Improved earnings and clearer direction going forward

PostNord reported improved year-on-year results for 2013. This development follows extensive changes to the business to capitalize on growth opportunities within logistics and to develop in line with demand for communication services.

PostNord’s net sales increased 2 percent in 2013, due chiefly to acquisitions and organic growth within the logistics business following the continued strong e-commerce trend. Group operating profit improved and the operating margin rose to 1.7 percent due to increased net sales, continued streamlining efforts and lower restructuring costs.

In view of the development in our markets – with a dramatic structural transition in the communication market and a weak macroeconomic trend in the Nordic countries – this is good performance. Nevertheless, it is not a satisfactory result. Profitability is low or negative in all business areas, and earnings are insufficient. We need to step up the pace of implementing our streamlining efforts and service development throughout the entire group. Additional structural changes need to be made to enable PostNord to meet the challenging market trend and create greater financial value.

Growing logistics business

The logistics business continues to grow, both organically and through acquisitions, and accounts for over one-third of the group’s external net sales. In 2013 we continued the implementation of our strategy to create end-to-end solutions and cross-border capacity in the Nordic region. We made complementary acquisitions, including the acquisition of a mixed cargo, consignment goods and thermal transport business in northern Sweden. We also expanded our capacity within parcel and pallet handling. A new state-of-the-art logistics terminal was put into operation in Sweden during the year.

Demand for outsourcing services is on the rise, as more companies are choosing to outsource their supply lines. We won several attractive third-party logistics contracts in 2013, thanks not least to the acquisitions made by the group in 2012.

During the year we initiated the migration of our multiple logistics brands to the new PostNord Logistics brand. The launch will be done gradually and our goal is to develop and establish PostNord Logistics over time as the Nordic region’s leading logistics brand.

Continued strong e-commerce growth

E-commerce continued its strong growth, with double-digit growth in the Nordic region. One distinct trend is that large retail companies are increasing their investments in e-commerce. And due to always-on Internet access, consumers are increasingly able to look at products in physical stores before comparing prices and making their purchases online.

Both mail and logistics volumes benefit from this trend. Our B2C parcel volumes, which are closely linked to e-commerce, rose 12 percent during the year. E-commerce services are one of our most important development areas in coming years.

Investments in Nordic capacity

Demand for mail distribution services continued to decline due to sustained digitization and a weak macroeconomic trend. Although the volume trend is dramatic, particularly in Denmark, it is thus far within the scope of our expectations.

Our assessment is that the volume trend will be sustained over the next few years. Physical letters will continue to play an important role in the business sector and society – although the actual content of envelopes and the terms and conditions for mail are changing.

PostNord wants to be able to continue offering an efficient, self-financed postal service. One prerequisite for this is the evolution of the regulatory framework in line with changes in the market. Significant steps have been taken in many European countries, including Denmark, in recent years to adapt the scope and alignment of the universal postal service to market changes. We welcome the Danish Parliament’s enactment of a new Danish Postal Services Act. It will allow further market adaptation of our Danish mail business. Similar changes will also need to be made in Sweden.

We are investing in the Nordic region. In recent years we have made major investments in production capacity, primarily within Mail. The investments are a crucial component of our conversion strategy and are aimed at meeting the negative mail volume trend by improving scalability and at reducing our carbon dioxide emissions. We are investing in vehicles and equipment as well as new, highly efficient terminals. In 2013 we started operations at a new postal terminal in Hallsberg, Sweden and next year we will open a new terminal outside Stockholm.

Key societal function

PostNord is one of the largest companies in the Nordic region. We play a key role in the region’s business sector and society. We make it possible for businesses and Nordic residents to do business and communicate with each other, each and every day. This carries with it great responsibility.

The quality of our services is central for customers and recipients alike, and is based on the sender reaching the right recipient on time. We will sustain the high quality level of our services in the future.

We work actively to reduce the inevitable environmental impact of our operations, particularly our transports. Our goal is to dramatically reduce our carbon dioxide emissions, and we know that this is also demanded by our customers. We have reduced our emissions by 16 percent since 2009.

We support and run our operations in accordance with the corporate responsibility principles of the UN Global Compact and OECD guidelines for multinational companies.

Strategy development focused on e-commerce services

During late 2013/early 2014, we further developed the group’s strategy and clarified our direction going forward.

We continue with implementation of key conversion efforts with production development, streamlining and increased coordination of our communication solutions offer for our Mail customers, to create sustainable profitability in this area despite declining mail volumes.

The logistics business will continue to grow, mainly organically, and will strengthen profitability through efficiency improvements. Our goal is to take the position as the leading logistics partner in the Nordic region.

PostNord holds a strong position as the leading e-commerce partner in the Nordic region, and we will increase our focus on developing our service offer in this area. We can capitalize more on our unique structure and regional scope. This structure also enables us to further develop attractive offers for different types of home deliveries and other service logistics.

Strålfors is focusing on the three growth divisions Data Management, Marketing Communication and Service Fulfillment and continuing with further optimization of the printing-related operations.

New brand structure

PostNord is becoming increasingly distinguished as a Nordic company. More and more of our customers demand comparable services across the region. A key component in the development of our position is the establishment of a more uniform profile. During the coming three-year period, we will therefore gradually be integrating our commercial brand symbols with PostNord’s logo and give the PostNord brand greater scope in communication with our customers.

Improved profitability and competitiveness

Efficiency improvement is an integral part of our agenda. The group has succeeded in reducing its costs by several billion kronor in recent years through various streamlining and rationalization programs. These changes have strengthened PostNord’s competitiveness.

But much work remains to be done, especially considering the continued decline in mail volumes. One challenge is our relatively high share of fixed costs – a situation normally associated with the delivery of universal postal services. With the initiatives we are taking to generate growth and reduce and change the cost base, we count on being able to generate gradual margin improvement in coming years.

Success with these efforts requires that we have the right organizational environment in place. We are now implementing a new organization that will enable us to provide greater uniformity for our customers and create potential for greater synergies – as an example, through increased integration of production. The new organization also includes the establishment of a strategic unit for e-commerce services.

One group

The group has undergone major changes since the merger of Posten and Post Danmark five years ago. The synergies that were anticipated back then have long since been realized. We are constantly identifying new opportunities to coordinate, develop and streamline the business. These efforts will continue for many years to come. Compared to five years ago, what’s different now is that the work is being done within one group, with one corporate culture and one strategic direction.

Solna, February 2014

Håkan Ericsson

President & Group CEO

VD-ord