Posti Group Half Year Report 2018 Solid profit improvement and record high parcel volumes

Posti Group Corporation Half-Year report January-June 2018

April-June

Financial highlights

• The Group’s net sales decreased by 0.7% to EUR 399.5 (402.3) million.
• The Group’s adjusted EBITDA increased to EUR 22.8 (19.8) million, 5.7% (4.9%).
• The Group’s EBITDA increased to EUR 19.0 (12.8) million, 4.8% (3.2%).
• The adjusted operating result increased to EUR 6.1 (0.3) million, or 1.5% (0.1%) of net sales.
• The operating result increased and amounted to EUR 2.3 (-7.6) million, representing 0.6% (-1.9%) of net sales.

Operational highlights

• The parcel volume of Finland and the Baltic countries increased by 13%, with 22% growth in consumer (B2C) parcels. Measured in waybills and excluding food logistics, Posti’s domestic freight grew by 7%. The number of addressed letters decreased by 5% in Finland.
• The number of working days was 61 (60). The number of working days affects the Group’s net sales and result, having an impact on both year-on-year comparisons and comparisons between consecutive quarters.
• Mail items covered by the universal service obligation amounted for 3.2% (4.2%) of all Posti´s delivery volumes.
• Posti has completed its first sourcing procedure based on the Postal Act on the five-day delivery of universal service letters in areas not covered by an early-morning newspaper delivery. The companies that won the competitive tendering process have carried out deliveries for Posti before.
• In April 2018, Itella Russia divested its MaxiPost courier business to the Moscow-based Strategic Business Alliance. According to its strategy, Itella Russia focuses on its core businesses, contract logistics and transportation.
• In May, Posti Group Corporation signed a new EUR 150 million syndicated revolving credit facility which replaced the previous EUR 150 million facility. The new facility has a maturity of five years with an option to extend with two years.
• Outlook for 2018 has not been changed. The net sales in 2018 are expected to remain on a par with 2017 or to decrease slightly. The Group’s adjusted operating result is expected to remain on a par with 2017 or decrease slightly. Capital expenditure, excluding acquisitions and disposals, is expected to decrease slightly.

Long-term financial targets and dividend policy

In May the Board of Directors adopted a dividend policy pursuant to which the Company aims to pay out a continuously increasing ordinary dividend.

Posti’s Board of Directors also set in May the following long-term financial targets for Posti’s operations:

• Adjusted operating result margin of 4 percent;
• Net debt / Adjusted EBITDA less than 2.0x
• Strict management of free cash flow

January-June

Financial highlights

• The Group’s net sales decreased by 1.1% to EUR 807.0 (816.1) million.
• The Group’s adjusted EBITDA declined to EUR 51.1 (55.3) million, 6.3% (6.8%).
• The Group’s EBITDA increased to EUR 47.5 (42.9) million, 5.9% (5.3%).
• The adjusted operating result increased to EUR 17.5 (15.8) million, or 2.2% (1.9%) of net sales.
• The operating result declined and amounted to EUR -16.3 (2.5) million, representing -2.0% (0.3%) of net sales.
• Net debt to adjusted EBITDA was -0.1x (-0.2x) on June 30, 2018.

Operational highlights

• The parcel volume of Finland and the Baltic countries increased by 12%, with 22% growth in consumer (B2C) parcels. Measured in waybills and excluding food logistics, Posti’s domestic freight grew by 6%. The number of addressed letters decreased by 8% in Finland.
• Mail items covered by the universal service obligation amounted for 4.0% (4.3%) of all Posti´s delivery volumes.
• As a result of management evaluation of OpusCapita’s business plan, including the execution schedule and required investments to implement the plan and the risk-premium of the discount rate, an impairment loss on goodwill of EUR 30.0 million was recognized in the first quarter of the year.
• The number of working days was 124 (124). The number of working days affects the Group’s net sales and result, having an impact on both year-on-year comparisons and comparisons between consecutive quarters.
• In March 2018, the Supreme Court did not grant leave to appeal in litigation concerning the value added tax on postal services requested by the claimants against Posti. This means that the decision given in September 2017 by the Court of Appeal of Helsinki to overrule the complaint as requested by Posti and to compensate the legal expenses of Posti remains final.
• During the first half of 2018, Posti’s Finnish Debt Collection business was sold to Intrum, the Norwegian Debt Collection business to Visma and the Swedish Debt Collection business to Collectia Sverige AB.

