tpg half year results 2003 - tnt express · group overview steady progress in the second quarter...

Highlights

Press release HYR 2003 Page 1 of 23

First half year results prove resilience of TPG business model

Strong performances in Mail and Express; continued weakness in Logistics

Financial highlights:

� Good operational revenue growth

� Strong performances in Mail and Express offset by continued weakness in Logistics

� Logistics transformation plan fully launched:

� David Kulik to lead division and join Board of Management

� Around €55 million annualised savings targetted

� Associated one-off costs of around €65 million

� Preliminary estimate of up to €195 million for goodwill impairment and asset write-downs

� Interim dividend significantly increased

Half Year Summary HY 2003 HY 2002 % Change

€ mil € mil Operational FX Total

Revenues 5,853 5,797 5.7% -4.7% 1.0%

EBITA 584 588 0.9% -1.6% -0.7%

Operating Income (EBIT) 507 512 0.0% -1.0% -1.0%

Net income 283 288 -0.7% -1.0% -1.7%

Earnings per share (euro cents) 59.6 60.6 -1.7%

Net income from continuing operations excluding pensionincrease and one-off costs (see notes 3 and 4 on page 20) 303 288 6.3% -1.1% 5.2%

Net cash provided by operating activities 398 591

Free cash flow 297 403

Second Quarter Summary Q2 2003 Q2 2002 % Change


Revenues 2,936 2,899 5.8% -4.5% 1.3%

EBITA 292 295 0.4% -1.4% -1.0%

Operating Income (EBIT) 253 257 -1.6% 0.0% -1.6%

Net income 143 145 -0.7% -0.7% -1.4%

Earnings per share (euro cents) 30.1 30.5 -1.4%

Net income from continuing operations excluding pensionincrease and one-off costs (see notes 3 and 4 on page 20) 156 145 8.3% -0.7% 7.6%


Free cash flow 16 223

Divisional EBITA Summary HY 2003 HY 2002 % Change


Mail 430 413 3.1% 1.0% 4.1%

Express 118 102 19.6% -3.9% 15.7%

Logistics 41 88 -43.2% -10.2% -53.4%

Non allocated (5) (15)

EBITA 584 588 0.9% -1.6% -0.7%

Report by the Board of Management


Group overview

Steady progress in the second quarter has enabled TPG todeliver a resilient overall performance in the first half of2003. Growth continues to be impacted by weakeconomic conditions and adverse foreign exchangemovements. Strong performances were again delivered bythe Mail and Express businesses in the second quarter,although continued weakness in parts of the Logisticsbusiness has held back overall profit growth.

TPG today announces a set of forceful actions aimed atrestoring the operating margin of the Logistics business:

� David Kulik will take over from Roberto Rossi to headup the entire Logistics division and will become amember of the Board of Management.

� The design and scoping of the “Transformationthrough Standardisation” programme (TtS) has nowbeen finalised and has identified annualised savings ofaround €55 million which will be delivered within atwo year time period.

� One-off costs associated with the programme areexpected to be around €65 million.

� Preliminary estimates have been made for goodwillimpairment and asset write-downs of up to €175million and €20 million respectively, which are likely tobe required this year.

Cash generation for the group continues to be strong withworking capital well managed and capital expenditureremaining significantly below last year's level.

In view of the strong cash performance, the lower level ofacquisition expenditure and our confidence in thesustainability of free cash flow, it has been decided toincrease the 2003 interim dividend by 20%.

Peter Bakker, CEO : "It is encouraging to see the progressthat we have made in the first half of the year despite thecontinuing challenging economic circumstances. Ourpeople in Mail and Express have once again producedexcellent industry-leading results. Logistics continues toproduce disappointing results but through the TtSprogramme and the appointment of a new strong leaderfor the division, I am confident that major improvementswill be made in the future. I am also pleased that, as aresult of our current financial strength, we are able toincrease our dividend payout while also increasing ourcontribution to the pension funds”.

Group results

Group revenues for the half year increased by 1.0% to€5,853 million, equivalent to a growth of 5.7% at constantexchange rates. Group earnings before interest, tax andgoodwill amortisation of €584 million were just ahead ofthe prior year, expressed at constant rates. Included in thisfigure are €19 million of higher pension costs compared to

the previous year and €13 million of one-off costsassociated with the Logistics TtS programme. Half year netincome declined 1.7% to €283 million. However, excludingthe impact of the higher pension costs and one-off Logisticscosts, net income grew by 5.2% (6.3% at constantexchange rates).

Operating cash flow in the half year was a healthy €398million. Capital expenditure has been cut back by some37% from last year’s level. This is the second year of oursuccessful value based management programme which hasled to significant reductions in the levels of working capitalused across the group.

Review of operations

Mail has performed strongly in the half year and inparticular has achieved excellent results in the secondquarter. The operating margin in the second quarterimproved to 21.9% from 20.3% last year, even afterabsorbing higher pension costs. This is the result of lowerthan expected volume decline and ongoing improvementsin productivity in the Netherlands business.

Implementation of the Cost Flexibility programmecontinues very much on track and is providing the maindriving force for the margin improvements. Some €62million of cost savings have been achieved so far as a resultof Cost Flexibility, €36 million of which were in this halfyear.

The encouraging lower underlying rate of decline in Dutchmail volumes seen in the first quarter compared to most oflast year was maintained in the second quarter due tohigher domestic mail volumes offset by lower direct mailvolumes.

On 20 June 2003 the Government in the Netherlandsdecided to amend its earlier decision on postal tariffs andshorten the duration of the price freeze to the 2004 yearonly. A broader policy on the postal market will bepublished by the Government later this year, inclusive oftariff control. TPG is actively involved in this process.

A number of new alliances with other Postal Operatorswere concluded in the half year. In particular, the strategicpartnership agreed with China Post is a significant step inTPG's international strategy. This partnership could benefitall three of TPG's businesses.

