Transcript Q2 & HY 2010 Results *** Start transcript - - PDF document

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Transcript Q2 & HY 2010 Results

*** Start transcript 00:00:00:00 00:00:00:28 Ernst Moeksis Good morning, ladies and gentlemen. Welcome at the press presentation half-year figures 2010 of TNT and Moeksis is my name; I am director of media relations. Present today are our CEO, Peter Bakker and our new CFO, Bernard Bot. Welcome, Bernard. Before starting with his presentation, Peter is going to introduce Bernard to you. 00:00:00:29 00:00:00:59 First and foremost Peter will give you an update with regard to Vision 2015 and the development of the business in the recent quarter. And Bernard will give detailed breakdown of our financial presentation in the quarter. Immediately after we have Q and A and we are going to answer to your questions. We start with the questions here in the room and those people who follow on line the presentation via the web, also have the opportunity to ask questions. Peter, you have the floor please. 00:00:01:00 00:00:01:52 Peter Bakker Yes, good morning. Welcome second quarter presentation of TNT. We have more details than only with reference to the second quarter. I would like to highlight three questions: CFO, second quarter, first half year and I will give you a breakdown of the entire year and also we will make comments about Vision 2015. Bernard Bot on my right. Per yesterday he was appointed CFO of TNT. Of course we are disappointed with regard to the departure of Henk van Dalen. 00:00:01:53 00:00:02:36 He found another job at Vimpelcom to become CFO there and he took this appointment there. We congratulate him, but this is a loss on our side of course. Henk, in recent years has done a lot of good work to see to it that the financial structure is invigorated again and furthermore he has seen to it that we have an excellent successor in house who has grown up here and that is Bernard Bot and I am very rejoiced that Bernard, we could appoint him and I am looking forward together with him with regard to TNT to pass the next few years with him. 00:00:02:37 00:00:03:10 You see a few of his previous experience at McKinsey and in the last recent five years also he has been working within our own company. Bernard later on will give you a breakdown of the details

• financially. Ok, let’s start here.

These are the highlights of the group. You have seen that in the second quarter fifty-five million (€55,000,000) EBIT was realised. 00:00:03:11 00:00:03:34 This seems to be a big drop over the same period last year when we got one-hundred and seventy- eight million (€178,000,000) EBIT. But I must tell you, please keep in mind that one sixty-eight million (€168,000,000) one off was taken and this was a provision taken with regard to the large reorganisations which within mail a few weeks ago were announced and were taken. 00:00:03:35 00:00:04:01 Underlying we have two-hundred and eleven million (€211,000,000) which is up on the prior year. The cash flow in the quarter was lower than in the previous quarter of last year, in the same quarter of last

• year. Last year we had a deferred tax payment and this year we had premature tax payments and this

swing alone made a difference of three-hundred million (€300,000,000) and this explains roughly the entire cash flow degradation.

2 00:00:04:02 00:00:04:31 The interim dividend, which we will pay out, is twenty-eight eurocents (€0.28) per share and this is being calculated to be forty percent (40%) of the so-called normalised net income and this has happened now again. This will be made available to shareholders as a choice between cash and

• shares. Within express in the second quarter we have seen that a good volume growth, which we saw

in the first quarter, was continued. 00:00:04:32 00:00:05:14 The volumes are back around the 2007-levels and even higher than that sometimes. 2007 is the last year before the economic crisis. In terms of volume we have got back to around 2007-levels. The average price however has not returned to the same level. This quarter within express we still saw price pressure. And the sum total of this is that nine and a half percent (9.5%) growth in the core kilograms, we have much higher growth in the areas outside of Europe, like in South America and China, much higher than ten percent (10%) growth there and this leads to roughly ten percent (10%) increase of sales. 00:00:05:15 00:00:05:45 And if the number of extra workdays and currency effects are taken into account, then we have an increase of eighteen percent (18%) in terms of sales. Mail we had a stable quarter. Before the year we said between seven and nine percent (7-9%) volume decline within mail. This quarter it was eight point four percent (8.4%) this decline. This is within the bandwidth announced. This is also our expectation for the remainder of the year. 00:00:05:46 00:00:06:29 Strong growth we experience within the parcel sector. More than ten percent (10%). This means that we have a situation where two point five to two point seven percent (2.5-2.7%) we are lower than the

• sales. Profit is roughly at the same level of last year. Since the beginning of the economic crisis we

show you what economists around us think will happen in gdp-growth. In comparison to Europe and the USA, the USA is the upward line here and you see that the recovery there has taken place earlier and is happening at a higher level. 00:00:06:30 00:00:07:10 Also in Europe we are on a stable path I think and on average we have a better performance in the business cycle, but it is a year on year comparison and we depart from a rather bad level in 2009. That means that in Europe growth is on the recovery road, but mainly in the recent period we have seen that the growth from China and inside China is really vigorous and strong. For express, this translates into volumes back to the level of 2007. 00:00:07:11 00:00:07:49 The margin is improving, but it has to improve further and this we will do by working on the average price side and cost side. What we have seen as well, is that particularly the air cost from China to Europe in recent months has shown a very vigorous increase, because capacity is not sufficient for these lanes. We will be working here to have more of our own aircraft connections. So, an extra Boeing 747 was added to our aircraft fleet and I do expect in the next few months that more announcements may be made. 00:00:07:50 00:00:08:22 This picture, I don’t know whether you can see it properly. Here you see what I already told you, the lower two lines indicate that we roughly have got back to the level of 2007, in kilograms not entirely. In the consignments however we have reached the previous level, but compared to 2009, the quarter, we have demonstrated stable growth in comparison to the quarter of the previous year. 00:00:08:23 00:00:08:52 The good growth, which we saw in the first quarter in kilograms and in consignments, was continued in the second quarter. And from one point four, one point five billion (1,400,000,000-1,500,000,000) how do you get to one point six billion (1,600,000,000)? Sales, this is the most important. The volume has been so extremely important, much growth from volumes we were able to realize. This was however partly offset by lower average pricing.