Figures in brackets refer to the comparison period, i.e. the same period last year, unless otherwise stated.

Heikki Malinen, President and CEO

In the first half-year of 2018, Posti´s parcel volumes reached another high: volumes totaled 20.9 million, up 12 percent compared to the same period the previous year. In April-June, Posti handled 10.5 million parcels, which was also a new record for the second quarter. Parcel volumes growth is driven by booming e-commerce and consumers are shopping online more than ever. Posti´s B2C parcel volumes showed robust growth of 22 percent.

As consumer behaviors are changing and digital transformation is moving on ahead quickly, decline in the volume of addressed letters continued. However, it was positive to note that in April-June the rate of volume decrease (-5%) was lower than on the previous year (-10%) due to extra seasonal, such as GDPR-related mail deliveries. As a part of Posti´s new strategy, we seek actively measures to extend mail lifespan by keeping mail vital for both senders and receivers. We feel very encouraged by Posti´s Messaging Services solutions that are combining successfully physical and digital flows. Implementation of digital traceability for mail is ongoing as well.

In January-June Posti´s adjusted operating result improved to EUR 17.5 million, representing 2.2 percent of net sales. On the whole, we are pleased that profitability of our core business has remained solid through good mail volumes, cost efficiency and growth in Parcel and Logistics. In addition, Itella Russia turned profitable for the first time since 2014. The Group’s adjusted operating result in 2018 is expected to remain on a par with 2017 or to decrease slightly.

As the competition is continuously tightening and new competitors entering the market, Posti will continue to renew its operations to ensure the company´s competitiveness also in the changing market. This requires investments in areas such as delivery automation, service digitalization and infrastructure maintenance. To meet customer expectations and needs for new services, this coming autumn Posti will launch a same-day parcel delivery service and weekend deliveries in the Helsinki metropolitan area. Posti is continuously adding more parcel lockers and bringing them closer to customers.

In August, Posti will open one of the largest freight terminals in Finland, the size of three football fields, near the airport in Vantaa. Posti has invested around EUR 33 million to this top-modern terminal. When fully up and running, the terminal will be able to handle 5,700 pallets a day. The terminal improves Posti’s logistics capabilities and creates cost savings.

One of the four key targets during 2018-2020 is “Renewing our service culture”,”Posti Orange”. With a strong Orange community, we are developing the employee experience and first-rate service for our customers. Recognizing that customer experience is key, all future services will be made to respond to the needs of Posti’s customers. Posti’s services must be future-oriented and digital by default. For example, we have completed the Posti Mobile roll-out with about 9,000 mobile devices for Posti employees.

Posti is deeply concerned about the government’s plans to tighten postal regulation with a law reform that would force Posti to release all key delivery data to competitors. The law reform would also skew competition and raise serious concerns about the data privacy of customers and all mail receiving citizens. Instead of tightening regulation and increasing delivery related costs, the government should ensure flexible and predictable regulation suitable for the decreasing postal and logistics volumes, and fair and equal rules of competition.

We continue to renew Posti to make daily life smoother for our customers in the future. I would like to take this opportunity to thank all our customers for their trust in Posti.

APPENDICES

Posti Group Half-Year Report 2018 in full (PDF)

FURTHER INFORMATION

Heikki Malinen, President and CEO, and Sari Helander, CFO
Tel. +358 20 452 3366 (MediaDesk)

FINANCIAL CALENDAR
January–September: Wednesday, October 24, 2018, at 9:00 a.m.
Financial statements for 2018: Thursday, February 14, 2019, at 9:00 a.m.

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Posti is the leading postal and logistics service company in Finland. Our core business includes postal services, parcels, freight and logistics services. We have the widest network coverage in Finland and we visit about three million households and companies every weekday. We manage the flow of everyday life in 11 countries. Our net sales in 2017 amounted to EUR 1.6 billion and the number of our personnel is approximately 20,000. www.posti.com.