Posti Group 1–3/2020: Adjusted operating result was stable – net sales outlook for 2020 lowered due to the increased uncertainty caused by the coronavirus

Posti Group Corporation Interim Report 1–3/2020

January–March

Financial highlights

• Net sales decreased by 3.1% to EUR 384.2 (396.6) million.
• Adjusted EBITDA was EUR 40.8 (40.6) million, or 10.6% (10.2%) of net sales.
• EBITDA increased to EUR 40.1 (36.4) million, or 10.4% (9.2%) of net sales.
• The adjusted operating result improved to EUR 12.6 (12.2) million, representing 3.3% (3.1%) of net sales.
• The operating result improved to EUR 11.9 (8.0) million, representing 3.1% (2.0%) of net sales.
• Net debt to adjusted EBITDA was 1.1x (1.9x).
• Posti is updating its outlook for 2020 due to the impact of coronavirus pandemic.

Operational highlights

• The global coronavirus pandemic began to impact negatively on Posti’s operations in March, even though Posti’s Parcel and eCommerce business group benefited from the growth of online shopping caused by coronavirus.
• The execution of Posti’s strategy and the transformation of postal industry continued:
  • Posti’s logistics solutions continued to grow. The combined net sales of Parcel and eCommerce, Transval and Freight Services represented almost 51% (49%) of the Group’s net sales.
  • The parcel volume of Finland and the Baltic countries increased by 6% (8%). At the same time, the number of addressed letters decreased by 15% (14%) in Finland.
  • The share of mail items covered by the universal service obligation continued to decrease and accounted for only 2.6% (3.6%) of all Posti’s mail items delivered.
• On February 24, 2020, Posti signed an agreement, under which it would acquire Aditro Logistics, one of the leading contract logistics companies in the Nordics. The acquisition was in line with Posti’s ambition of growing its logistics, parcel and eCommerce businesses. The transaction was closed after the reporting period on April 2.

Outlook for 2020 (updated)

Posti Group Corporation lowers its outlook for net sales in 2020 due to the growing impact of coronavirus (COVID-19) pandemic. The outlook regarding the development of Posti Group Corporation’s adjusted operating result in 2020 remains unchanged.

The coronavirus situation makes the macro economic outlook extremely difficult to predict for the full year. Because of this, also Posti’s full year outlook includes a significant level of uncertainty.

As a result of the increasing market uncertainty and expected impact of coronavirus on the Finnish and global economy, Posti’s net sales in 2020, excluding possible new acquisitions and divestments, are expected to decrease from the previous year. The Group’s adjusted operating result in 2020 is expected to increase from the previous year, when the postal strike had a significant negative impact on Posti’s results.

The Group’s business is characterized by seasonality. Net sales and operating result in the segments are not accrued evenly over the year. In Postal Services and consumer parcels, the first and fourth quarters are typically strong, while the second and third quarters are weaker.

Previously, Posti expected that its net sales in 2020, excluding possible new acquisitions and divestments, would remain on par with the previous year. The Group’s adjusted operating result in 2020 was expected to increase from the previous year.

Turkka Kuusisto, President and CEO

The first quarter of 2020 was dominated by the early development of the coronavirus situation. However, our financial performance in the first quarter was even more dominated, especially in the beginning of the quarter, by the recovery from the postal strike that has heavily impacted our business from the end of 2019 onwards.

Despite the challenges caused by coronavirus and the recovery from the postal strike in the latter half of 2019, our profitability developed favorably. This shows that our whole organization has worked very hard and gained the trust of our existing and new customers.

In our Postal business, we can clearly see the impact of the strike on our customers’ product mix as well as the increased use of digital communication tools instead of traditional mail. At the end of the first quarter, our Postal business was impacted by the coronavirus with accelerated decline in volumes especially in Media and Retail business. The severe volume decline requires speeding up the renewal of postal regulation in order to maintain and secure mail delivery services in the coming years.

In our Parcel and eCommerce business, the impact of the postal strike in 2019 could clearly be seen during the first months of the year. However, the business recovered towards the end of the quarter. In the last weeks of March, the impact of coronavirus boosted our daily parcel volumes to all-time high levels. We are continuing to develop our eCommerce business on multiple fronts to meet the future demands of Parcel and eCommerce business and customer experience.

In Transval, we continued to develop our warehouse and logistics services in line with our strategy. In March, we acquired a retail specialist KV Turva. The transaction strengthens our offering in the retail stores and expands Transval’s services across the country.

Our Freight Services business made good progress in executing its strategy and improving its efficiency compared to the previous year. Due to the expected impact of coronavirus on the overall economy, it is imperative that the freight business continues its efficiency improvement measures.

Despite a difficult operating environment, our Russian operations performed very well in the first quarter. We continued to improve our profitability due to the improved scope of our business operations. During the first quarter, the Russian ruble depreciated significantly.

In February, we signed an agreement to acquire Aditro Logistics, one of the leading contract logistics companies in the Nordics. The acquisition was in line with our strategy to expand our geographical footprint. The transaction was closed after the reporting period on April 2.

Lastly, I want to express my sincere thanks to every employee at Posti. We started the quarter in a situation where our business was still suffering from the effects of the postal strike. The coronavirus pandemic added a significant extra burden on all of us and fundamentally changed the way we work and do business. However, you have all worked extremely hard and demonstrated, once again, your capability to serve our customers under exceptional circumstances.

Unfortunately, we expect these exceptional circumstances to continue at least for a while. This means we have to prepare for the business impact and adjust our operations in certain business areas. On April 21, after the reporting period, we announced the initiation of cooperation negotiations at Freight Services on temporary layoffs for a fixed period. Potential layoffs are also negotiated at Home Services. As part of the adjustments, the Leadership Team of Posti Group will also waive one month’s pay.

However, Posti’s financial position is strong and we are well prepared for even such exceptional circumstances as the current coronavirus pandemic. Despite the challenges created by the coronavirus situation, it also brings us new opportunities. By identifying and seizing them, I am confident that we will get through also these challenging times.

APPENDICES

Posti Group's 1-3/2020 Interim Report in full (PDF)