Profits fall sharply at Norway Post as wage costs bite

Norway Post has recorded a 1.9% increase in its sales in the first half of the year, but operating profits have fallen sharply. Issuing results for the first six months of 2011, the Post revealed that revenue growth has largely been provided by its logistics division.

Overall, turnover for the half grew to 11.3bn krone ($2.1bn USD).

However, operating profit before amortisation slumped 26% to 296m kr ($55.4m) as spiralling wage costs hit – despite a cost-cutting program that has saved 2.2bn kr ($374m) since 2008.

Norway Post CEO Day Mejdell said: “We have so far succeeded in reducing operating costs, but not fully succeeded in maintaining earnings due to wage and cost inflation in the first half.”

Volumes

Mail volumes for first and second class letters fell a record 8.7% compared to the first half of 2010, while unaddressed advertising remained flat.

Price increases and a change in product mix partially offset the impact of the volume decline, Norway Post said.

Growth in Norway Post’s sales came largely thanks to the group’s logistics unit, which provides 57% of group revenues and saw a 5.6% year-on-year growth in the first half, rising to 7bn kr ($1.3bn USD).

Part of this growth came thanks to the growing contribution of e-commerce shipments, with parcel volumes growing 4.7% compared to the first half of 2010.

However, with investment in the division and higher operating costs, logistics profits fell nearly 40% to 173m kr ($32.3m USD).

“Packages are a key growth area for the Post Office and an area we are investing in, both in Norway and the Nordic market,” said Mejdell.

Norway Post also reported an improvement in its overnight delivery service quality levels, up 4.2 percentage points year-on-year to 86%, since last year’s service levels were affected by the start-up of a new sorting terminal outside Oslo.

Digital mail

As well as investing to chase parcels growth, Norway Post has been pushing its digital services this year.

Although it may be seen as cutting into physical mail volumes, Norway Post is keen to get involved in the development of online communications.

It launched a digital mailbox service this year, DigiPost, that has already gained more than 150,000 users.

Mejdell said the company is now working to boost the number of mailers using the digital mail service to contact their customers.