Itella’s result for January–March satisfactory considering the market situation

Itella Corporation Interim Report Q1/2014 

• Itella Group's net sales in January-March decreased by 5.2% to EUR 470.0 (496.0) million. The decrease was due to lower volumes in mail delivery, the decline of the logistics market and intense competition as well as currency depreciation. At comparable exchange rates, the decline in net sales was 3.0%.
• Net sales decreased by 7.9% in Itella Logistics, by 1.9% in Itella Mail Communications, by 10.3% in Itella Russia, and by 3.9% in OpusCapita. Itella Russia's net sales grew by 7.3% measured in rubles.
• The operating result before non-recurring items improved and amounted to EUR 17.6 (12.4) million, or 3.7% (2.5%) of net sales.
• The operating result before non-recurring items for Itella Mail Communications amounted to EUR 20.5 (21.7) million. The operating result before non-recurring items improved to EUR -4.8 (-8.3) million in Itella Logistics, to EUR -2.2 (-2.3) million in Itella Russia, and to EUR 6.8 (6.4) million in OpusCapita.
• The first-quarter operating result decreased and amounted to EUR 4.3 (10.8) million, or 0.9% (2.2%) of net sales. Non-recurring items recognized during the period totaled EUR 13.3 (1.6) million, of which EUR 10.6 (1.6) million was related to personnel restructuring and EUR 2.7 (0.0) million to other items.
• Cash flow from operating activities increased and amounted to EUR 27.4 (23.4) million.
• The depreciation of the ruble slowed down the development of net sales, but political uncertainty did not have an effect on Itella Russia's result for January-March. The first quarter is typically the weakest of the year due to seasonal variation.
• In January, Itella started cooperation negotiations concerning basic delivery. The negotiations were concluded in March and led to the dismissal of 407 permanent employees.
• Itella's business in Russia was organized into its own business group as of the beginning of the year, and its result is now reported separately for the first time. From the beginning of 2014, there are four business groups: Itella Mail Communications, Itella Logistics, Itella Russia and OpusCapita.

 *) Non-IFRS = excluding non-recurring items, see Appendix 2.

Heikki Malinen, President and CEO

"Itella's business environment remained very challenging in the first quarter due to a demanding market situation in logistics and the transformation of the postal industry. The non-IFRS operating result improved thanks to substantial efficiency improvement measures and, on the whole, the result can be considered satisfactory under the very difficult circumstances. The factors contributing to the decline in net sales included the lower volume of mail delivery, a decline in the demand for transport services, and the depreciation of currencies, the ruble in particular. The result was weakened primarily by significant non-recurring items related to personnel restructuring.

The net sales of Itella Mail Communications declined, but the result was nearly at the same level as in the corresponding period the previous year. The decline in the volumes of addressed letters, newspapers and magazines accelerated considerably in the first quarter. The result for Logistics still showed a loss, but the development was positive due to efficiency improvement measures. Itella Russia's result was in line with plans, taking seasonal variation into account. Net sales decreased due to the depreciation of the ruble. OpusCapita recorded a good result. The strong growth of cloud services continues, with the annual growth estimated at approximately 150%. OpusCapita transmitted a total of 48 million electronic transactions in January-March. The share of electronic transactions of OpusCapita's total volume of transactions is increasing and stood at 30%.

As of the beginning of the year, we organized our Russian business into its own separate business group and we are now reporting its result as a separate segment for the first time. This increases the transparency of our Russian business and the reporting of our results.

During the first quarter, we held negotiations with newspaper publishers regarding the renewal of delivery agreements for the early-morning delivery of newspapers, as early-morning delivery has not been profitable under the current operating model and pricing, and with the current development of circulation volumes. The negotiations resulted in the termination of five early-morning delivery agreements. With some negotiation parties, an agreement was reached on additional months. In addition, in the second quarter one new agreement was signed and negotiations have continued with several newspaper publishers.

Itella has sought to work with publishers to find new solutions to the problem of delivery profitability. We have proposed cooperation based on establishing joint ventures with media companies specializing in early-morning deliveries. We remain prepared to discuss cooperation on early-morning deliveries.

The drastic transformation of the industry is requiring us to continuously implement various adaptation measures. In January, we started cooperation negotiations for basic delivery operations in Itella Posti. The number of dismissals decreased significantly during the negotiations, from an original reduction need of 800 jobs to 407. The need for dismissals was successfully reduced by the implementation of the Uusi polku (New path) program, which offers not only financial support, but also training and support for job seeking, retraining or starting a business. To date, a total of 620 employees have applied for the program.

E-commerce is a very important focus area in our new strategy. I am very pleased that we are able to launch a EUR 10 million construction project related to e-commerce warehousing and dispatch operations at the Voutila warehouse in Vantaa. The project will offer online retailers access to a state-of-the-art warehousing and distribution system that allows consumers to take delivery of products bought online even on the day of purchase."

APPENDICES
Itella's full Interim Report (PDF)

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

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

FINANCIAL CALENDAR IN 2014
Interim Report Q2/2014, July 18
Interim Report Q3/2014, November 3

IMAGES AND LOGOS
www.itella.com/media

Itella is your first choice for postal, logistics and e-commerce services. We manage the flow of commerce and everyday life in 11 countries. Our net sales in 2013 amounted to EUR 1,977 million. We employ approximately 26,000 professionals. We deliver corporate services under the Itella brand, while the Posti brand is used for services targeted at consumers in Finland. www.itella.com.