Express has continued to make excellent progress increating competitive advantage in its key geographicmarkets.The operating margin for the half year improvedsubstantially from 5.0% to 5.7% with the second quartermargin rising to 6.4%. Strong positive revenue qualityyields were again achieved across all business units in thedivision, with an impressive 4.5% increase achieved in thesecond quarter in the European business, the fifteenthconsecutive quarter that a positive yield has been achieved.



The TNT Express European air and road networkscontinue to be enhanced in order to enable the fastest andmost reliable service to be offered to customers. A Boeing737 has recently been added to the fleet and services toEastern Europe have been significantly expanded. Growthin Asia continues at a rapid pace and further expansion isplanned for China.

The turnaround in Australia is well on track with at least afull year break even result expected this year in line withthe original timetable. The execution of the Australiaturnaround plan, which consisted of a formidable set ofrestructuring actions across the entire organisation, hasbeen an excellent achievement and a shining example ofTPG's capabilities in major turnaround projects.

Logistics performance continues to be under pressurebut the decline has now stabilised. Although organicrevenue growth has increased considerably in the secondquarter as a result of major new contract wins, volumesfrom existing business continue to be relatively flat. Theunderlying operating margin in the second quarter hasfallen to 3.6% compared to 5.4% in the same quarter lastyear. The TtS programme has identified an initial set ofone-off costs of €13 million which have been charged inthe second quarter. Taking these one-off costs intoaccount, the second quarter margin was 2.2%. Themajority of the performance shortfall is centred on threeEuropean business units, namely France, Italy non-automotive and Germany, which have largely been formedthrough acquisitions. Growth and margins in the threebiggest business units, the UK, North America and Italyautomotive, continue to be healthy and robust.

Good new contract wins with an annualised revenue of€474 million have been achieved in the half year. This is84% of the total 2002 contract wins. All new contractshave been secured at good margins. Major contracts woninclude Volkswagen in Germany and China, Pirelli,Telecom Italia, KPN and the NHS in the UK. Also, TPGwas appointed as sole operator for Fiat automotiveinbound logistics in Italy through a joint venture with Arvil.

Update on Logistics transformation

Good progress has been made in the implementation ofTtS which was launched earlier this year. TtS is acomprehensive programme of actions designed tostandardise operating and business development practicesacross the entire Logistics business in order to improvemargins. Particular emphasis is being placed on theturnaround of underperforming operations mentionedabove. This programme has evolved from the identificationand implementation of competency centres and bestpractice systems at the end of last year.

The design and scoping of the TtS programme has nowbeen finalised and a number of cost saving initiatives andactions contained in the plan have been launched. This

programme will require some fundamental changes in theoperations and processes within business units andimplementation will continue well into next year. Thenature of Logistics business is unlike that of our otherbusinesses, in that it consists of a number of long termcontracts and therefore will require relatively more timefor a full turnaround to take effect.

The TtS programme consists of five process improvementmodules: Procurement, Transportation and Distribution,Warehousing, IT and Contract Rationalisation, each ofwhich has a project leader responsible for achieving thetargetted savings. A sixth module addresses the overheadand restructuring actions resulting mainly from theindividual turnaround plans for the three underperformingcountries. Total annualised savings of around €55 millionhave been identified for TtS and are scheduled to be fullyrealised in 2004. Some €14 million of these savings willalready benefit the current 2003 year. The first wave ofTtS actions has focussed on realising quick win savings inthe areas of procurement and contract rationalisations,together with coordinated actions for the operations in theunderperforming countries. The second phase of actionsbrings in the standardised solutions in warehouse andtransportation management.

One-off costs associated with TtS actions are expected tobe around €65 million, the majority of which areanticipated in 2003. These costs relate to variousrestructuring and rationalisation measures, including thoserelated to warehouse and contract terminations. €13million of one-off costs have been charged in the half year.

A goodwill impairment review has been carried out for allTPG Logistics businesses. Preliminary calculations wouldindicate that a goodwill impairment charge of up to €175million and an asset write-down of up to €20 million arelikely to be required this year. Both of these charges arenon-cash items. The companies affected are restricted toFrance, Italy and Germany.

Board of Management change

TPG is pleased to announce that David Kulik has beenappointed to head up the Logistics division as GroupManaging Director. Kulik, who currently holds the positionof Managing Director TNT Logistics North America andalso leads the TtS project, will be responsible for all ofTPG's worldwide Logistics activities and will become amember of the Board of Management as per 1 September2003, subject to compliance with statutory requirements.He will replace Roberto Rossi who will step down from hiscurrent role and will leave the company.

Financial review

Group operating income was flat year on year, inclusive ofthe higher pension costs and one-off Logistics costs. Non-



allocated items amounted to a net cost of €5 million in thehalf year (prior year €15 million) and included corporatecosts of €7 million incurred in the second quarter.Goodwill amortisation remained flat year on year. Netfinancial expense for the half year was almost 10% lowerthan last year, mainly due to the reduced level of net debt.The effective tax rate in the half year at 37.2% was slightlyhigher than the same period last year.

Dividend

The Board of Management has the intention to raise thedividend pay-out ratio over time to around 40% of netincome. As a first step, the interim dividend for 2003 willbe increased by 20% to €0.18 per ordinary share. Theinterim dividend will be paid on 13 August 2003.

Prospects

The overall results in the first half of the year havedemonstrated the resilience of TPG’s business model in aweak economic environment. The global economic climateis expected to remain sluggish over the remainder of thisyear. Nevertheless, TPG is well positioned to benefitshould there be any upturn in the economic cycle.

The Mail division is targetted to achieve a 20% operatingmargin for 2003 as a whole. On the basis of the trendsseen in the first half of the year, the rate of decline inDutch mail volumes in 2003 overall is expected to belower than the 2 to 3% previously assumed. Furtherbenefits are expected from the Cost Flexibility programme.Growth in international business is expected to continue ata similar pace to the first half year.

Further good progress is expected in Express in thesecond half of the year. The operating margin is expectedto rise above 6% overall for the first time in 2003, drivenby continuing positive revenue quality yield developments,together with the fastest and most reliable express deliveryservice.

