Estonia, Exchange, Good for Business, Markets and Companies, Post Office

Miscalculations made in the management of the company resulted in a loss in 2019 and a rapid increase in debt. The company is experiencing a cash shortfall also now, but the rapid increase in e-commerce volumes, alongside cost-cutting, has mitigated the problem.

At the end of last year, when short-term obligations had risen to 77 mln euros, the financial standing of Eesti Post was so bad that it was feared that there will be no money left to cover current costs in the spring and the company would have to announce insolvency. 

According to Soosaar, the financial problems resulted from miscalculations made in the international parcel business in previous years and mistakes in cash flow management. 

"Short-term operating capital was used to make long-term investments. Money was invested in right things such as the parcel station network, sorting and information technology, but too big risks were taken using the wrong means," Soosaar told Postimees.

Soosaar said that in settlements among the postal institutions of different countries estimates can be made for a year in advance of how many invoices will come in. At the end of the period the invoices are processed, and payment will take place only in a year's time. 

"This means that there is a two-year period between the time when an expense is incurred and when it is paid out," Soosaar said.

"The big amounts of money that were at the company's disposal at one time were invested in long-term projects all at once, but by the time the payment time arrived business volumes had declined and there was no money left to pay to suppliers," he said.

The chairman of the supervisory board said that while the investments were necessary, they could have been done cheaper and better.

According to Soosaar, volumes of the parcel service suffered due to mistakes made in pricing, as too low prices were established at the beginning. Due to the low prices, so many parcels started to be sent via Eesti Post that it made the service loss-making for the company. When the price of the service was raised, volumes dropped and cash flows declined.  

The universal postal service and the service of delivery of periodicals have been unprofitable for Eesti Post for years. Where in previous years profitable activities of the group have covered the losses from these operations, in 2019 that did not happen and the group finished the year with a loss of 3.7 mln euros.

The group nevertheless managed to refinance existing loans in spring, as part of which a commercial pledge in the amount of 15 mln euros was placed on the movable assets of Eesti Post.

Unexpectedly, the coronavirus pandemic has helped heal the company's financial woes to some degree as the volumes of e-commerce have been growing rapidly and, thanks to the investments made, the company is in a very good market position when it comes to parcel delivery services. 

The first nine months of this year were profitable for Eesti Post again and the short-term debt burden has decreased by about one-tenth.

\

At the same time, it is not clear what next year will bring as people's patterns of behavior may change and consumption drop as unemployment is about to grow.

To find out about the causes of problems, a decision was made in August to start a special audit of management decisions at Eesti Post, the findings of which are due in the first quarter of 2021. 

Postimees said that even though many faults can be found with the management decisions made earlier and the work of the supervisory board, it is also clear that in the postal service not everything takes place in accordance with normal business logic. For instance, in 2019, Eesti Post was the sole tenderer and winner in a tender for the universal postal service into which a big loss had been written already in the tender stage. 

Universal postal service is seen to cause Eesti Post losses in the amount of over 40 mln euros in 2019-2024. The provision on these services however is the main duty of Eesti Post and despite a decline in the use of the service it continues to be important for the people. 

However, the state as the owner also demands that alongside the provision of the universal postal service, Eesti Post must be a profit-making business. Also dividends are expected from it.

The government is planning to take no dividends from Eesti Post in 2020-2023.