Swiss Post delivers solid result
Communication dated 09.03.2017 - Swiss Post is continuing to face pressure in its core business due to the accelerating pace of structural change. As a result, Swiss Post recorded an operating profit (EBIT) of 704 million francs for 2016. That is 119 million francs less than in the previous year. Operating income is solid at 8,188 million francs. In a highly competitive market environment, Group profit fell from 645 million francs to 558 million francs. Swiss Post is tackling the change with transformations at all levels: it is investing with foresight in its range of services for private and business customers and is modernizing its infrastructure.
Declining consignment volumes, pressure on margins in the logistics business and the low interest environment in the financial sector are having a significant impact on Swiss Post’s result. Other factors include the sale of a PostFinance participation and a reduction of the depreciation period for tenant fit-outs in logistics centers, which was necessitated by the rapidly changing economic environment in the logistics business.
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Swiss Post Solutions improves result
The operating profit generated by Swiss Post Solutions in 2016 was up 5 million francs year-on-year to 20 million francs. The improved result was mainly due to cost reductions and the implementation of efficiency improvement projects, and was accompanied by a fresh improvement in the company’s international market position, with Swiss Post Solutions moving up to fourth place in the 2016 rankings of top providers of business process outsourcing solutions for document solutions. Operating income by contrast fell slightly from 609 million to 558 million francs, due in particular to the disposal of non-strategic units.
Pronounced decline in letter volumes
The letter, newspaper and promotional mailing business remained an essential pillar of Swiss Post in 2016. However, substitution by digital channels is having a growing impact on PostMail’s core business. The number of addressed letters declined by 3.8 percent in the past year (2015: 1.4 percent). PostMail nevertheless recorded an operating profit of 317 million francs (previous year: 358 million). Operating income stood at 2,906 million francs (previous year: 2,820 million). The ongoing process of digitization will continue to have a major impact on Swiss Post’s business performance. By way of comparison, a one percent drop in the volume of addressed letters means a decline in operating income of 14 million francs. While the decline in income due to lower volumes was not fully offset, efficiency measures and good operational performance were able to compensate for a considerable proportion of it. In the development of its letter business, PostMail continues to focus on direct marketing and its benefits for companies in Switzerland.
High competitive pressure and pressure on margins in the parcel business
With the boom in online retail, momentum in the logistics market continues to grow. The volume of parcels processed by PostLogistics rose by 5.7 percent year-on-year (2015: +3.0 percent). PostLogistics generated an operating profit of 117 million francs, down 28 million francs year-on-year. This is due to the high pressure on margins in a fully liberalized market and – on the basis of a strategy revision – higher expenses arising from the transfer of product responsibility for private customer parcels from Post Offices & Sales. Thanks to the higher parcel volumes and greater demand for value logistics solutions, operating income rose by 20 million to 1,572 million francs. This more than offset the loss of customers in small consignment transport, warehousing and Innight services, as well as lower revenue in the fuel business. The market environment is increasingly challenging for PostLogistics, as growing numbers of new competitors – including providers from outside the sector – force their way into the market. With increasingly intelligent technologies, new competition models can fundamentally change the market at any time.
Restructuring of the postal network
The replacement of traditional postal products with digital products and services continues. Inpayments at the Post Offices & Sales unit were down by 5.4 percent. In the past year, the operating result at Post Offices & Sales stood at –193 million francs (previous year: –110 million). At the same time, operating income fell from 1,601 million to 1,196 million francs. The was due to both the continuing decline in over-the-counter transactions and adjustments to the internal performance mandate. Since the announcement of the development of the postal network by 2020, Swiss Post has begun taking steps towards establishing a branch network with a broad range of physical and digital access points that are fit for the future.
PostFinance interest income under heavy pressure
PostFinance is also faced with growing challenges, including in particular the ongoing negative interest rate environment in the financial market and the digital transformation of the banking sector. PostFinance nevertheless generated a higher operating profit of 542 million francs (+83 million francs year-on-year). The increase in operating profit is primarily due to non-recurring revenue from the sale of equity holdings and a participation. As a result, operating income rose slightly from 2,143 million to 2,155 million francs. Lower portfolio reversals of impairment on financial assets and impairment losses on individual items had a negative impact on the result. PostFinance recorded a significant decline in net interest income before impairment (–48 million francs year-on-year). This negative trend looks set to continue in the coming years, as it remains difficult for PostFinance to find profitable investments for the customer deposits entrusted to it in the current negative interest rate environment due to the lending prohibition. In addition, long-term expenses for strategic projects and property maintenance led to an increase in operating costs.
The growth in customer deposits was around 4.5 billion francs. As a result of this strong increase, the PostFinance sight deposit balance at the Swiss National Bank (SNB) exceeded the exemption limit of around 35 billion francs virtually without interruption in the past year. This has cost the company 24 million francs in negative interest. On 1 February 2017, in an effort to at least partially offset the loss, PostFinance introduced a fee of 1 percent on the credit balance of private customers with cash holdings above a threshold of 1 million francs.
PostBus benefits from strong increase in mobility
In 2016, PostBus again covered more kilometres and transported significantly more passengers. 152 million passengers travelled by Postbus in Switzerland, around 7 million more than in the previous year. At 36 million francs, operating profit at PostBus exceeded the prior-year figure by 7 million francs. This was primarily due to the fall in fuel prices, expansion of products and services, and improved subsidiary results. Operating income rose by almost 9 percent year-on-year to 923 million francs. PostBus is continuing its transformation into a fully integrated mobility provider. With the development of self-driving buses on public roads, PostBus has reached an important milestone. Since June 2016, more than 25,000 passengers have travelled on the autonomous buses, which are being tested in Sion. In addition, PostBus will roll out the mobility platform NordwestMobil, which was introduced last year, across the nation in the autumn.
Investment, universal service and appropriation of profit
In the past year, Swiss Post made investments of around 450 million francs in developing its infrastructure, in new services and in other themes. For example, Swiss Post installed an additional, even more powerful sorting system at the Daillens parcel center, and brought a fully automated storage and picking facility on stream at the Villmergen logistics center.
In 2016, Swiss Post once more funded the costs of the universal service in full – as well as all investments. Overall, Swiss Post again achieved very high marks for the quality of the universal service. Postal legislation stipulates that 90 percent of the permanent residential population must be able to access a post office or postal agency on foot or by public transport within 20 minutes. Once again, this indicates that, in terms of its universal service, Swiss Post ranks among the best in Europe.
As at 31 December 2016, Group equity stood at 4,881 million francs (before appropriation of profit). At the General Meeting, the Board of Directors will propose paying a dividend of 200 million francs to the Confederation. This means that Swiss Post again created added value for Switzerland, customers, employees and its owner in 2016.
Profound transformation required
The pressure on the core postal business is growing strongly. Against this background, Swiss Post will have to transform itself profoundly over the coming years. It will increasingly adapt its services to customer habits and expand the number of access points available. Swiss Post must therefore continue to restructure its postal network and focus on customer requirements and long-term financial viability, with an emphasis on the successful model of branches with partners and a large number of additional access points. The increase in efficiency throughout all areas of the company is an ongoing challenge and a key factor in the good operating result. Finally, Swiss Post is faced with the challenge of creating new sources of income, with all units investing every effort and their innovative strength in developing the core business and new services in order to stabilize the Group’s operating income in the long term. To achieve this, Swiss Post requires an appropriate regulatory framework that will allow it to continue financing the universal postal service from its own resources in the future.