Posti improved profits last year thanks to a turnaround in its logistics business but a revenue slump has prompted it to start negotiations over up to 860 job losses in its declining mail business.
The Finnish postal group reported an 11.2% drop in net sales to €1,650 million in 2015, which was a 6.1% drop on a like-for-like basis when excluding the international freight business which was sold off during the year.
But operating profits improved to €55.9 million from just €5.8 million in 2014 due to restructuring measures.
In the final quarter, net sales decreased by 11.6% to €434.7 million, which was a 6.4% fall on a like-for-like basis, but the operating result before non-recurring items improved, boosted particularly by Parcel and Logistics Services, to €25.4 million from €23.5 million, one year earlier.
In 2015, mail delivery volumes continued to decline as expected, the Finnish logistics market did not see a turn for the better, and the situation in Russia deteriorated significantly as the rouble depreciated by 12% compared to the previous year, the company pointed out.
CEO Heikki Malinen commented: "The year 2015 was difficult for Posti Group due to the transformation of the communication sector and the weak market situation in our business environment. Our net sales decreased across all business groups. Declining volumes in Posti's core business of delivering letters and publications reduced net sales by nearly €75 million. Domestic freight transport volumes decreased as the total market continued to decline. Itella Russia's net sales were eroded by the weak rouble and the problems of the Russian economy.
“In spite of the decrease in net sales, the Group's operating result remained at the previous year's level. This has, however, required many substitution measures and painful decisions. We have had to compensate for the losses through cost savings, efficiency improvements, price increases, and personnel reductions.”
He added: “Posti Group's operating result for 2015 showed a significant improvement from the previous year. The improved result is attributable to the positive result of Parcel and Logistics Services as well as a sale and leaseback transaction worth €120 million, which involved Posti selling logistics properties located in Finland. The operating result in the comparison period was weighed down by non-recurring costs of €45 million.”
The Postal Services division saw revenues drop by 3.5% last year, including 3.8% in the fourth quarter, while operating profits fell to €56.4 million from €66 million one year earlier. Posti already announced at the start of February that it would hold talks with unions over up to 860 job losses.
The Parcel & Logistics Services business increased parcel volumes by 2.3% to 33 million last year but its net sales fell by 3.8% on a like-for-like basis, while reported revenues were down by 17.4% due to the freight business disposal. However, it successfully moved out of the red with a small operating profit of €0.6 million compared to a €21.7 million loss one year earlier.
“The most significant source of satisfaction was the strong improvement in the result of the Parcel and Logistics Services business group,” the CEO said. “Its operating result turned to profit on the strength of determined efficiency improvement measures and restructuring. In the previous year, the logistics business recorded a significant loss. Going forward, we expect various logistics services to be the engine of Posti's growth. Posti delivered over 33 million parcels last year, which represents an increase of more than 2%. In the latter part of the year, we unfortunately lost parcel volume to our competitors due to strikes.”
Contract logistics unit Itella Russia reported a 31% drop in revenues (euros), which was a 7.7% fall in rouble terms, and it tumbled to an operating loss of €5.1 million last year.
“In Russia, the market situation became bleaker during the year. The substantially weaker national economy, declining consumer purchasing power and the weak ruble are currently complicating the business operations of foreign companies operating in Russia, and Itella Russia is no exception. Unfortunately, the prospects for 2016 involve significant continued uncertainty,” Malinen admitted.
However, Posti said it achieved 90% of the target of its €75 million performance improvement programme last year. Personnel expenses decreased by €91.3 million, or by 10.8% year-on-year. The group conducted several cooperation negotiations during the year, and the number of employees decreased by 1,691 year-on-year.
Moreover, the operating result for 2015 was improved by non-recurring items amounting to €7.2 (-45.0) million, which includes €44.2 million in gains from the sale of real estate, €8.4 million in personnel restructuring costs, and €28.6 million in impairment, provisions and other items.
Looking ahead, Malinen said: “Posti faces unavoidable structural reforms as the volumes of traditional mail decline. Digitalization and intensifying competition give Posti no alternative but to quickly adapt to the changes. At the same time, we will seek new growth, particularly in logistics, warehousing, e-commerce, and new consumer services. We also see significant growth potential in OpusCapita's financial management software, financial processes and automation services.
“Posti must carefully manage its profitability. While Posti's non-IFRS operating result improved from 2.7% to 2.9%, profitability is short of the target level of 5%. It is a concern that the operating result of the company's cornerstone, Postal Services, declined by as much as 15% last year, which represents a decrease of approximately €10 million. The decline in volume has forced Posti to initiate cooperation negotiations.
“Securing profitability is crucial for Posti also because we operate without public subsidies. In order for us to develop our operations and invest in growth projects, our operations must have a financially solid foundation. Increasing digitalization is also forcing us to achieve renewal in our operations. To accomplish this, we must allocate more resources to the digitalization of our services and production. Our investments last year amounted to €61 million, which is 75% of depreciation. We must increase our level of investment in the medium term. We cannot fall behind in digitalization."
