Something has to be done about Postnord

By: Thomas Ström 9/2/16

Exciting inspection in Svenska Dagbladet

 

During 2008, the Swedish and Danish states were supposed to create “the North’s best” logistics company. They did it by merging the postal offices in Sweden and Denmark.
Funnily enough, this was published on the 1st of April.
After eight years it’s a complete disaster.
The quality has reached bottom levels, the same goes concerning the staff satisfaction, and the profits have plummeted.
At the same time, Postnord cannot account for the 7.5 billion SEK the fusion was supposed to provide.

I know, I have been writing about this before, but more people need to know about this mess.

Postnord is a company that “takes over” the customers the rest of us carriers cannot afford to keep. The company provides the customers with prices so low that we, the smaller companies, need to subsidize our transports. This has even been communicated. The reason is that they want to “obtain more market shares”. If any of the private companies that compete on the market would have conducted such an operation, it would have probably led to a quick bankruptcy.

The background to this fiasco is very well illustrated in a series of nine articles through July and August in the Swedish newspaper Svenska Dagbladet (SvD).

I conclude this post by publishing large parts of one of the articles written by Joel Dahlberg and Torbjörn Isacson, published on the 18th of July in SvD.

The merged and powerful group was considered crucial for the postal service to maintain a high level in Sweden. An important argument for the merger was that the arrangement, according to the government bill, "demonstrates an opportunity through synergies enhancing the merged company's value by at least 7.5 billion SEK."

The first joint annual report, for 2009, was adorned with the title "The construction of the best Nordic communications and logistics company has begun." The CEO at the time, Lars G Nordström, described how the company "has continuously been delivering with high quality, and has obtained more satisfied customers and coworkers."
In 2010 the title of the annual report was "A successful Nordic merger". Nordstrom now explained that "The right size provides the right conditions. In a developing context, the size of the business is of vital importance."

But in time for the next annual report, it was time for a new CEO to take the floor. Lars Idermark, lastly known from the skein at Swedbank, where he now again become chairman, wrote that "Postnord will be a more flexible and innovative company that will continue to deliver service and world-class quality."

The annual report for 2013 was entitled "Improved earnings and clearer directions forward." Now it was yet another CEO who took the floor; Håkan Ericsson was the fourth in the few years since the merger was announced.
"We constantly identify new opportunities to coordinate, develop and streamline the operations," Håkan Ericsson stated.

Subsequently, the supporting slogan was "We deliver!"
Actually, PostNord was delivering less, deteriorating and with a virtually non-existent profitability. According to the PTS’ fresh audits, last year the quality – measured by the proportion of A-letters distributed on the following day – dropped to a uniquely low level, probably the lowest in decades.

Last year, mail volumes decreased by a further eight percent in Sweden and 16 percent in Denmark. Since the millennium, more than half of the A-letter volumes in Sweden have disappeared. In Denmark, more than four out of five first class letters have moved on to digital mail. The first July this year, they disappeared completely.
From the Swedish Posten having a high international quality with over 95 per cent of A-letters arriving the next day, the quality has undoubtedly dropped. Both customer satisfaction and employee satisfaction has declined.

In 2008, the last year before the Swedish and Danish postal companies merged, the group reported pro-forma sales of 45.8 billion SEK, an operating income of close to 3 billion SEK and an operating margin of 6.3 percent. Together, the Swedish and Danish postal services were one of the largest companies in the North, with over 51,000 employees.

Since then, the numbers have significantly deteriorated. The turnover for Postnord last year was slightly over 39 billion SEK, with an operating profit of 500 million SEK. The operating margin last year finished on a meager 1.4 percent, meaning that Posten earned 1.40 SEK per hundred SEK in revenue. The year before, Posten did not even manage to earn 1 SEK per hundred SEK.
The goal is a return on net assets of 10.5 percent. Last year, the group was barely halfway there. The year before, the group could not even reach one third of the objective.

Although the number of employees has been cut to about 35,000, the reduced costs are still insufficient to fend off the rapid loss of revenue.

At the same time, the question concerning what has become of the great synergy profits of 7.5 billion that was promised from the start remains unanswered. They were supposed to come from both savings and better utilization of both companies' services in the different markets.

From Postnord's PR department, the answer is "We have not divided the synergies that the merger entailed, but it is mainly in purchasing, administration and IT the synergies has been formed. We also realized soon after the merger that further significant cost savings were imperative, in order to meet the letter volume loss an increased digitization rate means. The operation would have required government funding if we had not done very substantial changes, provided synergies and removed very high costs."

Another result of the company's decline is the conditions for an IPO. Maud Olofsson, the Minister for Enterprise at the time, said in April 2008 that an IPO "is a good way to go" but today, the plans have been scrapped.