TNT Express Rolls Back Global Expansion on China Truck ExitRichard Weiss
TNT Express NV sold an unprofitable Chinese trucking operation purchased 6 1/2 years ago to local private equity funds as the Dutch package-delivery company rolls back a global expansion strategy to focus on European markets.
The sale of Hoau to funds of Beijing-based Citic Private Equity Fund Management Co. was sealed on receipt of regulatory approvals, Hoofddorp-based TNT said today, without disclosing a price. Cantor Fitzgerald analyst Robin Byde said the deal will lift cash inflow by 135 million euros ($183 million) in 2014.
TNT’s exit from a business described as China’s leading parcels-delivery company when it was bought in 2007 comes as it seeks to boost operating profit to 8 percent of sales by 2015 after a 5.16 billion-euro takeover by United Parcel Service Inc. collapsed in January amid opposition from European Union regulators. TNT sold an Indian trucking unit in 2011 and is also seeking to dispose of a road-haulage division in Brazil.
While TNT is retreating from domestic trucking in emerging markets the company will continue to develop its express service to and from China, employing 3,000 people in the country and operating 36 depots and gateways in Beijing, Hong Kong, Shanghai and Shenzhen served by its own Boeing Co. 747 and 777 planes together with third-party flights, spokesman Cyrille Gibot said.
“It’s not that Hoau is a bad business,” Gibot said, adding that the Chinese domestic market is “not core” to TNT in that it has different characteristics to the western express market. “There’s plenty of competition, and with the slowing of the economy there’s been some price pressure also. Connections to China are very important to us as our focus is on linking Europe with international markets.”
TNT said Feb. 18 it planned to sell domestic road operations in China and Brazil as it seeks to exit unprofitable activities, and the company added March 28 that a deal had been struck with state-run Citic PE, pending regulatory clearance.
Shares of TNT, which posted an 85 percent decline in third-quarter earnings on Oct. 28 as its chief European markets remained tough, traded up 0.9 percent at 6.86 euros as of 3:11 p.m. in Amsterdam, valuing the company at 3.74 billion euros.
The Chinese business had an operating loss of 13 million euros on sales of 261 million euros in 2012, excluding a 75 million-euro goodwill impairment. The asset value of the unit, net of liabilities, was 71 million euros, TNT said this week.
Proceeds from the sale will be spread over this year and next, Chief Financial Officer Bernard Bot said previously.
Cantor analyst Byde said in a note that the Brazilian operation was close to break even in the third quarter, based on quarterly results, which should aid talks “and potentially improve the price.” The unit, which cut 800 jobs through the end of the third quarter, has a net asset value of 48 million euros, according to TNT, which expects it to lose money in 2013.
TNT Chief Executive Officer Tex Gunning plans to intensify efficiency measures following the wider loss, and is also exploring a possible sale of the group’s Dutch fashion business.