3 00:00:08:53 00:00:09:28 The fuel surcharge, which is the price surcharge which we calculate based upon the underlying price

• f oil, has led to an increase year over year and the emerging platforms, particularly China and South-

America, this quarter paid an important contribution with regard to the express TNT growth. On the

• perating income side we have the same bridge. If you look at all workdays and currency effects,

which are taken out of the figures, otherwise the bridge is difficult to comprehend. 00:00:09:29 00:00:10:03 Last year sixty-three million (€63,000,000), this year seventy-three million euros (€73,000,000) of EBIT is the figure. Partly we have the effects of the volume here, but also with reference to EBIT we see an impact of negative price developments. One euro less in the price is one euro less profit with regard to the bottom line. We were able to offset this by seeing to it that we dropped the average price per consignment. 00:00:10:04 00:00:10:34 We have more cost cutting than with reference to the price drop, but you also feel here that in Brazil and particularly in commercial airline whole, which has become dearer and more expensive, that we had to take extra costs here. In Brazil, this is the cost of the integration of Araçatuba and Mercurio. These are two companies, which we have there. Araçatuba, the latter one, was purchased last year and we have double system costs here, which we have to take out. 00:00:10:35 00:00:11:16 The challenge however for TNT Express and the management is only doing this that on the yield side and with reference to the cost side, we work extremely hard to improve our results. June 7 this year, for the first time in our history, European wide announcements we did, that we will increase our prices by three point five percent (3.5%). This has not happened before. All contracts we are looking at with publishers, where we think the prices are too low and we propose to improve our pricing, and we

• urselves, our cash flow portfolio has to be managed better.

00:00:11:17 00:00:11:45 We have seen much growth from big, big customers at low prices and we want to improve here with regard to smaller customers who pay more for a consignment. Also with reference to cost, we have to do more. We have to optimise our network. I did already outline to you about the lean and go programmes, which we do in order to optimise our networks. This is also being rolled out in more and more countries. 00:00:11:46 00:00:12:07 I already stipulated to you in order to absorb the higher cost of aircraft in South-East Asia with the 747, the new one, also in the next few months we may be on the lookout for more own capacities in these lanes, so that the wild fluctuations of air kilograms can be absorbed better or taken out. 00:00:12:08 00:00:12:33 Mail had a stable quarter, strong performance with regard to EMN. Also for parcels where more than ten percent (10%) volume growth was realised in the quarter and within Master Plan III where a number of weeks ago, this big announcement was made with reference to the reorganisation which is carried out in the mail business of the Netherlands. 00:00:12:34 00:00:13:00 Our goal this year was that seventy-five million euros (€75,000,000) of savings based upon the Master Plan should be realised in the second quarter and twenty-five million (€25,000,000) have actually been

• saved. So we are on track here. With regard to this announcement in the press of the Netherlands, in

the media, we have a lot of publications. Master Plan III is the next step within the restructuring of mail the Netherlands. 00:00:13:01 00:00:13:31 For this year we expect mail the Netherlands a decline in traffic of between seven and nine percent (7- 9%) and we have to adjust accordingly. Meaning, that we will go for a three-day model for business mail, so that we will generate volume in three peak days particularly. Our work force has to be adjusted accordingly, so that we can work with a lot of part time personnel who is available during peak days.

4 00:00:13:32 00:00:14:13 These peak days do not imply – please do not make the link in your articles – this does not mean that we will go to three days per week. We will be delivering mail six days per week until the Postal or Mail Law will allow differently. But in this competitive environment of the market, I think we can go to the three-day model. This means that a significant announcement we made with reference to the restructuring of Master Plan III, totalling about eleven thousand (11,000) fte, which will leave our company in the coming years. 00:00:14:14 00:00:14:51 This however is a social under funded programme, in a responsible way we want to do it. A provision was taken of one-hundred sixty-eight million (€168,000,000), net provision. This is the initial investment or provision with regard to this programme. In due course between one hundred and one- hundred and fifty million extra (€100,000,000-€150,000,000) must be expected, but one sixty-eight million (€168,000,000) have been provided for this quarter, so that the mobility from work place to work place can be improved or that social planning costs if redundancies we cannot avoid, can be paid for. 00:00:14:52 00:00:15:38 The final restructuring as outlined here, these are carefully chosen words and we want to have a model of operation which is flexible, so that full time is replaced by part time personnel. In the future the company can always be adjusted in accordance with the presence of volumes or not. The outlook for the entire company this year, there are no major changes, which I can mention today. We are still firmly convinced that we are living in a world with an average modest improvement of the European economy. 00:00:15:39 00:00:16:13 We also view in the media and reading the newspapers, there are still concerns as regards a double

