Posti Group 1–9/2020: Posti Group’s adjusted operating result improved notably in the third quarter due to fast and agile scaling of operations

Posti Group Corporation Interim Report January–September 2020

July–September

Financial highlights

• Net sales were at the previous year’s level, EUR 381.2 (381.2) million.
• Adjusted EBITDA was EUR 47.1 (40.5) million, or 12.4% (10.6%) of net sales.
• EBITDA increased to EUR 47.3 (39.0) million, or 12.4% (10.2%) of net sales.
• The adjusted operating result improved to EUR 16.9 (11.5) million, representing 4.4% (3.0%) of net sales.
• The operating result improved to EUR 17.1 (10.1) million, representing 4.5% (2.6%) of net sales.

The figures in 7-9/2020 and 7-9/2019 are not fully comparable because the operations of Aditro Logistics have been included in Posti’s financials as of April 2020, but they are not part of the financials of the comparable period in 2019.

January–September

Financial highlights

• Net sales decreased by 1.2% to EUR 1,157.7 (1,171.6) million.
• Adjusted EBITDA was EUR 122.4 (118.3) million, or 10.6% (10.1%) of net sales.
• EBITDA increased to EUR 121.6 (107.7) million, or 10.5% (9.2%) of net sales.
• The adjusted operating result improved to EUR 32.6 (31.8) million, representing 2.8% (2.7%) of net sales.
• The operating result improved to EUR 29.6 (21.2) million, representing 2.6% (1.8%) of net sales.
• Net debt to adjusted EBITDA was 1.8x (1.0x).

Operational highlights

• The global COVID-19 pandemic has had a significant impact on Posti’s operations in 2020. While Posti’s Parcel and eCommerce business group has benefited from the growth of online shopping, the demand for traditional postal services has decreased even faster than previously due to the pandemic.
• The execution of Posti’s transformation continued:
  • The number of addressed letters decreased by 20% (13%) in Finland.
    • The share of mail items covered by the universal service obligation continued to decrease and accounted for only 2.6% (3.3%) of all Posti’s mail items delivered
  • The parcel volume of Finland and the Baltic countries increased by 20% (10%).
  • The combined net sales of Parcel and eCommerce as well as logistics businesses represented already 57% (52%) of the Group’s net sales.
  • Posti continued to focus on its core business by divesting, on September 2, its home care services provider Posti Kotipalvelut Oy to Stella Care Oy, where Posti became a minority shareholder.
  • On September 9, Posti announced its plans to change its operating model in order to accelerate the renewal of the Group’s business operations and to increase agility and productivity.
  • After the reporting period, on October 28, Posti and Ropo Capital announced an agreement according to which Ropo Capital will acquire the entire share capital of Posti Messaging AB in Sweden and Posti Messaging AS in Norway.

The figures in 1-9/2020 and 1-9/2019 are not fully comparable because the operations of Aditro Logistics have been included in Posti’s financials as of April 2020, but they are not part of the financials of the comparable period in 2019.

Outlook for 2020 (unchanged)

The coronavirus situation makes the macroeconomic outlook extremely difficult to predict for the full year. Posti maintains its outlook for 2020, but because of these exceptional circumstances, 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.

Turkka Kuusisto, President and CEO

I am very pleased with our third quarter results. Thanks to fast and agile scaling of operations, we were able to achieve strong result. This lays a great foundation for Posti’s transformation journey. I am extremely grateful to Posti’s employees for their teamwork, dedication and determination during these difficult times. We achieved a significant improvement in our operating result compared to the second quarter this year as well as to the third quarter last year and this under challenging market environment.

As we are heading towards a very hectic and important peak season, we want to recognize in particular those employees working in our operations by increasing our Spot bonus allocation from current EUR 1.3 million to EUR 3.0 million for the rest of the year. During these exceptional times, we at Posti have a great responsibility in ensuring a positive season for households and families, and a strong sales season for our customer companies.

While the third quarter results were good, our transformation journey is still in early phase. Our profitability is not yet on a sustainable level. We need to continue to make rapid progress in developing our different businesses. It is imperative that we stay focused on our customers’ needs, continuously work on our cost structure and react rapidly to market changes.

In our Postal business, we have several challenges ahead of us. In the third quarter, our addressed letter volumes declined by 20%. There is a great urgency to renew the Postal Act. We welcome the proposal of the State Secretaries’ working group to secure the delivery of mail and printed newspapers in coming years. This can be done by reforming the current Postal Act and introducing a temporary State Aid for newspaper delivery in rural areas. This reform is crucial and should come into effect from the beginning of 2022 at the latest.

Our Parcel and eCommerce business group continued its strong performance in the third quarter. Our parcel volumes in Finland and the Baltics grew by 21% in the third quarter. During 2020, we reached an all-time high in the number of parcels delivered. However, it is crucial that we continue to develop our offering, maintain a competitive cost structure and continuously improve our customer experience. The huge volume increase has caused some challenges to our deliveries, but we are working hard to resolve these issues.

Transval’s net sales remained at the previous year’s level and the business group continued to work on its efficiency. Also Aditro Logistics continued to improve its efficiency, especially related to their new Arlanda site. The turnaround program in Freight Services delivered a significant profitability improvement in the third quarter. Under difficult market circumstances and due to a strong comparison period, Itella Russia’s profitability decreased in the third quarter.

In the third quarter, we also announced the planning of a new operating model. The new operating model will help us to meet the changing needs of our customers and to maintain a competitive cost structure in the future.

In September, we announced the divestment of our Home Care operations. After the reporting period on October 28, we also announced the divestment of Posti Messaging Scandinavia. These are important steps in our path to continue our renewal and to focus on our core businesses. We will continue to analyze our business portfolio going forward to ensure a streamlined and focused business portfolio.

We are now heading towards what is likely to be the busiest peak season of all times. In the last quarter of 2019, the postal strike had a significant negative impact on our results. Now we are all working hard to ensure this peak season will be a great success for our customers.

Posti Group_Interim Report Q3 2020.pdf