The difficult trading environment currently faced byLogistics is expected to continue for the remainder of thisyear. Although the TtS programme will help alleviate someof the pressure on margins in the current year, most of thebenefits will not be seen until next year. An underlyingoperating margin before one-off costs of around 3.5% isexpected for the 2003 year. The pace of new businessdevelopment is expected to remain healthy.

The Board of Management expects TPG’s growth in netincome from continuing operations excluding additionalpension costs in 2003 to be around 5% at constant rates ofexchange. This outlook excludes the impact of one-offcosts and non-cash impairments in Logistics.

Update of events in 2nd Quarter 2003 to date

Apr 1Wim Kok and René Dahan appointed asmembers of Supervisory Board

Apr 2Positive Standard & Poors credit rating reviewoutcome announced

Apr 3Acquisition of Blitzpunkt in Germanunaddressed mail

Apr 25 China Post strategic partnership announced

Apr 29 Acquisition of DocVision in the Netherlands

Apr 29Top executives hired for Logistics in bothCentral Europe and France

May 16Appointment of TPG and Arvil joint-ventureas Fiat sole operator

May 27Agreement reached with Unions on2003/2004 Collective Labour agreement inthe Netherlands

May 28 Express contract with Brazil Post announced

June 20Amended decision on postal tariffs announcedby Dutch Government

July 1A Boeing 737 added to Express European AirNetwork

July 21Logistics contract signed with ShanghaiVolkswagen in China

July 23Logistics contract with the NHS in UKannounced

Business Highlights - Mail


� Improved operating margin despite higher pension costs

� Particularly strong second quarter performance

� Volume declines less than expected

� Productivity gains driven by Cost Flexibility

Half Year HY 2003 HY 2002 % Change Org% Acq% FX%

€ mil € mil

Revenues 1,966 1,969 -0.2% -0.1% 0.9% -1.0%

EBITA 430 413 4.1% 1.2% 1.9% 1.0%

Operating margin 21.9% 21.0%

Second Quarter Q2 2003 Q2 2002 % Change Org% Acq% FX%

€ mil € mil

Revenues 967 959 0.8% 0.2% 1.6% -1.0%

EBITA 212 195 8.7% 3.1% 4.1% 1.5%


Mail revenues fell by 0.2% in the half year. Organicrevenue growth was a marginally negative 0.1%.Excluding the impact of last year's one-off Euro coinsproject, organic growth was a positive 0.7%. Secondquarter revenues grew organically by 0.2%.

Half year earnings increased by 4.1% with theoperating margin improving to 21.9% from 21.0% lastyear. Second quarter earnings grew by 8.7%, pushingup the operating margin from 20.3% last year to21.9%. An additional €15 million pension costs havebeen charged in the half year, equally split over thetwo quarters.

The improved performance is mainly driven by theCost Flexibility programme and ongoing tight costcontrols which together have led to a significantsaving of €36 million in the Mail Netherlands

operation in the half year. In Distribution and Sortinga large reduction of full time equivalent staff has beenachieved. A reduction in Mail Head Office costs alsocontributed to the cost efficiencies.

Start up costs in European Mail Networks and Data &Document Management were €5 million in the halfyear, similar to last year. A one-off gain was made onthe sale of Geldnet, a cash services company, in thehalf year. Net one-off gains in the first half of lastyear, which consisted of the release of an accrual forterminal dues less provisions for Cost Flexibility,exceeded this gain.

The quality of next day mail delivery in theNetherlands is 96.4%, well ahead of the governmenttarget of 95%.

Business Highlights - Mail


Revenue Analysis

Revenues for Mail lines of business for the first quarter of 2003 and the prior year have been restated to reflect a moreaccurate elimination of internal transactions.


€ mil € mil

Mail Netherlands 1,363 1,381 -1.3% -1.5% 0.2% 0.0%

Cross Border 305 319 -4.4% 0.0% 0.0% -4.4%

European Mail Networks 197 173 13.9% 9.2% 6.4% -1.7%

Data & Document Management 101 96 5.2% 3.1% 4.2% -2.1%

Mail 1,966 1,969 -0.2% -0.1% 0.9% -1.0%


€ mil € mil

Mail Netherlands 663 666 -0.5% -1.0% 0.5% 0.0%

Cross Border 148 157 -5.7% -1.9% 0.0% -3.8%

European Mail Networks 105 88 19.3% 12.5% 9.1% -2.3%

Data & Document Management 51 48 6.3% 0.1% 8.3% -2.1%

Mail 967 959 0.8% 0.2% 1.6% -1.0%

Mail Netherlands revenues fell by 1.3% in the halfyear. However, excluding the impact of last year'sone-off Euro coins project, revenues were flat yearon year. Price and mix effects had a positive 1.3%impact in the half year, mainly in the second quarter.

Total addressed mail volumes declined by 1.3% inthe half year. Election mail volumes in the half yearwere the same as last year. Second quarter volumesdeclined by 2.7% but, excluding the impact ofelections in the second quarter of last year, theunderlying decline was only 1.4%, similar to the firstquarter of this year. The decline in volumes isentirely in direct mail where volumes fell by 3.4% inthe half year (3.9% in the second quarter). This ismainly due to the slow economy which continues toimpact magazines, papers and other printed matter.Domestic letter mail volumes remained flat year onyear mainly due to a good second quarter which hadan underlying 0.5% increase.

Cross Border revenues fell by 4.4% in the half yearentirely due to foreign exchange movements.Organic growth was flat in the half year due to a fallin the second quarter Spring volumes resulting fromthe effects of the SARS virus. Prices in the Springbusiness remain under pressure, particularly inEurope.

European Mail Networks continue to deliverhigh organic revenue growth: 9.2% for the half yearand 12.5% in the second quarter. The maincontributors to this growth are Italy, Eastern Europeand the Netherlands VSP operation. Also, as fromthe second quarter of this year, Europost, theaddressed mail joint venture with the Otto Hermesgroup in Germany, is now also distributing crossborder mail in Germany. The acquisitions of theGerman unaddressed mail companies Blitzpunkt andWerbeagentur Fischer in the first half of this yearadded a further 6.4% to year on year revenuegrowth.

