Posti Group Q1/2019: Net sales on the same level as last year in the declining postal market - divestment of OpusCapita completed

Financial highlights

• The Group’s net sales increased by 0.4% to EUR 396.6 (394.9) million.
• The Group’s adjusted EBITDA increased to EUR 41.3 (29.2) million, 10.4% (7.4%).
• The Group’s EBITDA increased to EUR 36.4 (29.6) million, 9.2% (7.5%).
• The adjusted operating result declined to EUR 12.9 (13.2) million, or 3.2% (3.3%) of net sales.
• The operating result declined and amounted to EUR 8.0 (13.4) million, representing 2.0% (3.4%) of net sales.
• Net debt to adjusted EBITDA was 1.8x (0.1x). Due to the adoption of IFRS 16 the assets and liabilities increased by EUR 207.9 million.
• Posti has adopted IFRS 16 leases -standard on its effective date January 1, 2019 prospectively, thus the previous periods are not restated. The standard affects primarily the accounting by lessees and as a result Posti has recognized almost all leases in the balance sheet. Due to IFRS 16 adoption the operating lease expense has been replaced with depreciation and interest, which has improved the EBITDA and EBIT. The adoption of the IFRS 16 improved the EBITDA by EUR 14.5 million and the operating result by EUR 0.6 million.

Operational highlights

• Posti’s structural transformation continued:
• Posti divested OpusCapita Solutions Oy to a fund managed by Providence Equity Partners L.L.C. Closing of the transaction took place on 31 March 2019. Following the transaction, OpusCapita segment is presented as discontinued operation for the review period and comparative Interim report presents separately continuing operations and discontinued operations.
• Posti completed the acquisition of the in-house logistics company Suomen Transval Group Oy on January 25, 2019. The acquisition was announced in September 2018. The acquisition was a step in Posti`s logistics services growth strategy and Posti has become a significant operator in logistics outsourcing solutions in Finland.
• Posti renewed its organization and operating model to better correspond to Posti´s strategy. Since March 2019, the business groups are: Postal Services, Parcel & eCommerce, Logistics Solutions and Itella Russia.
• During Q1/2019, Parcel & eCommerce and Logistics Solutions(EUR 194.4 million) grew to exceed Postal Services (EUR 5 million) in net sales.
• The parcel volume of Finland and the Baltic countries increased 8% (11%), Posti’s domestic freight measured in waybills, excluding food logistics, grew by 1% (2%). The number of addressed letters decreased by -14% (-9%) in Finland.
• Mail items covered by the universal service obligation accounted for 3.6% (4.0%) of all Posti’s mail items.
• The delivery speed of ordinary letters changed on March 1, 2019 and from that day onwards Posti’s consumer letters have mainly been delivered within four workdays.
• Posti Group Corporation's Annual General Meeting which was held in Helsinki on March 25, 2019 decided to distribute a dividend of EUR 28.4 million. The following persons were elected as members of the Board of Directors: Markku Pohjola (chair), Suvi-Anne Siimes (vice chair), Eero Hautaniemi, Frank Marthaler, Anna Martinkari, Per Sjödell, Minna Pajumaa and Arja Talma. Pertti Miettinen continues as an employee representative.

Heikki Malinen, President and CEO

The accelerating mail volume decline continued. In Q1/2019, the decline reached its steepest level so far encountered in Finland as the number of addressed mail delivery declined by 14% compared to the same period last year.

Finland is increasingly moving into a digital society, which development is speeded up by the public sector's digitization projects and changes in customer preferences. To meet the challenge, Posti is determined to reduce its costs by EUR 150-200 million over the next three years. It is needed to ensure financial sustainability and competitiveness. Posti also hopes for quick decisions from the new Government, if it wishes to secure the newspapers delivery in sparsely populated areas in the future when the mail volumes have further declined. Respectively with the decline of mail volumes, Posti's delivery obligation applicable to the universal service obligation must be adjusted to avoid unnecessary costs. There is are need to find out solutions in how to support newspaper delivery.

Despite the mail decline, the Group's adjusted operating result was EUR 12.9 million, and was almost at last year's level. We are pleased with the result we have achieved in this difficult operating environment. The economic impact of declining volumes has been reduced by successful efficiency measures, cost savings and price changes.

The consumer driven e-commerce continued to grow strongly in the first quarter and the parcels volume delivered by Posti increased by 8% compared to the same period last year. In accordance with consumers´ demand, Posti continues to increase the number of parcel lockers. Next summer, we plan to have already 1,500 parcel lockers available for customers. Compared to competitors our nationwide service point network is the largest in Finland.

We are also very pleased to see that Posti's mobile application, OmaPosti, has gained great popularity among our customers. It has over 250,000 active monthly users and the number of users has grown by 57% compared to same period last year. We will continue to develop the OmaPosti platform in order to improve our customer everyday life when dealing with Posti. In Q1 we launched payment of invoices in the application as well as the ability to track letters when using the new “plus sticker”.

Posti has continued its strong strategic transformation. Starting from the beginning of first quarter we were fully operational according to our new organization. In January, the acquisition of in-house logistics company Finnish Transval Group Oy was approved. The acquisition strengthened Posti's position as a key player in outsourcing logistics solutions in Finland. Transval is one of the pillars for Posti's future growth and it increased revenue of Logistics Solutions to EUR 93.3 million in January-March.

In March, Posti divested OpusCapita Solutions Oy to a fund managed by Providence Equity Partners L.L.C. The divestment supports Posti's strategy of focusing on core business, postal, parcel, e-commerce and logistics services. For OpusCapita Solutions, the divestment will provide a better starting point for its international growth.

We have continued to focus on improving quality and customer experience in all our business operations and this work has brought success. The early morning delivery of newspapers quickly recovered from the difficult snow season and we have been able to raise the delivery quality to an excellent level. We have also won back customers from our competitors. I would like to thank all employees of Posti for their great work.