below the line financial management • Remain fittest domestic Mail carrier Strengthen the core • Aspire to lead in largest economies, China, India, Brazil and other emerging markets • Explore new network growth opportunities • Successfully benefit from liberalisation in Europe [where allowed] Grow profitable emerging platforms • Maintain leading position in CSR [Quality, Planet Me, WFP] Strong focus on Value Based performance • Revenue and EBIT growth • Strong cash flow development • DELIVER SHAREHOLDER VALUE Focus on creating value through running delivery networks responsibly Express Group Mail

  22. Phase 2 Focus on Networks TNT Express Next wave of Express integrated networks optimisation Strengthening the Europe- Asia Connectivity Transformation of new domestic platforms Sharpened objectives Grow and Build Value

  23. …using a differentiating growth model for TNT Express Emerging platforms Domestic Customers Intra-regional Intercontinental • In Europe, our platforms are fully integrated • Outside of Europe, we have built seamless connectivity to our European distribution networks • In key emerging markets, we are building new domestic platforms

  24. Air or Road Linehaul Delivery Pick-Up The Next Wave of Express Networks Optimisation targets… Afternoon Overnight Morning Facilities & fleet 45 aircraft connect 25 countries 3,900 trucks / week connect 34 countries 30,000 vehicles 836 depots 30,000 vehicles 836 depots Objective Latest collection Fastest Transit Earliest delivery Most Reliable Service Cost Effective Service Technology State of art information technology Global track & trace systems … Facilities, road and air linehaul connections, PUD …

  25. Our new wave network optimisation is based on TNT Express strategy and continuity planning Networks Hub infrastructure Country / Depot infrastructure PUD Integrated Network & Infrastructure Approach Operations Infrastructure Planning & Optimisation TNT - Global Optimisation (GO) ProgrammeDesign, Development and Implementation 2007 2017

  26. 405 Mail NL new Master plan overview cost measures of € 300 million Examples of projects of total of 60

  27. Mail NL: Introduction of economy product and budget mail Strategic proposition in addressed Dutch mail market Priceper piece ‘A’-brand Other providers Economy Budget Frequency/Speed Once a weeknext week Daily 24h and 48h Twice a week The same week

  28. Build profitable emerging platforms ! ~ € 2.5 billion ~ € 5.2 billion 2012  Revenue growth ~100% *  Uncertainty EMN Germany Low single digit Mid single digit 2012  ROS increase “Investments” Including start-up losses 2008 / 2009 per year ~ € 60 million ~ € 600 million Up to 2012 Capex requirement M&A smaller bolt-on acquisitions Emerging platforms include EMN, Parcels and Express emerging businesses*Period defined as 2012 compared with 2007 excluding acquisitions

  29. All TNT Express acquisitions so far are providing a complementary network to the international set-up Integration overriding issues: • Networks linking • Systems interfacing • Product offering restructuring Estimated main sources of synergies: • Revenues enhancement • Sub-contracting efficiency and cost savings Acquired TNT Growing via transforming these companies into scheduled networks

  30. EMN ambition adjusted: on track for 2012 Target 2012 Revenues€ million CAGR 16%-22% Addressed mail +related services Unaddressed Excluding parcels UK, Italy & Belgium

  31. Present Position and Expansion Routes in Parcels Easy European entry not available Opportunistic growth strategy in two dimensions Domestic Focused growth per country European positionfor B2B/B2C parcels ItUKBNL € 400 million Broker model forinternational flows Cross Border A focused country by country approach is required

  32. Stand alone niche markets, with a network feeder component Market • Total pharmacy market in The Netherlands is € 4.5 billion and grows 6% annually • The submarket of repeat prescriptions has a value of € 3.5 billion • Dutch internet pharmacy market (for repeat prescriptions) is expected to grow substantially* • Initiative TNT Post : Nationale-Apotheek.nl focuses on repeat prescriptions via internet • TNT Post leverages its brand and excellent operational skills • TNT Post is trusted • Delivery with Track & Trace * Germany: Internet pharmacy Doc Morris has built up €100m revenue in three years; USA: Mail order pharmacy has already a 19% share of total pharmacy market ** The Netherlands: Internet pharmacy is expected to have an 11% share in 2015 32

  33. Stand alone niche markets, based on customer demand and channel optimisation Traditional portfolio Growth on line media spend On line Emergence of on line direct marketing Off line Growth e-billing • TNT has a 14% market share in the off line marketing services market (printing, database management, call centres) • TNT also has a 19% market share in the transaction mail services market • TNT Post traditional portfolio can be leveraged to capture e-opportunities Emergence of e-billing Post Post + on line On line

  34. Finance functionTap the underpinnings that ultimately determine business performance Business model-based financial management “The Soul” • Focus on strategic assumptions • Deep understanding of business • Developing performance concepts Value-oriented financial management “The Brain” • Focus on value drivers • Performance management based on Shareholder • value metrics • Focus on business controls / risks Reporting focused financial management “The Heart” • Focus on numbers • Creation of transparency, reporting approach to • performance management • Budget control key instrument

