Posti Group Q2/2019: Postal volume decline continued on a record level – Profitability in line with previous year

Posti Group Corporation Half-Year report January-June 2019

April-June

Financial highlights

• The Group’s net sales increased by 1.8% to EUR 393.8 (386.8) million.
• The Group’s adjusted EBITDA increased to EUR 37.9 (23.8) million, or 9.6% (6.2%) of net sales. The adoption of IFRS 16 improved the adjusted EBITDA by EUR 12.3 million
• The Group’s EBITDA increased to EUR4 (20.6) million, or 8.2% (5.3%) of net sales.
• The adjusted operating result increased to EUR7 (8.2) million, or 2.2% (2.1%) of net sales.
• The operating result declined and amounted to EUR 3.2 (5.0) million, representing 0.8% (1.3%) of net sales.
• Posti has adopted IFRS 16 Leases -standard on its effective date January 1, 2019 prospectively, thus the previous periods are not restated. The adoption of IFRS 16 improved the EBITDA by EUR 12.3 million and the operating result by EUR 1.0 million.

Operational highlights

• Posti has managed to increase the net sales for parcel and ecommerce and logistics solutions, fully in line with its strategy. Transval acquisition had a significant impact, as expected, on the Group´s net sales especially during Q2/2019.
• Posti has continued its efforts in order to create new services and businesses. At the same time, Posti has continued its cost-saving programs which enables Posti to adjust its operations to the declining postal market.
• Posti announced in June that it is in the process of updating its retail network. As part of the change, Posti will close 18 of its own shops. The planned changes would be carried out in phases until March 2021. Going forward, the goal is that in these municipalities, postal services will be operated by Posti’s local partner with the exact same range of services as Posti’s own shops. Posti also announced that it will increase the number of service points and Posti parcel lockers by more than 700 service points this year and next year, totaling up to 2,800 service points.
• Posti has made changes to its parcel deliveries throughout the country since June. After the change, customers’ parcels are delivered to the nearest service point. For most consumers, the nearest service point is a parcel locker.
• Posti launched the Plus Sticker to be attached next to the traditional stamp on letters in April. The Plus Sticker provides traceability for ordinary letters, a service that consumers have requested. A letter attached with a Plus Sticker are delivered within two working days.
• Posti has selected Infosys Ltd, a technology services company, as one of its main partners in digital services development and IT services. This is expected to accelerate digital development. Posti announced in May that as part of the partnership, it will outsource part of its IT operations.
• Posti will expand its early-morning delivery. Posti Ltd, Alma Media Kustannus Oy and Alma Manu Oy have agreed in June on a business transfer and a delivery service agreement under which Alma Manu Oy’s early-morning delivery operations published by Alma Media Kustannus will be transferred to Posti. Alma Media’s early-morning delivery operations in Pirkanmaa and Satakunta will be transferred to Posti in January 2020.

January-June

Financial highlights

• The Group’s net sales increased by 1.1% to EUR 790.4 (781.6) million.
• The Group’s adjusted EBITDA increased to EUR 79.2 (53.1) million, or 10.0% (6.8%) of net sales. The adoption of IFRS 16 improved the adjusted EBITDA by EUR 24.2 million.
• The Group’s EBITDA increased to EUR 68.8 (50.3) million, or 8.7% (6.4%) of net sales.
• The adjusted operating result increased to EUR 21.6 (21.4) million, or 2.7% (2.7%) of net sales.
• The operating result declined and amounted to EUR 11.2 (18.4) million, representing 1.4% (2.4%) of net sales.
• Net debt to adjusted EBITDA was 1.1x (-0.1x). Due to the adoption of IFRS 16 the assets and liabilities increased significantly.
• The adoption of the IFRS 16 improved the EBITDA by EUR 24.2 million and the operating result by 2.0 million.

Operational highlights

• The delivery speed of ordinary letters changed in March and Posti’s consumer letters can be delivered within four workdays. Before the change, consumer letters were delivered within two workdays.
• Posti has significantly expanded its parcel locker network. At the end of June, the total number of Posti´s parcel lockers was 1,428. The growth has been rapid; the number of Posti's service points has increased by as much as 41 percent in January-June 2019.
• Posti’s structural transformation continued:
• Posti divested OpusCapita Solutions Oy to a fund managed by Providence Equity Partners L.L.C. Closing of the transaction took place on 31 March 2019. Following the transaction, the OpusCapita segment is presented as discontinued operation for the review period and comparative periods. Half-year report presents separately continuing operations and discontinued operations.
• Posti completed the acquisition of the in-house logistics company Suomen Transval Group Oy in January 2019. The acquisition was a key step in Posti`s logistics services growth strategy and Posti has now become a significant operator in logistics outsourcing solutions in Finland.