Data & Document Management revenues fromthe Cendris brand grew organically by 3.1% in thehalf year. Volumes continue to be under pressure asa result of the depressed economic environment inthe Netherlands and the rest of Europe. Theacquisition of DocVision in the second quartercontributed an additional 4.2% revenue growth inthe half year.

Business Highlights - Express


� Further margin improvements

� Strong positive revenue quality yield

� Profit improvements in nearly all business units


€ mil € mil

Revenues 2,073 2,059 0.7% 6.3% -0.3% -5.3%

EBITA 118 102 15.7% 25.1% -5.5% -3.9%



€ mil € mil

Revenues 1,036 1,040 -0.4% 5.1% -0.2% -5.3%

EBITA 66 61 8.2% 22.4% -8.8% -5.4%


Express revenues, which grew nominally by 0.7% inthe half year, were impacted by significant adverseforeign exchange translation effects caused by thestrengthening of the euro against all major currencies.The rate of organic growth was 6.3%, which wasaffected by a slight slowing in the second quarter to5.1% due mainly to the timing of the Easter holiday.

Half year earnings climbed 15.7% and the operatingmargin improved from 5.0% to 5.7% after chargingadditional pension costs of €3 million. Almost allbusiness units achieved good year on year growth inearnings and this has been achieved mainly byimproving the mix of the business through selling nodiscount simplified contract rate agreements to smalland medium sized customers.

The major profit improvements in the half year havebeen achieved in the Benelux countries, Germany,

Eastern Europe and Australia. The focus on revenuequality yields and enforcement of disciplines involvedin selling the no discount contract agreements to allnew customers are the key reasons for theimprovements, mirroring the successes achieved inother countries. Well trained specialist domestic andinternational sales teams working with a proven salesterritory management system have producedexcellent results supported by the fastest and mostreliable express delivery service.

Air network capacity and utilisation in the half yearare approximately the same as the equivalent periodlast year, having been successfully tailored for arelative shift by customers towards the road expressservices provided by the company.

Business Highlights - Express


Revenue Analysis


€ mil € mil

Express Europe 1,703 1,681 1.3% 5.2% -0.4% -3.5%

Express ROW 370 378 -2.1% 11.7% 0.0% -13.8%

Express 2,073 2,059 0.7% 6.3% -0.3% -5.3%


€ mil € mil

Express Europe 847 845 0.2% 3.8% -0.2% -3.4%

Express ROW 189 195 -3.1% 10.3% 0.0% -13.4%

Express 1,036 1,040 -0.4% 5.1% -0.2% -5.3%

Europe revenues increased by 1.3% in the half year.Organic revenue growth was 5.2% with the strongestgrowth being achieved in the UK, France, EasternEurope, Spain and Austria. Foreign exchangemovements negatively affected revenues onconversion to euros by 3.5% and there was a 0.4%adverse impact resulting from the disposal of an airnetwork company in Italy last year.

Organic revenue growth in the second quarter was3.8%. Total European core revenues grew by 4.9%mainly due to a 4.5% improvement in revenue qualityyield. The amount of core kilos carried increased by0.9% and the number of consignments handled fell by0.1%.

The relatively low growth in volumes is mainly due tothe continued focus on uprating or discardingunprofitable customers in order to improve revenuequality yields. Also, the timing of the Easter holidaywhich resulted in one less working day compared tolast year, impacted the second quarter growth.

Rest of the World revenues fell by 2.1% in the halfyear but were affected by a 13.8% negative foreignexchange impact. Organic revenue growth was 11.7%with strong growth achieved in Australia, Asia, theAmericas and the Middle East. Second quarter organicrevenue growth dropped slightly to 10.3%, partly dueto the impact of the SARS virus but mainly because ofthe Easter holiday timing.

Business Highlights - Logistics


� Earnings affected by underperformance in three countries

� TtS programme is underway; certain one-off costs already incurred

� High level of new contract wins at good margins

� Good second quarter organic revenue growth


€ mil € mil

Revenues 1,829 1,781 2.7% 7.5% 3.4% -8.2%

EBITA 41 88 -53.4% -24.7% -18.5% -10.2%


Operating margin excl one-off costs 3.0% 4.9%


€ mil € mil

Revenues 944 908 4.0% 9.9% 1.4% -7.3%

EBITA 21 49 -57.1% -18.4% -29.0% -9.7%


Operating margin excl one-off costs 3.6% 5.4%

Logistics revenues increased by 2.7% in the half year.On an organic basis, revenue growth of 7.5% wasachieved. A large negative foreign exchange conversioneffect of 8.2% significantly reduced nominal revenues.Second quarter organic revenue growth rose to 9.9%driven by higher growth in both Europe and NorthAmerica.

First half earnings fell by €47 million compared withthe first half of last year. One-off costs of €13 millionhave been incurred in the half year relating to theTransformation through Standardisation programme.These consist of various contract and warehousetermination costs and other restructuring costs.Adverse foreign exchange movements have furtherreduced earnings by €9 million. The comparison tolast year is also somewhat distorted by a gain of €15million in the prior year from the termination of a jointventure in North America and one-off costs last yearof €5 million. The real operational shortfall istherefore €15 million.

All business units still suffer from low volumes onexisting contracts resulting from the weak economicconditions. The majority of the decline in earningshowever is attributable to France, Italy non-

automotive and Germany. In France, the inability tocompletely pass on labour and fuel surcharges to thecustomer, operational difficulties on a major contractand underutilised warehouse capacity were the mainreasons for the reduction in earnings. In Italy non-automotive and Germany, inefficiencies on existingcontracts are the key reasons for the decline.

New contract wins in the half year have an annualisedrevenue of €474 million (€314 million in the first halfof 2002). Contract renewals successfully completed inthe half year amount to annualised revenues of €375million, representing a current retention rate of 77%.Contract terminations amounted to annualisedrevenues of €110 million of which the majority weredue to either our own portfolio rationalisation orcustomer in-sourcing. New contract wins net ofterminations are 70% higher than the first half of2002.

