Interim Report January-March 2018: Important steps towards a more modern postal distribution system and continued rapid growth in e-commerce

• Net sales fell by 2% to SEK 9,102m (9,328).
• Operating income decreased to SEK -74m (94).
• Adjusted operating income was SEK -74m (191). 
  
• Net income totaled SEK -167m (16). 
  
• Earnings per share were SEK -0.08 (0.01) 
  
• Cash flow from operating activities totaled SEK -25m (990).
  

Message from Håkan Ericsson, President and CEO

The quarter was dominated by a continued focus on the transformation in Denmark and compliance with the new instruction from Sweden’s Customs Agency to charge VAT on sums down to a single krona. At the same, work continues on bringing the Swedish mail system into line with Sweden’s new postal regulatory system, which has been in effect since year-end. The biggest change in the new system is to replace overnight delivery for stamped letters by a requirement for two-day delivery for 95 percent of all stamped mail items. 

Unfortunately, EU approval for the funding of the transformation in Denmark is becoming protracted. As a result, personnel cutbacks cannot be implemented according to plan, which is causing extra costs of around SEK 30 million per month. My hope is that the issue of funding for the transformation in Denmark will be resolved shortly, so that we can complete the adjustment process we have started and implement the planned cost reductions. On January 21, a new production model was introduced, the biggest of its kind in the history of the Danish corporation. Initially, we encountered a number of quality challenges, but nevertheless managed to meet the requirement of 93 percent set in Danish law.

In Sweden, PostNord was during the quarter instructed by Sweden’s Customs Agency to present an action plan showing how we would ensure that, by no later than March 1, VAT would be charged on all personal direct imports from countries outside the EU’s customs union. Within three weeks, we created a process to handle VAT payments for tens of thousands items per day. The system required is on a large scale and many sub-processes have to be performed manually. The fee, which has to cover the costs of all processing, was set at SEK 60 plus VAT, making a total of SEK 75. To date, the costs incurred have exceeded the income received, but we anticipate the outcome being cost-neutral over the year. Despite a number of “teething problems” caused by the lack of time to effect the change, the process has essentially functioned as planned. In total, we have received nearly 1 million items since March 1. Of these, just under half of recipients decided not to collect their items, and as a result we have now started the process of returning more than 400,000 items.

Since year-end, a new system of postal regulation has been in force in Sweden. The new system abolishes the overnight delivery requirement for stamped letters and replaces it by a two-day delivery requirement. At the same time, the quality requirement has been raised from 85 to 95 percent. The extended time allowed for distribution of an item enables us to replace air transport by, in the main, rail transport and thereby reduce our emissions of CO2 by 8,800 tonnes annually. At the same time, we can reduce our costs, as rail is cheaper than air. Quality over the first quarter was considerably higher, 98.9 percent than the required 95 percent.

Operating income in the first quarter was SEK -74m, a deterioration compared with the same period last year. This arose partly because of the timing of the Easter holiday, and partly due to high pressure from competition in the logistics business and a continued fall in income from the mail business, which was not fully offset on the cost side. This is, among other things, due to the delay in personnel cutbacks in Denmark and extra costs for maintaining quality in Sweden.

Implementation of an integrated production model (IPM) is ongoing and several important new units entered service in the quarter. The new units will further boost our capacity and our offering. During the quarter, we launched some exciting 3D printing services at PostNord Strålfors and signed a partnership agreement with Sony Mobile in 3D printing. All in all, the past quarter was an intensive one, which will again set the agenda for the next quarter.

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

Contact person: Thomas Backteman.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 above, at 1.00 p.m. CET on April 26, 2018.