Posti Group Q4/2018: Posti succeeded well in the important Christmas season, parcel volumes rose to a record-level

Posti Group Corporation’s Financial Statements Release

October–December 2018

Financial highlights

• The Group’s net sales decreased by 4.0% to EUR 434.3 (452.3) million.
• The Group’s adjusted EBITDA declined to EUR 38.5 (40.9) million, 8.9% (9.0%).
• The Group’s EBITDA increased to EUR 35.2 (22.9) million, 8.1% (5.1%).
• The adjusted operating result amounted to EUR 21.4 (23.0) million, or 4.9% (5.1%) of net sales.
• The operating result amounted EUR 16.9 (5.0) million, representing 3.9% (1.1%) of net sales.

Operational highlights

• The parcel volume of Finland and the Baltic countries increased by 8% (11%), with 11% (18%) growth in consumer (B2C) parcels. Posti’s domestic freight measured in waybills, excluding food logistics, grew by 4% (8%). The number of addressed letters decreased by 10%(-10%) in Finland.
• Mail items covered by the universal service obligation accounted for 7.6% (9.4%) of all of Posti’s mail items. The Christmas season has a significant impact on the volume of items.
• The net sales of Parcels increased whereas the net sales of Postal Services continued to decrease, which reflects the transformation of the market.
• On December 5, 2018, the Finnish government decided to transfer 49.9% of the shares of Posti Group Corporation to ownership of the Finnish State Business Development Company Vake Oy. After this 50.1% of Posti’s shares remains in the State’s direct ownership. The transfer of ownership has no effect on Posti´s position and business.

Year 2018

Financial highlights

• The Group’s net sales decreased by 2.2% to EUR 1,610.3 (1,647.0) million,
• The Group’s adjusted EBITDA declined to EUR 112.8 (118.6) million, 7.0% (7,2%).
• The Group’s EBITDA increased to EUR 105.0 (83.7) million, 6.5% (5.1%).
• The adjusted operating result improved to EUR 44.8 (42.4) million, or 2.8% (2.6%) of net sales.
• The operating result amounted to EUR 5.7 (-27.5) million, representing 0.4% (-1.7%) of net sales.

Operational highlights

• The parcel volume of Finland and the Baltic countries increased by 10 %, with 16% growth in consumer (B2C) parcels. Measured in waybills and excluding food logistics, Posti’s domestic freight grew by 5%. The number of addressed letters decreased by 9% in Finland.
• Mail items covered by the universal service obligation was 4.6 % (5.5%) of all of Posti’s delivery volumes.
• The net sales of Parcel and Logistics Services accounted for almost 42% (40%) the Group´s total net sales.
• In May, Posti Group Corporation signed a new EUR 150 million syndicated revolving credit facility which replaced the previous EUR 150 million facility. The new facility has a maturity of five years with an option to extend for two years.
• In July, Posti opened one of Finland's largest freight terminals in Vantaa according to its strategy to grow in logistics.
• The Supreme Administrative Court of Finland delivered a decision on September 27, 2018 confirming that Posti’s pricing concerning the delivery of unaddressed advertising mail during 2007-2013 was not in violation of the competition law.
• Posti’s structural transformation continued:
• In April, Itella Russia divested its MaxiPost courier business to the Moscow-based Strategic Business Alliance. According to its strategy, Itella Russia focuses on its core businesses, contract logistics and transportation.
• During the H1, Posti’s Finnish, Swedish and Norwegian Debt Collection businesses were sold.
• In September, Posti signed an agreement on acquiring of in-house logistics company Suomen Transval Group Oy. The acquisition was completed on January 25, 2019.
• In December, Itella Connexions, a Posti subsidiary in Russia, was divested.
• Posti has renewed its organization and operating model to better correspond to market needs and e-commerce growth. As a part of the renewal, Posti announced on August 27 that Posti Group’s business will be divided into five business groups, of which three will be new. Starting January 1, 2019, the business groups are: Postal Services, Parcel & eCommerce, Logistics Solutions, OpusCapita and Itella Russia.

