Poste Italiane floats in tough market

Investors are being courted by the Italian government for a 40% stake in Poste Italiane, the state-owned postal monopoly. It is estimated that they wish to raise around €4bn in a stock-market float scheduled for August. However any potential investors might do well to compare and contrast with the experience of the UK’s Royal Mail.

Royal Mail is comparatively operationally lean and strategically focused after a fairly demanding privatisation process that included a multi-billion pound ‘transformation’ programme. Yet despite this, its profits are only increasing in single digits. The most recent numbers for Q1, released yesterday (21/7) show that revenue was flat despite the UK economy growing by between 2.5-3% and with e-commerce seeing particularly healthy expansion. The problem is that mail volumes are falling by 4% year-on-year (in Q1) whilst parcel volumes are growing by 3%. One of Royal Mail’s difficulties is that Amazon is a major customer, or rather was before it decided to in-source much of its logistics requirements. Royal Mail has calculated that this insourcing decision reduces annual market growth by 1-2% from in the parcel segment, restraining its ability to exploit the buoyant internet retailing business.

So how well is Poste Italiane positioned to compete in Italy’s equivalent mail and parcel sector? It is not unreasonable to suggest that the Italian logistics markets are different to those in the UK. The penetration of e-commerce into the Italian economy is lower than in the UK and its logistics sector is also less open.

And Poste Italiane is a quite different animal to Britain’s Royal Mail. Based on data released by Poste Italiane, mail activities account for approximately 20% of revenue with the rest of the organisation’s €28.51bn revenue being dominated by financial services. The postal services segment appears to have experienced a steady fall in revenues since 2011 which saw sales of over €5bn, this is in stark contrast to revenue of €4bn in 2014. For the group as a whole 2014 profits halved, in great part caused by the ‘postal and business services’ division which crashed into a loss of €504m.

The big challenge for former postal monopolies is to perform a juggling act to jump from the rapidly declining mail business into the growing but fiercely competitive e-commerce market. This is difficult even for the most agile, well-resourced and strategically focused companies. For a group dominated by non-logistics activities and which is heavily loss-making it is going to be quite tough. Therefore it might be suggested that the prospects for Poste Italiane may not be quite as predictable as that of its UK equivalent, or even other European post offices such as Deutsche Post-DHL or PostNL.