• dip. This might be, I think, we can tell you, all of us that we are still quite susceptible to changes and

TNT will focus to keep our costs under control, and cash flow should be very, very solid. With regard to express we will see that volumes and revenues are expected to be well above the levels of 2009. This should also be possible in the second half year. 00:00:16:14 00:00:16:49 The operating profit will improve, but until the yield pressure is under good control, there will be

• pressure. We will tell you what we will do, so that the yield and the costs can be upgraded and

improved and cost lower. Now mail. Seven to nine percent (7-9%) volume declines in the Netherlands. This is our expectation for the year. The seventy-five millions (€75,000,000) of savings will also be achieved and the operating income will be somewhat below 2009 levels. 00:00:16:50 00:00:17:30 The third bracket and sorry that I am showing you many, many slides today. Vision 2015, in my view this is an important announcement. I talked to a number of you and the suggestion was made that this was much tolled. This is more than that today. December 3 we announced that TNT will be readied for 2015, and five focus areas are important: parcels, freight, emerging markets, particularly China, South- America, and SDS and of course the mail business. 00:00:17:31 00:00:18:04 In December and we repeated this in April, that when you look at the TNT portfolio, then you see more and more differences between the mail business and express. Mail has a lot of work to do in order to thwart the volume declines. Master Plan III and the provisions are excellent examples of this. There are growth avenues and options, but they do not outweigh the possibility of overcoming these declines. 00:00:18:05 00:00:18:40 In express we go the other way around. A very cyclical business. Currently we are in uplift mood of the

• cycle. We have good recovery in the business cycle, but excellent growth possibilities in the few

emerging economies. April 8, at the time of our shareholders meeting, we stated that we would be looking at it. We started the investigation how best the mail business can be positioned in the future. A number of examples were given and a partial IPO was mentioned.

5 00:00:18:41 00:00:19:08 A partial listing on the stock exchange. An important step was undertaken. Today we have announced that it is our decision and our intention is to decide that a complete carve out of the postal and express business be done. Not a partial separation. A complete separation will be our aspiration. The target in mind is that two very, very solid companies be realised. 00:00:19:09 00:00:19:35 We are already the best mail business in the world and a separate business will no doubt continue to be so and within express we are the absolute European market leader and also in the new emerging platforms we will support the activities with strong management and a good solid capital structure. To make the strategy as successful as possible and for shareholders, the current ones and the future

• nes and for all other stakeholders, this ought to be positive.

00:00:19:36 00:00:20:18 Such a decision as board of management and supervisory directors can be taken, this is our intended separation decision and with the relevant echelons in our company, no doubt we will discuss with them to get their advice. This decision was taken with reference to the TNT portfolio. You see a number of

• activities. The strategic challenge we are facing, is different more and more. We have to renew the

model in one business operation, which has to build up its positions in the entire world. 00:00:20:19 00:00:20:53 The two companies are strong enough to stand on their own legs we believe. So the equilibrium is important, because combined operations have stronger balance sheets than separated companies, but there are not many, many convincing cases with regard to the synergies between the different

• perating parts. When the separation also in market capital terms is done, you see that two very

interesting investment opportunities are evident for shareholders and investors. 00:00:20:54 00:00:21:28 I did already tell you that two successful companies we will be putting on the map. In express it is four focus areas: parcels, freight, SDS and emerging, where very, very attractive high growth expectations will be realised. Both in Europe where we will be entering the day definite market more and more and also in emerging areas. The best mail business in the world, what important steps have been undertaken, so that the reorganisation can be done for the future. 00:00:21:29 00:00:22:14 What the parcels unit is showing, good growth, and where we are also renovating quite a lot. The separation of mail and express will be done in two steps. The first step that will be undertaken is an internal split or carve out. This will be implemented January 1, 2011, in four months time. That means that with regard to management organisation and with regard to the legal structure, the separation will be done under the governance of course of TNT NV business, and the separation via a transaction will be formalised. 00:00:22:15 00:00:22:54 This eventually might lead to different versions of capital market transactions. There will be several avenues or options, demergers, additional listing, whatever the list may be. In the meanwhile, we have all relevant advisers working for us, who have been coming on board with regard to investment banks, lawyers as well as HR-advisers, because the consequences for human resources must also be accompanied well. The investigation, which we do in terms of capital market transactions, involves quite a lot of elements. 00:00:22:55 00:00:23:37 The question is the capital structure, how can it be structured as solidly as possible. What are the accounting implications of such a carve out? The allocation of group assets, how can this be done? Furthermore, in the Netherlands clarity has to be created in terms of regulatory items between Opta and Economic Affairs and the advice of our works council is still also important. Eventually when all this work has been done and when choices are made, then the moment will come where our shareholders also have to be requested for approval.