The business development pipeline has slightly fallen to€1.4 billion from €1.6 billion at the end of the firstquarter as a result of the recent high level of contractwins. The higher certainty part of the pipeline hasremained stable in absolute terms and representssome 17% of the total pipeline.

Business Highlights - Logistics


Revenue Analysis


€ mil € mil

Logistics Europe 1,360 1,277 6.5% 3.4% 5.9% -2.8%

Logistics North America 329 382 -13.9% 8.4% -3.9% -18.4%

Logistics ROW 140 122 14.8% 47.5% 0.0% -32.7%

Logistics 1,829 1,781 2.7% 7.5% 3.4% -8.2%


€ mil € mil

Logistics Europe 703 651 8.0% 6.3% 4.3% -2.6%

Logistics North America 166 192 -13.5% 11.5% -7.8% -17.2%

Logistics ROW 75 65 15.4% 41.5% 0.0% -26.1%

Logistics 944 908 4.0% 9.9% 1.4% -7.3%

In line with the division's sector diversificationstrategy, the amount of total Logistics revenuesrepresented by the automotive sector has fallen fromover 40% in the first half of last year to 37% this halfyear. The fast moving consumer goods sector showedthe largest increase.

The 7.5% first half organic revenue growth wasachieved through new contracts (14.9%) and a positivevolume impact (1.0%), offset by the impact ofterminated contracts (8.2%) and adverse price and mixeffects (0.2%).

Europe revenues grew by 6.5% in the half year, 3.4%of which was organic. The rate of organic revenuegrowth improved in the second quarter to 6.3% as aresult of strong contract wins, including Pirelli andVolkswagen in Germany, Telecom Italia in Italy andKPN in the Netherlands. The commencement of thesole operator contract for Fiat in May has alsocontributed to the higher growth. The acquisitions ofTransports Nicolas and TNT DFDS Transport in thefirst half of 2002 added 5.9% to Europe's revenuegrowth in the half year.

North America organic revenue growth was ahealthy 8.4% in the half year although nominalrevenues fell by 13.9% due to a large foreign exchangeimpact of 18.4%. In the second quarter organic growthincreased to 11.5% due again to a high level of newcontract wins, including NACCO and Interline Brands.The termination of an automotive joint venture in thefirst half of last year reduced revenue growth in thehalf year by 3.9%.

Rest of the World first half revenues increased by14.8%. Organic revenue growth was a massive 47.5%,driven by the TNT Anji joint venture in China andstrong growth in the rest of Asia and Australia. Thiswas offset to some extent by a substantial 32.7%adverse impact from foreign exchange conversion.

.

Quarterly information – Group

Press release HY 2003 Page 11 of 23

Euro Million Q2 2003 Q1 2003 Q4 2002 Q3 2002 Q2 2002 Q1 2002 Q4 2001 Q3 2001 Q2 2001 Q1 2001

Group

Revenues 2,936 2,917 3,180 2,805 2,899 2,898 3,013 2,642 2,787 2,776

Earnings from operations 299 290 382 222 305 298 363 210 278 277

Non-allocated items (7) 2 12 8 (10) (5) (41) 4 (22) 87

EBITA 292 292 394 230 295 293 322 214 256 364

Goodwill amortisation (39) (38) (39) (39) (38) (38) (37) (34) (35) (33)

Operating Income (EBIT) 253 254 355 191 257 255 285 180 221 331

Financial income and expenses (23) (24) (25) (31) (25) (27) (8) (29) (26) (30)

Income taxes (84) (87) (115) (60) (81) (85) (104) (56) (70) (105)

Results from affiliates (3) (1) (1) (1) (3) (1) 2 (2)

Minority interests (2) (2) (3) (3)

Net Income 143 140 212 99 145 143 169 97 123 196

Net profit on sale of non-core business (14) 3 (5) (28)

Net Income from continuingoperations 143 140 198 99 145 143 172 97 118 168

Average number of shares (mil) 475.1 475.0 475.0 475.0 475.0 475.0 475.0 475.0 478.0 475.3

Earnings per share (euro cents) 30.1 29.5 44.6 20.8 30.5 30.1 35.6 20.4 25.9 41.2

Net cash provided by operatingactivities 74 324 227 214 337 254 256 161 34 322

Capital expenditure on property, plantand equipment and other intangibleassets (72) (60) (152) (111) (130) (79) (147) (155) (114) (65)

Disposals of property, plant andequipment and other intangible assets 14 17 23 19 16 5 21 36 27 7

Free cash flow 16 281 98 122 223 180 130 42 (53) 264

Number of employees 160,536 150,155 150,365 148,285 143,097 141,463 138,563 139,065 135,539 131,426

Full time equivalent employees 119,946 114,348 113,444 113,711 112,751 112,261 109,589 111,976 106,782 103,270

Quarterly Information - Mail



Mail

Mail Netherlands

Revenues 663 700 780 634 666 715 801 624 657 688Growth % -0.5% -2.1% -2.6% 1.6% 1.4% 3.9% 3.9% 4.5% 0.0% 1.5%Organic -1.0% -2.1% -2.6% 1.6% 1.4% 3.9% 3.9% 4.5% 0.0% 1.5%Acquisition 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Fx 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Addressed mail pieces (mil) 1,297 1,411 1,575 1,201 1,333 1,412 1,618 1,225 1,328 1,393Working days 61 64 63 65 61 64 63 65 61 64

Cross Border

Revenues 148 157 176 155 157 162 178 157 158 161Growth % -5.7% -3.1% -1.1% -1.3% -0.6% 0.6% 4.1% 1.3% -2.5% -3.0%Organic -1.9% 1.8% 1.1% 0.6% -1.8% -4.5% 2.8% -0.6% -1.4% -4.1%Acquisition 0.0% 0.0% 0.0% 0.0% 3.7% 3.9% -0.6% 3.2% 0.0% 0.0%Fx -3.8% -4.9% -2.2% -1.9% -2.5% 1.2% 1.9% -1.3% -1.1% 1.1%

