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
Posti Group9April 29, 2016
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
Posti Group11April 29, 2016
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.
Posti Group14April 29, 2016
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
* excluding non-recurring itemsPosti Group
• 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
Operating result (non-IFRS)*
-5.3 1.0 - 0.6
Operating result (EBIT) -5.7 -1.0 - -12.6
Operating result (non-IFRS), %*
-3.9% 0.6% - 0.1%
Operating result (EBIT),%
-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
* excluding non-recurring itemsPosti Group
• 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
Operating result (non-IFRS)*
-2.4 -0.9 - -5.1
Operating result(EBIT)
-0.2 -1.0 - -25.0
Operating result (non-IFRS), %*
-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
* excluding non-recurring itemsPosti Group
• 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
Operating result (non-IFRS)*
2.0 4.7 -57.6% 14.5
Operating result (EBIT) -1.5 3.9 - 13.3
Operating result (non-IFRS), %*
3.2% 7.0% - 5.7%
Operating result (EBIT),%
-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.
Posti Group20April 29, 2016
Appendices
Posti Group21April 29, 2016
• 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
Posti Group28April 29, 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.