6 00:00:23:38 00:00:24:06 That means that with reference to Vision 2015 the next few months a lot of work has to be done. We will be exploring capital market transaction. The transitory governance has to be designed very well. The works councils also have to get involved and we want to tell them this comprehensibly and within express the business plans have to be finalised as well as the capital structure. 00:00:24:07 00:00:24:38 The best possible stand-alone organisation must be designed and we also will be viewing what we do in terms of the regulatory matters with reference to USO. We have a new CFO. Quarterly figures and an important new step within Vision 2015. With a lot of pleasure I pass the floor to our new CFO, Bernard Bot. 00:00:24:39 00:00:25:25 Bernard Bot Peter, thank you, good morning, ladies and gentlemen. Now the results. We see the results income statement of the quarter and the half-year. Also underlying numbers are shown and the reported

• figures. Five point one percent (5.1%) is the increase underlying revenue. EBITDA up two point five

percent (2.5%) in the quarter and the EBIT was up five percent (5%). The net financial expenses were somewhat lower because of the fact that we have a lower net debt compared to the last year and seventy percent (70%) ETR. 00:00:25:26 00:00:25:54 This is because of the provisions that were mentioned by Peter. If you are not taking this on board, then the ETR is twenty-nine point nine percent (29.9%). If you take into account certain advantages of tax-exempt income in the previous year, then the trend as regards ETR is still declining, is still

• downwards. Now the highlights, the bridge between reported and the underlying operating income.

00:00:25:55 00:00:26:23 The most important figure is the one sixty-eight million (€168,000,000) provision for mail here and work day effects. I also might mention, two new workdays for express and one fewer working day in the Netherlands. This is because of a specific holiday, which we have in the Netherlands and which is different in other countries. In mail we also see an extraordinary income of six million (€6,000,000) Opta fine restitution refund. 00:00:26:24 00:00:26:51 The Q2 figures now underlying. The second quarter we had solid revenue growth and an improvement

• f our operating income, higher volumes which are back to around a level of 2007 and in general we

still have lower cost per consignment, particularly in Europe where we have a very strong decline and the mitigated picture outside of Europe here. 00:00:26:52 00:00:27:27 As Peter highlighted already, cost inflation and higher cost of aircraft lanes and higher costs in the emerging platforms in markets like in Brazil, where some specific measures have been undertaken in

• rder to address these issues. Here the graft of the development of volumes. The most important

development is with the year 2007. With regard to volumes, we have roughly got back to around 2007 levels with regard to consignments. 00:00:27:28 00:00:28:02 In kilos we are somewhat lower still. Now the international business has shown a very solid and robust development and also in this quarter in air and road kilograms increased by twenty (20) and fourteen percent (14%) and we roughly have got back to the level of 2007. You see the kilogram figures and consignment figures and in between you see the yield. 00:00:28:03 00:00:28:45 This is based upon a basis of one hundred (100) in 2007 and per kilogram we roughly are at the same

• level. With reference to the consignment, we are still legging behind. The arrows from 2007-2010

indicate that the decline year over year is still in evidence. Prices are still under pressure, but there is a stabilisation that has set in. The underlying factors, we have pricing pressure originating from the crisis, which we have seen, and we are about to increase our prices in the order of three point five percent (3.5%) which was announced recently.

7 00:00:28:46 00:00:29:22 Also a so called mix effect is important and growth is mainly to be found in larger clients in comparison to smaller medium sized clients and actions are undertaken to generate more growth in especially the higher income area. Now to mail. The underlying figures lower two point seven percent (2.7%) in terms

• f revenues. We have an increase in the emerging mail and a decline in the Netherlands. We have a

small, small decline. 00:00:29:23 00:00:29:55 The underlying result is stable in comparison to last year. The volume decline is eight point four percent (8.4%) in address mail. It is important to indicate that in the emerging developments we have volume increases of ten percent (10%) vis à vis last year. Master Plan savings are on track, seventy- five million (€75,000,000), forecast for the full year. Looking at six months we are roughly making forty- three million (€43,000,000) already for the half year. 00:00:29:56 00:00:30:25 Now the volumes, eight point four percent (8.4%) down looking at the workdays for the second

• quarter. This is in keeping with a guided range of a decline of seven to nine percent (7-9%). In contrast

with the first quarter, the mix and the decline of single mail items was somewhat better in comparison to the other. This is the mix effect, which was slightly positive. 00:00:30:26 00:00:30:53 The Master Plan III in figures four thirty million (€430,000,000) savings 2010 to 2017, this has been reaffirmed and confirmed and we announce the provision of one-hundred and sixty-eight million (€168,000,000) today and what does this means for cash flows in the upcoming years? We do expect that about eighty million (€80,000,000) on average per year of cash flow will be available for restructuring 2010-2015. 00:00:30:54 00:00:31:27 One-hundred sixty-eight million (€168,000,000) is the current provision in the coming year, we expect to go a maximum provision of one-hundred and fifty million (€150,000,000) about. Now the reconciliation with the cash and with the EBITDA for the technicians among you. This is quite important, because it reflects much better what the underlying mail result is. Because in this result the cash outflow of pensions is not given and we also correct for restructurings of the cash outflows. 00:00:31:28 00:00:31:56 The underlying cash EBIT is seventy-three (73) in comparison to the one-hundred and thirty-six million (€136,000,000) which you can see from the profit and loss account. Now lets get to the cash flow. A few comments where work capital is negative. It used to be positive last year. What is the reason? This is because of the high, high sales. It is also because of the phasing of the end of the quarter where we have negative effects. 00:00:31:57 00:00:32:32 Looking at our trade working capital, which has to do with our trading activities, and all KPIs are good. From the cash flow survey you see that this was positive on the cash flow side. Now to the tax. It is quite extraordinary to mention the positive income tax figure. This was the case last year. This was because of positive adjustments with regards to the preliminary statements of the tax office. Part of this has to be paid in the course of this year. 00:00:32:33 00:00:33:07 The negative effects in the quarter are one-hundred and fifty-five million (€155,000,000) accordingly. Investments and CAPEX are also very, very solid and tight of course. This quarter you see lower CAPEX than last year and this will be continued. We will be focussing on our cash flow and for that reason our expectation with reference to total investment this year is somewhat lower. Net debt position of the company, a small increase in the order of one-hundred and twenty-six million (€126,000,000). 00:00:33:08 00:00:33:42 Sorry, year on year the net debt is one-hundred and twenty-six million (€126,000,000) lower. Now the pension developments, ladies and gentlemen. By year-end 2009 we were in the lucky constellation that we had one o eight percent (1.08%) coverage for developments. And the long term interest rates

