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Norway Post: Enhanced Efficiency Improves Profitability - October 30, 2009
[Press Release.]Norway Post's revenues are declining as a result of the economic slump and electronic substitution, but extensive efficiency measures are leading to greater profitability at the end of the first three quarters of 2009.

The earnings before non-recurring items and write-downs came to NOK 647 million during the first three quarters of 2009, compared to NOK 345 million for the same period last year. The operating revenues amounted to NOK 20.1 billion, compared to NOK 20.8 billion at the end of Q3 2008.

The main reasons for the improved profitability are that the Spinnaker programme, which is intended to improve efficiency, has produced positive results and that the Norwegian state has paid for mandatory, unprofitable services in accordance with the licence conditions. As at 30 September 2009, government procurements of NOK 369 million were recorded in the books.

The Spinnaker effect - NOK 800 million

The Spinnaker programme was implemented in 2008 and consists of a number of measures to reduce costs and increase revenues in the Group. The measures are primarily intended to meet the challenges involved in the decline in volume and changes in customer behaviour in the traditional mail sector. The transition to electronic mail is leading to a permanently lower volume of letters, sharp fall in banking transactions and considerable decline in the number of those visiting post offices.

As at 30 September 2009, the effect of the Spinnaker measures equals around NOK 800 million. In the three first quarters of 2009, the effect equals around NOK 563 million.

«With the Spinnaker efficiency programme, we have so far succeeded in improving the efficiency of our operations and adapting our costs to the lower volumes of letters. The economic slump is also affecting the Logistics and IT activities, so that the efficiency programmes have been extended to also cover these parts of our operations,» says Dag Mejdell, the CEO of Norway Post.

Declining volumes of mail - improved quality

The volume of letters was in total 13.5 per cent lower as at 30 September 2009 than on the same date in 2008. Unaddressed advertising fell by 17.5 per cent while A and B mail fell by 8.6 per cent during the first three quarters of this year.

«Electronic substitution is leading to a permanent reduction in volume and changes to our customers' requirements. We expect the volume of letters to continue falling and that the amounts we lose to electronic messaging will not find their way back to Norway Post,» says Mr Mejdell.

In Q3 2009, Norway Post delivered 89.2 per cent of the A mail overnight, compared to 88.7 per cent in Q3 2008. This is well above the licence requirement of 85 per cent.

The economic slump is affecting Logistics and IT operations?

The generally lower level of activity in the economy is also affecting the development of revenue and earnings in the Logistics segment. In total, the operating revenues fell by three per cent during the first three quarters of 2009. Lower volumes and subsequent declining capacity utilisation levels had a negative effect on profitability. A number of measures have been implemented to compensate for this trend. Further adaptations are being considered in line with developments in the economy. The revenues of the IT segment (ErgoGroup) fell by six per cent during the first three quarters of 2009, mainly due to a sharp slump in the Swedish market. Measures have been introduced to reduce the costs in the IT segment, but these are not expected to have any effect on the results until 2010.

So far this year, ErgoGroup has won a lot of new contracts and entered into contracts worth NOK 2 136 million during the first three quarters of 2009. This is NOK 136 million more than during the same period in 2008.