PostNL to restart mail restructuring

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PostNL to restart mail restructuring, but delays will fuel price hikes

PostNL will restart its major letter network restructuring programme this year, after learning from the problems that saw the process abandoned last year.

But, the delays in restructuring look likely to help drive up postal rates substantially.

PostNL called off its letter network reorganisation last year after changes affected service quality levels. The company said today that it has now tested a new phased roll-out for a more efficient letter delivery system it believes is needed as letter volumes decline by 9.1% year-on-year within the Netherlands.

The new plan will see the current 260 delivery offices slimmed down to 125 by 2015, with chief executive Herna Verhagen saying today that there will be fewer forced job losses – about 450 to 650 full time positions going, rather than the 2,800 forced redundancies announced last year. About 1,050 to 1,250 delivery staff are also expected to leave voluntarily.

PostNL is also aiming to step up its cost-cutting efforts from a target of EUR 330m up to EUR 400m up to 2017. Some EUR 110m of this has already been achieved.

As a result of the delays, and continuing mail volume declines, PostNL said today that retail and bulk mail rates are set to rise “well above inflation” from 2013 to 2015.

“The delay in the reorganization, combined with the expected volume decline of 8-10% to 2015, triggers the need for extra cost savings and a clear focus on our pricing policy,” said Verhagen.

“To balance the volume decline, we will increase prices.”

Verhagen was speaking as PostNL revealed its latest financial results, in which revenues were up 1.7% on an underlying basis in the fourth quarter of 2012, to EUR 1.2bn, but operating income was down 32% compared to the same quarter in 2011, to EUR 67m.

PostNL is hoping that along with its cost-cutting efforts in the letters network, growth in parcels and international business will counter the decline in domestic mail, ultimately aiming for a EUR 300-370m annual operating income by 2015. The company’s operating income was EUR 130m in the full 2012 year.

Along with the job losses in letter delivery, PostNL is also cutting production staff by 700-900 by 2015, with 150-250 full time jobs to go in marketing and sales and 350-450 jobs cut at head office over the next two years.
Mail

PostNL’s mail business in the Netherlands saw its revenues shrink by 5.1% in 2012, compared to the year before, to EUR 2.3bn. Underlying operating income slumped by 92% to just EUR 18m with addressed mail volumes down 9% year-on-year and additional pension costs also hitting the bottom line.

Verhagen said today that the reason the letter restructuring went so wrong last year was PostNL had been attempting eight major reorganization projects at the same time, and “weren’t sufficiently in control” of the links between the different restructuring programmes.

PostNL also failed to sufficiently test its new letter delivery processes before rolling them out, and got the balance of employees wrong, she said.

“We thought new people would learn faster than they did – it took more time to teach people how to prepare and deliver the mail,” she said. “We also didn’t have the right balance between experienced and new employees.”

Along with a streamlined letter delivery network, PostNL is hoping this year will see the Dutch government passing postal reforms to allow the end of mail delivery on Mondays and a redesign in the post office network to help further cut costs in the declining mail business.

However, Verhagen said reducing delivery frequency by more than just the Monday delivery day would take changes at an EU level.

“European legislation sets a minimum of five days of mail delivery a week,” she said. “If you wanted to adjust that, you would have to change it in Europe, and that would then carry over into Dutch legislation, so that would only happen in the long term.”

Parcels

Meanwhile, PostNL is also restructuring its parcels network at the moment, with a EUR 126m investment programme that has already established eight new depots, with five more to open this year and a further five in 2014.

Verhagen said 35-40% of parcels are already being processed by the new network. Next year will see the peak of PostNL Parcel’s “double network” before remaining old-style depots are closed. Overall parcels capacity will reach about 170m items a year.

The new approach will also make use of more synergies between the mail and the parcels networks to cut costs. The company has already piloted the rural delivery of mail and parcels in a single vehicle.

“This new structure is important to handle the growth, and reduces costs per package, simplifying the system so that we can achieve better quality,” said Verhagen.

“It will enable customers to order parcels online until 11pm or midnight, and receive delivery next day – so this new structure comes with new opportunities.”

The PostNL Parcels division saw its underlying revenues growing 20% year-on-year in 2012, to EUR 730m, with operating income up 8.7% to EUR 100m thanks to a 5.6% year-on-year volume increase.

PostNL is expecting to continue growth in its parcel business through small acquisitions as well as chasing the opportunities in sectors like fashion and clothing, food delivery and media like magazines and DVDs. Business-to-business areas like healthcare are also within the company’s sights, particularly following the acquisition of the Benelux operations of specialist firm trans-o-flex from Austrian Post last year.

Verhagen said the company is expecting “strong” growth in parcels going forward, with profit margins in the 13-15% area.