  35. Grow and Build Value; Financial Balance Primarily organic growth Balance short, medium and long term stakeholder returns Maintaining financial flexibility Growth General SelectiveM&A Investment capacity from cash flow financial status “Investment-grade rating” of around BBB+ Medium term view on excess cash operations Proceeds from divestments Dividend guideline on normalised net income Growth potential on basis of financial results Dividend Incidental returns Incidental shareholder returns

  36. Finance agenda 2008-2012 • Strategy, budgeting, profit and growth drivers and performance killers • Optimize sustainable ‘’FLAT’’ structure • Enhanced focus on Cash • Quality and standardization of processes • Alignment in control, integrity and risk management • HR in Finance

  37. Focused Financial Strategy 2008 – 2012 Structure • Risk management, internal control, integrity, compliance • Optimise financial standing around BBB+ investment grade • Further ETR decrease to a level of around 25-26% by 2010 • Dividend (per share) up, barring unforeseen circumstances • Further external business transparency Operational • Capex as % of revenues 4-6%, including smaller acquisitions • Specific business objectives on Revenue and ROS • Restructuring charge in Mail € 125-175 million in phases up to 2009 • Grow Free Cash Flow of the Group Medium term view on Free Cash Flow allocation 1. Strategic profitable growth steps and dividends 2. Incidental return to shareholders

  38. Strategic options reviewed on the basis of EP, next to top and bottom line growth Strategy • Business unit budgets assessed based on year-on-year EP growth • Value drivers • Focus on cash optimisation Budgetingand Performance • Separate review of growth and replacement investments • Focus on capacity utilisation, asset light alternatives, fast cash payback • Post investment reviews Investment / appraisals • Explicit and detailed evaluation of stand alone and synergy value • Post merger “100 day” and “1 year” reviews M&A appraisals Pay for performance • Management incentive system explicitly linked to EP Economic Profit to measure and drive performance EP definition at TNT Application of EP at BU level EBIT + Add back interest operating leases Adjusted pre-tax EBIT - Tax charge - Capital charge for net working capital - Capital charge for fixed assets - Capital charge operating leases Economic Profit Economic Profit (EP)

  39. SUN project: “driving value below the line” Significant unrecognised tax losses High effective tax rate Loans in tax loss countries Emerging markets balances Cash balances Internal charges Group legal structure Cash flow focus / Trade working capital

  40. SUN key initiatives Corporate legal structure Financing company Continuous country scan Emerging countries Regional teams 40

  41. Key performance indicators 2007 – 2012Outlook 2007 regrouped € million All figures 2007 are rounded and regrouped for indication purposes only based on the outlook as confirmed excluding the effect of any provisions related to the new Master plan initiatives

  42. Stakeholder returns since 2005

  43. We focus on delivering the best Customer Experiencein creating a customer focused organisation • Customer Experience is a newly created role focusing on making all customer touch points outstanding 43

  44. Which resulted in our Clients rating our customerservice above our competitors´… Source: RI customer research 2007 and CMI analysis Countries participated: Germany, UK, Italy, France, Netherlands, Belgium, Australia, Switzerland, Romania, Brazil

  45. Since Dec 2005, TNT has outperformedmost of its competitors… Share price development since December 2005 TNT AEX DPWN FDX UPS OP

  46. Significant cash shareholder returns > € 3 billion of Dividends and SBB from 6 December 2005 to 6 December 2007 Dividend in cash Cash Returns to Shareholders CAGR dividend per share 14% New € 500 million SBB programme Current tranche € 200 million implemented Dividend paid in the year (€ million) Dividend per share over the year (€ cent) Interim dividend per share in the year (€ cent)

  47. Convincing development shareholder value parameters Earnings per share* (€ cents) Return on Equity* CAGR EPS 17% CAGR RoE 36% * From continuing operations

  48. Highest score in Dow Jones Sustainability Index 2007 1 1 • Highest score in all 3 dimensions • Economic (94%) • Environmental (95%) • Social (90%) • SAM Research: “TNT has consistently improved not only its sustainability reporting, but also its sustainability performance” 1 2 Akzo Nobel 3 Australia & New Zealand Banks Group 4 Novo Nordisk 5 Philips 91% 88% 87% 83% 82%

  49. Focus on Shareholder returns short term Dividend pay out to 40% of normalised net income by 2010 Additional € 100 million tranche of € 500 million SBB “Regular” incidental SBB from excess cash 49

  50. Return to stakeholders since December 2005 • Three years in a row Dow Jones Sustainability Index leader • Strong increase Earnings and Dividend per share • Incidental return to shareholders through > 3 bn share repurchases • Customer focus recognized and awarded • Investors in People (IiP) fully implemented • Top rated financial and business reporting • Solid Governance model

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