8 and the weak performance on stock exchanges led to the fact that by the end of the quarter we were at one o one percent (1.01%) coverage, which was below the minimum level and currently we are higher than the minimum level. 00:00:33:43 00:00:34:20 And that we are upwards of the minimum level. Because of the fact that the recalculation of pensions because of the restructuring measures which we have announced, this is having an effect upon the profit and loss account, and in the profit and loss account about sixty-five millions (€65,000,000) will be taken for the full year 2010. Our previous expectations were lower, but the cash outflow is the same. The pension fund has also taken measure in the investment policy in order to reduce the risks somewhat. 00:00:34:21 00:00:34:55 Now the normalisation net income for dividend. So these are the items, which are taken to go the normalised net income for the purpose of the dividend calculation. Now the dividend. Because of the success of the optional dividend last year, we will redo this exercise. The proposed interim dividend is twenty-eight cents (€0.28) per share and this is a pay out ratio of forty percent (40%) of the normalised net income, which was demonstrated to you. 00:00:34:56 00:00:35:28 There is a choice for shareholders whether they take cash or shares and when they take a share element, a minimum mark up of two percent (2%) will take place. Let’s now conclude with our outlook for 2010. The mitigated picture improvement in the European economy, but some vigilance is still

• needed. Express volumes and sales I think, this will be continued at a higher level than 2009.

00:00:35:29 00:00:35:48 There is pressure upon the results however because of price and cost inflation, but accordingly measures will be taken which no doubt in 2011 will make themselves felt. In mail seven to nine percent (7-9%) volume decline expectations for the Netherlands, Master Plan seventy-five million (€75,000,000) savings. 00:00:35:49 00:00:36:12 With regard to the operating income for mail somewhat lower, because of the effect and impact of the higher profit and loss charges for pensions. Somewhat lower CAPEX level and somewhat lower investment for the year. This is the end of my presentation, ladies and gentlemen, and Ernst takes

• ver again.

00:00:36:13 00:00:36:33 Ernst Moeksis Bernard, thank you very much. We have the opportunity for Q and A, ladies and gentlemen. One request to you, please mention your name and the medium you are representing and for whom you have a question. This is important for the registration of this press conference. Who wants to start please? 00:00:36:34 00:00:37:13 Eco Hilterman, Dow Jones Good morning, Mr. Bakker please. With reference to express, the effect of the measures will be visible in 2011. This means that again next year you expect a higher yield for express in 2011? Peter Bakker What is very important for us is, is that in the next few months we follow exactly what happens to the three point five percent (3.5%) price increase in the market, how much in actable fact can be translated into higher prices and in measures where through contracts with individual clients, what we do about it. 00:00:37:14 00:00:37:32 Our goal is to get higher, but in the next few months we have to be seeing whether we are successful in doing so.

9 Eco Hilterman, Dow Jones You do not say that you will expect it will be higher? Peter Bakker No, no, this would only be an expectation statement, which we cannot do. We try to achieve that. 00:00:37:33 00:00:38:22 Eco Hilterman, Dow Jones On the carve out mail and express. Can you highlight why you say that there are no synergies? I would expect that through e-commerce the synergy is on the increase I think, is increasing. Peter Bakker That is one of the areas, yes. Where you see this happening particularly in the residential areas. Where the home delivery, where people things which they ordered via internet, are shipped to them at home and here are growth chances particularly for the mail business and for the parcel business in the Netherlands, but outside of the Netherlands TNT primarily is guided by b to b shipments for business addresses, not so much home addresses. 00:00:38:23 00:00:38:48 The network is very much different. The cost structure is different for that. Within express we are looking at it, but the fact that Dutch parcel business within mail and the express business outside of the Netherlands has to work very, very hard indeed. This situation that psychologically it might be logical that there is synergy, but in actual fact it is rather disappointing. 00:00:38:49 00:00:39:19 We always thought and this is important in terms of our vision, that there would be much synergy if postal networks throughout Europe you could roll out, but a few months ago you have seen our announcement that our ambition is lower here. If you are honest, after the synergies, except for general headquarters, the advantages are restricted and not the reason to stick and to remain together. 00:00:39:20 00:00:39:46 Reuters I have got a couple of questions on the separation. Does the emphasis that you give today in the announcement on the capital market transaction, mean that you are not exploring so much a private sale anymore. There has been speculation that private equity investors like CBC for example, have expressed interest. Does this mean now that you are firmly on the capital market side when it comes to equity? 00:00:39:47 00:00:40:19 Peter Bakker I think we deliberately used to work on the capital market, because those are the type of transactions that we can develop in our own control, in our own comparison of the different advantages. But we are certainly open to any option at this stage. So anyone who has an idea, private equity or not, I normally give my telephone number at this stage, but people now, so they can just call and we will take it in into

• ur explorations.

