Itella reviewing “risky” search for growth after 2011 losses

Finland’s Itella Group is reviewing its growth strategy in the light of gloomy results for its full year in 2011. The national postal operator made a EUR 16.4m loss during the calendar year, with its moves to downsize eating into its costs despite an overall 3.2% increase in its EUR 1.9bn turnover.

But with the Finnish market now open to competition, and mail volumes continuing to decline, Itella president and chief executive Jukka Alho said on Friday that it was time to review the company’s search for growth, which he said had been “risky”.

He said: “It is now time to review such ventures further and decide which investments show future promise and which ones to abandon.”

Itella has seen strong growth in its parcel operations thanks to e-commerce, while a third of the growth in its overall revenues have come from its international operations, as it continues to build a presence particularly in Scandinavia, the Baltic Republics and Russia.

However, Alho said among its operations that have to be reviewed at its activities in Germany, its logistics development in Sweden and Denmark, and its expansion in Russia. Alho said Itella also had to look at the disposal of the company’s customer relationship management unit in its home market.

“All in all, Itella’s current performance is not at a satisfactory level,” he said.

Profitability decline

The postal operator issued its fourth quarter results on Friday showing improved performances in all business groups for the three months ending December 31, with operating profit for the quarter increasing 24.6% from the previous year to EUR 19.8m.

However, the quarter topped off a “difficult” year in which earnings before tax fell 5.9% compared to 2010.

Itella said its Mail Communications unit saw revenues increasing by 0.9% but with continuing mail volume declines, profitability “decreased clearly”. Itella Information, the business services unit, also saw its profitability decreasing despite a 5.4% growth in sales.

Only in Itella Logistics, the parcel and supply chain unit, did the company show improvement for the year, with operating losses reducing as sales increased 8%.

Alho said his company had seen some positive signs in its traditional mail activities, particularly the “robust growth” in parcel volumes from the growth in online commerce.

However, he said Itella had to invest “heavily” in the development of its electronic services, and he also noted that the global financial crisis was still bearing an impact on the rest of the business, even a few years down the line from the downturn, and that as a result parcel volumes were still not yet fully recovered.

Commenting on the year’s results, he conceded that the company’s profitability had weakened, but that much of the impact had come from one-off costs such as a downsizing of the workforce.

Universal service

The 2011 year saw Finland’s government adopting the Postal Services Act to liberalise the nation’s postal market, which opened questions about how Itella will continue to fund the universal services obligation.

“Itella’s answer is to develop its practices in accordance with customer needs and the income derived from customers,” said Alho. “This involves an increase in the number of modern service outlets, particularly for the needs of e-commerce.

“However, it is also possible that the government will define service obligations, which need funding from the state.”

Despite all the gloom, Alho insisted that after a period of heavy investment, Itella’s solvency remained “good”, and that the group was “clearly in the black”.

“Thanks to active investment, we are considered an interesting alternative or, in some cases, the market leader in our chosen business in Finland and neighbouring areas,” said the Itella president.