Posti Group Corporation Interim Report Q1/2016€¦ · customer contracts. • Parcel Services...

Posti Group CorporationInterim Report Q1/2016April 29, 2016

Contents

• Group result January–March 2016

• Business groups- Postal Services- Parcel and Logistics Services- Itella Russia- OpusCapita

• Current topics

• Appendices

Posti GroupApril 29, 2016

2

The business environment will remain verychallenging in 2016

Posti Group3

• Recovery of Finnish market and economy has not materialized, and growthprospects remain modest.

• Transport volumes in heavy traffic have decreased in Finland for 47 consecutivemonths, starting from May 2012.

• Postal Act reform will deregulate the delivery of letter mail in Finland by eliminatingthe requirements concerning postal licenses and delivery days from otheroperators.

• The market situation in Russia remains challenging and the Russian GDP continuesto decline.

• Itella Russia acquired the Russian courier company MaxiPost in March.

• OpusCapita continued to invest in its new strategy as well as new e-invoicingservices and cloud services.

• OpusCapita is acquiring the German software company jCatalog.

April 29, 2016

Posti Group

8,65 8,55

6

7

8

9

10

Q1-2015 Q1-2016

-1%

Millionunits

OpusCapita’s electronic transactions*

Domestic freightParcels

Addressed letters

Volume development in Q1 2016

Millionunits

4April 29, 2016

Millionunits

Millionunits

224 211

0

50

100

150

200

250

Q1-2015 Q1-2016

-6%

53,549,3

0

10

20

30

40

50

60

Q1-2015 Q1-2016

-8%

0,54 0,54

0

0,25

0,5

0,75

Q1-2015 Q1-2016

+/-0%

*The decline in the volumes of electronic messages was due tothe sale of business operations in the Baltic countries.

Posti Group5

Heavy traffic volumes have been decliningsince May 2012

Source: Finnish Transport Agency

- decline has continued 47 months

April 29, 2016

Change12 months

The development in main roads, heavy traffic

January–March

Posti Group6April 29, 2016

Key events

Posti Group

• The decline in the volume of addressed mail was moremoderate than expected.

• Postal Services achieved a good result thanks to efficiencyimprovements and stronger net sales than expected.

• The EUR 75 million target of the performance improvementprogram 2015–2016 was achieved ahead of schedule.

• Parcel and Logistics Services signed significant newcustomer contracts.

• Parcel Services signed a significant agreement on joiningthe DHL partner network. A network of 1,200 pickup pointswill be opened in the Baltic countries.

• Itella Russia acquired the courier company MaxiPost.

• The business environment remained challenging due to thesubdued economic development in Finland.

• Parcel volumes declined due to competition and the weakmarket.

• Net sales decreased across all business groups, by a totalof 10%, while comparable net sales fell by 6%.

• The operating profit of the Parcel and Logistics business fellto loss-making territory.

• Itella Russia’s net sales and operating result continued tobe weighed down by the weak ruble.

++

––

7

435.9390.6

-7.3%-10.4%

-15%

-10%

-5%

0%

0100200300

400500

Q1/2015 Q1/2016

NET SALES

MEUR Growth %

April 29, 2016

20.615.0

4.7%3.8%

0,0 %2,0 %4,0 %6,0 %8,0 %

05

10152025

Q1/2015 Q1/2016

OPERATING RESULTbefore non-recurring items

MEUR Operating result %

Key figuresJanuary–March 2016

Posti Group

• Comparable net sales, excluding divestedbusinesses in Scandinavia and the Balticcountries, decreased by 5.5%.

• In the domestic market, digitizationcontinued and was reflected in a decline innet sales in both Postal Services andOpusCapita.

• Market demand and the ruble were weak inRussia, no growth in domestic parcel andwarehousing volumes.

• The operating result before non-recurringitems declined to EUR 15.0 (20.6) million.

• Non-recurring costs amounted to EUR 10.3million and were particularly attributable torestructuring.

• The operating result declined to EUR 4.7(20.5) million.

• Operations under the universal serviceobligation amounted to EUR 38.2 (38.4)million in January–March, which was 10%of the entire Group’s net sales.