00:00:40:20 00:00:40:40 But to be able to work in our own control capital market seems to be where we will focus most of our attention at this stage. Reuters Just to be clear on the timing, any capital market transaction would take place after the intended separation is completed in January 2011? 00:00:40:41 00:00:41:17 Peter Bakker What we said is we are working in stages. So, eh, we now put all our efforts in basically two things: working through the Workers Council process and the internal separation, which I am sure you appreciate this is a quite significant amount of work. Parallel to that we are working on eh the

10 exploration of which of the capital market or if you like other transactions eh we think will create the best platform for the businesses, the best returns for shareholders and the best situation for our employees. 00:00:41:18 00:00:41:45 Once we have done that, we have said that we will implement the transaction as soon as is practicable, but we are not giving any firm guidance on dates or anything, because then we are just explaining all the time where we are. What we want to show today, is that we are not going to go for half solutions, we gone go for full separation, starting internally, working focussed through all the external options and we will implement them as soon as practicable. 00:00:41:46 00:00:42:13 Reuters Sorry to question on this, so there could be a capital market transaction before January 2011? Peter Bakker I think that is, given Works Council and shareholder terms, that is very unlikely. I would not bet on that at all. Reuters Because you had the opportunity to work on this for six months now, do you have any price expectations or how much you could raise from the mail unit, whether it through a public or a private route? 00:00:42:14 00:00:42:34 Peter Bakker No, that, that seems to suggest we have decided to move on mail, and we have not decided that. I don’t have any expectations at this stage. Reuters And the last, sorry, the last question on that, will the parcels stay with mail or will they go to express? Peter Bakker We have decided that TPP, the Dutch parcel unit, remains with the mail operation. 00:00:42:35 00:00:43:14 Steven, Finance Europe Thank you. I have a few questions relating to you have a new CFO. First of all, if I understand you correctly, you are planning a restructuring the management by January. Does that mean that the two

• f you will be CEO and CFO of Express TNT and Mail TNT will be something else? This is my first

question, my second question is why did Henk van Dalen leave now? I understand he has found a new opportunity with Vimpelcom. 00:00:43:15 00:00:43:47 And yet, the timing seems unfortunate given that you have to deal with eh, eh investors. Your

• perating eh numbers are not the best you keep on insisting that they are just, that the underlying

numbers are better yet. EBITDA has dropped significantly. So the timing is not perfect why as new

• CFO. Could you have done more to keep Henk on board? And ehm, now a question to you, Mr. Bot.

00:00:43:48 00:00:44:15 You have a background on M & M I understand, does that mean you are in the driving seat ehm structuring the, the, the possible sale of the mail business? And how are you eh as someone who has not been working in investor relations, how are you going to address investors, now ehm, how you are going reassure them given that you don’t have a very strong background in, in, in this area. Thank you. 00:00:44:16 00:00:45:00 Peter Bakker Ok, let me take your first two questions. Ehm, I think until a capital market or other transaction takes place, that will fully separate TNT NV, the board of management of TNT NV including the CEO and

11 CFO, will remain in tact and fully functioning. I think like your third question or second question I think it was, instigating that this indeed is going to be a relatively complex process that we need to manage through in the next few months and both Bernard and myself are fully committed to make that happen in the best possible way. 00:00:45:01 00:00:45:34 Where and how and who will end up in new boards, that is for the future. We are not occupied with that and even if we were, it is not our call. There are supervisory boards who make decisions like that. We are committed to TNT and we are committed to the process that TNT will go through. And eh thereafter I will update you once those choices are made. I think I am in total agreement with you on the unfortunate timing of Henk’s decision. 00:00:45:35 00:00:46:09 Ehm, I would have loved to have designed it differently. But unfortunately, it is life. Opportunities come by when they come by and not when you are ready to have them come by and eh he, he decided to accept the Vimpelcom route. Ehm, I think from, from our point of view I am pretty pleased with Bernard’s appointment in the role of successor. I think you are cutting his CV a little bit short by saying he is only M & A related. 00:00:46:10 00:00:46:49 Bernard has been involved and has been leading the internal project that looks at the carve out of mail, as we have announced a few months ago. And eh, I think his experience as business controller

• verseeing the numbers and the number developments of both the express and the mail side of the

business, is strong enough and we gone give Bernard a crash course in road shows. I eh have been around for a few years so eh I think I can help him out on that one. And on your own eh, the last question I think. 00:00:46:50 00:00:47:06 Steven, Finance Europe Excuse me, one follow up may be. I am not completely sure I understood your answer to the first

