Interim report January-September 2016: Continued major challenges being met by increased responsiveness and further readjustments

July-September 2016

• Net sales SEK 8,895m (9,218).
• Operating income SEK -101m (33).
• Adjusted operating income SEK -41m (81).
• Items affecting comparability, net, SEK -60m (-48).
• Net income for the period SEK -145m (22).
• Earnings per share -0.07 (0.01).
• Cash flow from operating activities SEK -634m (-264).

January-September 2016

• Net sales SEK 28,123m (28,917).
• Operating income SEK -71m (848).
• Adjusted operating income SEK 258m (426).
• Items affecting comparability, net, SEK -329m (422).
• Net income for the period SEK -208m (615).
• Earnings per share SEK -0.10 (0.31).
• Cash flow from operating activities SEK -36m (749).

Message from Håkan Ericsson, President and CEO

Our results are dominated by continued challenges, above all in the form of sharply falling mail volumes, but also by tough competition in the logistics market. Measures are being taken to further cut costs and to create new income streams through an attractive Nordic end-to-end offering.  

Net sales excluding acquisitions, divestments and currency effects declined by 4% in the third quarter to SEK 8,895m (9,218). The decrease was mainly due to a further sharp fall of, in all, 8% in the Group’s mail volumes, 6% in Sweden and 17% in Denmark. To a certain degree, this is being offset by the continuingly strong growth in e-commerce. Volumes of B2C parcels increased by around 20%. Adjusted operating income totaled SEK -41m (81) in the quarter and SEK 258m (426) for the first nine months of the year. The deterioration is attributable mainly to lower income in Denmark and Sweden as a result of the decline in mail volumes, which could not be fully offset on the cost side. The reported operating income, including items affecting comparability, for the first nine months of the year was SEK -71m (848). The items affecting comparability, net SEK -329m (422), this year relate in the main to the sale of the non-Nordic operations of PostNord Strålfors and last year to a capital gain on the sale of a property in Copenhagen.

Danish postal regulation has now been modernized to be more closely aligned to the needs of businesses and private individuals. Effective July 1, economy mail is now the standard letter service in Denmark and from January Saturday deliveries will cease. In order to adapt operations on Denmark to sharply lower mail volumes, a series of robust measures are being implemented in an ongoing process. However, as income for the mail business has declined enormously over recent years, it is challenging to find ways of compensating fully on the cost side.

In Sweden, we are now seeing growing volume losses in the mail business. The Swedish operation, which has constantly adjusted its costs to lower income levels, has been able to produce results that are to some extent acceptable, despite the volume losses on the mail side. Having previously had to deal with volume losses of around 4% annually, we now need to adapt costs to volume decreases in the order of 6-7%. The remaining potential for rationalization is not expected to reconcile the need for essential cost efficiencies with a good mail service within the framework of current postal regulation. The current review of regulation of the postal sector is, against that background, very urgent.

The debate about service levels, price ceilings and actual customer needs is important. However, it should start from what is economically sustainable, from the perspectives of both business and the social economy. On its own, the combination of rising pay in our personnel-intensive organization and falling volumes is leading to constantly increasing delivery costs per item. Both the current price ceiling and the model proposed by the inquiry into postal legislation restrict PostNord's ability to operate a good postal service across the whole country under reasonable economic conditions.

“As sure as a letter in the post” has been the external acknowledgement of the professional pride that has characterized the whole delivery organization. Over the past two years, this pride has unfortunately come under challenge. Much driven by the major, essential changes implemented mainly during 2015 to establish reasonable economic conditions for mail and parcel distribution. During the year, we again reinforced quality levels. However, this will not be sufficient, and we are now focusing on further raising the quality experienced by mail customers and recipients. Disruptions in quality have caused our service and quality to come under intense scrutiny in social and traditional media in recent months.

Thus our transformation is not just about cutting costs and increasing efficiency. It is just as much about continuing to develop and clarify our offering in order to improve the quality perceived. With the help of new processes, total quality assessments will be performed to determine how recipients perceive the quality of our services. The findings from these assessments will without delay be translated into priority measures within our continuous program of improvement and our service development.  

For further information, please contact PostNord Media Relations, tel: 46 10 436 10 10, e-mail: press@postnord.com 

Contact person: Emma Riblom.This information is such that PostNord AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out abow, at 08.30 CET on October 28, 2016.

We deliver! PostNord is the leading supplier of communication and logistics solutions to, from and within the Nordic region. We ensure the postal service to households and businesses in Sweden and Denmark. With our expertise and strong distribution network, we develop options for tomorrow’s communication, e-commerce, distribution and logistics in the Nordic region. In 2015, the Group had 35,000 employees and sales of about SEK 40 billion. The Parent Company is a Swedish public limited company headquartered in Solna, Sweden. Visit us at www.postnord.com