Logistics and ICT ensure growth in Norway Post

Acquisitions and an increase in volume in the Logistics and ICT segments led to the operating revenues for the first three quarters of 2008 increasing by 7 percent compared to the same period in 2007. The total operating revenues came to NOK 20.8 billion.

The combined operating revenues increased by NOK 1.4 billion, of which acquired companies contributed MNOK 721 (53 percent) while the Group’s organic growth contributed MNOK 679 (47 percent).

The Group’s earnings before non-recurring items and impairment losses (EBITE) as at 30 September 2008 came to MNOK 345, a reduction from the MNOK 414 on the same date in 2007. This reduction is mainly due to lower volumes of mail advertising and banking transactions, a change in the mix of letter products, increased personnel and transport costs and the investment in the new brand. The EBIT from logistics and ICT operations increased.

”The Group’s ICT and Logistics segments have grown and their earnings have increased, while the Post segment is affected by a decline in volume and increased personnel and transport costs which cannot be compensated for by corresponding increases in the revenues,” says Group CEO Dag Mejdell.

1 USD = 7.17428 NOK Acquisitions and an increase in volume in the Logistics and ICT segments led to the operating revenues for the first three quarters of 2008 increasing by 7 percent compared to the same period in 2007. The total operating revenues came to NOK 20.8 billion.

The combined operating revenues increased by NOK 1.4 billion, of which acquired companies contributed MNOK 721 (53 percent) while the Group’s organic growth contributed MNOK 679 (47 percent).

The Group’s earnings before non-recurring items and impairment losses (EBITE) as at 30 September 2008 came to MNOK 345, a reduction from the MNOK 414 on the same date in 2007. This reduction is mainly due to lower volumes of mail advertising and banking transactions, a change in the mix of letter products, increased personnel and transport costs and the investment in the new brand. The EBIT from logistics and ICT operations increased.

”The Group’s ICT and Logistics segments have grown and their earnings have increased, while the Post segment is affected by a decline in volume and increased personnel and transport costs which cannot be compensated for by corresponding increases in the revenues,” says Group CEO Dag Mejdell.

Strong results in the Logistics and ICT segments

The Logistics segment’s operating revenues increased by 8 per cent, while this segment’s EBIT improved by 29 per cent. During the period, Norway Post has bought logistics companies in Sweden (CombiTrans AB), Norway (Emdahl Transport og Spedisjon AS) and Finland (Lähettirymä OY) in order to strengthen its position as one of the leading logistics players in the region. Norway Post also bought all the shares in Pan Nordic Logistics (PNL), a parcels company, from Post Denmark in Q3.

The ICT segment’s operating revenues increased by 14 percent during the first three quarters of the year. A large number of new orders and acquisitions are the reasons for this growth. Organic growth accounted for 9 per cent. ErgoGroup increased its shareholding in ION Solutions, an Indian ICT company, to 35 percent in September.

Structural challenges

The Post segment’s operating revenues increased, despite the volume of letters falling by 0.7 percent compared to the same period last year. The volume of unaddressed mail advertising fell by 1.2 percent during the first three quarters of this year.

The Post segment’s operating revenues came to NOK 9.5 billion as at 30 September 2008 – an increase of MNOK 259. The segment’s earnings (EBIT) came to MNOK 58, a reduction of MNOK 154 compared to as at 30 September 2007.
The decline in the volume of banking transactions is continuing, in line with the transition to electronic solutions. The number of banking transactions as at 30 September 2008 was 11 percent less than on the same date in 2007. The number of customers using the post office network fell by 5.5 percent.

In the third quarter, 88.7 percent of the A-priority mail in Norway was delivered overnight. Norway Post has only produced better quarterly figures twice before since quarterly quality measurements started in 2000. This is better than both the licence requirement of 85 percent and the figure for the corresponding period last year, which was 88.1 percent.

In the Swedish market, Bring Citymail is experiencing greater competition and an economic downturn. The expansion in the Swedish market has nonetheless contributed to a 15 percent growth in volume.

Measures to improve profitability.

The post and logistics market is changing rapidly and Norway Post has to adapt to a new existence involving greater competition and a continued decline in the volumes of letters and manual banking transactions. At the same time, future earnings are expected to be negatively affected by the financial unrest and economic downturn.

“The Group is introducing measures to meet the profitability challenges in the Post segment. We have implemented a programme which is in total intended to increase the revenues and reduce the costs by NOK 2.3 billion,” points out Group CEO Mejdell.

The Post segment’s profitability challenges are reinforced by the fact that the Norwegian state is not paying for mandatory, unprofitable postal and banking services, as the government procurements model presupposes. The Budget for 2009 that has been presented does not contain any allocations for unprofitable postal and banking services. The total unprofitability for 2007-2009 is MNOK 636.

Launch of a new brand

The change to the brand and launch of Bring in the third quarter have been well received in Norway and the rest of the Nordic region. The goal is to strengthen the Group’s market positions and competitive ability. The launch gave Norway Post a lot of attention, the message was understood well and the target groups are positive to the change. The launch has thus provided a good start for building a common identity for the Norwegian and Nordic postal and logistics operations, as well as a basis for extracting synergies after several years of buying up companies. Over time, it will be more cost-effective to build one brand instead of continuing to have many company brands, and it will have a greater effect on the market. In total, the rebranding is expected to cost MNOK 300 in 2008, of which MNOK 138 has been debited to the operating costs as at 30 September 2008.