Post Apocalypse
Thanks to the ubiquity of e-mail and other forms of electronic messaging, the number of letters delivered in the European Union dropped from 108 billion in 2008 to 86 billion in 2013, according to the Universal Postal Union, an industry group. The contraction is continuing, says Barclays, a bank, putting it at 5% this year. Such declines make it ever more difficult for operators to comply with requirements to offer their postal services all across their respective territories.
POSTE ITALIANE, which runs Italy’s postal service, started out this week on its privatisation road show. It is selling more than a 40% stake in itself. The listing, which is expected to raise €7.8 billion-9.8 billion ($8.9 billion-11.2 billion), puts Italy itself in the shop window. This is the country’s biggest privatisation in 16 years and the linchpin of a sell-off programme that the government hopes will signal a fresh direction to foreign investors. It also offers the postal sector another chance, following listings by other European operators and in advance of one by Japan Post, to persuade investors that firms whose traditional business is in deep trouble have a future.
Poste Italiane’s letter business was less exposed to this decline than other European services, for the simple reason that Italians have always sent less mail than, say, the French or British: they prefer to talk on the phone. But volumes of marketing bumf slumped during the euro crisis. And the decline has continued since: the company’s mail revenues dropped by 6.5% in the first half of 2015.
If letters are fading, parcels are thriving. About 4 billion parcels were sent to customers from e-commerce sites across the continent last year, up from 3.7 billion in 2013, according to Ecommerce Europe, an industry group. It expects revenues from online retailing to reach €477 billion in 2015 and €540 billion in 2016.
Other postal services have been quicker to jump on the e-commerce juggernaut than Poste Italiane. PostNL in the Netherlands has launched CheckPay, an anti-fraud service whereby the buyer’s payment is released only once the goods have been delivered. And PostNord, the merged Swedish and Danish postal service, has created an offering that allows firms to send parcels to consumers across the Nordic region as easily as they do domestically.
Poste Italiane has been more sluggish. It has a market share in parcels of only 12%, whereas other national postal services typically have about 40-50%. It has not paid enough attention to this part of the business, its bosses admit, but has vowed to catch up. It has struck a deal with Amazon to deliver packets and let customers collect them at post offices. The firm is also experimenting with other ways to take advantage of its distribution network: it has a pilot scheme in Siena to deliver medicines to patients’ homes, for instance. To cut costs, Poste Italiane is also being allowed to reduce its delivery service to once every other day in a quarter of its territory—a bigger departure from the principle of universal service than in any other EU country thus far.
But Poste Italiane’s real selling-point has nothing to do with postal services, which account for only 14% of revenues and last year notched up losses of €504m (see chart). The bulk of its income comes from insurance (66%) and other financial services (19%). These activities benefit from the firm’s trusted brand and its vast network of 13,200 branches across Italy (compared with 3,300 and 4,300 branches for the two biggest banks, UniCredit and Intesa Sanpaolo, respectively).
Having leveraged its client base of current-account holders to develop its insurance business, the group now aims to expand in asset management. In April Poste Italiane acquired 10% of Anima, an Italian fund manager. It plans to offer customers products with higher yields than government bonds (which account for 13.4% of savings in Italy, compared with an EU average of 4.9%). The chance to tap into Italians’ large stock of savings, at a time when retail investors are on the hunt for yield, is one of the main messages the company is delivering on its road show.
These non-postal services are what make it possible to contemplate listing a chunk of what otherwise would be a lossmaking delivery giant. Total revenues at Poste Italiane were up by 7% to €16 billion, and operating profit was up by 26% to €638m in the first half of 2015. Given how few big firms are listed on Italy’s stock market, and in the light of a string of mildly positive macroeconomic data, the firm may turn out to be an attractive investment for those betting on an Italian recovery. Investors may also be seduced by the promise of a dividend pay-out of at least 80% of net profit in 2015 and 2016. Initial demand for the shares is strong. Just don’t mention the post.
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