1–3/2016

1–3/2015

Net sales, EUR million 390.6 435.9

Operating result (non-IFRS),EUR million*

15.0 20.6

Operating result (non-IFRS), %* 3.8 4.7

Operating result (EBIT), EURmillion

4.7 20.5

Operating result (EBIT), % 1.2 4.7

Result before taxes, EUR million 3.5 21.3

Result for the period, EURmillion

3.4 15.9

Gross capital expenditure, EURmillion

11.4 16.5

8April 29, 2016

Cost* developmentQ1/2015 => Q1/2016

* excluding non-recurring items


Employees

Number of employees in Finland and abroad

• At the end of March, thenumber of employees stood at20,660. The average number ofemployees in January–Marchwas 20,577.

• Of these, 16,072 workedin Finland at the end of March.

• The Group’s personnelexpenses increased by 0.3%year-on-year. Excludingrestructuring costs, personnelexpenses declined by 5.3%year-on-year.

• As of March 31, 2016, a total of1,988 employees have appliedfor the Uusi polku (New path)program and 1,467 have beenaccepted.

0

5 000

10 000

15 000

20 000

25 000

30 000

2012 2013 2014 2015 Q1/2016

Othercountries

Finland

Posti Group

Employeesby business group

Postal Services

Parcel andLogistics Services

Itella Russia

OpusCapita

Operations

Other operations

10April 29, 2016

Business groups


Postal Services

Posti Group12

224 211

0

50

100

150

200

250

Q1-2015 Q1-2016

51 50

0102030405060

Q1-2015 Q1-2016

-6% -3%

7265

0

20

40

60

80

Q1-2015 Q1-2016

-9%

MagazinesNewspapersAddressed lettersMillionunits

April 29, 2016

• Domestic delivery product volumes declined.

• The volumes of Easter and Valentine’s Day card deliveries increased substantially from theprevious year thanks to marketing campaigns.

• Deliveries of shipments from Chinese online stores to Russia increased.

• Electronic letter volumes grew by +11%.

• The number of Netposti users increased by +8% year-on-year and stood at 649,000 at theend of March.

Postal Services

* excluding non-recurring itemsPosti Group

1–3/2016 1–3/2015 Change % 2015

Net sales 188.6 195.8 -3.7% 742.3

Operating result (non-IFRS)*

24.8 21.0 17.8% 56.4

Operating result (EBIT) 24.8 21.2 16.8% 57.3

Operating result (non-IFRS), %*

13.1% 10.7% - 7.6%

Operating result (EBIT),%

13.1% 10.8% - 7.7%

• The decrease in net sales was due to a decline in the domestic delivery productvolume.

• The volumes of Easter and Valentine’s Day card deliveries increased substantially fromthe previous year thanks to marketing campaigns.

• Deliveries of shipments from Chinese online stores to Russia increased.

• The operating result was boosted by the increases in postage fees that took effect atthe beginning of 2016, as well as Easter deliveries falling in the first quarter.

13April 29, 2016

Parcel and Logistics Services• A new network of pickup points in the Baltic countries, Posti joined the DHL partner network

that offers harmonized international parcel deliveries in 16 European countries.

• The amount of parcels delivered by Posti decreased by -1%. Volumes declined by -2% inFinland but developed favorably in the Baltic countries. Growth in Estonia was +29%. Thenumber of parcels going through parcel points grew by +26%.

• The decline in domestic freight leveled off and volumes were on par with the previous year.

• The renewal of Posti’s Retail Network has progressed according to plan. Posti had 1,405service points and 480 parcel points at the end of March.


8,65 8,55

6

7

8

9

10

Q1-2015 Q1-2016

-1%

Millionunits

Parcels Domestic freightMillionunits

0,54 0,54

0

0,25

0,5

0,75

Q1-2015 Q1-2016

+/-0%

Parcel and Logistics Services


• Net sales declined in parcel services and warehousing services, the decline in freight volumeleveled off. The effects of the postal strike that took place in late 2015 continued to be reflected incustomer relationships.

• The operating result was weighed down by the low warehouse fill rate, investments in informationsystems in production operations, and start-up costs arising from new customer relationships.

• The result was also negatively affected by the decline in parcel volume and the decrease of thefuel surcharge.