European Mail Networks

Revenues 105 92 100 85 88 85 96 74 78 57Growth % 19.3% 8.2% 4.2% 14.9% 12.8% 49.1% 45.5% 42.3% 39.3% 3.6%Organic 12.5% 5.9% 8.4% -1.3% 3.2% 16.9% 0.2% 0.2% 8.6% -5.5%Acquisition 9.1% 3.5% -4.2% 16.2% 10.1% 31.8% 45.8% 43.2% 30.7% 9.1%Fx -2.3% -1.2% 0.0% 0.0% -0.5% 0.4% -0.5% -1.2% 0.0% 0.0%

Data & Doc Management

Revenues 51 50 62 44 48 48 48 45 42 32Growth % 6.3% 4.2% 29.2% -2.2% 14.3% 50.0% 71.4% 60.7% 23.5% 6.7%Organic 0.1% 6.3% 6.3% -6.6% 1.0% 8.1% 34.6% 14.3% -1.0% 6.7%Acquisition 8.3% 0.0% 25.0% 4.4% 13.3% 41.9% 36.8% 46.4% 24.5% 0.0%Fx -2.1% -2.1% -2.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total Mail

Revenues 967 999 1,118 918 959 1,010 1,123 900 935 938Growth % 0.8% -1.1% -0.4% 2.0% 2.6% 7.7% 8.4% 8.2% 2.9% 1.0%Organic 0.2% -0.4% -0.7% 0.7% 1.0% 3.5% 4.3% 4.0% 0.3% 0.3%Acquisition 1.6% 0.3% 0.7% 1.6% 2.1% 4.0% 3.8% 4.9% 2.8% 0.5%Fx -1.0% -1.0% -0.4% -0.3% -0.5% 0.2% 0.3% -0.7% -0.2% 0.2%

EBITA 212 218 247 144 195 218 240 144 189 208

Operating margin 21.9% 21.8% 22.1% 15.7% 20.3% 21.6% 21.4% 16.0% 20.2% 22.2%

Goodwill amortisation (10) (7) (9) (6) (8) (7) (6) (4) (5) (4)Operating income (EBIT) 202 211 238 138 187 211 234 140 184 204

Note: Revenues for Mail lines of business have been restated to reflect a more accurate elimination of internal transactions.

Quarterly Information – Express



Express

Express Europe

Revenues 847 856 899 822 845 836 825 747 780 783Growth % 0.2% 2.4% 9.0% 10.0% 8.3% 6.8% -2.5% 1.4% 3.2% 5.5%Organic 3.8% 6.3% 8.4% 7.3% 7.7% 2.8% -2.2% 3.5% 4.1% 5.8%Acquisition -0.2% -0.5% 1.8% 2.8% 1.9% 3.0% -0.1% -1.1% -1.3% 0.6%Fx -3.4% -3.4% -1.2% -0.1% -1.3% 1.0% -0.2% -1.0% 0.4% -0.9%

Core consignments (mil) 33.7 33.8 35.2 30.2 33.8 32.9 33.0 28.8 31.6 32.0Core kilos (mil) 527.3 523.3 566.4 494.3 522.5 519.8 550.2 487.3 505.8 521.8Core revenue quality yield improvement 4.5% 3.3% 4.3% 2.8% 2.4% 2.0% 2.2% 2.8% 5.7% 7.5%

Express ROW

Revenues 189 181 205 190 195 183 195 192 198 186Growth % -3.1% -1.1% 5.1% -1.0% -1.5% -1.6% -11.8% -13.1% -3.4% -4.6%Organic 10.3% 13.3% 14.9% 7.4% 5.0% -4.8% -7.1% -4.6% 1.2% 1.0%Acquisition 0.0% 0.0% 0.0% 0.5% 0.0% 0.5% 0.1% 0.2% 0.0% 0.0%Fx -13.4% -14.4% -9.8% -8.9% -6.5% 2.7% -4.8% -8.7% -4.6% -5.6%

Total Express

Revenues 1,036 1,037 1,104 1,012 1,040 1,019 1,020 939 978 969Growth % -0.4% 1.8% 8.2% 7.8% 6.3% 5.2% -4.4% -2.0% 1.8% 3.4%Organic 5.1% 7.6% 9.4% 7.2% 7.1% 1.4% -3.2% 1.6% 3.4% 4.8%Acquisition -0.2% -0.4% 1.6% 2.4% 1.5% 2.5% -0.1% -0.9% -1.0% 0.5%Fx -5.3% -5.4% -2.8% -1.8% -2.3% 1.3% -1.1% -2.7% -0.6% -1.9%

Working days 60 63 62 65 61 62 62 65 60 63

EB1TA 66 52 107 37 61 41 69 19 35 34


Goodwill amortisation (13) (13) (13) (14) (13) (12) (12) (14) (12) (13)Operating Income (EBIT) 53 39 94 23 48 29 57 5 23 21

Quarterly Information – Logistics



Logistics

Logistics EuropeRevenues 703 657 707 659 651 626Growth % 8.0% 5.0% 19.4% 26.5% 18.8% 32.6%Organic 6.3% 0.5% 3.7% 4.1% 6.0% 19.3%Acquisition 4.3% 7.5% 8.6% 11.3% 4.4% 0.4%Fx -2.6% -3.0% 7.1% 11.1% 8.4% 12.9%

Logistics North AmericaRevenues 166 163 168 155 192 190Growth % -13.5% -14.2% -5.6% -11.9% -9.9% -5.0%Organic 11.5% 5.3% 6.2% -3.4% -1.9% -9.5%Acquisition -7.8% 0.0% 0.0% 0.0% 0.0% 0.0%Fx -17.2% -19.5% -11.8% -8.5% -8.0% 4.5%

Logistics ROWRevenues 75 65 72 68 65 57Growth % 15.4% 14.0% 24.1% 21.4% 6.6% 14.0%Organic 41.5% 54.4% 53.4% 44.6% 18.0% 18.0%Acquisition 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Fx -26.1% -40.4% -29.3% -23.2% -11.4% -4.0%

