Year-end report 2014: Execution of strategy, new organization and cost efficiency initiatives dominated the year

Message from Håkan Ericsson, President and CEO

2014 was an eventful year. Within the framework of our strategy, we implemented a new integrated organization, launched a new common brand and initiated a customized end-to-end offering. In addition, major restructuring programs were executed throughout the Group. All with the aim of ensuring our long-term profitability and competitiveness.

Our work on developing more customized end-to-end offerings is making good progress. For example, in the logistics business, we have signed an agreement with Denmark’s Blue Water Shipping for parcel and pallet logistics in the Nordic region. During the past quarter, we also signed numerous significant contracts with customers in the fast-growing e-commerce segment. Within the scope of our work on sustainability, the International Post Corporation (IPC) ranked PostNord gold for its qualitative environmental work.

Over Christmas, new e-commerce records were set with increased parcel volumes. In the face of continued digitalization, mail volumes fell as expected and showed a year-on-year decline of 8% in the fourth quarter, of which 17% in Denmark and 6% in Sweden. The corresponding outcome for the full year 2014 was a decline of 5% for the Group, 12% in Denmark and 4% in Sweden.

During the quarter, a further savings program was initiated, with related restructuring provisions being charged to earnings. As part of our capital efficiency program, the Group’s property on Köbmagergade in central Copenhagen was divested in the fourth quarter, making a positive contribution to earnings and cash flow. Adjusted for items affecting comparability, Group operating income totaled SEK 440m (344) in the fourth quarter and SEK 861m (826) for the full year.

To strengthen our earning capacity and long-term competitiveness, continuous restructuring work will be needed. We have now reached the final phase of the program to reduce just below 800 administrative employees, in addition to the 600 that were cut during the reorganization in the first half of 2014. In 2015 further continuous efficiency programs will take place, mainly within production in order to counteract the declining mail volumes.

A decision was taken during the quarter to evaluate a possible divestment of Strålfors in order to free up capital in PostNord and, at the same time, to enable Strålfors to expand its opportunities to develop through a new ownership structure. The evaluation process is proceeding as planned. The fulfilment business operated within Strålfors will remain with PostNord and will not be affected by any future divestment.

The European Commission has brought an action against the Swedish state at the European Court of Justice (ECJ) for non-implementation of the EU’s VAT Directive. At the time of writing it is uncertain as to when ECJ may be expected to issue a ruling on the case, but it is thought likely this will take place in 2015. In addition, a few customers have submitted claims to the Swedish government, and conditionally to PostNord, for reimbursement of VAT paid. The VAT case further highlights the need to adapt postal-specific regulations, to the changes in customers’ demands, in order to ensure that universal postal services can be maintained at reasonable financial conditions despite falling mail volumes. This need is further underlined by the ambitions announced by the Swedish government for increasing the pace of public sector digitalization. Changes to postal regulation are also urgently needed if PostNord’s ambitious environmental targets are to be achieved.

Our financial targets were updated and approved at the 2014 AGM. The goals are long-term and are to be assessed over a period of 3-5 years. The targets comprise a return on capital employed (ROCE) of 10.5%, a net debt ratio of 10-50% and a dividend of 40-60% of net income for the year. We did not achieve all our goals, but with our adopted strategy, I am convinced that we have set out the right direction in the prevailing market.

The year was dominated by major restructuring programs aimed at establishing the right conditions for building a stronger and better integrated PostNord under a common brand. I would like to express my sincere gratitude to all employees for the committed and professional way they have contributed to this endeavor. I would also like to thank our customers and partners for fruitful collaborations and I look forward to further developing our business to create added value for our customers, owners, employees and other stakeholders. We will make sure that we deliver on our promises.

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 February 13, 2015.