To meet the rising pace of digitization in Denmark and bring about profitability, a new production model is being introduced. As a result, the number of employees in Denmark will be reduced by 3,500–4,000 over 2–3 years. It is estimated that transformation of the Danish business will cost around SEK 3 billion and PostNord is in dialogue with the owners as to how the SEK 3 billion is to be financed. During the period of transformation, the Danish business is also expected to report an operating loss, although it is estimated that this can be financed via operational earnings. In addition, to further secure PostNord’s competitiveness in all markets, the Group’s administrative costs are to be further reduced by more than SEK 1 billion over the next three years. This is expected to affect some 1,200 full time employees, including 500 that are already included in the transformation in Denmark. The major part of the cost-cutting program is to be completed no later than at the end of the 2019 financial year.
Since the start of the new millennium, mail volumes in the Danish business have fallen by around 80%. Ongoing business model adaptations and efficiency measures in mail distribution have been implemented and the organization has already seen a reduction of around 3,000 full-time jobs since 2013. Because the pace of digitization rose sharply in 2016, this has not been enough. For full-year 2016, PostNord Denmark reported operating income of SEK -1,910m including exceptional impairment losses, and adjusted operating income of SEK -625m. The negative outcome results from the increasing digitization, which meant that major impairments of goodwill and assets in the mail business were necessary in 2016.
Against background of this and continued volume losses, PostNord has announced that a new production model will be introduced. This has been made possible by the changes to Denmark’s Postal Services Act, which was passed by Folketinget in 2016.
The changes now being implemented will result in the current production process and separate infrastructure for mail being 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, the production model for parcels and heavy logistics will be streamlined and developed to meet customers’ needs for better flexibility and transparency.
Once the transformation is complete, letters will be handled via two separate flows. A basic flow will handle letters for distribution within five days. Via the fast flow, letters 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.
Transformation of the Danish business, which will be implemented over a four-year period, will generate efficiency improvements involving around 3,500–4,000 full-time jobs, including 500 in administration. The major share of these cutbacks are expected to take place within the next 2-3 years. The costs of the transformation are estimated at no more than SEK 3.0 billion over the period. PostNord has communicated to its owners the need for financing for these transformation costs, since PostNord's estimation is that they not can be financed internally. Further, the transformation will create a substantially negative cash flow during the period, for which finance should be possible through the earnings of the business.
“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,” says President and Group CEO Håkan Ericsson.
PostNord does not foresee any further need for ownership support following the restructuring in Denmark. PostNord has no need for capital contributions from the owners for the operations that are conducted outside the universal service obligation.
Alongside the extensive restructuring in Denmark, a substantial reduction of more than SEK 1 billion in the Group’s administrative costs will be carried out over the next three years, mostly in 2017 and 2018.
“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,” says Håkan Ericsson.