• question. You gone stay on board as CEO obviously until the full separation of mail and express and

yet that is going to happen if I understand correctly, by the end of this year or until the beginning of next year. 00:00:47:07 00:00:47:41 Peter Bakker You need to clearly separate the stages. Step 1 is we are going to do an internal separation, which is top structure organisation for mail, top structure organisation for express, but that will be under the governance of TNT NV. Because we can do internally whatever we like, but externally we are TNT NV, the listed company. That NV will have a board of management of which I am and remain the CEO and Bernard here the CFO. 00:00:47:42 00:00:48:04 Once through a capital market transaction or if you like, another transaction, ehm we find a full separation, also in terms of equity ownership, then also of course the governance needs to be adjusted and then people need to make choices or choices need to be made for people, whatever. That comes when is comes, not today. 00:00:48:05 00:00:48:33 Bernard Bot You all go for the sales pitch eh, Peter, I think twenty years nearly in the sector of which twenty years involved with TNT. I think we go back around that time. So the blood is fairly orange and transport. Last five years involved, not only in M & A, but as Peter mentioned, in business control, also risk management and internal control activities in the other finance areas. 00:00:48:34 00:00:49:10 And lastly, in all of the major projects, being it the carve out of logistics and freight management, and in the last couple of months looking at where we want to go with respect to separation. So, eh, I would say, well equipped and excited about making this happen.

12 Steven, Finance Europe A last question to you then. This carve out seems to be your pet project. You have been involved with it for how many years now? And, eh, what happens if it does not happen as well, or if it does not come about as well as you would hope it would be? I mean the stakes are really high, aren’t they? 00:00:49:11 00:00:49:45 Bernard Bot That is why they have a very good guy to handle it. In all seriousness, you talk about a pet project. I don’t think this is a pet project, it is an important decision we take for the company, which needs to be very carefully pushed through, both in strategic and in technical terms. If you look at the strength of our finance function and all our support functions. I have all confidence that we can make it happen. We have shown that we can do these things successfully. 00:00:49:46 00:00:50:23 Look at what we did with logistics and freight management. So I think that all the elements are in place to make eh this a success. Bart Meyer, ANP I have a question with reference to the reorganisation. A comprehensive plan has been established for the mail division. Mail will be turned into a new company. Is there a chance that the reorganisation plans will be adjusted again or are they very solid now? 00:00:50:24 00:00:50:55 Peter Bakker With regards to the reorganisation plan, one has to be very careful whether they are already for all

• times. It is about people and it is about big numbers of fte and big numbers of people. It is quite clear

however that with reference to the volume declines which we have had for a number of years within mail, this will not change, because we take the separation decision. The market will act accordingly and we adjust and organise ourselves in the best possible way for TNT. 00:00:50:56 00:00:51:24 The necessity to separate, to carry through the reorganisation, is exactly the same with or without

• separation. Unless somebody comes up with much improved plans and then we can see whether the

reorganisation must be adjusted. This is not a plan however which from today until tomorrow has come on the table. For a number of years we have discussed seriously with the trade unions about the CLA. 00:00:51:54 00:00:52:11 Personnel and trade union members opted in favour of income instead of work and this would have consequences for the work. And this is a consequence, the reorganisation. The one-hundred and sixty-eight million (€168,000,000) which was taken this quarter, is because of that. If you are taking provisions and if individual people for example are behind it, when these difficult messages go out to personnel, you have to be very, very careful I think to say again, we won’t get through with the exercise, because the emotional effects and pressures through programmes for people is too large I think. 00:00:52:12 00:00:52:49 This has to be will devised and well thought and you have to do this quite energetically, I think. Robert van Dalen, Dow Jones A question about the departure of Henk van Dalen. I understand that last week he announced that he would go away. Can you indicate something? Why was this at such short notice? He is responsible for the second quarter figures. Why is he not here to explain them today and why did he not explain his departure? 00:00:52:50 00:00:53:22 Peter Bakker In good cooperation with our supervisory board, we have decided that when people take the decision also in these times, to opt for a different job somewhere else, and we proposed Bernard I think, which is quite appropriate. We would not have whatever discussion whether Vimpelcom is better than TNT.

13 This would be an interesting discussion, but quite honestly we are not taking an interest on talking about Vimpelcom, we want to talk about TNT. 00:00:53:23 00:00:53:44 Bernard is the man who will do it and important processes will be accompanied by him together with

• me. This will be explained to the supervisory board and the rest is history, as they sometimes say.

