Interim Report January-March 2014: New organization for a clearer, more efficient PostNord

Message from Håkan Ericsson, President and CEO

PostNord reported a lower year-on-year operating profit due to the restructuring costs associated with the personnel cut-backs made in conjunction with the new organization, the continued decline in mail volumes and increased price pressure, particularly within the logistics business. PostNord continues to implement the cost reduction and efficiency measures required to achieve satisfactory profitability within the group.

PostNord Group’s net sales totaled SEK 9,999m, a year-on-year increase of 2%. The increase is attributable mainly to acquisitions within the logistics business. The mail market continued to shrink due to digitization. Mail Denmark’s volumes declined by 13%, while total mail volumes for the group decreased by 6% year-on-year. Based on the substantial drop in Danish mail volumes during the first quarter, it is likely that the annual volume decrease will exceed our previous estimate. Group operating profit declined during the quarter, totaling SEK 106m (330). The decrease was primarily attributable to restructuring costs but also to the business areas’ lower underlying operating profit, which was largely a result of the substantial decline in mail volumes and continued price pressure within the logistics business.

Profitability remains at an unsatisfactory level throughout the entire business. We are fully focused on implementing our strategy to improve our earning capacity and create greater financial value. There are two crucial prerequisites for PostNord achieving its target of being the Nordic region’s leading communication and logistics operator: we need to continuously reduce our cost base, and we need to establish an integrated production model in each country.  

During the first quarter we accelerated the pace of transformation, and the new organizational structure announced in early February was introduced on March 31st, with country units responsible for each country’s production and sales. Product and service ownership was simultaneously placed with two new business areas – Mail & Communication and Logistics – which are responsible for developing and packaging attractive offers for all of the group’s businesses. We also established a specific strategic corporate unit responsible for service development in the fast-growing e-commerce market. The new organizational structure provides the basis for integrated production activities in each country. Together with the improved brand structure, focused on a shared brand, we are making it clearer to our customers that PostNord is a Nordic operator with a geographically competitive end-to-end offer.

The changes implemented during the quarter made it possible to reduce administrative personnel by 600. The cost-cutting effect of the personnel reductions is expected to be achieved gradually and be fully realized during the third quarter of 2014. In parallel with implementation of these changes, ongoing efforts to adapt production costs to the declining mail volumes are proceeding at full speed.

In April, the AGM adopted new long-term financial targets. The targets are ambitious but achievable, and stress the importance of continuing to improve our efficiency and profitability in all parts of the business. It is essential that postal-specific regulations be adapted to changes in customer demand. We therefore welcome the new Postal Act in Denmark, enacted in February, which allows us to make further consumer adjustments to our Danish mail business. Swedish regulations also need to be adjusted to changed market conditions so that good postal service can be maintained in the long run despite declining mail volumes.

The continued weak profitability in all business areas underscores the necessity of the measures taken during the first quarter. With the new organization in place, we are continuing the fast-paced implementation of the strategy. The measures that have been initiated will result in additional cost savings, and our outlook for improved profitability and cash flows in 2014 therefore remains.

PostNord AB (publ) is required to disclose the above information under the provisions of the Securities Market Act and/or the Financial Instruments Trading Act. The information was submitted for publication at 08.30 AM CET on May 6, 2014.