Outlook for 2019

Net sales, excluding possible new acquisitions and divestments, is expected to increase from 2018 driven by Transval acquisition. The Group’s adjusted operating result is expected to increase from 2018 due to Transval acquisition and transition to IFRS 16 accounting principles.

*) Board of Directors’ proposal to the Annual General Meeting

Figures in brackets refer to the comparison period, i.e. the same period last year, unless otherwise stated.

Heikki Malinen, President and CEO

For Posti Group 2018 remained challenging due to the rapid digitalisation of society and changing customer needs. This was reflected in the significant downward trend in letter volumes. In 2018 the number of addressed mail decreased by 9% and the total amount has reduced by 50% since 2008.

Despite the decline in net sales of Postal Services and Itella Russia, Posti Group´s full-year adjusted operating result improved to EUR 44.8 million. However, the adjusted operating result margin of 2.8% remains below the long-term target of 4%.

The result of Posti is always strongly influenced by the last quarter of the year and especially by the Christmas season, which went particularly well this year. During the Christmas week, we handled the biggest weekly parcel volumes in the history of Posti. The net sales of parcel services in 2018 was boosted by B2C parcel volumes (16%). During 2018, Posti delivered a total of 44.1 million parcels. However, the adjusted operating result of Mail, Parcel and Logistics Services weakened to EUR 53.9 million.

Itella Russia achieved a good profit improvement, totaling adjusted operating result of EUR 2.6 million. Itella Russia's profitability was improved by efficiency measures in the transport business, the company´s focus on contract logistics and divestments of courier company Maxipost and direct marketing company Itella Connexions.

The profitability of OpusCapita has also improved due to restructuring measures earlier in the year. The adjusted operating result of OpusCapita turned profitable in the fourth quarter. The adjusted EBITDA of OpusCapita for the full year reached EUR 2.0 million. The positive development was driven by a 33% growth in SaaS subscriptions. In 2018, OpusCapita won several international deals, including Equinor (formerly Statoil) and Schindler.

The renewal of Posti has continued rapidly during 2018. In line with our strategy, we have invested in our core businesses and growth areas, such as e-commerce and logistics. Last summer as a part of Posti´s strategy's to grow in logistics, Posti opened one of Finland's largest freight terminals in Vantaa. In September 2018, Posti signed an agreement on acquiring the in-house logistics company Suomen Transval Group Oy. The deal was completed on January 25, 2019. As a result of this acquisition, Posti will become a significant operator in logistics outsourcing solutions in Finland.

In order to improve the e-commerce customer experience and meet the needs of consumers, Posti has introduced new fast delivery options. We have strongly expanded our parcel locker network and at the end of 2018 we opened the one thousandth parcel locker. Posti has also started same day deliveries to e-commerce customers, and this service will expand to Turku and Uusimaa during this year. In Helsinki we have piloted 1-2 hour deliveries. We are also developing an OmaPosti mobile app, which has over 250,000 monthly users by today.

Posti's traditional key foundation, Postal services, stays strongly in the core business, despite of digitalization. We have increased our resources to improve the quality further. Earlier this year, we announced a major investment in new sorting machines. We believe that by utilizing technology we will be able to curb the rise in delivery costs and extend the life cycle of print.

In the coming years, the amount of mail will continue to decrease rapidly as the communication of the public sector in particular becomes digital. Posti has proposed to decision-makers that in this situation, the delivery of printed newspapers in rural areas should be supported by temporary State aid, which would allow pluralism of information in rural areas as well. This would be socially important because, without government compensation, the conditions for the operation of some paper-format newspapers in rural areas are at risk of disappearing because of high distribution costs of paper products.

Due to the significant decline in mail volumes, Posti continues to renew its postal operations in order to improve competitiveness, renew the services and secure profitability. Due to the decrease in the amount of mail, Posti needs to reduce costs by at least approximately EUR 150 –200 million over the next three years.

I would like to thank all our customers and partners for their trust and our employees for their commitment to serve customers. I would like to point out how our employees especially succeeded in delivering Christmas for our customers and all citizens. We will continue to build a service culture with the goal of an even better customer experience.