Posti’s sales of logistics services resumed growth

Posti Group Corporation Interim Report January-June 2016

April–June 2016

• The Group’s net sales decreased by 5.0% to EUR 385.9 (406.3) million. Comparable net sales declined by 3.1% in April–June.
• Net sales decreased by 5.3% in Postal Services, by 1.9% in Parcel and Logistics Services, by 18.9% in Itella Russia and by 6.9% in OpusCapita. Comparable net sales increased by 3.3% in Parcel and Logistics Services and decreased by 5.0% in OpusCapita. Measured in local currency, Itella Russia’s net sales increased by 3.4%.
• The adjusted operating result improved and was EUR -0.9 (-6.8) million, or -0.2% (-1.7%) of net sales.
• The adjusted operating result declined to EUR 3.6 (4.8) million in Postal Services and to EUR 1.4 (2.1) million in OpusCapita. The adjusted operating result improved to EUR -0.6 (-2.1) million in Parcel and Logistics Services and to EUR -1.6 (-2.0) million in Itella Russia. The result of Parcel and Logistics Services was previously weighed down by restructuring measures related to the divestment of the Scandinavian road freight business, which have now been completed.
• The operating result was weighed down by special items in the amount of EUR -4.8 (+34.7) million, with personnel restructuring costs in domestic production operations representing the most significant proportion of this total. The operating result in the comparison period was boosted by special items in the amount of EUR +34.7 million, which included a significant gain from the sale of real estate.
• The operating result declined and amounted to EUR -5.7 (27.9) million, representing -1.5% (6.9%) of net sales.
• Mail items covered by the universal service obligation accounted for 3.8% of all of Posti’s mail items in April–June.
• By parliament’s decision, 49.9% of the ownership of Posti Group Corporation will be transferred to a newly established state-owned development company. The Finnish State’s holding will remain at 50.1% at a minimum.
• On April 25, 2016, OpusCapita acquired the Germany-based software company jCatalog Software.
• On June 1, 2016, Posti Ltd signed an agreement to acquire Veine Ltd, a company that specializes in temperature-regulated logistics. The plan is to complete the transaction in August 2016.
• Jani Jolkkonen, M.Sc. (Tech.), EMBA, previously Posti’s SVP, Postal Services, was appointed Posti’s SVP, ICT and Digitalization, and Turkka Kuusisto, M.Sc. (Tech.), was appointed SVP, Postal Services business group, with both appointments entering into effect on August 1, 2016. Both appointees will also be members of Posti’s Executive Board.

 January–June 2016

• The Group’s net sales decreased by 7.8% in January–June and amounted to EUR 776.5 (842.2) million. Comparable net sales decreased by 4.3%.
• Net sales decreased across all business groups: by 4.5% in Postal Services, by 9.4% in Parcel and Logistics Services, by 21.5% in Itella Russia and by 8.0% in OpusCapita. Comparable net sales decreased by 0.6% in Parcel and Logistics Services and by 5.1% in OpusCapita. Measured in local currency, Itella Russia’s net sales decreased by 4.6%.
• The adjusted operating result improved and was EUR 14.0 (13.7) million, or 1.8% (1.6%) of net sales.
• In Postal Services, the adjusted operating result improved to EUR 28.3 (25.9) million. The adjusted operating result declined to EUR -5.9 (-1.1) million in Parcel and Logistics Services, to EUR -3.9 (-2.9) million in Itella Russia, and to EUR 3.4 (6.8) million in OpusCapita.
• The operating result was weighed down by special items in the amount of EUR -15.0 (+34.7) million, with personnel restructuring costs in domestic production operations representing the most significant proportion of this total. The operating result in the comparison period was boosted by special items in the amount of EUR +34.7 million, which included a significant gain from the sale of real estate.
• The operating result declined and amounted to EUR -1.0 (48.4) million, representing -0.1% (5.8%) of net sales.
• Cash flow from operating activities declined to EUR 28.2 (33.3) million.
• Mail items covered by the universal service obligation accounted for 4.6% of all of Posti’s mail items in January–June.
• OpusCapita sold its businesses serving the local markets in the Baltic countries to BaltCap in January.
• Itella Russia acquired the Russian courier company MaxiPost in March.
• Kaarina Ståhlberg, LL.M., was appointed as Posti’s VP, Legal Affairs, and a member of the Management Board, effective from March 1, 2016.

