TPG

In 2004, our Logistics division earned revenues of € 4.1 billion, a 9.3% increase from 2003. Logistics contributed 31% of TPG revenues and 11% of TPG earnings from operations.

In Logistics, we aim to lead the industry by using world-class technology to provide solutions for complex logistics needs. Long-term, we aim to deliver revenue growth up to 10% and a margin of 4-6%.

In Logistics, we delivered everything from spare auto parts to computers to gourmet coffee in 2004.

We also delivered margin improvements and a turnaround of our business.

• Good revenue growth, mainly due to freight management acquisition
• TtS programme paying off; annualised savings of more than € 50 million achieved
• French business faces challenges

Ongoing implementation of our Transformation through Standardisation (TtS) programme and a commitment to future growth delivered results for our Logistics division in 2004. We achieved good revenue growth, due mainly to our acquisition of global freight management company Wilson Logistics Group, and we increased our operating margin. We achieved revenue of € 4.1 billion in 2004 and a margin of 3.7%.

The results achieved through our TtS programme show that TNT Logistics was back on track. As we continue to embed TtS initiatives across our business, we have achieved savings in line with our expectations, and we continue to see high levels of contract renewals and healthy increases in new contracts. In 2004, we marked four successive quarters of earnings growth and of exceeding internal budgets.

Our businesses in Germany, Italy and Spain have recovered. As we continue moving towards increased standardisation, our central procurement team is delivering solid cost savings, and we have implemented the JD Edwards back-office system across our business units. Moreover, we have implemented our proprietary Matrix™ software in operations around the world, including Australia, Brazil, Italy, Thailand and the United Kingdom.

Our French business unit continued to under-perform in 2004. We have identified the key issues for this deficit and we are taking decisive actions, including making changes in senior management, closing warehouses and rationalising our contract portfolio, to correct the problems. In addition, we’re working to optimise our transportation networks in France and implementing lean warehousing techniques across our operations there. We’ve also increased our business development efforts, particularly in automotive, high-tech and fast-moving consumer goods.

Our move into freight management lets us deliver more for our customers.

We made our first big move into freight management in 2004 with our purchase of Sweden-based freight forwarder Wilson Logistics Group. This move means that we can now offer our customers the full array of supply-chain management services, including air freight, ocean freight and combined sea/air freight. We had previously met this demand through strategic alliances, such as our partnership with Kintetsu of Japan. Bringing freight management in-house, however, means that we can deliver an integrated, high-quality service.

With a global base of 30,000 customers – many in our target sectors – strong technology assets, an experienced management team and 2,800 dedicated employees, Wilson supports our ambition to expand our business in the high-growth freight management market.

As manufacturers continue to seek out efficiencies and move their operations to regions with lower costs of production, Asia is an increasingly important arena. China alone is expected to be the world’s third-largest exporter by 2008 and home to up to 30% of the world’s manufacturing by 2013. That translates into huge demand for freight management, and Wilson’s strong presence in Asia should help to accelerate growth across the region.

We’re delivering more through our increased global footprint and our network innovator strategy.

In 1999, we set out to establish a global footprint that would allow us to offer services in all key logistics markets and to more effectively serve global customers. Today we have operations on all continents and have achieved the critical mass necessary to offer consistent services to multi-national customers.

We’ve also set forth our network innovator strategy, which is our plan for becoming an industry innovator in selected sectors. The strategy aims to help us deliver superior value for customers by managing and designing changes in the supply chain. It focuses on six strategic offerings, six target sectors and investments in key account management, lean warehousing and standardisation.

Our network innovator strategy is driven by focus.

Key account management is crucial to good service delivery because it gives us a better understanding of customer requirements, allowing us to be proactive in meeting their needs. Lean warehousing means precisely what the name implies – managing warehouses in the most lean and efficient manner possible, eliminating all non-value-adding activities. We began implementing the approach across our European operations in 2004. The first wave of implementation in 10 warehouses shows that significant efficiency gains are achievable.

Our proprietary software helps us deliver more benefits for customers.

Matrix™ is a centrally hosted, integrated suite of supply chain technologies that enables us to manage complex domestic and global supply chains. It provides a link between TNT Logistics and our trading partners. Matrix™ supports inbound just-in-time logistics, outbound logistics and reverse logistics across multiple industry verticals, and integrates transportation, inventory management, order fulfilment , financial settlement and e-commerce applications that enable global collaboration.

Matrix™ automatically shares operating data among processes such as strategic planning, optimisation, warehousing activities and back-office functions, and creates significant supply chain efficiencies.

The major modules of Matrix™ include:

• Matrix™ Designer - strategic network design
• Matrix™ Router - real-time routing based on demand from shipping or manufacturing points
• Matrix™ Centralised Logistics Manager - event engine that manages the status of all parts, routes and assets
• Matrix™ Yard Management and Cross-Docking - radio-frequency-based communications to direct material handlers
• Advanced Warehouse Management - all warehousing functionality
• Financial Settlement - all transactional activity from the operating systems is used by our financial back office system, JD Edwards.

Logistics highlights

Logistics financial highlights

Logistics strategy

Our ambition is to be the recognised worldwide leader in targeted industry sectors by designing, implementing and operating complex supply chain solutions and exploiting information technology to achieve integration and visibility throughout the process. Our objectives are to achieve operational excellence, global coverage and leadership in the industry sectors we target.

Throughout 2004 we made significant progress in addressing a number of the operational difficulties that negatively impacted our business performance in 2003, despite the continued sluggish economic conditions of both 2003 and 2004. Our long-term Logistics strategy encompasses the following:

• Standardise key processes that are intended to bring immediate and significant improvements to the profitability of the division.
• Serve specific target industry chains, including inbound automotive and outbound spare parts, tyres, consumer electronics and high-tech, publishing and media, and fast-moving consumer goods/retail.
• Achieve “network innovator” status, which means that we aim to be an industry innovator in selected sectors. We will do this by creating superior value for customers through new and additional services supported by our innovative Matrix™ technology, our global presence, and our skill at optimising costs. By overseeing the total supply chain, coupled with control over assets and strong expertise in managing operations, we believe our Logistics division can both capitalise on economies of scale and optimise the utilisation of assets and networks to the benefit of our customers.
• Expand our areas of operation in those parts of the globe that our key customers consider important to the growth of their businesses.
• Establish a global freight management capability, providing both our existing and future customers with a more complete supply chain solution.

Logistics market position

With operations in 39 countries, our Logistics division provides services focussed on supply chain management. One key aspect of this service is reducing the time it takes to bring goods from suppliers to their customers by using the latest technology to increase visibility of goods in the supply chain. This objective comes on top of the traditional logistics goal of ensuring that – across the functions of procurement, manufacturing and distribution – the right goods, in the right quantities and condition are available at the right place and time.

Through a combination of targeted acquisitions and organic growth, we have built a truly global Logistics business with significant operations in Europe, North and South America, Asia and Australia. Our acquisition strategy has focussed on achieving critical mass in selected geographies and six industry sectors: inbound automotive; outbound spare parts; tyres; consumer electronics and high-tech; publishing and media; and fast-moving consumer goods/retail. With a few exceptions in certain segments, we believe we have achieved critical mass in terms of market presence and customer base in every market we serve.

TNT Logistics footprint

Logistics operational highlights