Posti Group Q4/2019: Strike had a significant negative impact on Q4/2019 and on full-year results

Posti Group Corporation’s Financial Statements Release

October–December

Financial highlights

• The Group’s net sales decreased by 6.6% to EUR 392.9 (420.8) million.
• The Group’s adjusted EBITDA decreased to 35.0 EUR (36.4) million, share of net sales 8.9% (8.7%) increased. The adoption of IFRS 16 improved the adjusted EBITDA by EUR 11.9 million.The Group’s EBITDA decreased to EUR8 (33.7) million, share of net sales 8.4% (8.0%) increased. The adoption of IFRS 16 improved EBITDA by EUR 11.9 million.
• The adjusted operating result decreased and amounted to EUR4 (20.5) million, or 1.4% (4.9%) of net sales. The adoption of IFRS 16 improved adjusted operating result by EUR 0.9 million.
• The operating result decreased and amounted to EUR -2.8 (16.5) million, representing -0.7% (3.9%) of net sales. The adoption of IFRS 16 improved operating result by EUR 0.9 million.
• Posti has adopted IFRS 16 Leases -standard on its effective date of January 1, 2019 prospectively, thus the previous periods are not restated.

Operational highlights

• Service Sector Employers Palta and the Finnish Post and Logistics Union PAU accepted the settlement proposed by the National Conciliator on a new collective agreement for the postal sector on November 27, 2019. A settlement was also reached on the separate matter concerning Posti’s parcel sorting personnel. The term of the new collective agreement between Palta and PAU ends on January 31, 2022. The two-year settlement reached between Palta and PAU will help increase flexibility needed by Posti, in shift planning, for example.
• The Finnish Post and Logistics Union PAU’s strike began on November 11 and continued until November 27. The strike concerned some of Posti’s services and hindered the delivery of mail. Delivery of printed items––such as letters, magazines and advertisements––was disrupted and delayed, sometimes for weeks, due to the strike. Early-morning newspaper delivery was not affected by the strike. A significant portion of Posti’s annual results is normally made during the fourth quarter. The strike had a significant negative impact on Posti’s results.
• Posti has succeeded in making changes in line with its strategy, which has strengthened the shift in net sales towards eCommerce and Logistics. Parcel and eCommerce and Logistics Solutions(EUR 200.3 million) was more than Postal Services (EUR 1 million) in net sales.
• The parcel volume of Finland and the Baltic countries decreased -1 % (6%), while the number of addressed letters decreased by -24% (-10%) in Finland. Mail items covered by the universal service obligation accounted for only 6.7% (7.6%) of all Posti’s mail items. Christmas greetings are still part of the Finnish Christmas tradition, but especially due to the strike, the volumes declined strongly by 30%.
• Posti has significantly expanded its parcel locker network. At the end of December, the total number of Posti´s parcel lockers were 1,673. The growth has been rapid; the number of Posti's parcel lockers has increased by over 8.3% in October-December 2019.
• The quality of postal deliveries has been poor in certain specific areas during the fourth quarter due to shortage of staff and recruitment challenges as well as the strike organized by PAU. Corrective actions are in place to recruit delivery staff.

Year 2019

Financial highlights

• The Board of Directors proposes a dividend of EUR 29.8 million, or a dividend of EUR 0.75 per share.
• As a result of the strike Posti did not reach full year guidance. According to the guidance, the group’s net sales of continued operations, excluding possible new acquisitions and divestments, was expected to increase from 2018 driven by Transval acquisition. The Group’s adjusted operating result, of continued operations, was expected to increase from 2018 due to Transval acquisition and transition to IFRS 16 accounting principles. However, group’s net sales remained flat and adjusted operating result decreased because of the strike in Q4/2019.
• The Group’s net sales increased by 0.3% to EUR 1,564.6 (1,559.3) million.
• The Group’s adjusted EBITDA increased to EUR 155.1 (110.8) million, or 9.9% (7.1%) of net sales. The adoption of IFRS 16 improved the adjusted EBITDA by EUR 48.2 million.
• The Group’s EBITDA increased to EUR6 (104.5) million, or 9.0% (6.7%) of net sales. The adoption of IFRS 16 improved the EBITDA by EUR 48.2 million
• The adjusted operating result decreased to EUR0 (47.0) million, or 2.5% (3.0%) of net sales. The adoption of IFRS 16 improved the adjusted operating result by EUR 3.9 million.
• The operating result decreased and amounted to EUR 18.5 (39.3) million, representing 1.2% (2.5%) of net sales. The adoption of IFRS 16 improved the operating result by EUR 3.9 million.
• Posti has adopted IFRS 16 Leases -standard on its effective date of January 1, 2019 prospectively, thus the previous periods are not restated.