15April 29, 2016

1–3/2016 1–3/2015 Change % 2015

Net sales 135.4 161.8 -16.3% 596.7


-5.3 1.0 - 0.6

Operating result (EBIT) -5.7 -1.0 - -12.6


-3.9% 0.6% - 0.1%


-4.2% -0.6% - -2.1%

Itella Russia

Posti Group

91%94%

89%85% 86%

93% 92%86%

83%77%

89%86%

77%

65%71% 71%

79% 81%76%

69%

76%81%

84% 85%90%

86%

40%

50%

60%

70%

80%

90%

100%

3/2013 6/2013 9/2013 12/2013 3/2014 6/2014 9/2014 12/2014 3/2015 6/2015 9/2015 12/2015 3/2016

Moscow Other areas

• The fill rates of warehouses decreased from the previous year and were at a satisfactory levelat the end of March, 77% in Moscow and 86% in other areas.

• The demand for air and sea freight declined the most.

• The demand for warehousing decreased, but the decline in processing volumes leveled offtoward the end of the quarter.

• Itella Russia acquired the Russian courier company MaxiPost in March, strengthening Itella’sexpertise in e-commerce and parcel services.

16

Warehousefill ratesMarch 31, 2016:

Moscow: 77%Other areas: 86%

April 29, 2016

Itella Russia


• The decrease in net sales was due to the weak economic climate, the decline in GDP, thedepreciation of the ruble and the weak demand for logistics services.

• The demand for air and sea freight declined the most. The demand for warehousing alsodecreased, but the decline in processing volumes leveled off toward the end of the quarter.

• The weaker result was attributable to lower net sales and fill rates as well as partly currency-linked lease agreements. The operating result was improved by a non-recurring adjustmentto a provision.

• The ruble depreciated by 22% year-on-year.

17April 29, 2016

1–3/2016 1–3/2015 Change % 2015

Net sales 21.0 27.7 -24.3% 118.9


-2.4 -0.9 - -5.1

Operating result(EBIT)

-0.2 -1.0 - -25.0


-11.2% -3.2% - -4.3%

Operating result(EBIT), %

-1.2% -3.5% - -21.0%

OpusCapita• OpusCapita sold its business operations in Estonia, Latvia, and Lithuania, which served the

local markets in the Baltic countries. The transaction did not include the service centers or thecenters of expertise related to OpusCapita’s global business.

• The volumes of iPost products declined by -10% year-on-year.

• Continuous service business operations accounted for 93.4% of net sales.

• The total transaction volume was 130 million. The total transaction volume includes printedletters, mailed paper letters and electronic transactions.

• The electronic transaction volume was 49.3 million transactions, or 38% of the totaltransaction volume.

Posti Group

173.1 179.9 191.0205.0

49.3*

0

50

100

150

200

250

2012 2013 2014 2015 Q1-2016

Electronic messages

18April 29, 2016

Q1/53.5

*The decline in the volumes of electronic messages was due tothe sale of business operations in the Baltic countries.

OpusCapita


• The decrease in net sales was attributable to the divestment of the businesses servingthe local markets in the Baltic countries, the decline in traditional mail delivery volumesand the accelerating shift from paper to online communications.

• Comparable net sales, excluding the divested Baltic businesses, decreased by -4.8%.

• The decline in the adjusted operating result was due to the decrease in traditional printvolumes, the divestment of the businesses serving the local markets in the Balticcountries and investments in OpusCapita’s new strategy.

19April 29, 2016

1–3/2016 1–3/2015 Change % 2015

Net sales 61.3 67.5 -9.1% 256.7


2.0 4.7 -57.6% 14.5

Operating result (EBIT) -1.5 3.9 - 13.3


3.2% 7.0% - 5.7%


-2.5% 5.8% - 5.2%

Outlook for 2016Market environment

• The Group’s business is characterized by seasonality. Net sales and operating profit in thebusiness groups are not accrued evenly over the year. In postal services and consumerparcels, the first and fourth quarters are typically strong, while the second and thirdquarters are weaker.

Net sales

• Comparable net sales in euros for 2016 are expected to decrease compared to 2015.

Operating result (EBIT)

• The Group’s operating result before non-recurring items is expected to remain on par withthe previous year. There is significant uncertainty related to the development prospects ofthe result achieved in Russia. The operating result for 2016 will continue to includesignificant non-recurring items. The development of exchange rates, especially the rubleexchange rate, may affect the Group’s net sales, result and balance sheet.

Capital expenditure

• Capital expenditure is expected to increase from 2015.


