ITELLA CORPORATION INTERIM REPORT, JANUARY–JUNE 2014,

Itella Corporation Interim Report Q2/2014  

April–June 2014

• Itella Group’s net sales in April–June decreased to EUR 461.9 (495.1) million compared to the previous year. The decrease was due to the weakening and the intense competition of the logistics market as well as currency depreciation. Mail delivery volumes continued to decline substantially.
• Net sales decreased to EUR 275.4 (282.2) million in Itella Mail Communications, to EUR 151.1 (167.4) million in Itella Logistics, to EUR 42.7 (50.8) million in Itella Russia, and to EUR 64.9 (66.8) million in OpusCapita.
• The operating result before non-recurring items decreased, amounting to EUR 2.9 (3.7) million, or 0.6% (0.8%) of net sales. The operating result before non-recurring items decreased to EUR -7.5 (-8.7) million in Itella Mail Communications, improved to EUR -4.1 (-4.6) million in Itella Logistics, decreased to EUR -0.1 (2.1) million in Itella Russia, and improved to EUR 4.7 (4.5) million in OpusCapita.
• The second-quarter operating result was weighed down by non-recurring items in the amount of EUR 5.0 (13.9) million. The result for the period showed a loss of EUR -3.8 (-10.9) million, or -0.8% (-2.0%) of net sales. 
• On April 29, 2014, Itella’s Board of Directors approved a plan for the merger of Itella Logistics Oy with Itella Posti Oy. The new company structure will take effect on January 1, 2015.
• On April 17, 2014, Itella announced the launch of a EUR 10 million construction project related to e-commerce warehousing and dispatch operations at the Voutila warehouse in Vantaa.  

January–June 2014  

• Itella Group’s net sales in January–June decreased by 6.0% to EUR 931.9 (991.1) million compared to the previous year. The decrease was due to lower volumes in mail delivery, the decline and intense competition of the logistics market as well as currency depreciation. At comparable exchange rates, the decline in net sales was 4.0%.
• Net sales decreased by 2.1% in Itella Mail Communications, by 8.8% in Itella Logistics, by 13.3% in Itella Russia, and by 3.4% in OpusCapita. Itella Russia’s net sales grew by 1.9% measured in rubles.
• The operating result before non-recurring items improved and amounted to EUR 20.5 (16.1) million, or 2.2% (1.6%) of net sales.
• The operating result before non-recurring items decreased to EUR 28.0 (30.4) million in Itella Mail Communications, improved to EUR -8.9 (-12.9) million in Itella Logistics, decreased to EUR -2.3 (-0.2) million in Itella Russia, and improved to EUR 11.5 (10.9) million in OpusCapita.
• The operating result improved to EUR 2.2 (0.7) million, or 0.2% (0.1%) of net sales. Non-recurring items recognized during the period totaled EUR 18.3 (15.5) million, of which EUR 13.1 (14.2) million was related to personnel restructuring and EUR 5.2 (1.3) million to other items.
• Cash flow from operating activities strengthened substantially and amounted to EUR 43.9 (25.1) million.
• The slowing down of economic growth and general uncertainty had a negative impact on Itella Russia’s result for January–June, particularly in the second quarter.
• In January, Itella started cooperation negotiations concerning basic delivery. The negotiations were concluded in March and led to the dismissal of 407 permanent employees.
• Itella’s business in Russia was organized into its own business group as of the beginning of the year, and its result was reported separately for the first time in the first quarter. From the beginning of 2014, there have been four business groups: Itella Mail Communications, Itella Logistics, Itella Russia and OpusCapita.

*) Non-IFRS = excluding non-recurring items, see Appendix 2.

Heikki Malinen, President and CEO  

“The desired turn for the better did not materialize in the Finnish economy in the first half of the year. The modest development of exports, the weakness of the retail industry and the decreased purchasing power of households kept Finland in a persistent recession. The outlook of the Finnish economy in the second half of the year is equally bleak.  

The economic recession further deepened the drastic transformation of the postal industry. The volume of heavy traffic has continued to decrease for 25 consecutive months in Finland. These factors had a direct impact on the net sales of Itella’s core businesses. The demand for transport services continued to decrease, while the delivery volumes of letters and publications continued their strong decline. The growth in e-commerce, which had otherwise been strong, was also slowed down by consumers becoming more cautious in their spending.  

Additional challenges were posed by the Ukrainian crisis, which has kept the value of the ruble weak and thereby negatively affected the growth of Itella Russia’s net sales. In June, economic uncertainty had a negative impact on Itella Russia’s result.  

Despite the problematic business environment and difficult market situation, Itella’s non-IFRS operating result for January–June improved to EUR 20.5 million. I am satisfied with the improved result in logistics, achieved in spite of the challenges posed by the weak market situation in transport and Itella being affected by labor action in June. Our performance improvement program in logistics is moving ahead systematically, and we are on the right path in implementing our new strategy. Our goal is to make our logistics business profitable.    

Positive developments during the period included the good result of OpusCapita, which specializes in automation solutions for financial management, as well as its new accounts and strong growth in cloud services.  

In January–June, delivery volumes decreased by 9% for letters, 8% for newspapers and 10% for magazines. Late in the second quarter, the volume of delivered letters fell by a record 15%. In light of such drastic decreases in volume, it is clear that we must seek new solutions for the delivery models of traditional mail to ensure profitability and competitiveness, particularly as society as a whole is simultaneously investing strongly in digitization. The unit costs of services covered by the universal service obligation are rising as the volume of postal items sent by businesses and the public sector is declining due to the growing popularity of digital communications.    

To manage these cost pressures, Itella is responding to the transformational changes in its industry by improving the efficiency of its operations and implementing adaptation measures. The current EUR 100 million performance improvement program is progressing according to plan. The Group’s personnel expenses decreased by 7.1% year-on-year. As delivery volumes continue their steep decline, we must continue to implement measures to improve efficiency. We are also streamlining our operating structure and merging Itella Posti with Itella Logistics. This will clarify our corporate structure and improve the efficiency of internal processes. After the merger, Itella will appear to its customers as one company.”

APPENDICES
Itella’s full Interim Report
 

FURTHER INFORMATION
Heikki Malinen, President and CEO, and Sari Helander, CFO

Tel. +358 20 452 3366 (MediaDesk)
  

DISTRIBUTION
NASDAQ OMX Helsinki
Key media
www.itella.com/financials

FINANCIAL CALENDAR IN 2014
Interim Report Q3/2014, November 3

IMAGES AND LOGOS
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Itella is your first choice for postal, logistics and e-commerce services. We manage the flow of commerce and everyday life in 11 countries. Our net sales in 2013 amounted to EUR 1,977 million. We employ approximately 26,000 professionals. We deliver corporate services under the Itella brand, while the Posti brand is used for services targeted at consumers in Finland. www.itella.com.