Itella, the Finnish postal group, had a moderate drop in sales but a dramatic double-digit fall inoperating profit for the third quarter of 2009 due to the economic slowdown with sharp declines in
mail and parcel volumes compared to the previous year.During the period January-September 2009, Itella Group’s consolidated net sales totalled€1,328.7 million, down by 4.5% over the same period last year. Excluding the impact ofacquisitions, however, net sales fell much more significantly by 10.9%. The company’s consolidatedoperating profit fell much more heavily by 67.5% year on year to €22.1 million. This represented a1.7% operating margin. Operating profit improved in Itella Information but shrank in Itella MailCommunication and Itella Logistics.
The company’s Mail division showed significant drops in mail volumes with the heaviestdecline in parcels at -13%, first class letter volumes at -8%, newspaper delivery volumes at -4%and magazine delivery volumes at -3%. In the third quarter of this year, Itella Mail Communicationrecorded sales of €663.4 million showing a decrease of 2.2%. Its profitability weakened due to thedecrease in net sales, particularly in important key products while productivity was improvedthrough the implementation of a new model regarding salaries and working hours. However, the unit’sconsolidated operating profit fell dramatically by 33.6% to €39.4 million representing a profitmargin of 6.1%. In addition, performance was burdened by the €14.2 million restructuring costsrelated to personnel. The project to modernise mail sorting and delivery processes continued tomove ahead as planned with about 75%of the planned investment in mail sorting network already beingcarried out. A total of € 94.7 million was spent on investments that focused on postal services inFinland.
Itella Logistics, which covers the parcel and freight transport activities, recorded a netsales decline of 7.5% to €525.4 million between January and September. Excluding the effect ofacquisitions, net sales decreased in all product lines except Contract Logistics and in alloperating countries except Russia. The unit recorded an operational loss of €21.1 million.Profitability was affected by the major decrease in volumes in all operating countries compared tothe previous year. Compared with 2008, the negative volume development escalated each month throughthe first half of the year, and in relative terms the development accelerated in the third quartercompared with the previous year. An impairment of €10.6 million was recorded in the goodwill ofItella Logistics’ Russian operations. The long-term outlook for the Russian business remains,however, unaltered. When the economic trends begin to improve, Itella’s position on the market isexpected to strengthen.
On the whole, demand for Itella’s services significantly decreased due to the global economicdownturn. Beyond Finland, customer business volumes and the number of transactions also decreasedin other operating countries, thereby affecting the demand for Itella’s services. Competition forthe declining volumes is becoming increasingly fierce, which reflects on Itella’s business, such asparcel services, the company said.
Itella expects the European postal industry to face a major structural change as competitionin the industry will be promoted through the EU Postal Directive. In addition to legislativechanges, the industry will be affected by electronic substitution.
On the environmental level, Itella is committed to reducing its carbon dioxide emissions by10% by 2012 and by 30% by 2020 (in proportion to net sales, reference year 2007). The reductionswill be carried out with special emphasis on improvements related to energy use in vehicles andfacilities.
Jukka Alho, President and CEO of Itella Group, commented: “The economic conditions reflectdifferently on Itella’s various services. On the whole, volumes are not showing any tangible signsof the expected upswing, which means the full-year net sales and operating profit will be weakerthan a year earlier. Itella Mail Communication has been able to partly compensate for the declinein delivery volumes through productivity-boosting measures, but the full impact of these measureswill only be seen in the upcoming years. Moreover, regardless of general economic trends, we mustprepare for a fall in letter volumes in the future.”
“Itella Logistics’ volume development reflects the overall industry development. Of all ourlines of business, logistics has been the most severely hit by the economic downturn. Volumes havefallen sharply in Russia, although our Russian customers are currently reserving more capacity,which improves the business outlook for the future,” Alho added.
Looking ahead, Itella expects a more aggressive price competition in some business areas dueto market overcapacity while the downturn could create demand for outsourcing solutions that helpenhance the efficiency of customer processes. Technically, the Group’s net sales for 2009 will beboosted by the previous year’s acquisitions, which were not included in the consolidated accountsfor the entire fiscal year of 2008, Itella added.
The downward trend in volumes and in the number of transactions is expected to have a strongeffect on net sales. Net sales for the full year are expected to remain below the previous year’slevel. Measures and projects aiming to improve productivity are a key priority in all businessgroups.
