Earnings Release • May 8, 2018
Earnings Release
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| in € millions, except where noted | Q1 2017 | Q1 2018 % Change | |
|---|---|---|---|
| Revenue | 870 | 875 | 1% |
| Operating income | 66 | 30 | -55% |
| Underlying operating income | 68 | 38 | -44% |
| Underlying operating income margin | 7.8% | 4.3% | |
| Changes in pension liabilities | (3) | 4 | 233% |
| Changes in provisions | (15) | (13) | 13% |
| Underlying cash operating income | 50 | 29 | -42% |
| Underlying cash operating income margin | 5.7% | 3.3% | |
| Profit for the period | 41 | 14 | -66% |
| Net cash from/(used in) operating and investing activities | (20) | (18) | 10% |
Note: underlying figures exclude one-offs in Q1 2018 (€5 million for restructuring in Mail in the Netherlands and International and €3 million for project costs and other) and in Q1 2017 (€2 million for project costs)
Herna Verhagen, CEO of PostNL: "As anticipated, our Q1 performance was below the comparable quarter last year. However, we continue to make good progress in our transformation to be the postal & logistic solutions provider in the Benelux. 42% of our revenue is now related to e-commerce, showing that we are on track towards our 2020 ambition of more than 50%.
Volume decline in Mail in the Netherlands continued in line with our expectations. Substitution remains the driver, but, again, we see intensifying competition from postal operators, supported by the earlier ACM measures. We achieved €8 million of cost savings and continue to make progress in the preparation and implementation of our cost savings projects.
We are actively participating in the postal dialogue, initiated by Dutch government. Further discussions are scheduled to take place shortly. We repeat that to facilitate an orderly and rational adjustment of the Dutch postal market to declining volumes, regulation must be amended as soon as possible and consolidation of postal market players is inevitable.
In Parcels, strong volume growth reflects our solid position in the Benelux e-commerce logistics market. Revenue improved, also helped by last year's acquisitions in logistics services. The strong volume growth drives the planned investments in growth, impacting results. The construction of three new sorting centres started. We expect these to contribute to efficiency improvements towards the end of the year.
In International, the performance was unsatisfactory. Competition remained fierce, especially in Germany and Italy.
We confirm our outlook for 2018. Our aim to pay progressive dividend remains unchanged. The AGM approved the dividend of €0.23 per share for 2017, the final dividend of €0.17 per share will be payable on 9 May."
Addressed mail volumes in Mail in the Netherlands declined by 10.3% in the quarter (9.6% adjusted for one working day). The main driver for the decline is ongoing high substitution. Supported by earlier ACM measures, we continue seeing postal operators collecting more mail items. Part of these volumes return to PostNL via regulated network access, resulting in pressure on our average prices. At the same time, consolidators deliver more mail through their own networks, impacting our bulk mail volumes.
Revenue declined by 6% to €424 million (Q1 2017: €450 million). Underlying cash operating income decreased to €17 million (Q1 2017: €28 million). The negative volume/price/mix effect (again including an effect from ACM measures) and autonomous cost increases were only partly compensated by cost savings and lower cash out related to pensions and provisions.
The cost savings projects require a careful planning process, to speed up realisation of savings in a controlled way, but also to secure quality.
| Q1 2018 | |
|---|---|
| Centralisation locations • Migration of three locations |
|
| • Preparation for further migration of depots later in 2018 |
|
| • Successful integration of sorting locations for international mails |
|
| Efficiency sorting process | • Further implementation new coding process delayed toHY2 as indicated before |
| Optimise retail network | • Reduction of 750 post boxes |
| Simplify portfolio | • Collection of data completed, next step is design of simplified portfolio |
| Reduce staff | • Announcement of staff reduction in line management |
| • Development new blue print for further reduction in overhead |
|
| Other | • IT savings and centralisation of HR departments |
We expect to achieve €50 million - €70 million of cost savings in 2018. As indicated previously, delays in the implementation of the new coding process have meant that phasing of expected cost savings will be weighted towards the second half of the year.
PostNL and the four trade unions have reached agreement regarding the collective labour agreement (CLA) for mail deliverers, valid from 1 October 2017 till 30 September 2019. Parties agreed on a salary increase, implemented in five steps of one percent, and a one-time bonus of one percent.
PostNL Q1 2018 Results | Page 2
As indicated before, we expect a financial of the ACM measures of between €50 million and €70 million on an annualised basis. The full effect is expected to be fully visible in 2020. The indication is subject to final implementation of the SMP decision. The SMP prices and obligations were implemented by PostNL by the end of 2017, but still have to be approved by ACM.
