PostNord efficiency drive slashes profits by half in Q3

Major cost-cutting efforts at Scandinavian postal operator PostNord have been eating into profits during the company’s third quarter. PostNord – the parent company of Denmark’s Post Danmark and Sweden’s Posten AB – has been facing up to ongoing letter volume declines while trying to reposition itself to benefit from growth in parcel shipping and logistics services.

The company revealed its latest financial results today showing a 3% decline in sales, to SEK 8.96bn for the quarter up to the end of September.

But investing on a huge efficiency drive, the company said three quarters of the net profit seen in last year’s Q3 was cut in half.

The company generated SEK 126m net profit during the three months, compared to SEK 286m in the same quarter last year.

Lars Idermark, the PostNord chief executive, said the influence of the cost-cutting programme on the quarter’s results was compounded by the ongoing “high levels” of digital substitution, as well as a “weakened” global economic situation.

Pension pressures and a one-off gain seen in last year’s third quarter – when PostNord sold off a real estate company – also affected the comparative figures for this year’s Q3.

Cost-cutting has seen operating expenses down 2% not including acquisition arrangements and currency fluctuations, with PostNord paying out SEK 104m in restructuring costs in the quarter – mainly personnel cutbacks, with the company’s work force 2,100 down on the same quarter last year.

Acquisitions and divestments added SEK 307m in costs to the quarter’s results.

“PostNord is going through a major conversion phase in 2012 and 2013, aimed at securing profitability for the mail businesses and developing the logistics business,” said Idermark.

“We are making major cost reductions and investments in many areas of the business. Operating profit is therefore charged with significant restructuring costs, totaling SEK 764m to date.”

In the year to date, PostNord has seen its revenues down 1.7% to SEK 28.4bn, while its net profit has slumped 76% from SEK 784m to SEK 185m.

Divisions

Idermark said mail volumes in Denmark and Sweden had fallen during the third quarter in line with expectations, and insisted his company had performed well in the light of the trend.

Overall, PostNord’s letter volumes fell 8% during the quarter, with sales for the mail businesses falling 7% to SEK 5.2bn.

Idermark said: “Three of our four businesses are reporting improved operating profits this quarter. As expected, our Danish mail business is reporting lower earnings due to the continued dramatic decline in mail volumes.”

The Danish mail division saw its sales fall 17% compared to last year’s third quarter, to SEK 1.8bn, a 10% fall excluding currency movements.

Danish mail volumes fell 15% year-on-year, particularly because of reduced volumes from small businesses and private customers and a weaker advertising market. However, comparison was not helped by the effects on advertising volumes of Danish parliamentary elections in September 2011.

Mail revenues in Sweden were almost unchanged from the SEK 3.4bn seen in last year’s third quarter, with volumes down 5% year-on-year. Ecommerce helped counter the impact of the volume decline.

The logistics business was hampered by a struggling economy and price pressures, but sales increased 7% in the quarter to SEK 3.3bn, mainly thanks to PostNord’s acquisition of logistics businesses including Sweden’s Green Cargo.

Aside from the acquisitions, sales for Swedish logistics services were down slightly because of economic and competition pressures. Danish logistics sales and volumes also continued to fall in the quarter for similar reasons, but the Norwegian logistics activity saw increased sales.

Idermark said his company was continuing to benefit from ecommerce for both its mail and logistics businesses.

“Volumes for business-to-consumer parcels and goods mail are growing strongly and we are seeing increased flows at our partner outlets and distribution points,” he said.

PostNord’s business services business, Strålfors, is now reporting positive operating results, with Idermark suggesting that moves to streamline and rationalise the business were being vindicated. Sales were down 9% in the quarter, to SEK 611m, mainly from the sell-off of Strålfors Identification Solutions in August 2011, but the division made a SEK 15m profit in the quarter, compared to a SEK 31m loss this time last year.

Looking ahead, PostNord said it is expecting continuing “strong” volume decreases for mail in Denmark and Sweden as people opt for digital alternatives, but it said cost reductions and investments in production facilities would improve efficiency and profitability.

The company is expecting its logistics operations to expand profitably with acquisitions and organic growth, although this year’s balance sheet will have significant restructuring cost burdens.