Total LogisticsRevenues 944 885 947 882 908 873 885 814 878 778Growth % 4.0% 1.4% 7.0% 8.4% 3.4% 12.2% 9.8% 39.4% 72.7% 62.8%Organic 9.9% 5.0% 7.7% 6.1% 0.6% 3.3% 1.9% 6.8% 11.5% 11.2%Acquisition 1.4% 5.4% 4.8% 6.3% 6.9% 7.1% 7.7% 36.2% 61.5% 53.6%Fx -7.3% -9.0% -5.5% -4.0% -4.1% 1.8% 0.2% -3.6% -0.3% -2.0%

Revenues by sector:Automotive 345 336 347 316 356 361Tyres 43 58 68 58 47 46FMCG 163 151 195 179 150 131Hi-tech electronics 117 119 125 103 109 109Publishing / media 48 56 66 57 57 56Other 228 165 146 169 189 170

EB1TA 21 20 28 41 49 39 55 46 53 36


Goodwill amortisation (17) (17) (18) (17) (18) (19) (18) (17) (18) (16)Operating Income (EBIT) 4 3 10 24 31 20 37 29 35 20

Consolidated statements of income


HY 2003

€ mil

HY 2002

€ mil

Net sales 5,811 5,748

Other operating revenues 42 49

Total operating revenues 5,853 5,797

Salaries and social security contributions (2,045) (2,023)

Depreciation, amortisation and impairments (246) (236)

Other operating expenses (3,055) (3,026

Total operating expenses (5,346) (5,285)

Operating income 507 512

Financial income and expenses (47) (52)

Income before income taxes 460 460

Income taxes (171) (166)

Results from investments in affiliated companies (4) (3)

Minority Interests (2) (3)

Net income 283 288

Effective tax rate 37.2 36.1

Net income per ordinary share and per ADS ¹ (in euro cents) 59.6 60.6

¹Based on the average amount of 475,072,479 ordinary shares, including ADS (2002: 475,017,834).

Consolidated cash flow statements


Before proposed appropriation of net income

HY 2003€ mil

HY 2002*€ mil

Net income 283 288

Depreciation, amortisation and impairments 246 236

Changes in pension liabilities (109) (71)

Changes in other provisions (13) 13

Changes in deferred taxes 68 11

Changes in working capital (77) 114


Acquisition/disposal of group & affiliated companies (28) (84)

Capital expenditure on property, plant and equipment (121) (209)

Capital expenditure on intangible assets (11)

Disposals of property, plant and equipment 22 21

Disposals of intangible assets 9

Changes in other financial fixed assets (19) (11)

Changes in minority interests 0 2

Net cash used in investing activities (148) (281)

Dividend (120) (115)

Long-term liabilities acquired 56 10

Long-term liabilities repaid (34) (51)

Changes in short-term bank debt (61) (301)

Net cash used by financing activities (159) (457)

Changes in cash and cash equivalents 91 (147)

Cash and cash equivalents at beginning of period 357 451

Exchange rate differences on cash items (7) (13)

Cash and cash equivalents from acquisition and disposal of group companies (4) 1

Changes in cash and cash equivalents 91 (147)

Cash and cash equivalents at end of period 437 292

* Reclassifications have been made to increase comparability with current year presentation ofother intangible assets separate from property, plant and equipment.

Consolidated balance sheets


Before proposed appropriation of net income

At 30 June2003€ mil

At 31 Dec2002€ mil

Assets

Fixed assets

Intangible assets 2,659 2,766

Property plant and equipment 2,041 2,130

Financial fixed assets 708 677

Total fixed assets 5,408 5,573

Current assets

Inventory 55 56

Accounts receivable/prepayments 2,382 2,280

Cash and cash equivalents 437 357

Total current assets 2,874 2,693

Total assets 8,282 8,266

Group equity

Shareholders' equity 3,084 2,961

Minority interests 13 18

Total group equity 3,097 2,979

Provisions

Retirement schemes 28 28

Deferred tax liabilities 126 133

Other provisions 121 133

Total provisions 275 294

Pension liability 633 742

Liabilities

Interest bearing liabilities 1,714 1,761

Non Interest bearing liabilities 2,563 2,490

Total liabilities 4,277 4,251

Total liabilities and group equity 8,282 8,266

Additional information


Divisional Summary

€ milEBITA

HY 2003€ mil

Goodwillamortisation

€ milOperating

income

€ milEBITA

HY 2002€ mil

Goodwillamortisation

€ milOperating

income

Mail 430 (17) 413 413 (14) 399

Express 118 (26) 92 102 (26) 76

Logistics 41 (34) 7 88 (36) 52

589 (77) 512 603 (76) 527

Non-allocated items (5) 0 (5) (15) 0 (15)

584 (77) 507 588 (76) 512

Capital expenditure on property, plant and equipment and other intangible assets

HY 2003

€ mil

HY 2002

€ mil

Mail 39 51

Express 59 82

Logistics 32 75

Corporate 2 1

Total 132 209

Movement in shareholders’ equity

Movement in shareholders’ equity

HY 2003€ mil

HY 2002€ mil

Opening balance at 1 January 2,961 2,600

Net income for the period 283 288

Foreign exchange effects (41) (49)

Cash dividend (119) (114)

Balance at 30 June 3,084 2,725

US GAAP Statement


Net Income

HY 2003€ mil

HY 2002€ mil

Net income under Dutch GAAP 283 288

Adjustments for:

Employment schemes & group reorganisation (6) (7)

Stock based compensation expense (2)

Goodwill amortisation 77 76

Financial instruments 6 (9)

Real estate sale (1)

Depreciation on restoration of previously recognised impairments 2 2

Depreciation of capitalised software (4)

Pension curtailment gain 2

Tax effect of adjustments 5

Net Income under US GAAP 359 353

Net income per ordinary share and per ADS 1 (in Euro cents) 75.6 74.3

¹Based on the average amount of 475,072,479 ordinary shares, including ADS (2002: 475,017,834)

Shareholders’ Equity

HY 2003€ mil

HY 2002€ mil

Shareholders’ equity under Dutch GAAP 3,084 2,725

Adjustments for:

Employment schemes & group reorganisation 146 158

Stock based compensation (2) 1

Goodwill 168 12

Other intangible assets amortisation (2) 0

Financial instruments (5) (15)

Real estate sale (17)

Sale and leaseback transaction (4)

Restoration of previously recognised impairments, net of depreciation (9) (13)

Long-term contract incentive payment (6)

Capitalised software 6

Pension curtailment gain 2 2

Deferred taxes on adjustments (40) (50)

Shareholders’ equity under US GAAP 3,315 2,826

Notes to the financial statements


1. Accounting policies

Accounting policies have remained unchanged in the six months to 30 June 2003.

