TNT, Europe's second-biggest mail delivery company, reported its first profit decline for more than a year after being hit by one-off costs including the cancellation of a £21 million contract with a British mail order company.

TNT, which employs more than 2,000 people at its UK headquarters in Atherstone, was also forced to put aside funding in preparation for a job reduction programme in its Dutch mail business, which will see 6,500 being shed over the next three years.

Fourth-quarter net income fell 22 per cent to £110 million compared with £141 million a year earlier. Sales rose 8.6 per cent to £2.23 billion. TNT, which competes with UPS, FedEx and dutch DHL, has said it aims to cut £276 million in costs by 2015.

Part of this will be through a reduction in jobs and in anticipation of this, the company set aside £82 million during the last quarter.

The Dutch mail business has been struggling for some time due to rising competition and an increase in e-mails.

In a further blow to the business, TNT said it may also quit its German mail business in a dispute over minimum wages for postal workers, although chief executive Peter Bakker said the company would not do so without a fight.

"The (German) market is important enough to enter into a fight," he said.

TNT currently pays its German workers 7.50 euro (£5.60) per hour but the German government wants this increased to 9.80 euro (£7.31) and main rival Deutsche Post has already agreed this figure.

TNT has said this is unfair competition and will hit open trade.

In the UK, the company exited from its £20.8 million contract with Manchester-based catalogue company J D Williams.

A TNT spokesman said the contract had been a loss-making venture and the company had looked to exit from the arrangement at the first available opportunity.

The contract, acquired two years ago, has been passed on to rival carrier ParcelNet.

On its domestic operations, Mr Bakker said the money set aside for the job losses was only a preliminary estimate of how much the company may eventually have to pay out.

"It is an estimate, it could be higher, we don't know at this stage," he said, adding that negotiations with unions were continuing.

Analysts have said the talks are crucial for its cost-cutting plans.

"TNT seems to be prepared for a possible economic slowdown and despite this expectation continues to expect to hit very decent, strong profitability levels," Petercam analyst Thijs Berkelder said in a note.

Mr Bakker said he expected results on the talks during the second quarter.

Despite its difficulties, TNT projected high single-digit organic sales growth and low double-digit growth in its 2008 operating margin for the domestic and international express delivery business, excluding emerging markets. The express unit makes up 60 per cent of annual sales.

Organic sales growth for the express unit's emerging markets division, which includes Russia, China, India and Latin America, is seen in the high teens this year, with the operating margin targeted at low single-digit.

The mail business is expected to show a low single-digit organic sales rise this year, with an operating margin of around 16.5 per cent.

"The outlook 2008 is strong," said analyst Philip Scholte at Rabobank Securities.