PostNord rings changes as volume declines accelerate

Nordic mail and logistics operator PostNord is making management changes ahead of a SEK 1bn ($156m USD) cost-cutting program, as it faces up to accelerating mail volume reductions. Two years on from its formation as a merger of Post Danmark and Sweden’s Posten, the company CEO announced changes that it hopes will boost its efficiency, competitiveness and profitability.

A new shared services unit is being set up to co-ordinate a range of administrative and product development activities, while a new corporate strategy group is to be set up as the company looks to its future direction.

PostNord executive vice president Göran Sällqvist and CFO Bo Friberg are leaving their positions at PostNord, said CEO Lars Idermark.

“With an unstable global economy and structural market changes that, essentially, impact demand for our services, we need to make comprehensive changes to further reduce costs,” said Idermark.

“We are now implementing a special cost savings program to reduce the group’s administrative costs by approximately SEK 1 bn from 2013. We are also making adjustments to the group’s management structure, effective as of today, in order to increase manoeuvrability and focus on profitability.”

The PostNord CEO added that his company needed to step up its development of services and pursue growth in the logistics area, as well as stepping up its marketing efforts.

Profit slump

The planned changes were announced today as PostNord revealed its latest financial results, for the second quarter of 2011, which revealed a “dramatic drop” in mail volumes in Denmark as well as continued volume reduction in Sweden.

The three months up to the end of June 2011 saw a 2% drop in PostNord’s net sales, to SEK 9.7bn ($1.5bn USD), and a 17% drop in net profits compared to the same period in 2010.

Operating margins also narrowed year-on-year from 2.5% to 2.2%.

Results were affected by a weakening of the Swedish economy in the second quarter and a continuing weak economy in Denmark.

In response, the company CEO declared the launch of the new “conversion phase” to boost efficiency, competitiveness and profitability.

Changes effective immediately will see Johanna Allert joining group management as head of a new Shared Services unit, which will include product development, environment and total quality management, fleet management, real estate, procurement, accounting and human resources.

Recruitment is underway for a new chief financial officer and the head for a new corporate strategy group function.

Volume reductions

Among PostNord operating divisions, its Danish mail unit Breve Danmark saw a 15% drop in net sales to SEK 2.3bn ($360m USD) as Danish mail volume reductions accelerated to nearly 14%, with operating profit down 88% compared to the second quarter of 2010.

Breve Danmark also saw a reduction in unaddressed mail volumes, which the company said was down to the weak Danish economy.

Idermark said: “The volume trend reflects both the weak Danish economy and the strong competition from digital alternatives and other postal operators that currently prevails in the market, and which is exacerbated in turn by the economic situation.”

Mail volumes were also declining in PostNord’s Swedish unit, Meddelande Sverige, as the result of increasing digitisation, though the 4% decline was not so bad as in Denmark.

Sales were relatively stable for the second quarter At Meddelande Sverige, dropping 1% year-on-year to SEK 3.7bn ($580m USD). Operating profit was up 26% for the quarter.

“Most postal operators throughout the world are facing challenges similar to ours. There are ongoing discussions in many countries regarding ways in which the postal services of the future will be regulated and financed,” said Idermark.

“Global mail volumes are expected to fall over 40% in coming years, due to competition from digital alternatives. Our assessment is that Sweden and particularly Denmark are ahead of this trend, but we are nevertheless facing continued significant reductions in volume.”

Building logistics

On a positive note, PostNord said the development of its logistics business, which provides services for shipping goods into and out of the Nordic area, was going to plan. The company has been expanding through acquisition through the acquisition of Eek Tansport in Norway and Nils Hansson Logistics in Sweden.

The company also announced today that it is buying up the remaining shares in the Danish logistics firm TransportGruppen A/S, which had been 51% owned by Post Danmark since 2007.

TransportGruppen had sales above DKK 230m ($44.5m USD) last year, with 800 staff and 600 vehicles.

Carsten Dalbo, head of PostNord’s logistics unit in Denmark said: “We are strengthening our position in the market for pallet and mixed cargo both in Denmark and in the Nordics. As sole owner of TransportGruppen, we will be able to develop and manage the company faster and create competitive customer solutions.”

Initially, the new ownership structure has no practical significance to PostNord and Transportgruppen customers, said PostNord. Customers will receive more information about the acquisition in the next few days.