2. Restatement of prior year numbers

The prior year numbers of Express and Logistics have been restated for consistency to reflect the transfer of the In-night business from Express to Logistics at the beginning of 2003.

Revenues for Mail lines of business for the first quarter of 2003 and the prior year have been restated to reflect amore accurate elimination of internal transactions.

In accordance with the Dutch Council for Annual Reporting directive RJ160 , prior year shareholders’ equity has beenrestated to reflect that the appropriation of results for the year be recorded as a dividend upon shareholder approvaland not upon declaration by management.

3. Increase in pension costs

An additional gross pension cost of €37 million (€24 million net of tax) will be charged in the income statement in2003 compared to the previous year in respect of defined benefit schemes. As a result of this, net income excludingpension increase will be separately identified in 2003. Additional pension costs charged in the half year 2003 incomestatement compared to the previous year are as follows:

Gross

(before tax)

€ mil

Net

(after tax)

€ mil

Pension costs in HY 2003 21 13

Pension costs in HY 2002 (2) (1)

Increase in pension costs 19 12

4. One-off costs

One-off costs associated with the Logistics “Transformation Through Standardisation” programme have been chargedin Operating Income in the half year.

Gross

(before tax)

€ mil

Net

(after tax)

€ mil

One-off costs 13 8

5. Composition of the Group

There have been no material changes in the composition of the Group during the six months to 30 June 2003.

6. Employees

Total number of employees at 30 June 2003 was 160,536 compared to 150,365 at 31 December 2002.

Financial Calendar


Financial Calendar 2003

Wednesday 6 August Ex-dividend listing of TPG shares

Wednesday 13 August Payment of interim dividend

Monday 27 October Publication of 2003 third quarter results

Financial Calendar 2004

Thursday 19 February Publication of 2003 full year results

Wednesday 7 April Annual General Meeting of Shareholders

Tuesday 13 April Ex-dividend listing of TPG shares

Wednesday 21 April Payment of final dividend

Contact Information


Jon DowningDirector of Investor RelationsContact:Phone +31 20 500 62 41Fax +31 20 500 75 15Email [email protected]

Emilie de WeertManager of Investor RelationsContact:Phone +31 20 500 62 42Fax +31 20 500 75 15Email [email protected]

Tanno MassarDirector of Media RelationsContact:Phone +31 20 500 61 71Fax +31 20 500 75 20Email [email protected]

Published by:

TPG N.V.

Neptunusstraat 41-63

2132 JA Hoofddorp

P.O. Box 13000

1100 KG Amsterdam

Phone +31 20 500 60 00Fax +31 20 500 70 00Email [email protected]

Internet www.tpg.com

Responsible for content and editing:

TPG Investor Relations


Forward-looking statements warning - Safe Harbour Statement underthe US Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements. Forward-looking statements generally can be identified by the use of termssuch as "ambition", "may", "will", "expect", "intend", "anticipate", "believe", "plan", "seek", "continue" or similar terms. By theirnature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances thatwill occur in the future. These forward-looking statements involve known and unknown risks, uncertainties and other factors, manyof which are outside of our control, that may cause actual results to differ materially from any future results expressed or implied inthe forward-looking statements. In addition to the assumptions specifically mentioned in this press release, there are a number ofother factors that could cause actual results and developments to differ materially from those expressed or implied by theseforward-looking statements. These factors include, but are not limited to: substitution of alternative methods for deliveringinformation for TPG's Mail and Express services; regulatory developments and changes, including with respect to the levels of tariffs,the scope of mandatory and reserved services, quality standard, liberalisation in the Dutch and European postal markets and theoutcome of pending regulatory proceedings; competition in the mail, express and logistics businesses; decisions of competitionauthorities regarding proposed joint ventures or acquisitions; costs of complying with governmental regulations; general economicconditions, government and regulatory policies and business conditions in the markets served by us, including adverse effects ofterrorist attacks, anthrax incidents, war or the outbreak of hostilities; higher costs of insurance coverage for future claims causedby acts of war, terrorism, sabotage, hijacking or other similar perils; the effect of the current economic downturn and other risksand trends in the world economy and the timing, speed and magnitude of any economic recovery; our ability to achieve cost savingsand realise productivity improvements and the success of investments, joint ventures and alliances; fluctuations in fuel costs;changes in currency and interest rates; increased price transparency resulting from the adoption of the euro; changes in TPG’scredit rating and their impact on TPG’s financing costs and requirements; changes in TPG's relationship with the State of theNetherlands; disruptions at key sites; incidents resulting from the transport of hazardous materials; mismatches between TPG’sinvestment in infrastructure (aircraft, depots and trucks) and our actual capacity needs; strikes, work stoppages and workslowdowns and increases in employee costs; costs of completing acquisitions or divestitures and integrating newly acquiredbusinesses; and changes to the international conventions regarding the limitation of liability for the carriage of goods. These factorsand other factors that could affect these forward-looking statements are described in TPG's annual report on Form 20-F and TPG'sother reports filed with the US Securities and Exchange Commission. Any statements regarding past trends or activities should notbe taken as a representation that such trends or activities will continue in the future. You are cautioned not to put undue relianceon these forward-looking statements, which speak only as of the date of this press release. TPG disclaims any obligation to publiclyupdate or revise these forward-looking statements, whether to reflect new information or future events or circumstances orotherwise.

tpg half year results 2003 - tnt express · group overview steady progress in the second quarter...

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