Finland’s Posti Group suffered a sharp drop in revenues and underlying profits in the second quarter of 2015 due to weak demand in its home market that outweighed parcel growth and a drop in Russia business.
The postal group, which has recently sold off its Scandinavian freight activities in order to focus mostly on the home Finnish market, now expects revenues to drop “significantly” in the year as a whole while profits will also decline.
Posti’s net sales decreased by 12% to €406.3 million in April-June 2015. The operating result before non-recurring items fell into the red with a €6.8 loss compared to a €2.9 million profit last year. However, the sale of three post office buildings and one warehouse boosted the overall Q2 result to €27.9 million from -€2.1 million last year.
Heikki Malinen, President and CEO, said: "Posti Group faced a very difficult business environment at the start of the year, and the second quarter failed to bring the hoped-for improvement in the market situation. Economic growth in Finland has been non-existent, which has been reflected in a continued decline in the market for logistics services. The development of consumer purchasing power has been subdued and the digitization of communication has reduced mail volumes, particularly with respect to 1st class letters. The development of the Group's net sales and result was unsatisfactory under difficult circumstances in the second quarter.”
The Postal Services division’s net sales decreased by 5.3% to €177.6 million as addressed letter volumes continued to fall, although this was offset by growth in shipments of Chinese e-commerce goods to Russia. The operating result before non-recurring items remained largely unchanged at €4.8 (4.7) million.
The Parcel and Logistics Services division saw sales decline by 18.5% to €148.8 million, mostly due to the freight disposals but also to weak domestic demand, while the operating loss widened slightly to €2.1 million due to the divestments. More positively, parcel volumes increased by 4.6% to 8 million items in the quarter.
Itella Russia’s revenues slumped by 27.1% to €31.1 million (-10.4% in roubles) and its operating loss increased to €2 million due to the weak Russian economy, resulting in lower volumes for warehousing and transportation.
Malinen commented: “The situation in the Russian operations weakened significantly in the second quarter as a result of the Russian economic crisis and a decrease in consumer purchasing power. After the sharp peak in end consumption at the end of last year, volumes in warehouse logistics decreased during the spring. In our estimate, a recovery in demand may not be seen in 2015.”
Looking ahead, the CEO added: “Posti is currently undergoing a significant multi-year structural transformation. Restructuring measures implemented in summer 2015 included rearranging the domestic terminal network and launching the renewal of Posti's retail network. It will take some time before the impacts of these changes and other restructuring measures are reflected in the result.
"In June, we announced our new strategy, with the primary objectives of renewing Posti to make it a customer-oriented first-class service company and pursuing profitable growth in new services. As society becomes increasingly digital and traditional mail delivery diminishes, Posti faces a turning point at which the Finnish Postal Act must be amended to ensure the availability of postal services throughout the country.
“We have systematically improved the efficiency of our operations. We are improving the customer experience, productivity and our competitiveness by taking advantage of new technology. The growth of e-commerce and digitization also offer Posti new growth opportunities. We will pursue synergies by focusing on home services, meal deliveries and food logistics, which allow us to leverage Posti's nationwide distribution network," he concluded.
