Interim Report January-June 2016: Focus maintained on harmonized offering in the Nordics and readjustment of mail operations
- Net sales SEK 9,590m (9,666).
- Operating income SEK -270m (503).
- Adjusted operating income SEK -1m (33).
- Items affecting comparability, net, SEK -269m (470).
- Net income for the period SEK -282m (390).
- Earnings per share -0.14 (0.19).
- Cash flow from operating activities SEK 387m (-127).
- Net sales SEK 19,228m (19,699).
- Operating income SEK 30m (815).
- Adjusted operating income SEK 299m (345).
- Items affecting comparability, net, SEK -269m (470).
- Net income for the period SEK -63m (593).
- Earnings per share SEK 0.03 (0.30).
- Cash flow from operating activities SEK 598m (1,013).
Message from Håkan Ericsson, President and CEO
The fast-growing e-commerce sector remains an important driving force. New postal legislation in Denmark is laying the foundations for more efficient production. With the continued decline in volumes in the mail business, the realization of our strategy is of the highest priority.
Net sales excluding acquisitions and currency effects totaled SEK 9,590m, a decline of 1% compared with the corresponding quarter last year, mainly as a result of falling mail volumes. The Group’s adjusted operating income amounted to SEK -1m (33) for the quarter and SEK 299m (345) for the first half-year. Of the items affecting comparability, totaling SEK -269m (470), items attributable to the ongoing divestment of Strålfors’ operations outside the Nordic region accounts for SEK -223m. Last year, a capital gain of SEK 500m from the sale of a property in Copenhagen was recognized. The Group’s reported operating income totaled SEK -270m (503) in the second quarter and SEK 30m (815) in the first half-year. Our dynamic and essential program of adjustment being conducted in all our countries has delivered a reduction in operating costs, but in Denmark above all further efforts will be needed to establish acceptable profitability. Unfortunately, during this process of adjustment a number of quality failures arose on the mail side. Strong measures and continuous focus have restored quality to a high level in Sweden, but further improvements are necessary in Denmark.
Total mail volumes for the Group decreased by 8% in the quarter and over the first half-year, of which 17% in Denmark and 6% in Sweden. In the light of these continuing volume reductions, it is a positive that postal legislation issues have come into closer focus, and that in both Sweden and Denmark there is a clearer understanding of the revolutionary shift that is taking place, and how this is affecting us.
In early May, a broad agreement was reached in Denmark’s Folketing (Parliament), to the effect that the regulatory framework for the Danish business has now been realigned to the prevailing level of demand. This will enable us to increase the pace of adjustment in the business and to offer services that correspond better to our customers’ needs. In Sweden, the government’s special inquiry presented a recommendation that the requirement for overnight delivery be changed to two-day delivery. This is a positive development. As regards the price ceiling, certain changes in the right direction are proposed. Since the 1990s, postal rates have risen marginally, while labor costs have increased by around 60% and mail volumes have halved. This demonstrates the unsustainability of fulfilling the universal service obligation on reasonable financial terms while a price ceiling is maintained. A Swedish household spend in average around SEK 160 annually on postage. The final report from the inquiry is expected after the summer.
With increased investments in multi-channel sales and growth in mobile shopping, e-commerce is maintaining its constant growth. Our B2C volumes rose by 15% in the second quarter, compared with the corresponding quarter in 2015. We have all the conditions in place to offer the type of communication and logistics services that people and businesses demand, not least in the e-commerce sector, today and tomorrow.
At a high level of intensity, we are continuing to work with customers and partners to develop and offer more innovative and convenient delivery services that meet the wishes of the recipient for convenience and range of options. One successful example of this effort is Volvo Car’s acclaimed In-car Delivery service, which enables consumers to have their online purchases delivered directly to the trunk of their car by PostNord. In partnership with ICA and Glue, we are developing possible future modes of delivery for online purchases of food. This will enable customers to have their food delivered and unpacked into the fridge – even when they are not at home.
As part of our strategy to focus more clearly on developing a harmonized end-to-end Nordic offering, PostNord Strålfors has signed an agreement to divest its subsidiaries in the UK, Poland and France. As a result, PostNord Strålfors will be able to focus 100% on its businesses in the Nordic region, while at the same time the divested companies will benefit from more favorable conditions for developing under new owners.
I am also delighted that PostNord is one of the first companies worldwide to have its environmental target approved by the Science Based Targets initiative. The target even exceeded the criteria laid down and so is more than comfortably in line with what research states is needed for the Earth stay below a global warming threshold of two degrees. Reducing our emissions is an important element of our strategy to operate sustainably in everything we do.