TNT faces mail struggle as it readies for split-UPDATE 2

Trade the News

Tuesday February 22, 2011 05:30:11 PM GMT

* Mail Q4 underlying EBIT 185 mln euro vs Rtrs poll 181 mln

* Express Q4 underlying EBIT 107 mln euro vs poll 80.8 mln

* Mail dividend policy 75 pct of underlying net cash income

* Shares down 2.3 percent, underperform index

(Adds CEO, analyst comment, details, shares)

By Greg Roumeliotis

AMSTERDAM, Feb 21 (Reuters) - TNT NV said postal volumes could worsen this year, disappointing investors looking forward to the Dutch firm spinning of its more lucrative express unit from its mail division.

Dutch TNT, whose split has intensified speculation it will become the target of consolidation in the sector, said a harsh winter and the first postal strikes in 25 years exacerbated the decline in volumes, as more people used e-mail and the Internet.

"Three-quarters of our volume declines are the result of substitution by electronic communication, although we see mail growth in parcels and international operations," TNT Chief Executive Peter Bakker told a press conference.

TNT shares were down 2.3 percent to 19.98 euros by 1045 GMT, underperforming a 0.5 percent drop in Amsterdam's bluechip index .

"Dutch addressed mail volumes for 2010 came in 9 percent lower, at the bottom end of TNT's guidance, and for 2011 the outlook is now worse, TNT sees declines of 8 to 10 percent," Kepler Capital Markets analyst Andre Mulder said.

Operating income in the fourth quarter of 211 million euros was also below consensus estimates, Mulder added. Analysts in a Reuters poll were expecting 239 million euros.

TNT is separating its express division from its moribund mail unit, hoping it can attract a buyer for the latter that is willing and able to squeeze value from its operations in the face of ever-decreasing postal volumes.

The mother company will retain mail and a 29.9 percent stake in express. On Monday it reported earnings with its express unit under discontinued operations, though some numbers were provided under the old accounting structure to allow comparisons.

Fourth-quarter underlying earnings before interest and tax (EBIT) in mail fell 19 percent to 185 million euros and in express rose 4.9 percent to 107 million euros. Analysts polled saw on average 181 million euros and 80.8 million euros respectively.

After separation, expected by the end of May, TNT said in the next few years it would pay out about 75 percent of underlying net cash income as dividend, with a minimum of 150 million euros per year, and pass on the dividend it gets from express.

Dividend yield is at the forefront of TNT's pitch to investors for the mail unit due to the decline in postal volumes. In express, TNT said the dividend payout targeted would be 40 percent of normalised net income.

TNT proposed a 2010 dividend of 0.57 euros per share. It said mail's underlying cash EBIT in 2011 was expected to be between 130 and 170 million euros while in express underlying EBIT was targeted at 400 to 420 million euros.

SEPARATION

This year's split will bring TNT closer to its postal services routes, which date back to the 18th century, when it was established as a Dutch state operator after cities relinquished their role as postmasters to the Prince of Orange.

It briefly lost its name when it was privatised under the name KPN in 1994 but was renamed TNT in 2005. With U2 fan Bakker at the helm in the last decade, it grew fast to take on global delivery giants UPS and FedEx.

FedEx has cut its earnings forecast for the current quarter, citing disruption from winter storms in the United States and Europe, and higher fuel prices. UPS's earnings this month topped estimates as it used surcharges to pass on costs, but called oil prices above $100 a barrel a real worry.

By removing the mail unit's drag on growth, TNT's split will intensify decade-long speculation that UPS or FedEx could make a bid for TNT's express division.

Bakker reiterated that anybody interested could make a proposal and said he did not envisage a combination with Deutsche Post's DHL. He added he saw opportunities for joint ventures with other companies in parcels.

Higher fuel costs were being passed on with surcharges and unrest in the Middle East and North Africa was not expected to significantly impact the company's outlook, Bakker added.

On Monday, TNT said that under the new accounting structure, underlying EBIT in mail in the fourth quarter was 184 million euros and in express 95 million euros. (Editing by Sara Webb and Louise Heavens)

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