Financial statements for Itella Corporation and the Board of Directors' report for 2010: A difficult year, reforms continued

Year 2010

• The Itella Group’s net sales totaled EUR 1,841.6 million (EUR 1,819.7 million in 2009), showing an increase of 1.2% from the previous year. In local currencies, the decline in net sales was 0.4%. International operations accounted for 32% (30%) of net sales. 
• Operating profit including non-recurring items was EUR 38.1 million (EUR 46.7 million), or 2.1% (2.6%) of net sales. Operating profit before non-recurring items amounted to EUR 55.3 million (EUR 86.3 million), representing 3.0% (4.7%) of net sales. The equity ratio was on healthy level and improved further.  
• Financial performance was taxed by non-recurring costs of EUR 17.3 million relating to personnel restructuring (personnel restructuring EUR 29.0 million and write-down of goodwill EUR 10.6 million).
• Itella Mail Communication saw its letter volumes decrease but no major slump was experienced yet. Net sales and profitability declined.
• Itella Information was able to grow its net sales. The non-recurring business efficiency enhancement costs excluding, profitability remained stable. 
• In Itella Logistics, volume took an upward turn at the end of the year. Net sales were up and operating loss decreased.
• The Board of Directors proposes a dividend of EUR 4.4 million. 
• The legal structure of Finnish operations changed on January 1, 2011 when Finnish postal operations were transferred to a new subsidiary, Itella Posti Oy, a part of the Itella Mail Communication business group. This was also the launch date for the operations of Itella Real Estate Oy, which will take over all property ownership in Finland during the first half of the year 2011.

October–December 2010

• The Itella Group recorded net sales of EUR 508.9 million (EUR 491.0 million). 
• Operating profit before non-recurring items amounted to EUR 23.4 million (EUR 39.4 million), or 4.6% (8.0%) of net sales. The Group’s operating profit including non-recurring items was EUR 21.6 million (EUR 24.6 million), or 4.2% (5.0%) of net sales. Profit before taxes was EUR 17.1 million (EUR 22.2 million).

Jukka Alho, President and CEO:

“The upturn in the economy affected Itella’s business with a delay and only in certain areas of our business. Although our financial performance did not meet the targeted level, our already healthy solvency strengthened further.

Itella Mail Communication’s profitability declined due to falling volumes and rising production costs, as well as extremely moderate price development. Personnel reductions and other efficiency improvement measures were not sufficient to compensate for these. Considering the decline in net sales from postal operations and the long-term volume development, the less than one per cent price increase in letter postage fees proved to be inadequate. Consequently, we begin a new year with strong price pressures.

Itella Information, our business group specializing in invoicing and financial management services, developed as outlined in our strategy. Progress was made in the solutions business and major deals were closed.

Itella Logistics performed well in the second half, leading to overall net sales growth. This strengthened the business group’s profitability even though its result was still in the red. Financial performance in the logistics business will continue to be materially affected by not only the development of Finnish and Scandinavian operations, but Russian operations as well. Demand for ItellaNLC’s services has been growing; and particularly in Moscow, the service warehouse utilization rate reached a promising level in view of 2011.

The new EU Postal Services Directive compliant Postal Services Act is scheduled to enter into force in Finland in spring 2011. Its objective is to promote competition. From Itella’s perspective, it is vitally important that the scope of universal service (USO) is clearly and unambiguously defined. However, issues that continue to be unresolved in Finland include the financing of postal services in sparsely populated areas, which is included in the universal service obligation but does not permit operations on a market basis.   

Itella and the Finnish supervisory authority have had very dissimilar views on the rules to be applied to cost accounting in postal services, and thereby to pricing. Inconsistencies between the interpretation of the Finnish authorities and the mainstream interpretation in other EU countries will have detrimental repercussions. Clarity is needed on several fundamental issues, for instance on ways of covering the costs of the postal outlet network. Otherwise, we may have to trim the costs arising from the postal outlet network in a way that does not meet the expectations of Finnish citizens. Another potential risk is that we may have to allocate costs to the press and other users of the delivery network in a way that might eventually cause problems to the financing of the universal service.”

APPENDICES
Itella’s financial statements release and the Board of Directors’ report (pdf)
Corporate Governance Report for 2010 (pdf)

FURTHER INFORMATION
President and CEO Jukka Alho, tel. +358 20 451 5600, firstname.lastname@itella.com
Tuija Soanjärvi, CFO, tel. +358 20 45 20907, firstname.lastname@itella.com

DISTRIBUTION
NASDAQ OMX Helsinki
Key media
www.itella.com/financials

NEXT FINANCIAL DISCLOSURE 
Q1 interim report will be published on April 29, 2011.

PHOTOGRAPHS AND LOGOS
www.itella.com/media

Itella Group provides solutions for managing information and product flows. Itella operates in mail communications, information logistics, and logistics in Europe and Russia. The Group reported net sales of EUR 1,842 million in 2010 and provided work for around 29,000 professionals. Corporate services are delivered under the Itella brand, while the Posti brand is used for services targeted at consumers in Finland. More information on the Group is available at www.itella.com/group.