PostNord is calling for rapid postal reform in its home markets after the decline in its mail volumes accelerated and logistics demand weakened in the third quarter of this year, hitting profits significantly.
The Swedish-Danish postal group’s revenues dropped by 4% to SEK 9,218 million in the July – September quarter as the impact of the mail volume decline outweighed increasing parcel volumes. The group’s Q3 adjusted operating income tumbled to SEK 81 million from SEK 345 million last year, leaving the EBIT margin at just 0.9%. Net income totalled SEK 22 million compared to SEK 232 million one year earlier.
Key factors were a rapid drop in mail in Denmark and weaker logistics business in Norway where the economy has slowed, which the growing parcel business could not compensate for. PostNord's overall Mail & Communication revenues dropped 7% to SEK 4,742 million in the quarter.
On the positive side, e-commerce in the Nordic market is growing strongly. PostNord’s B2C parcel volumes rose by 13% during the quarter, while its overall parcel volumes, including B2B items, increased by 9%. The Logistics business had stable Q3 revenues of SEK 3,970 million.
CEO Håkan Ericsson explained: “In the wake of continued digitization, mail volumes continued to decline, especially in Denmark. In total, mail volumes declined by 11% in the quarter, of which 23% in Denmark and 7% in Sweden. So far this year mail volumes have fallen by 9%, of which 18% in Denmark and 6% in Sweden. This means that the decline has accelerated additionally in Denmark and now only 18% of priority mail volumes remain compared to the top-level year, 1999.”
Ericsson highlighted the need for further postal reform to allow the company to respond. “It is therefore necessary to implement changes to postal regulations as quickly as possible and to make the regulations sufficiently flexible to enable essential future adaptations based on customers’ continually changing needs. This is a prerequisite for maintaining a universal postal service in the long term under reasonable economic conditions.
“In August the Swedish government adopted terms of reference for a commission of inquiry into postal legislation and appointed a special inquiry official to review the postal regulations. The aim is for the official to submit the final report by May 31, 2016. We welcome this inquiry.”
At a country level, PostNord Sweden had flat Q3 sales of SEK 5.4 billion, with mail revenues down 3% but logistics up by 2% thanks to parcels growth, while operating profits more than halved to SEK 167 million.
PostNord Denmark saw revenues drop by 7% to SEK 2.3 billion, with mail revenues 13% lower but logistics showing a 9% increase. The unit’s operating loss nearly tripled to SEK 148 million.
“In Denmark customers’ demand has entailed a shift of volumes from priority to non-priority mail, which means that priority mail has in practice become more of an express service. A substantial increase in the price of priority mail has been announced in order to attain reasonable economic conditions for priority letters,” Ericsson noted.
In Norway, PostNord’s revenues declined 7% to SEK 970 million, including a 9% fall in logistics revenues which make up the overwhelming share of revenues in the country. The group’s new sorting terminal at Alfaset in Olso went into operation during the quarter, with a 300% rise in sorting capacity, enabling faster deliveries. The terminal costs meant that the Norway unit made an SEK 31 million loss in the quarter.
The small Finnish business, whose revenues grew 4% to SEK 198 million in the quarter, was boosted with the acquisition of domestic parcels firm UPK at the start of September.
Meanwhile, PostNord has decided to retain Strålfors and will integrate its digital and physical communication operations more closely with the group’s communication products to broaden the customer offering and improve competitiveness. A new business area – Communication Services – will be created, based on the Mail & Communication business area and Strålfors’ service development business.
Summing up the quarter, Ericsson commented: “We are on the right track and are reinforcing our position as a leading communication and logistics operator, but rapidly declining mail volumes present us with major challenges. Further adaptation of capacity, cost efficiency measures and product development are therefore necessary to ensure long-term profitability. With a great focus on customers we will deliver on our promises.”