Operational highlights

• The parcel volume of Finland and the Baltic countries increased by 7% (10%), while the number of addressed letters decreased by 16% (9%) in Finland. Mail items covered by the universal service obligation accounted for only 4.0% (4.6%) of all Posti’s mail items.
• Posti’s structural transformation continued:
• Posti completed the acquisition of the in-house logistics company Suomen Transval Group Oy in January 2019 and it was included in Posti’s reporting in February 2019.
• Posti divested OpusCapita Solutions in March 2019 and the OpusCapita segment is presented as discontinued operations.
• In September 2019, Posti acquired E-Log Services Oy, the owner of Pakettikauppa.fi, which offers parcel and e-commerce services.
• At the end of 2019, Posti sold part of its temperature-controlled transport business.

Outlook for 2020

Net sales in 2020, excluding possible new acquisitions and divestments, is expected to remain on par with the previous year. The Group’s adjusted operating result in 2020 is expected to increase from the previous year.

* Continuing operations
** Board of Directors' proposal to the Annual General Meeting

Turkka Kuusisto, President and CEO

The last quarter of 2019 was dominated by the strike of the Finnish Post and Logistics Union PAU. As the fourth quarter traditionally contributes a significant portion to Posti’s annual results, the strike had a significant impact on our annual results. Group’s financial results up to the third quarter were indicating a strong financial year. However, since the Q4 net sales and results were substantially impacted by the strike, we did not reach our full-year guidance. According to our guidance, our net sales and adjusted operating result of continuing operations were expected to increase.  However, our net sales remained flat and our adjusted operating result decreased.

In the fourth quarter, we also saw the dropping of Christmas Card volumes by more than 30% from the previous year. As the Christmas Cards have traditionally been a significant contributor to the Postal Services` annual results, the negative volume development and the effect of the strike will put additional pressure on Postal Services cost structure in the future.

However, I am very pleased that we finally achieved a settlement and industrial peace in November 2019 after difficult negotiations and a long strike. Posti has been negotiating with PAU since last spring to find solutions that would secure Posti’s competitiveness and jobs in the ongoing major industry transformation.

Despite some regional quality issues, mainly in the capital area, Postal Services recovered well from the strike and the overall performance during the year was very good. Many actions have been implemented to pro-actively find solutions to meet customer needs and at the same time streamline the cost structure.

Parcel and eCommerce suffered the most from the strike. Our customers pro-actively moved their volumes away from the Posti network, already before the strike. This caused major revenue loss and, as an outcome, the net sales of Parcel and eCommerce remained on same level as the previous year. Now we need to work hard to restore the customer confidence on all levels.

If we look at the whole year, very good results were achieved on the Parcel & eCommerce side: the number of Parcel Lockers grew strongly and we now have a network of almost 1,700 lockers around Finland. In addition, we opened Box, a shop focused on eCommerce, in the center of Helsinki. On a number of occasions during the year, the OmaPosti app was the most downloaded app. In addition to everything else, our sales performed well especially in Sweden and we secured several large online retailers as customers. From here we can move forward with great confidence.

In our strategy, we have defined that we want to shift the focus of our business from postal services toward parcels, eCommerce and logistics. If we look at our net sales in 2019, we can see that the implementation of this strategy is progressing well. In 2019, Parcel and eCommerce and Logistics Solutions already brought over 50% of our net sales. The acquisition of Transval Group in the beginning of 2019 was a big contributing factor in this development. In 2019, Transval contributed about EUR 100 million in net sales and strategically strengthened Posti’s offering in the logistics area. In our Freight and Grocery business we made good effort to improve our overall efficiency and operations during 2019.

Our Russian operations closed the year with a strong fourth quarter. During 2019 we have taken many steps forward to strengthen the performance in Itella Russia while the overall market environment continues to be challenging.

Posti`s strategy has been updated for 2020-2022. Our goal is to be the winner of eCommerce and the most reliable partner in logistics outsourcing as well as keep the mail relevant. We will develop customer-oriented services by utilizing data and intelligent technology. We are still seeking growth especially in Parcel and eCommerce and Logistics, where we see great potential for Posti in the future. With these renewals, we aim to ensure the competitiveness of traditional postal services for as long as possible. One of our key goals is to remove emissions from our services by 2030. It is time to step up our climate gear and lead towards carbon free solutions.

We want to continue to strengthen all aspects of our customer offering, to improve our quality and to work together as one company. I want to thank our customers who trusted us in 2019. Additionally, I want to express my sincerest thanks to our employees.