Posti has changed its terminology for Alternative Performance Measures in accordance with the new guidelines issued by the European Securities and Markets Authority (ESMA). “Non-recurring items” has been replaced by “special items”. “Operating result before non-recurring items” has been replaced by “adjusted operating result”. The definitions for these performance measures and for items affecting the comparability of reported figures are provided in the section “Calculation of key figures” of this interim report and on Posti’s website at www.posti.com/financials. The change takes effect starting from the interim report for the second quarter of 2016.

Heikki Malinen, President and CEO:

“The first half of the year was a satisfactory one for Posti in a difficult market climate. The Group’s adjusted operating result for April–June improved to EUR -0.9 million and the adjusted operating result for January–June improved to EUR 14.0 million in spite of lower net sales across all business groups.

The economic climate in Finland and its neighboring areas remains weak but, for the first time in a long while, there are signs of economic recovery. The Russian economy remains in a recession, which has reduced the demand for Itella Russia’s logistics services. Nevertheless, measured in local currency, Itella Russia’s net sales increased by 3.4% in the second quarter. The Russian ruble appreciated in the first half of the year, but the closing rate at the end of the second quarter was still down by almost 15% year-on-year.

For the Parcel and Logistics Services business group, the second quarter was significant in many ways. Posti signed an agreement with Stockmann on transferring the logistics operations of Hobby Hall to Posti. Posti also announced it is expanding to food logistics by acquiring Veine, a company that specializes in temperature-regulated logistics, and by modernizing online grocery shopping. There were more good news in Parcel Services as the amount of parcels delivered by Posti in April–June increased by 4% in Finland and by 30% in the Baltic countries. The business group’s comparable net sales, excluding the international freight business, grew and the adjusted operating result improved.

Posti renewed mail delivery with the aim of flexibly combining other services with delivery operations. The goal of the changes is to control the rise of unit costs in delivery operations, which is caused by declining volumes. The amount of addressed letter items fell by 7% and newspaper delivery volumes by 8% in January–June. The net sales and adjusted operating result of the Postal Services business group declined due to the decrease in volume.

OpusCapita is making a strong investment in new growth businesses. One important step in this strategy was the acquisition of the Germany-based software company jCatalog in April. The acquisition supports OpusCapita’s aim of becoming a leader in the global buyer-supplier ecosystem. The integration of jCatalog with OpusCapita began immediately.

Following the amendments to the Postal Act that entered into force in June, the entire postal market is now open to free competition. According to the amended Postal Act, Posti’s competitors may freely deliver mail anywhere and at any time without being subject to universal service obligations. This puts Posti on very unequal footing with regard to the competition, as Posti will remain subject to the heavy five-day delivery obligation in spite of the universal service obligation only applying to less than 5% of Posti’s delivered items today. With this in mind, we consider it essential that the universal service obligation is eased in the upcoming renewal of the Postal Act. Easing regulations concerning universal service allows for better control over the changes in unit costs. Renewing the regulations will allow Posti to continue to fulfill its universal service obligation throughout Finland.

The Finnish Government drew its new ownership steering policies in the spring. Pursuant to the Parliament’s decision, 49.9% of the ownership of Posti Group Corporation will be transferred to a newly established development company tasked with developing the ownership structure of the companies it owns. The Finnish State’s holding in Posti Group Corporation will remain at 50.1% at a minimum. The privatizations of national postal services in Europe have shown that listings have resulted in improved financial performance and service quality.

In June, Posti updated its strategic goals aimed at Posti’s renewal and profitable growth in new services. Posti wants to be the leading provider of logistics and postal services in Finland. We are making good progress toward achieving this objective.”

APPENDICES
Posti Group’s Interim Report in full (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.posti.com/financials

FINANCIAL CALENDAR IN 2016
January–September: October 31, 2016

IMAGES AND LOGOS
www.posti.com/newsroom

Posti Group is your first choice in postal, logistics and e-commerce services. We manage the flow of commerce and everyday life in nine countries. Our net sales in 2015 amounted to EUR 1,650 million. We employ approximately 22,000 professionals who serve our customers in Finland under the name Posti and in other countries under the name Itella. All of our services in Finland are carbon neutral. www.posti.com.