Volume growth continued to be strong: 25% for the quarter. Revenue increased by 23% to €306 million (Q1 2017: €249 million). The main driver for revenue growth was the strong volume development, slightly offset by a negative price/mix effect. Demand for additional services continued to increase. Additionally, we experienced growth in logistics solutions, including incremental revenues related to the last year's acquisitions.
On the cost side, we faced additional capacity costs as volume growth was strong and the expected impact from planned investments in growth. Also, cash out related to pensions and provisions was higher. This resulted in a decrease of underlying cash operating income to €23 million (Q1 2017: €28 million).
International revenue decreased by 5% to €270 million (Q1 2017: €285 million). Adjusted for FX effects (€6 million, fully attributable to Spring), revenue decreased by 3%. Underlying cash operating income was €(4) million (Q1 2017: €5 million).
Revenue in Spring and other decreased to €66 million. Adjusted for FX, we saw an increase to €72 million. Growth from global e-commerce customers continued. Mail volumes in Spring continue to decline. Given the competitive landscape, it was decided to postpone the implementation of rate increases to March. At the same time, the margin was negatively impacted by cost increases from other national postal operators.
In Germany, revenue decreased by 8% to €142 million. Revenue in our final mile activities improved, but this was more than offset by developments in consolidation activities, driven by volume decline and price pressure. We secured some large contracts that will be implemented step-by-step as of the first quarter.
In Italy, revenue was stable at €62 million. Growth from parcels was strong. In mail, we expanded our customer portfolio, but we also saw overall volume decline and price pressure remained fierce.
Revenue in PostNL Other was €19 million (Q1 2017: €18 million). Underlying cash operating income improved to €(7) million (Q1 2017: €(11) million), mainly explained by cost savings.
Pension expense amounted to €32 million (Q1 2017: €27 million) and total cash contributions were €28 million (Q1 2017: €30 million). The increase in pension expense is mainly explained by a higher rate of expected benefit increases, reflecting the development of the coverage ratio of the pension fund and will be visible in the next quarters as well. As the net liability related to the pension fund is limited at the outstanding unconditional funding obligation, the increase in expense is compensated by an actuarial gain recorded in other comprehensive income. In Q1 2018, the net actuarial gain on pensions was €9 million. At the end of Q1 2018, the main pension fund's 12 months average coverage ratio was 114.8%, well above the minimum required funding level of 104.0%. On 31 March 2018, the main pension fund's actual coverage ratio was 114.7%.
Total equity attributable to equity holders of the parent increased to €58 million as per 31 March 2018, almost fully explained by net profit of €14 million and a net actuarial gain on pensions of €9 million. Net cash from operating and investing activities slightly improved to €(18) million (Q1 2017: €(20) million). Lower underlying cash operating income was more than compensated by an improvement in working capital and less taxes paid. At the end of Q1 2018, the net cash position was €5 million, which compares to €27 million at year end 2017.
| Q1 | Q2 | Q3 | Q4 | Total | |
|---|---|---|---|---|---|
| 2017 | 65 | 61 | 65 | 63 | 254 |
| 2018 | 64 | 61 | 65 | 64 | 254 |
| 6 August 2018 | Publication of Q2 & HY 2018 results |
|---|---|
| 5 November 2018 | Publication of Q3 2018 results |
| 25 February 2019 | Publication of Q4 & FY 2018 results |
| 16 April 2019 | Annual General Meeting of Shareholders 2019 |
| 9 May 2018 | Payment date final dividend 2017 |
|---|---|
| 8 August 2018 | Ex-dividend date interim dividend 2018 |
| 9 August 2018 | Record date interim dividend 2018 |
| 10 -23 August 2018 (3.00 PM CET) | Election period interim dividend 2018 |
| 27 August 2018 | Payment date interim dividend 2018 |
| Published by | PostNL N.V. Prinses Beatrixlaan 23 2595 AK The Hague The Netherlands T: +31 88 86 86 161 |
|
|---|---|---|
| Investor Relations | Karen Berg Director Treasury & Investor Relations M: +31 653 44 91 99 E: [email protected] |
Inge Steenvoorden Manager Investor Relations M: +31 610 51 96 70 E: [email protected] |
| Media Relations | Tahira Limon Spokesperson M: +31 610 22 82 81 E: [email protected] |
On 8 May 2018, at 9.00 CET, a conference call for analysts and investors will start. The conference call can be followed live via an audio webcast at www.postnl.nl.
Additional information is available at www.postnl.nl.