Outlook for 2019

Net sales of continuing operations, excluding possible new acquisitions and divestments, is expected to increase from 2018 driven by Transval acquisition. The Group’s adjusted operating result, of continuing operations, is expected to increase from 2018 due to Transval acquisition and transition to IFRS 16 accounting principles.

Heikki Malinen, President and CEO

In the second quarter of 2019, our group net sales went up by approximately two percent. This is definitely a positive result, and Posti has also managed to maintain its profitability while undergoing historic changes: e-commerce is on the rise while traditional paper-based postal operations are becoming digitized and competition is constantly growing.

For several years, Posti has purposefully worked to renew its operations in adherence to its strategy. Growth is increasingly sought in the e-commerce and logistics sectors. These efforts have been successful, and today, Posti is a multi-sector operator. Five years ago, parcel and logistic services generated about one-third of the Group’s net sales. We have now reached a historical turning point, as the net sales for Parcel &eCommerce and Logistics Solutions together add up to over 50 percent of our overall net sales.

The changes in our sector are reflected in the sales figures for the second quarter, as the volume of letters sent continued its decline, while the volume of parcel mail went up. Fewer letters were sent than before; the delivery volume of addressed letters decreased by -13% in comparison with last year’s corresponding period.

As a result of the declining letter and other paper mail volumes, we must continue our efforts in renewing Posti’s operations and maintaining our competitiveness. During 2019–2021, we must aim for additional cost savings of approximately EUR 150–200 million. Over the past spring, we have made various reorganizations, enhanced our operations and increased automation to support reaching this target.

Although the decrease in paper mail volumes has impacted our net sales, we have managed to increase our net sales for parcel, e-commerce and logistics solutions, which is in line with our strategy. The entire Group’s net sales increased in particular through the acquisition of in-house logistics company Suomen Transval Group Oy completed in January 2019. As a result of this acquisition, Posti has become a significant logistics outsourcing solutions operator in Finland. The value of the outsourced logistics market in Finland is more than EUR 6,000 million and the annual growth rate of outsourcing is as high as 20 percent. In-house logistics for the manufacturing industry is a growing sector in the in-house logistics field, and the shelving of goods and refurbishment of products are a growth sector in trade. The development in domestic freight, measured in waybills, was slower than in the comparison period. Transport volumes in heavy traffic are beginning to even out after a strong growth period.

E-commerce trends and digitalization present Posti with new opportunities for growth. Although the volume growth in parcel was slightly slower than in the comparison period, volumes were again at record levels. In January–June, Posti delivered over 24 (22) million parcels, which are increasingly being distributed into Posti Parcel Lockers. Posti has significantly expanded its network of Parcel Lockers, and over the first half of the year, their number increased by 41 percent up to more than 1,400 units. Our customers have requested extended opening hours for Posti outlets and for the outlets to be located close to other services. Posti continues to further increase the number of Posti outlets and Parcel Lockers in the future.

We have taken great steps in our digital development. Over the past spring, the OmaPosti application became one of the most popular applications in Finland. In addition, we won the MyData competition held by the state development company Vake Oy and Technology Industries of Finland, where our winning submission was a proposal for the OmaPosti service to operate as a personal MyData user interface for all Finnish citizens. The digital transformation is also evident in the new Plus Sticker, which can be used to track the delivery of a letter the same way as a parcel.

Posti aims to secure the strong position of paper communications in the long term. The role of traditional printed communications is further solidified by a business acquisition confirmed in June, by which Posti will expand its early-morning newspaper delivery services. Alma Media’s early-morning delivery operations in Pirkanmaa and Satakunta will be transferred to Posti in an acquisition as planned on January 1, 2020. Posti undertaking the Alma Media publication deliveries shows that Posti can carry out early-morning deliveries competitively, cost-effectively and with high quality.

Once again, we have managed to steer Posti in the right direction, but our long-term efforts amidst the changes affecting our sector must continue.