These things happen. We would rather have preferred a different option, but we accept it. It was announced last week. Yes. 00:00:53:45 00:00:54:09 Robert van Dalen, Dow Jones A second question. In December you announced that a split up or separation of the company would create speculative value. Today you indicate that there are no synergies, that the carve out would be a better solution. Can you highlight this, what has happened and why? 00:00:54:10 00:00:54:42 Peter Bakker In December many, many questions were addressed and asked. We had got letters from a number of shareholders who were speculating that the sale of express should be one of the reasons why we should be separating this company. If you would have separated the company, such a sale in the view

• f many people would be alleviated. Selling express is not something what we need because of the

express strategy. 00:00:54:43 00:00:55:26 We keep in mind and we realise well and we are also very, very open minded in terms of context, but since 1998 we are a listed public company. Each year we had rumours with reference to takeovers and the like and it has nowhere happened. There is no reason I think, to have this led to a separation. December last year we stated that within the strategy an important change would be announced, namely that the liberalization of the European mail market was and would not be as successful as politicians had been presenting to us. 00:00:55:27 00:00:55:58 Our A and M ambitions have been scaled down for all of Europe to only England, Italy and Germany, the countries where we have major operations. When you do this and when you shrink the synergy potential I think between express and the express networks in these countries and the mail networks, is getting lower and lower. In a number of countries however, England and Italy, this had already been realised and then you may say, this is no longer any reason to do so. 00:00:55:59 00:00:56:39 These companies internally. So what are the problems internally which we encounter in terms of governance and the like. Can we separate these? We have given the answer, we think this is doable in a relatively short span of time. And how in the capital market can this best be configured? Against this background in April we stated we will start the investigation. A number of options were clarified. The partial listings et cetera and partial IPO was mentioned at the time. 00:00:56:40 00:00:57:11 We would look into and our decision after having looked into it and we have discussed this with advisers and in the meanwhile we say, this will not be clear for the capital market. Internally we are

• ready. The synergies between the companies are insufficiently transparent and clear to be a

reasonable proposition and we therefore wanted to have clarity that ultimately our goal is that in the capital market through a different transaction a complete separation be established. 00:00:57:12 00:00:57:53 This is my evolution of my thinking and everybody in the company also needs time to do so. Like any separation, whether it is in your own private life or in business life, there are always feelings and sensitivities involved and gradually we will work through this in a good fact and manner I think. Mathijs Gevers, Financieel Dagblad The partial IPO will no longer take place. And the sale of a partial interest is also no longer an option.

14 00:00:57:54 00:00:58:14 Peter Bakker I stated that we are open minded with regard to all options, but when options a priori do not hold a possibility to get to a full separation and this might be done in steps anyhow. As far as we are concerned, looking at our announcement today, this would not be interesting. 00:00:58:15 00:00:58:41 Mathijs Gevers, Financieel Dagblad An investor who takes a thirty percent (30%) stake or interest in mail is no longer interesting for you? Peter Bakker If it is a sole thing which we see happening, then this would not be our policy line. If a telephone number or the name of these investors, I would also know other structures they would fit into and which would also lead to a complete separation. Mathijs Gevers, Financieel Dagblad Can you explain this? 00:00:58:42 00:00:59:09 Peter Bakker I need not explain, because then I am entering into structures and variants or versions we are not ready for. But it is quite transparent and clear, the goal which we have today is to get to a full

• separation. When shareholders and other investors want to take partial interest within the subset of

complete separation, we would certainly look at it. Mathijs Gevers, Financieel Dagblad What is your preference? 00:00:59:10 00:00:59:47 Peter Bakker My preference is to have two have two strong Dutch companies which both have a business plan,

• rganisation, management team, capital structure which have the support of Works Council to carry
• ut their own strategy. Investors and their interest and strategies and these investors are cordially

welcome, but in order to get this transparency, part and parcel of this is a complete separation. The market goes up and goes down again I think. The environment is rather uncertain. 00:00:59:48 00:01:00:16 Mathijs Gevers, Financieel Dagblad First of January I think you to have to clear this and do this, but the plans might be frustrated when we talk about an IPO or the like. Peter Bakker IPO is some sort of capital market transaction. The separation of the two companies in two phases I mentioned, in two stages. The first stage is the internal one, readying the organisation, management and legal structures. 00:01:00:17 00:01:00:51 I need no capital market for this, we can do this ourselves. A lot of work we have to do very carefully and vigilantly we can do ourselves. As soon as we think that the optimum capital market transaction has been found, then we will see whether there is a market for IPOs or whatever transaction. Whether there are big uncertainties of an economic nature and the like. This has to be taken on board in weighing the different options which we have finally. 00:01:00:52 00:01:01:24 Mathijs Gevers, Financieel Dagblad You are not afraid for a double dip as many of your colleagues. Is my conclusion the right one? Peter Bakker Yes, I could make a big, big mistake when I would be sitting here in six months time and a double dip might have happened. What I can tell you is that when I look at the kilograms and the volumes and

15 this is the handicap of a transport company may be, a transporting company is looking at how many kilograms he has in his van. 00:01:01:25 00:01:01:59 The last six months, each month, the graft shown by Bernard, showed this quite clearly. These grafts are much, much higher than last year. Is this a guarantee that there will be no double dip recession? No, no, no, this is no guarantee. In January there were many ghost stories about double dips and a couple of weeks we had more kilograms in our lorries, but now, twenty-six weeks later, and still more kilograms in our vans or lorries, so I don’t see this now, but anyhow. 00:01:02:00 00:01:02:50 When there would be a double dip, then we have the same contingency plans in our drawers like the

• nes which we used in 2008, 2009 to degrade our capacity and to cut cost further. But as long as we

have kilograms in our network, we have to make these costs and accept them. Because of time reasons, let’s no go too long. Are there any urgent questions I would like to ask the

• perator. No questions from the outside lines. Of course you have the opportunity to have individual

discussion with the gentlemen here. Thank you for being here today and I hope to see you next time. *** End transcript