PostNL today presented strong double-digit parcels growth for the final quarter of 2018 but its profits weakened on rising costs.
The Dutch postal group, which also announced the acquisition of domestic mail competitor Sandd (see separate article), will hold a Capital Markets Day in May to present its parcels strategy for the coming years.
Financially, PostNL presented a mixed picture for last year. The company reported a 2% rise in revenues to €794 million in Q4, 2018, but operating profits fell by 18% to €93 million and net profit weakened to €50 million compared to €59 million one year earlier.
In 2018 as a whole, revenues increased by 2% to €2,772 million but operating profit dropped by 35% to €185 million and net profit tumbled to €33 million from €148 million. Profits from continuing operations (excluding Germany’s Postcon and Italy’s Nexive, which are both up for sale) improved slightly to €76 million in the fourth quarter but dropped to €127 million from €179 million.
CEO Herna Verhagen said: “Step by step we are realising our strategy of becoming the postal and e-commerce logistics company of choice for customers. In 2018, 48% of our revenue came from activities related to e-commerce, evidencing our transition. We achieved an underlying cash operating income in the upper-part of our guidance.”
PostNL’s Parcels business continued to grow strongly in the peak fourth quarter but its profits weakened. Benelux volumes increased by 20% between October and December, with strong increases in both B2B and B2C and record peak season figures. This generated an 18% rise in revenues (excluding Spring) to €378 million.
“In Parcels, we reported record-high volumes during our peak season and operational performance improved on the back of increasing volumes. At the same time, we faced additional capacity costs, partly explained by a tight labour and transport market and increasing IT costs related to further development of our digital services,” Verhagen commented.
The company said the main driver for parcels revenue growth was the increase in volumes, slightly offset by a negative price/mix effect. “We continue to report strong growth in our Belgian activities, strengthening our position as the logistics service provider in the Benelux. Overall demand for additional services such as evening delivery and new markets such as food and health, further increased,” it noted in its Q4 report.
“Operational efficiency continues to improve, evidenced for example by an increase in drop duplication. At the same time, performance was impacted by the tight labour and transport market, and capacity costs required to absorb swings in daily volumes. The extreme spike in volumes towards Black Friday and continuing till 5 December made this peak season more expensive. IT costs related to the further development of our digital services increased. Performance in our logistic solutions activities improved.”
International parcels unit Spring saw Q4 revenue decline by 5% to €70 million (-7% adjusted for FX effects). “The competitive environment remains fierce, especially in Asia. This puts pressure on margin and resulted in decline of €6 million in underlying cash operating income compared to last year,” PostNL said.
Overall, PostNL Parcels, including Spring, increased Q4 revenues by 12% to €439 million but underlying cash operating income fell to €36 million from €39 million in Q4, 2017.
Meanwhile, the Dutch mail business had a 10.2% fall in addressed mail volumes in the fourth quarter, resulting in a 4% revenue drop to €483 million and a slight drop in underlying cash operating income to €71 million. The company continued its cost savings initiatives, such as adjusting the sorting and delivery process, the optimisation of the retail network, the streamlining of staff and centralisation of locations.
Looking ahead, Verhagen said: “In 2019, we will continue to build on a strong platform for further growth. For Parcels, we are improving the balance between volume growth, profitability and cash flow. In Mail in the Netherlands, we will further adapt our organisation to volume decline and stay focused on achieving cost savings. We will make a next step in our business model by the introduction of the New mail route. The switch to an equal flow model enables us to adapt our organisation to future volume decline.
“On 7 May 2019 we will host a Capital Markets Day where we will discuss our strategy for Parcels in the years to come that will result in improved value creation and will announce mid-term guidance for PostNL,” she added.
In 2019, the e-commerce market is expected to continue its strong growth and will remain the main driver of the performance in Parcels, the company said. “We will focus on growth potential of our business by improving the balance between volume, profitability and cash flow. We expect improving operational efficiency, partly offset by the impact from the tight labour and transport market. We will continue to expand our network by opening new sorting depots. To solidify our position as the leading e-commerce logistics company in the Benelux, we will also further develop our service propositions, for example in growth areas such as food and health.”
Dutch mail volumes are expected to decline this year by 8% to 10% with the revenue impact partly offset by price increases. “An important project is the switch to an equal flow model, a step change in business model that enables us to adapt the organisation to future volume decline. We expect cost savings of between €45 million and €65 million.”
Overall, PostNL expects underlying cash operating income this year between €170 million and €200 million. On the planned disposals of Postcon and Nexive, Verhagen said: “We are making good progress with the divestment process and expect to make further announcements before the summer.”
