May 31, 2011 / 11:10 AM / 8 years ago

Dutch post privatisation pioneers face stern test

* PostNL must make cuts, boost sales to fund dividend

* Faces decline in letters, uptick in parcels

* Shares down 8 pct since it has traded as standalone firm By Greg Roumeliotis AMSTERDAM, May 31 (Reuters) - As the boss of PostNL (PTNL.AS) sounded the gong at Amsterdam’s stock exchange on Tuesday to mark open trading of shares in the former Dutch state mail monopoly, he vowed to deliver on a huge, unenviable task.

With the split of PostNL from the international express arm of its Dutch parent group TNT legally finalised on Tuesday, many think Chief Executive Harry Koorstra is faced with the impossible challenge of rescuing the postal business from terminal decline, requiring ever deeper cost cuts and lay-offs.

He doesn’t see it that way.

“The first two years we have quite a pressure on the cash position, but from 2014-2015 we are back on track,” 60-year-old Koorstra, who led TNT’s mail unit for more than a decade before becoming its CEO in the demerger, told Reuters.

Koorstra has pledged a minimum of 150 million euros in annual dividends, even though he is unable to fund them without more debt or relying on the 29.9 percent stake PostNL has inherited in its former sister unit, TNT Express TNTE.AS.

He also needs to make up for liabilities that include the pension costs of its 73,000-strong workforce, investment in infrastructure in the growing parcel business and restructuring costs at its traditional letter distribution activities.

“PostNL is a dividend yield story, so payouts to the shareholders come first. Eventually, I believe the management will be able to fund dividends with the company’s cash flow, but not before 2015,” ING analyst Axel Funhoff said.

Investors have so far been sceptical. PostNL shares are down 8 percent from the reference price they were set last week as a standalone business, while TNT Express, which PostNL should partly track because of the stake it retains, is up 13 percent.

EYES ON THE DUTCH

The Netherlands was the first European country to privatise its postal service, in 1989. It was followed by Germany, Belgium, Austria and, for a while, Denmark. PostNL is the only European incumbent mail operator without any state participation.

“Everybody looks at the Netherlands because they have been the forerunner of postal privatisation,” said Matthias Finger, a professor of network industries management at the Swiss Federal Institute of Technology in Lausanne.

Spearheading a European Union-wide drive to open up the sector, the Netherlands fully liberalised its mail industry by 2009. PostNL’s share of the Dutch market dropped as a result from 85.8 percent in 2009 to an estimated 82 percent this year.

Internet and email account for three-quarters of Dutch volume declines. While mail is moribund across Europe, PostNL has seen steeper falls than peers Deutsche Post (DPWGn.DE) and Austrian Post (POST.VI). <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic comparing mail volumes r.reuters.com/qyv79r

Graphic on TNT's performance r.reuters.com/sef79r

Q+A on TNT’s demerger process [ID:nLDE74O0Z3]

NEWSMAKER on TNT Express CEO [ID:nLDE73P1MB]

INTERVIEW with PostNL CEO [ID: nWEA3967]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

“The hypothesis is that more e-government activity and widespread cyber-infrastructure, such as online payments and voting, accelerate the substitution. Germany, for example, is a federal country, so its policy on the adoption of such technologies is not as coherent as the Dutch,” Finger said.

PostNL saw addressed mail volumes fall 9 percent in 2010 and expects a decline of up to 10 percent this year and 6 percent annual declines in subsequent years.

“The mail business is doomed. What keeps it alive is direct mail or personalised publicity. In the United States this already makes up 85 percent of all the mail. The impact of a letter in terms of advertising can be greater than that of a billboard or TV commercial,” Finger said.

SORTING IT OUT

As part of its restructuring, PostNL is in the process of axing 11,000 jobs. Out of these, 4,500 job losses were meant to be compulsory redundancies, but after six days of strikes last year — the first in 25 years — that was limited to 2,800.

“I have fought so as not to earn less than I earn now and for my colleagues to keep their jobs,” said 54-year-old Jaap Bouwmans, who sorts and delivers letters in the southern Dutch town of Veghel and has worked as a postman since 1972.

Bouwmans, who gets paid 1,500 euros net per month for working 31 hours per week, said the company’s workforce was becoming less skilled as professional postmen were being replaced with part-timers such as students and housewives.

His sister used to work at Sandd, a private-equity owned low-cost competitor of PostNL that is allowed by law to make deliveries only a few days per week. PostNL has a universal service obligation that calls for delivery six days per week. Bouwmans described how his sister, who was paid six euros per hour, used to have bags of mail arrive at her home, where she sorted it before doing her delivery rounds. In response, PostNL has also developed a low-cost service, Netwerk VSP.

PostNL sees an opportunity in the fragmented 1.1 billion euros Dutch domestic parcels market, of which it held a 39 percent share in 2010 and which it expects to top 1.3 billion euros by 2015, driven by the popularity of online shopping.

It also sees scope to expand abroad, where it is the leading challenger in Germany’s, Britain’s and Italy’s mail markets. All this means more work for those driving vans and less work for those doing old-fashioning sorting and neighbourhood delivering.

“Machines now know how to sort; even if they can’t make out an old lady’s handwriting and we do not have full automation, they can read most letters. Only transport cannot be done by machines yet. Technology is our enemy,” said Bouwmans.

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