Norway Post hails success of restructuring and cost-cutting

Norway Post said today that it achieved its best financial performance for five years during 2011, with group turnover up 2.4% and underlying profits up 10.4% from the year before. The achievement came as adjusted for the effect of one-off costs and gains between 2011 and 2010, but the Post said it suggested it was now in better shape in the light of declining mail volumes.

Including the impact of one-off property sales in 2010 and restructuring costs occurring in 2011 including a NOK 759m ($133m USD) early retirement scheme, the Post found its profit before tax for continuing operations down from NOK 1.5bn ($263m) in 2010 to NOK 799m ($140m) in 2011.

Nevertheless, the company hailed its adjusted group operating profit of NOK 1.051bn ($185m USD), up NOK 99m ($17.4m) on 2010, as revealing success for its efforts to restructure in the face of declining mail volumes.

Dag Mejdell, the Norway Post chief executive, said: “We have succeeded with major restructuring and substantially improving the efficiency of postal operations. Profitability programmes have been initiated within the logistics segment, including the coordination of goods production and parcels.”

Norway Post’s overall turnover for 2011 rose 2.4% to NOK 22.98bn ($4.03bn USD), after a 1.7% year-on-year increase in the fourth quarter turnover.

Volumes

Mail volumes continued to decline at Norway Post in 2011, though the revenue decline was largely countered by increased prices and changes in the product mix. Mail volumes dropped from 2.63bn items in 2010 to 2.57bn in 2011, with total A-class and B-class mail volumes down 6%, and the finance industry accounting for the biggest drop in volumes.

Unaddressed advertising mail volumes stabilised, around 1% lower than 2011, while addressed advertising volumes increased 2% from 2010.

During the year, Norway Post delivered 85.3% of its first class mail overnight, compared to 83.5% in 2010, despite the impact of difficult weather conditions hitting the fourth quarter.

One-off write-downs of NOK 158m ($27.7m USD) in the company’s logistics division saw its earnings before tax slashed from NOK 272m ($47.8m) in 2010 to NOK 100 ($17.5m), in 2011.

But, Norway Post said growth was on its way after the year’s acquisitions, including Toms Transport, Bergen Container & Trailer Transport and Swedish firm IntertranspedIA Ytrans.

Package volumes grew 5.6% in 2011 compared to 2010, with the increase greatest for cross-border parcels and domestic volumes in Sweden and Denmark. Norway Post said “intense competition” and changes in the product mix had affected growth in its parcel services.

Operations outside Norway contributed 38.6% of the company’s logistics operating income, a 9% increase on 2010.

Outlook

Looking ahead, Norway Post said the Nordic market was still beset by “great uncertainty” thanks to the European debt crisis, but the company expected “modest growth” in 2012.

Logistics activities will continue to be affected by strong competition and associated pressure on the margins, though e-commerce should continue to be the major driver for parcel volumes.

Mail volumes are likely to continue to decline as customers move online, but Norway Post is in the process of growing its DigiPost digital mail service.

This spring, Norway Post is expecting to be freed from its statutory duty to provide banking services across the country. It is also intending to make further cost savings by turning more of its own post offices into in-store postal counters run by retail partners.

The Post currently has 179 of its own post offices, but wants to decrease this to just 30 through converting to in-store counters. There are currently more than 1,200 in-store postal counters in Norway.

Future plans also include the intent to introduce a new simpler post office concept focusing on online shopping and packages.

Norway is outside the European Union, though works closely with the EU through its membership of the European Economic Area. However, the Norwegian government has informed the EU that the country will not be liberalising its postal market in accordance with the EU Postal Services Directive.

“The Post’s Board of Directors considers the risks as low for the EU to impose sanctions affecting the Post’s operations outside Norway,” Norway Post said. “Regardless of Norway’s saying ‘no’ to the EU Postal Directive, the Post still has to adapt to falling letter volumes and to continue to adapt its business and customise service levels to the change in use of postal services.”