Appendices


• Operating profit percentage exceeds 5%

• Gearing does not exceed 35%

• Return on invested capital is at least 10%

• More than 10% of the Group’s net sales willcome from new business areas in 2018.

Financial targets

Posti Group

23.5 21.117.2

-10.5-14.8-20

-10

0

10

20

30

2012 2013 2014 2015 Q12016

4.7

1.3 1.0

6.3

4.2

0

2

4

6

8

2012 2013 2014 2015 Q12016

%%

Return on invested capitalGearing

2.7 2.6 2.7 2.9

3.8

0

1

2

3

4

2012 2013 2014 2015 Q1-2016

Operating profit percentage%

We will create newwarehouseand transport services inareas such as foodlogistics

We will develop digitalmarketing andinformation services byleveraging Posti’sdata

We will develop Homeservices includingmeal delivery, care,security and propertyservices

22April 29, 2016

• The EUR 100 million target for the performanceimprovement program 2013–2014 was reachedahead of schedule. The total savings amountedto nearly EUR 140 million.

• The EUR 75 million savings target for theperformance improvement program 2015–2016was achieved in the first quarter of 2016.

• Savings have been achieved in all areas of theGroup, particularly through improving theefficiency of production in both postal and freightoperations and reducing ICT costs and theGroup’s general expenses.

• Group-wide measures will continue to increaseoperational efficiency and achieve savingsthrough methods including automation. Inaddition, the sourcing function will continue toimplement annual savings targets.

Performance improvement programs

Posti Group

140

75

0

20

40

60

80

100

120

140

160

2013-2014 2015-2016

EUR million

Target: 100 million

Target: 75 million

23April 29, 2016

Group cost structureJanuary–March 2016

Posti Group

51%

8%

16%

6%

5%4%

10%

Personnel expenses Subcontracting

Freight and transport Lease expenses

Depreciation IT expenses

Other

Indirect costs*, EUR million

100 97

0

20

40

60

80

100

120

Q1-2015 Q1-2016

-3%

24April 29, 2016

* excluding non-recurring items and theScandinavian business

Balance sheet

Posti Group

EUR million

183 184

528 401

11889

512638

1,342 1,312

Q1/2015 Q1/2016

ASSETSGoodwill Tangible assetsOther non-current assets Current assets

609 596

46.6% 46.5%

Q1/2015 Q1/2016

EQUITY AND EQUITYRATIO

Equity Equity ratio (%)

25April 29, 2016

Cash flow

Posti Group

Q1/2016 Q1/2015

Result for the period 3.4 15.9

Cash flow from operatingactivities before financialitems and taxes

28.7 35.9

Cash flow from operatingactivities

29.1 35.2

Cash flow from investingactivities

-25.3 -37.5

Cash flow from financingactivities

-3.3 -2.6

Change in cash and cashequivalents

0.5 -4.9

Cash and cash equivalentsat the end of the reviewperiod

130.9 95.2

11981 93 82

29

-123-49 -46 -40 -25

-150

-100

-50

0

50

100

150

2012 2013 2014 2015 Q1/2016

Cash flow from investing activities, EUR million

Cash flow from operating activities, EUR million

• Cash flow from operating activities beforecapital expenditure was EUR 29.1 million.

• Capital expenditure amounted to EUR 11.3million. The Group invested in informationsystems, the transport fleet, productionprojects and an acquisition during thequarter.

• Proceeds from divestments totaled EUR 8.5million. The most significant divestment wasOpusCapita’s sale of its businesses servingthe local markets in the Baltic countries.

26April 29, 2016

Net debt and the maturity structure ofloans

Maturity structure of loans and financingarrangements, EUR million

Posti Group

Net debt andgearing

161139

99

-64-88

23,5 %21,1 %

17,2 %

-10,5 %-14,8 % -20%

-10%

0%

10%

20%

30%

-150

-100

-50

0

50

100

150

200

2012 2013 2014 2015 Q1/2016

Net debt, EUR million Gearing (%)

150

100

150

0

20

40

60

80

100

120

140

160

2016 2017 2018 2019 2020

Bonds Unused credit limits

27April 29, 2016

Result announcementsin 2016


Q1: April 29, 2016, at 10:00 a.m.Q2: July 18, 2016, at 10:00 a.m.Q3: October 31, 2016, at 10:00 a.m.

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