Finnish postal operator Itella saw profits drop back in 2010 as mail volumes continued todecline but its logistics business grew and reduced losses.
The group’s net sales increased 1.2% to €1.84 billion, including positive currency effects. Inlocal currencies, the decline in net sales was 0.4%. International operations again increased theirimportance and accounted for 32% of net sales compared to 30% in 2009.
Itella’s operating profit including non-recurring items fell back to €38.1 million from €46.7million the previous year. This was a 2.1% net profit margin, down from 2.6%. Operating profitbefore non-recurring items amounted to €55.3 million compared to the previous year’s €86.3 million,and the margin dropped to 3.0% of net sales from 4.7% in 2009.
Pre-tax profits were up to €31 million from the previous year’s €19.6 million and returned tothe black with a net profit of €9.3 million compared to the previous year’s net loss of €4.6million.
Jukka Alho, President and CEO, said: “The upturn in the economy affected Itella’s business witha delay and only in certain areas of our business. Although our financial performance did not meetthe targeted level, our already healthy solvency strengthened further.”
Itella Mail Communication, the postal business, saw its sales drop 2.3% to €1.14 billion. Totaladdressed letter volumes were stable, unaddressed deliveries rose 5% and there was a 2% rise inparcel volumes. Its operating profit dropped to €58.1 million from the previous year’s €82 million,which was a 5.1% profit margin. The division has completed a €160 million investment in new sortingtechnology and will continue to reduce personnel numbers this year.
“Itella Mail Communication’s profitability declined due to falling volumes and rising productioncosts, as well as extremely moderate price development. Personnel reductions and other efficiencyimprovement measures were not sufficient to compensate for these. Considering the decline in netsales from postal operations and the long-term volume development, the less than one per cent priceincrease in letter postage fees proved to be inadequate. Consequently, we begin a new year withstrong price pressures,” Alho commented.
On January 1, 2011, all Finnish postal operations were transferred to a new subsidiary, ItellaPosti Oy, a part of the Itella Mail Communication business group. This followed the transfer ofparcel services from Itella Logistics to the mail division in the second quarter of 2010.
Itella Logistics increased revenues by 6.3% to €677.3 million, with higher sales in all productlines and operating countries. While volumes started to grow in the second quarter and growthincreased towards the year end, service price levels did not yet fully reflect the development ofcosts, the company stated. However, the division reduced its operating loss significantly to €10.7million from €31.2 million the previous year after implementing efficiency enhancement measures inall activities. It made a profit in the fourth quarter.
“Itella Logistics performed well in the second half, leading to overall net sales growth. Thisstrengthened the business group’s profitability even though its result was still in the red,” Alhosaid. “Financial performance in the logistics business will continue to be materially affected bynot only the development of Finnish and Scandinavian operations, but Russian operations as well.Demand for ItellaNLC’s services has been growing; and particularly in Moscow, the service warehouseutilization rate reached a promising level in view of 2011.”
Meanwhile, Itella is continuing to warn about aspects of the country’s new postal law that willenter force this spring. “From Itella’s perspective, it is vitally important that the scope ofuniversal service (USO) is clearly and unambiguously defined. However, issues that continue to beunresolved in Finland include the financing of postal services in sparsely populated areas, whichis included in the universal service obligation but does not permit operations on a market basis,”Alho said.
In particular, Itella and the Finnish supervisory authority have had very dissimilar views onthe rules to be applied to cost accounting in postal services, and thereby to pricing, he pointedout. Moreover, the postal operator wants clarity on several fundamental issues such as ways ofcovering the costs of the postal outlet network.
“Otherwise, we may have to trim the costs arising from the postal outlet network in a way thatdoes not meet the expectations of Finnish citizens. Another potential risk is that we may have toallocate costs to the press and other users of the delivery network in a way that might eventuallycause problems to the financing of the universal service,” the Itella chief explained.
