TPG-TNT-3-2004

TPG/TNT – Catching Up With Kulik

Jacksonville, Florida

March 18, 2004

Richard Armstrong

Key Personnel:

David Kulik, Group Director of Logistics

David Kulik became a major player in TPG’s redesign when he was appointed Group Director of Logistics in August 2003. Kulik is thriving on the challenge. Major changes in TNT Logistics are already taking hold and more can be expected over the next couple of years.

Within logistics, Kulik’s team is carrying the ball on IT and operations standardization (Transformation Through Standardization). The IT efforts are lead by Keith Goldsmith, Kulik’s VP of IT for over a decade at CTI and TNT. Operations process standardization is moving along in tandem after the absorption or elimination of under-performing subgroups and customers. The IT portion of TtS is about 80% completed.

Corporately, the major drive is to get significantly greater cooperation between TPG’s Mail, Express and Logistics operations. A key partner with Kulik in this effort will be Marie-Christian Lombard. Lombard was appointed Group Director-Express in December of 2003.

Leading the executive team at TNT is Peter Bakker who is a died-in-the-wool Dutch pragmatist. Bakker is in favor of directness and transparency. There is no resting “on its laurels” for Bakker and his team. They have talked candidly to their customers and published the “brutal facts” for everyone to see. Customers have been particularly frustrated with the lack of communication with TNT Express contacts and between Express and Logistics. Customers like IBM, Nokia and General Electric want to treat Express/Logistics as a single-source operation. Further, customers see the need for TNT to significantly expand its global freight forwarding capability. Its expansion should run in tandem with TPG-1, the overall effort to develop more synergy between divisions. TPG-1 is a direct response of TPG/TNT to the voice of its customers.

Currently, TNT is the largest express carrier in Europe. It is one of the largest logistics operators in Europe and the U.S. Its Asian operations are relatively small. As a result, a major drive to expand Asian operations is being made in China.

Through its joint venture with Shanghai Automotive, TNT is the largest logistics company in China. Current Chinese revenues are $315 million and there are 2,500 employees.

Overall, TPG is a $14.8 billion company which generated $796million in free cash flow in FY 2003.

Mail operations run 21% operating margins and account for $5 billion in revenue. Express is slightly larger in revenue with $5.25 billion in revenue and 6.5% operating margins. Mail and Express are heavily concentrated in Europe. Logistics had 4.6% in revenue and a 3% margin.

Kulik has his work cut out for him but has already moved decisively by absorbing and realigning losing operations in France and Germany. Armstrong & Associates’ estimates that North American operations grew 7.1%; operating margins exceeded 7%. North America should improve margin and grow revenue this year. European logistics should be in the black. Overall, TNT Logistics should improve margin by 1-1.5%.

North American operations are split 50-50 between transportation and warehousing. Vertical emphasis is on 1) automotive, 2) tires, 3) industrial, 4) high-tech, 5) fast-moving consumer goods and 6) utilities/rail.