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Itella to merge postal and logistics operations

Thursday, May 8th, 2014

Finland’s national postal operator Itella Group is to merge its post and logistics businesses as part of its cost-cutting plans.

The company’s board approved the plan at the end of April, with the aim of having the new company structure in place by the start of 2015.

It would leave Itella Group consisting of a merged post and logistics division, financial management service unit OpusCapita and Itella Russia, the business unit formed at the beginning of this year to manage Itella’s ambitions across the border.

Itella said that in simplifying group structure, not only would admin costs be reduced, but customer focus would also improve.

The company saw its sales decrease by 5.2% year-on-year in the first quarter of this year, according to newly released results, with mail volumes continuing to decrease.

Itella’s revenue for the quarter was EUR 470m, driven down by a 7.9% drop in sales at Itella Logistics and a 1.9% drop in sales at Itella Mail Communications, with Itella Russia’s sales down 10.3% and OpusCapita sales down 3.9% in a difficult quarter.

The quarter’s operating result sank by 60% to EUR 4.3m, although the quarter saw EUR 13.3m paid out as the workforce was restructured.

The company said it was a “satisfactory” result considering the market situation. Typically, it said the quarter was the weakest of the year. The depreciation of the Russian ruble affected sales to some degree, but Itella said the political situation with Russia had not impacted on results in the first quarter.

Heikki Malinen, the Itella president and chief executive, said the volume decline for addressed letters, newspapers and magazines “accelerated considerably” in the first quarter.

Negotiations were held with newspaper publishers this quarter over new delivery contracts, since he said early morning delivery was not profitable under the current operating model and pricing, the way volumes have been developing.

“The negotiations resulted in the termination of five early-morning delivery agreements. With some negotiation parties, an agreement was reached on additional months. In addition, in the second quarter one new agreement was signed and negotiations have continued with several newspaper publishers,” said Malinen.

“Itella has sought to work with publishers to find new solutions to the problem of delivery profitability. We have proposed cooperation based on establishing joint ventures with media companies specialising in early-morning deliveries. We remain prepared to discuss cooperation on early-morning deliveries.”

Investment in infrastructure

As with many other postal companies, Itella’s focus has been switching to e-commerce, and the company has launched a EUR 10m construction project to develop e-commerce warehousing facilities at its Voutila site in Vantaa. The project should be operational in 2015, complete with “robots” deployed to assist with e-commerce fulfillment.

The company said yesterday that it has also decided to invest in expanding its postal operations centre in Lieto, to provide more e-commerce support in the region of Turku, in the south west of Finland, which it said “represents and important entrance channel for parcels”.

Despite the declining volumes, Itella will also need to invest in its letter sorting technology, as its current systems will come to the end of their lifespan by the end of this decade. The company said it has now begun planning replacement sorting technology, which would likely be installed in Oulu, Kuopio and Tampere.

The plans should see the new sorting machines introduced to begin operations at the end of 2018.

Jukka Rosenberg, the senior vice president of Itella Posti, said the investment was needed regardless of what was happening in the postal market.

“From planning to implementation, projects of this scale take years to complete, due to which we have begun preparing for it already,” he explained. “The objective of all of these changes is to ensure that we will continue to be able to provide our customers with the best and most convenient services.”

Source: Post&Parcel/Itella Group

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