Some statements in this press release are 'forward-looking statements'. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. These forward-looking statements involve known and unknown risks, uncertainties and other factors that are outside of our control and impossible to predict and may cause actual results to differ materially from any future results expressed or implied. These forward-looking statements are based on current expectations, estimates, forecasts, analyses and projections about the industries in which we operate and management's beliefs and assumptions about possible future events. You are cautioned not to put undue reliance on these forward-looking statements, which only speak as of the date of this press release and are neither predictions nor guarantees of possible future events or circumstances. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events, except as may be required under applicable securities law.
In presenting and discussing the PostNL Group operating results, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. Non-GAAP financial measures do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. The main non-GAAP key financial performance
indicator is underlying cash operating income. The underlying cash operating performance focuses on the underlying cash earnings performance, which is the basis for the dividend policy. In the analysis of the underlying cash operating performance, adjustments are made for non-recurring and exceptional items as well as adjustments for non-cash costs for pensions and provisions. For pensions, the IFRS-based defined benefit plan pension expenses are replaced by the non-IFRS measure of the actual cash contributions for such plans. For the other provisions, the IFRS-based net charges are replaced by the related cash outflows.
The interim financial statements are reported on a year-to-date basis ending 31 March 2018. The information should be read in conjunction with the consolidated 2017 Annual Report of PostNL N.V. as published on 26 February 2018.
The measure of profit and loss and assets and liabilities is based on the Group Accounting Policies, which are compliant with IFRS as endorsed by the European Union. Apart from the changes from the adoption of IFRS 9 'Financial instruments' and IFRS 15 'Revenues from contracts with customers' per 1 January 2018, all other significant accounting policies applied in these consolidated interim financial statements are consistent with those applied in PostNL's consolidated 2017 Annual Report for the year ended 31 December 2017.
The impact of the adoption of IFRS 9 is as follows:
The company has aligned its policies to reflect the changes resulting from IFRS 9. Comparative information of 2017 has not been restated.
The company's business involves the logistical service of delivering mail, parcels and other consignments. Nearly all of the company's revenues are represented by a single performance obligation being 'logistic services'. Adoption of IFRS 15 does not impact the company's revenue and profit or loss resulting from these services. Revenue will remain being recognised at a point in time when control is transferred to the customer, generally on delivery of the mail, parcels or other consignments.
Other performance obligations within the company's business comprise the rental of post-boxes (revenue recognition over time), print services (revenue recognition at a point in time) and stamp collection services (revenue recognition at a point in time). Adoption of IFRS 15 also does not impact the company's revenue and profit or loss resulting from these services.
Where contracts entitle customers to a volume discount, the company recognises revenue measured at the fair value of the consideration received or receivable, net of volume rebates.
The company adopted the new standard using the modified retrospective method.
At Q1 2018, the accounts receivable position of €32 million includes an amount of €11 million related to Deutsche Post AG. Although payment is behind schedule, management expects the receivable to be fully recoverable.
The content of this interim financial report has not been audited or reviewed by an external auditor.
