PostNord announced that it will cut 3,500–4,000 jobs over the next 2-3 years in Denmark, including 500 jobs in administration, to “bring about profitability” and “meet the rising pace of digitisation” as it is expected to report an operating loss in the country.
The job cuts are the result of a new “production model” that PostNord is introducing in Denmark, with the transformation of the Danish business to cost SEK 3 billion. The company is currently “in dialogue with the owners” to decide how the SEK 3 billion are to be financed as this can’t be financed internally.
While the Danish business is likely to generate an operating loss during the period of transformation, PostNord estimates that this can be financed via operational earnings.
To further enhance its competitive position in all markets it operates in, the Group also needs to further reduce administrative costs by more than SEK 1 billion over the next three years, alongside the extensive restructuring in Denmark. This is expected to affect some 1,200 full-time employees, including 500 jobs that will be cut as part of the transformation measures in Denmark. The major part of the cost-cutting programme is to be completed by the end of the 2019 financial year.
Since the start of the new millennium, PostNord’s mail volumes in Denmark have fallen by around 80%. Due to ongoing business model adaptations and efficiency measures in mail distribution, around 3,000 full-time jobs have already been cut since 2013. “Because the pace of digitisation rose sharply in 2016, this has not been enough”, PostNord explained.
For the full-year 2016, PostNord Denmark reported operating losses of SEK 1,910m including exceptional impairment losses, and adjusted operating loss of SEK 625m. “The negative outcome results from the increasing digitisation, which meant that major impairments of goodwill and assets in the mail business were necessary in 2016,” the company said.
As part of a new production model which has been made possible by the changes to Denmark’s Postal Services Act passed in 2016, a separate infrastructure for mail will be phased out. Instead, the logistics infrastructure will also be used for mail distribution all the way to the individual mail carrier. At the same time, PostNord will streamline and develop the production model for parcels and heavy logistics in Denmark “to meet customers’ needs for better flexibility and transparency”.
After the transformation is completed, letters will be handled via two separate flows. A basic flow will handle letters for distribution within five days while letters via the fast flow will be delivered within 24 hours. “Long term, our offering in the distribution of unaddressed direct marketing and local weekly newspapers will be changed since we no longer will be able to distribute unadressed direct marketing and local weekly newspapers on a specific day, as we know it today,” PostNord said.
“Once the transformation of the Danish business is complete, we will have a scalable and financially sustainable production model that will make it possible to maintain the universal service with a profitable mail business, even with low mail volumes,” President and Group CEO Håkan Ericsson, said.
PostNord added that it “does not foresee any further need for ownership support following the restructuring in Denmark and “no need for capital contributions from the owners for the operations that are conducted outside the universal service obligation”.
“More than three years ago, PostNord laid out a Group strategy under which the Group was to be transformed from a postal corporation with a certain volume of parcel business into a competitive Nordic logistics and communication group with a close focus on the growing e-commerce sector. The strategy, which has been systematically implemented at a high tempo, is still the right one, but in view of the accelerating losses of mail volumes the pace of the transformation must be further increased. We are now taking further steps to secure PostNord’s competitiveness in all markets by cutting costs in our administration functions,” Ericsson explained.
Mail volumes in Sweden are showing a declining trend but at considerably slower pace than in Denmark. Thanks to the robust efficiency measures that have been carried out over several years, PostNord’s Swedish mail business continues to report surpluses.
“However, the dramatic trend in Denmark shows that it’s a matter of great urgency that Sweden, too, should acquire a flexible system of regulation that can be quickly adapted to considerably lower mail volumes. The Swedish government has announced that a parliamentary bill introducing changes to the Swedish Postal Services Act will be presented in May this year. It is important that the bill should create better conditions for continuing to deliver a good postal service throughout Sweden under reasonable financial conditions,” Ericsson stressed.
“The steps that we are now taking to reduce the Group’s administrative costs are essential, irrespective of the problems in the Danish business. They are being taken to ensure continued, sustainable competitiveness, despite the rapid digitisation and the tough competition that we face,” he concluded.
