PostNL said today that it is open to partnering with another company or co-investor in order to roll out full end-to-end mail delivery services across the UK.
The company’s TNT Post subsidiary has been running trials in West London since April, delivering mail to the door in competition with Royal Mail.
The project has been successful according to PostNL’s chief executive Herna Verhagen, who said the service had seen good quality levels and a positive response from customers.
TNT Post UK said last year it could create 20,000 jobs nationwide by extending the service to the rest of the country.
Today, Verhagen said the plan was for a full roll out of end-to-end in the UK to contribute to PostNL profits by 2015. However, with PostNL suffering problems in the Dutch mail market, the company does not currently have the available capital to go it alone on the roll-out.
“Full roll-out of end-to-end in the UK would require EUR 50-80m investment,” she said. “We have absolute cash constraints in PostNL, so that means in England we are receptive to a partner willing to invest with us.”
TNT Post operates in Germany with parcel carrier Hermes as a major investment partner – Hermes owns about 30% of TNT Post Germany. The two companies recently launched an operational partnership providing delivery services for catalogue companies in Germany.
TNT Post UK
TNT Post UK has been providing direct delivery competition against Royal Mail in West London since April 2012
In the UK much of TNT Post’s business is in the Downstream Access market – collecting mail from business clients for processing before handing it over to Royal Mail for the final stage of delivery.
Verhagen said TNT Post had a 52% share of the UK downstream access market and did see additional opportunity for growth there.
But she said: “This market is exposed to substantial price pressure because of the competition.”
End-to-end delivery services holds potential for TNT Post because under the Downstream Access model, Royal Mail retains around 80% of the revenues for mail involved. Royal Mail has warned publicly of the damage that competitors like TNT Post could inflict on the financial viability of its universal service if they are allowed to “cherry pick” the best urban areas for end-to-end delivery services.
But, along with the investment cost for rolling out end-to-end services across the country, TNT Post must also compete with remaining VAT exemptions that can help Royal Mail undercut prices.
TNT Post could also face costs applied by regulators to support the universal service, if Ofcom decides that TNT Post’s new services do pose a threat. Ofcom has the power to require competitors to pay into a central fund to support the universal service or require similar service standards such as six-day-a-week delivery.
According to the latest financial results out today, TNT Post’s revenues in the UK reached EUR 699m in 2012, a 27% increase on 2011. The growth was driven by a substantial increase in parcel volumes, which tripled from 2012 to 2012.
Italy and Germany
TNT Post’s other major international markets, Italy and Germany, have also helped PostNL’s international division as a whole turn around the EUR 24m loss of 2011 into a EUR 27m income in 2012, as turnover grew 21% to EUR 1.57bn.
In Italy, TNT Post claims an 11% market share, with revenues edging up 1% year-on-year in 2012, to EUR 203m.
A successful restructuring of the German business saw TNT Post Germany operating at a profit in the last four months of 2012. The company has a 7% market share in Germany, and last year generated a EUR 506m turnover, up 28% on 2011.
But, Verhagen said one “setback” in Germany that occurred in January was that rivals Deutsche Post invested in the letter sorting machine, software and outsourced mail-sorting company Compador, which competes with TNT Post Germany.
The German universal service provider acquired 49% Compador Technologies GmbH and 26% of Compador Service Ltd., with Austrian firm Max Ventures Management GmbH holding the remaining stakes.
Verhagen said her company was monitoring the situation closely, and will look for help from the competition authorities in Germany where possible.
“This business has a book value of EUR 90m for us, so we are doing everything we can to defend this,” she said