| Consolidated income statement | ||
|---|---|---|
| in € millions | Q1 2017 | Q1 2018 |
| Net sales | 867 | 871 |
| Other operating revenue | 3 | 4 |
| Total operating revenue | 870 | 875 |
| Other income | 3 | 4 |
| Cost of materials | (17) | (20) |
| Work contracted out and other external expenses | (438) | (464) |
| Salaries, pensions and social security contributions | (293) | (299) |
| Depreciation, amortisation and impairments | (19) | (21) |
| Other operating expenses | (40) | (45) |
| Total operating expenses | (807) | (849) |
| Operating income | 66 | 30 |
| Interest and similar income | 2 | 1 |
| Interest and similar expenses | (12) | (9) |
| Net financial expenses | (10) | (8) |
| Results from investments in jv's/associates | 0 | 0 |
| Profit/(loss) before income taxes | 56 | 22 |
| Income taxes | (15) | (8) |
| Profit for the period | 41 | 14 |
| Attributable to: | ||
| Non-controlling interests | - | - |
| Equity holders of the parent | 41 | 14 |
| Earnings per ordinary share (in € cents) 1 | 9.3 | 3.1 |
| Earnings per diluted ordinary share (in € cents) 2 | 9.2 | 3.1 |
1 Based on an average of 453,530,195 outstanding ordinary shares (2017: 442,805,079).
2 Based on an average of 454,070,420 outstanding diluted ordinary shares (2017: 443,689,924).
| in € millions | Q1 2017 | Q1 2018 |
|---|---|---|
| Profit for the period Other comprehensive income that will not be reclassified |
41 | 14 |
| to the income statement | ||
| Impact pensions, net of tax | 3 | 9 |
| Other comprehensive income that may be reclassified to the income statement |
||
| Currency translation adjustment, net of tax | 0 | 0 |
| Gains/(losses) on cashflow hedges, net of tax | 2 | 1 |
| Total other comprehensive income for the period | 5 | 10 |
| Total comprehensive income for the period | 46 | 24 |
| Attributable to: | ||
| Non-controlling interests | - | - |
| Equity holders of the parent | 46 | 24 |
| Consolidated statement of cash flows in € millions |
Q1 2017 | Q1 2018 |
|---|---|---|
| Profit/(loss) before income taxes | 56 | 22 |
| Adjustments for: | ||
| Depreciation, amortisation and impairments | 19 | 21 |
| Share-based payments | 1 | 1 |
| (Profit)/loss on disposal of assets | (3) | (4) |
| Interest and similar income | (2) | (1) |
| Interest and similar expenses | 12 | 9 |
| Results from investments in jv's/associates | 0 | 0 |
| Investment income | 7 | 4 |
| Pension liabilities | (3) | 4 |
| Other provisions | (12) | (13) |
| Changes in provisions | (15) | (9) |
| Inventory | 1 | (1) |
| Trade accounts receivable | 39 | 10 |
| Other accounts receivable | (22) | 18 |
| Other current assets | (31) | (5) |
| Trade accounts payable | (19) | (9) |
| Other current liabilities excluding short-term financing and taxes | 23 | (6) |
| Changes in working capital | (9) | 7 |
| Cash generated from operations | 59 | 46 |
| Interest paid | (1) | (2) |
| Income taxes received/(paid) | (60) | (47) |
| Net cash (used in)/from operating activities | (2) | (3) |
| Interest received | 1 | 1 |
| Capital expenditure on intangible assets | (8) | (7) |
| Capital expenditure on property, plant and equipment | (15) | (13) |
| Proceeds from sale of property, plant and equipment | 4 | 4 |
| Net cash (used in)/from investing activities | (18) | (15) |
| Net cash (used in)/from financing activities | 0 | 0 |
| Total change in cash | (20) | (18) |
| Cash at the beginning of the period | 640 | 645 |
| Total change in cash | (20) | (18) |
| Cash at the end of the period | 620 | 627 |
| Consolidated statement of financial position | ||
|---|---|---|
| in € millions | 31 December 2017 | 31 March 2018 |
| ASSETS | ||
| Non-current assets | ||
| Intangible fixed assets | ||
| Goodwill | 141 | 141 |
| Other intangible assets | 116 | 116 |
| Total | 257 | 257 |
| Property, plant and equipment | ||
| Land and buildings | 318 | 316 |
| Plant and equipment | 154 | 153 |
| Other | 21 | 20 |
| Construction in progress | 17 | 28 |
| Total | 510 | 517 |
| Financial fixed assets | ||
| Investments in joint ventures/associates | 9 | 9 |
| Other loans receivable | 7 | 7 |
| Deferred tax assets | 29 | 25 |
| Financial assets at fair value through OCI | 5 | 5 |
| Total | 50 | 46 |
| Total non-current assets | 817 | 820 |
| Current assets | ||
| Inventory | 6 | 8 |
| Trade accounts receivable | 386 | 376 |
| Accounts receivable | 50 | 32 |
| Income tax receivable | 9 | 47 |
| Prepayments and accrued income | 157 | 162 |
| Cash and cash equivalents | 645 | 627 |
| Total current assets | 1,253 | 1,252 |
| Assets classified as held for sale | 10 | 9 |
| Total assets | 2,080 | 2,081 |
| LIABILITIES AND EQUITY | ||
| Equity | ||
| Equity attributable to the equity holders of the parent | 34 | 58 |
| Non-controlling interests | 3 | 3 |
| Total | 37 | 61 |
| Non-current liabilities | ||
| Deferred tax liabilities | 43 | 42 |
| Provisions for pension liabilities | 359 | 353 |
| Other provisions | 23 | 23 |
| Long-term debt | 400 | 403 |
| Accrued liabilities | 2 | 2 |
| Total | 827 | 823 |
| Current liabilities | ||
| Trade accounts payable | 220 | 216 |
| Other provisions | 40 | 26 |
| Short-term debt | 225 | 226 |
| Other current liabilities | 150 | 146 |
| Income tax payable | 4 | 4 |
| Accrued current liabilities | 577 | 579 |
| Total | 1,216 | 1,197 |
| Total equity and liabilities | 2,080 | 2,081 |
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