New priorities set for 2020
The first quarter of 2020 posed major challenges for Austrian Post. The COVID-19 pandemic and the related negative economic impact have redefined the company’s priorities. In spite of the significant deterioration of the business environment and due to the commitment of all its employees, Austrian Post succeeded in providing on a daily basis the high-quality postal services which are so crucial at this time. The current focus is to ensure that the company fulfils the three-fold objectives of preserving the safety and health of employees, maintaining the company’s services as part of the country’s critical infrastructure, and minimising the economic damage. As a systemically relevant company in Austria, Austrian Post is fully committed to take on this responsibility although it is evident that various service obligations cannot be fulfilled in a cost-covering manner and/or additional costs arise from regulations and crisis measures.
“The initial conclusion is that the company succeeded very well in maintaining the safety and health of the staff as well as the efficiency of the logistics network” says CEO Georg Pölzl. The predicted impact on the business, notably in Direct Mail, is already visible.
Q1 2020 burdened by special effects but in line under current circumstances
“The results for the first quarter of 2020 reflect the current difficult business environment” adds Georg Pölzl. “Revenue increased by 2.1 % but earnings fell.” This can be attributed to two challenges i.e. the development of a new bank and the negative consequences of COVID-19. The pandemic resulted in reduced letter mail and direct mail volumes as well as caused additional costs to maintain reliable universal postal services. Against this backdrop, the first quarter of 2020 developed in line with current expectations.
With regard to the presentation of revenue and earnings, it is worthwhile noting that Austrian Post has enhanced transparency and now reports performance indicators for three operating segments. In addition to the Mail Division and Parcel & Logistics Division, this includes the new Retail & Bank Divison where bank99 was launched in April 2020.
In the first quarter of 2020, total revenue of Austrian Post Group has improved by 2.1 % to EUR 502.9m. The dynamically growing parcel business achieved an increase of 23.8 %, which helped to offset the declines in the Mail Division and the Retail & Bank Division by 4.6 % and 39.4 % respectively. Group earnings (EBIT) fell to EUR 33.3m in the period under review from the comparable level of EUR 57.4m in the first quarter of 2019. This substantial decline at first glance is the result of two special effects: The first quarter of 2020 fully encompasses initial start-up costs for bank99, whereas the first revenue from financial services will be generated in the second quarter of the year. Moreover, special effects relating to COVID-19 are noticeable in all operating divisions.
The Mail Division showed the expected decline, with revenue down by 4.6 %. This development is due to the accelerated electronic substitution of conventional Letter Mail without being able to book positive price effects. Moreover, the revenue drop is also related to the reduction in Direct Mail following the government-imposed store closures starting in mid-March 2020 in response to COVID-19. About 50 % of direct mail items are impacted, with the loss of revenue of about EUR 4m per week. For this reason, first-quarter divisional EBIT fell from EUR 55.7m to EUR 46.9m in the prior-year period.
Revenue of the Parcel & Logistics Division increased by 23.8 %, driven by the ongoing positive organic growth from online orders due to additional parcel volumes generated through the cooperation with Deutsche Post DHL Group since August 2019. Overall parcel volume development was slightly above initial assumptions, with positive impetus provided by private customer parcels (B2C) and negative effects on business parcels (B2B). The division’s EBIT improved by 28.6 % to EUR 8.7m.
The new Retail & Bank Division encompasses retail goods sold via Austrian Post’s branch network as well as the revenue and earnings contributions of the new subsidiary bank99, which offers focused financial services. The 39.4 % revenue decline in the first quarter of 2020 is related primarily to the financial services offering of bank99 first being launched on 1 April 2020, whereas the first quarter of the previous year still included the service fees of EUR 9.4m from the previous banking partner. In addition, the negative results of EUR 16.4m in the first quarter of 2020 also includes the initial costs to develop the bank99 infrastructure. In the meantime, the bank got off to a successful start, already attracting about 20,000 customers in the first six weeks. An ongoing earnings improvement of the division is expected in the upcoming quarters.
A precise forecast for revenue and earnings in the 2020 financial year of Austrian Post is not possible at the present time due to the uncertain economic situation in many sectors of the customers. The further development of the COVID-19 pandemic, the resulting government measures and especially the way and extent to which the economy rebounds will all have a direct impact on the company’s further business development in 2020.
In spite of the COVID-19 pandemic, Austrian Post’s objective is to maintain revenue developments stable as possible. With respect to earnings, revenue losses in the high-margin Mail Division cannot be offset by increasing parcel revenues. Due to the high level of fixed costs in the logistics business, any decline in revenue has a direct impact on earnings. For this reason, EBIT will decline in the current financial year as a consequence of direct and indirect COVID-19 effects. Hence, the earnings situation will depend on macroeconomic developments during the year and the resulting letter mail, direct mail and parcel volumes as well as the level of financial services generated in the upcoming quarters.
In the medium-term, the solid balance sheet of Austrian Post with a sound equity ratio and high level of liquid financial resources will enhance the resilience of the company. Furthermore, Austrian Post is intensively continuing all investments and measures designed to increase in capacity and to sustainably enhance efficiency. As in the previous two years, in addition to the regular maintenance investments (maintenance CAPEX) of about EUR 70m more than EUR 50m of growth investments (growth CAPEX) are planned again to be able to continue to guarantee the best quality logistics network in Austria. Moreover, there is the possibility of expanding or newly acquiring estate property for the logistics infrastructure. Against the backdrop of rising parcel volumes, it is vital to further expand Austrian Post's outstanding market position in terms of quality and quantity. “Targeted investments and measures should contribute to increase earnings at all divisions and thus again improve the Group results for 2021” stated CEO Georg Pölzl.
Source: Austrian Post