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Dutch Mail Group PostNL to Offload Foreign Units as Profit Drops

07 Aug 2018, 16:04 ... on-benelux

PostNL NV plans to dispose of its two main overseas units as the former Dutch postal monopoly focuses on markets closer to home amid a slide in profit. The stock posted its steepest fall in more than five months.

Preparations for divesting the Italian Nexive arm and Germany’s Postcon are underway in a move aimed at devoting more resources to the Benelux area, where PostNL is stronger, the company said Monday as it posted a steeper-than-expected drop in quarterly earnings and trimmed the full-year outlook. The divisions accounted for almost a quarter of total sales last year.

Earlier attempts to narrow PostNL’s focus led the company to exit its U.K. business in 2015, while a takeover bid for the whole group from Belgian peer Bpost SA was rejected in 2016. Like other former state mail services, PostNL is grappling with a slump in letter volumes combined with competition from a host of new entrants in the parcel-delivery market as more people shop online.

International Retreat
PostNL's German and Italian units account for 23% of sales

“While we very much welcome the long-awaited decision to exit Germany and Italy, we fear it may be a tall order to sell these activities quickly at a reasonable price,” Marcel Achterberg, an analyst at Bank Degroof Petercam, said in a note to clients. He added that the second-quarter earnings miss, guidance cut and lower-than-targeted cost savings are “clear negatives.”

German market leader Deutsche Post AG controls more than 60 percent of the corporate mail market in Europe’s largest economy, so that any bid for Postcon would trigger antitrust scrutiny from the European Commission. Poste Italiane could face similar issues with respect to Nexive, its biggest competitor with a 15 percent market share.

Shares of PostNL slumped as much as 7.8 percent, the sharpest decline since Feb. 26. The stock was trading 7.2 percent lower at 3.03 euros as of 12:14 p.m. in Amsterdam, taking its decline this year to 26 percent and valuing the company at 1.41 billion euros ($1.61 billion).

Spread Thin
Chief Executive Officer Herna Verhagen said on a conference call that it’s not realistic for PostNL, which is based in The Hague, to spread its resources over several countries given the relative opportunities there.

“We’re focusing on the markets where we think we can achieve substantial parcel growth,” the CEO said, adding that she’ll update investors on the disposals when appropriate. The two units have been reclassified as discontinued as of the current quarter.

The business that became PostNL was privatized in 1989 and expanded with the purchase of Australian express-parcels specialist Thomas Nationwide Transport or TNT in 1996. The group’s telecom arm was later spun off, followed by TNT in 2011, leaving PostNL to fend for itself.

PostNL’s second-quarter profit -- defined as underlying cash operating income -- dropped 46 percent to 25 million euros, the company said in a statement, while group sales fell short of the lowest analyst estimate, according to Bloomberg data.

The company now sees earnings of 160 million euros to 190 million euros for 2018, versus a previous estimate of up to 200 million euros. Cost savings will also be “slightly below” the targeted range of 50 million euros to 70 million euros after six-month goals were missed.

PostNL got some relief in June when the Dutch government said it would loosen its regulatory grip on the postal market. Details are still to be worked out, making it “difficult to predict” anticipated savings in the years toward 2020, the company said.

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