Norway Post profits up in challenging quarter

Norway Post has said its “extensive streamlining” and logistics sector acquisitions has helped achieve a “good start” to 2012, with operating profit up 15.9% from the same period last year. Its first quarter results issued last week show operating profit before one-off costs up to NOK 271m ($45.1m USD), despite a 4.2% decline in addressed letter volumes.

Volume growth in logistics and the company’s recent acquisitions in that direction helped stabilise overall group revenues during the quarter, up 1.4% compared to the first quarter of 2011, to NOK 5.8bn ($965m USD). Norway Post is now generating around 27.6% of revenues outside Norway, or NOK 1.6bn ($266m) in the quarter, edging up 1.8% compared to last year thanks to increased activity in Sweden.

Mail division earnings before tax were at a similar level during the quarter to the same period last year at NOK 303m ($50.5m USD). Volume declines in addressed letters, along with rising costs, were countered by a 11.1% increase in unaddressed advertising mail volumes, price increases and cost-cutting measures.

While logistics revenues were up 2.2% in the latest quarter thanks to Norway Post’s acquisitions in the last year and a 1.8% growth in package volumes, margins were squeezed by “strong competition” in the package business such that earnings before tax were down 19% to NOK 39m ($6.5m) in the quarter. The Post said domestic package volumes have declined compared to last year, but cross-border package services have seen accelerating growth. Freight volumes have been growing, but transportation costs have risen, with freight accounting for about the same proportion of the division’s operating income as last year, about 37.8%.

Looking forward, Norway Post is expecting “modest” growth in 2012, forecasting an upturn in the economy up to 2014 although Europe and the Nordic countries are currently facing “major challenges”.

The Post’s CEO Dag Mejdell said he was “very pleased” with the results in the first quarter considering the challenges in the market.

He said his company’s strategy of continuing to strengthen in growth areas like logistics.

“The Post’s strategy is to strengthen and develop the mail business with an offer that is adapted to changing customer needs,” said Mejdell.

“New businesses outside the traditional postal business will help to strengthen the Group’s service offerings and market positions and over time make a positive contribution to profit.”

Restructuring

Norway’s government issued a white paper last month looking at further restructuring of the Post, particularly in its retail network. Norway Post said the white paper would be considered over the summer.

One of the moves within the retail network is to cut back on the provision of banking services, and during the latest quarter’s results, Norway Post saw a 6% decline in postal banking transactions.

Norway Post said its mail division efficiency drive, the Spinnaker programme established in spring 2008, has now achieved more than NOK 2.5bn ($420m USD) in cost reductions. Further efforts to improve profitability are ongoing, including better coordination of mail, parcel and freight operations.

Restructuring in the company in the past quarter has included the transfer of some Bring Cargo logistics operations into the main Norway Post package business to achieve economies of sale, which saw about 500 Bring Cargo employees transferred to the parent company.

Digital

Norway Post said the decline in letter volumes was continuing to be a “big challenge” for the group, which responded last year with the launch of a digital mail service, Digipost. It has so far seen more than 200,000 people register as users, while 50 businesses have signed up to send mail through the system.

Ministers in Norway are also pushing the digital agenda in Norway, and the government has said that in future all communications with the public will be digital.

Mejdell said: “We know that people want it to be easy to collect all the mail in a mailbox – both on the garden fence and on the web. The Post strives for Digipost to be chosen by the public to send digital mail in the future in the same way the Post has delivered physical mail for 365 years.”