Finnish postal group Itella suffered a dramatic fall in profits in the first three months of2011 as first-class mail volumes dropped 11%.
The group reported a slight 2% rise in Q1 revenues to €462.9 million. But the operating profitdropped to just €1.3 million from the previous year’s €18.3 million, leaving the EBIT margin atonly 0.3% compared to 4% 12 months earlier.
The slump was largely due to the mail business. Operating profits at Itella Mail Communicationsdeclined by nearly 75% to €5.5 million on revenues down 0.9% at €282.5 million. This was anoperating margin of 1.9% compared to the previous year’s 7.6%. First-class mail volumes in Finlanddropped 11% in the first three months of 2011, although total addressed mail remained stable.Parcel volumes increased 8%.
The second-largest business, Itella Logistics, increased revenues by 11.4% to €174.2 million andreduced its operating loss by 22.5% to €5.1 million. Net sales picked up in all product lines andoperating countries, apart from Denmark, helping to reduce losses. The company had higher volumesin Russia but faced challenging trading conditions in Sweden and Denmark.
Jukka Alho, President and CEO, said: “The long anticipated revolution in postal sector can nowbe seen in Itella’s financial results, as delivery volumes experienced the most significant dropseen thus far. With regard to profitability, the 11% decline in first class letters, as well as thedecline in newspaper and magazine delivery volumes was significant. In Finland we are nowfollowing, with a slight delay, the development which has already occurred in many of ourneighboring countries as a result of the breakthrough of e-invoicing and electronic communications.
“We were not able to reduce fixed costs as required by the declining volumes. This willcontribute to our price development in the near future. We have also launched a substantial costsavings program, which will help ensure a moderate price level. A clear improvement in productivitywill also be necessary because of the new competitive situation created by the postal serviceslegislation,” he added.
Under the new Finnish Postal Services Act, which will enter into force at the beginning ofJune, the definition of universal service products has been clarified and USO products paid in cashhave been given VAT-exempt status (-23%). In response, Itella has raised letter mail prices to keepthem unchanged. A domestic first class letter remains at €0.75, with second-class costing €0.60.Postal parcel prices will fall by 15%. Services for corporate customers remain liable to VAT, andprices for these customers will be left unchanged.
“We have been experiencing a pressure to increase stamp prices for quite some time. We feltobliged to change the prices simultaneously with the VAT change, because it’s not practical tochange stamp prices very often,” explained Petri Aaltonen, Vice President at Itella Posti.
