2014-04-30 09:00:00 CEST
2014-04-30 09:00:09 CEST
REGULATED INFORMATION
Itella Oyj - Interim report (Q1 and Q3)
Itella’s result for January–March satisfactory considering the market situation
ITELLA CORPORATION INTERIM REPORT, JANUARY-MARCH 2014, APRIL 30, 2014 AT 10:00
(EET)
Itella Corporation Interim Report Q1/2014
-- Itella Group's net sales in January-March decreased by 5.2% to EUR 470.0
(496.0) million. The decrease was due to lower volumes in mail delivery,
the decline of the logistics market and intense competition as well as
currency depreciation. At comparable exchange rates, the decline in net
sales was 3.0%.
-- Net sales decreased by 7.9% in Itella Logistics, by 1.9% in Itella Mail
Communications, by 10.3% in Itella Russia, and by 3.9% in OpusCapita.
Itella Russia's net sales grew by 7.3% measured in rubles.
-- The operating result before non-recurring items improved and amounted to
EUR 17.6 (12.4) million, or 3.7% (2.5%) of net sales.
-- The operating result before non-recurring items for Itella Mail
Communications amounted to EUR 20.5 (21.7) million. The operating result
before non-recurring items improved to EUR -4.8 (-8.3) million in Itella
Logistics, to EUR -2.2 (-2.3) million in Itella Russia, and to EUR 6.8
(6.4) million in OpusCapita.
-- The first-quarter operating result decreased and amounted to EUR 4.3 (10.8)
million, or 0.9% (2.2%) of net sales. Non-recurring items recognized during
the period totaled EUR 13.3 (1.6) million, of which EUR 10.6 (1.6) million
was related to personnel restructuring and EUR 2.7 (0.0) million to other
items.
-- Cash flow from operating activities increased and amounted to EUR 27.4
(23.4) million.
-- The depreciation of the ruble slowed down the development of net sales, but
political uncertainty did not have an effect on Itella Russia's result for
January-March. The first quarter is typically the weakest of the year due
to seasonal variation.
-- 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 is now reported separately for
the first time. From the beginning of 2014, there are four business groups:
Itella Mail Communications, Itella Logistics, Itella Russia and OpusCapita.
Key figures for the Itella Group
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1-3 1-3 1-12
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2014 2013 2013
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Net sales, EUR million 470.0 496.0 1,976.8
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Operating result (non-IFRS), EUR million* 17.6 12.4 50.5
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Operating result (non-IFRS), %* 3.7 2.5 2.6
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Operating result (EBIT), EUR million 4.3 10.8 9.9
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Operating result (EBIT), % 0.9 2.2 0.5
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Result before taxes, EUR million 2.1 7.7 -2.4
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Result for the period, EUR million 4.0 4.7 7.7
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Return on equity (12 months), % 1.0 1.0 1.1
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Return on investment (12 months), % 0.7 3.5 1.3
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Equity ratio, % 46.6 46.7 47.5
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Gearing, % 18.7 21.7 21.1
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Gross capital expenditure, EUR million 12.8 11.0 61.1
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Average number of employees 25,066 27,561 27,253
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Dividends, EUR million - - -
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*) Non-IFRS = excluding non-recurring items, see Appendix 2.
Heikki Malinen, President and CEO
“Itella's business environment remained very challenging in the first quarter
due to a demanding market situation in logistics and the transformation of the
postal industry. The non-IFRS operating result improved thanks to substantial
efficiency improvement measures and, on the whole, the result can be considered
satisfactory under the very difficult circumstances. The factors contributing
to the decline in net sales included the lower volume of mail delivery, a
decline in the demand for transport services, and the depreciation of
currencies, the ruble in particular. The result was weakened primarily by
significant non-recurring items related to personnel restructuring.
The net sales of Itella Mail Communications declined, but the result was nearly
at the same level as in the corresponding period the previous year. The decline
in the volumes of addressed letters, newspapers and magazines accelerated
considerably in the first quarter. The result for Logistics still showed a
loss, but the development was positive due to efficiency improvement measures.
Itella Russia's result was in line with plans, taking seasonal variation into
account. Net sales decreased due to the depreciation of the ruble. OpusCapita
recorded a good result. The strong growth of cloud services continues, with the
annual growth estimated at approximately 150%. OpusCapita transmitted a total
of 48 million electronic transactions in January-March. The share of electronic
transactions of OpusCapita's total volume of transactions is increasing and
stood at 30%.
As of the beginning of the year, we organized our Russian business into its own
separate business group and we are now reporting its result as a separate
segment for the first time. This increases the transparency of our Russian
business and the reporting of our results.
During the first quarter, we held negotiations with newspaper publishers
regarding the renewal of delivery agreements for the early-morning delivery of
newspapers, as early-morning delivery has not been profitable under the current
operating model and pricing, and with the current development of circulation
volumes. The negotiations resulted in the termination of five early-morning
delivery agreements. With some negotiation parties, an agreement was reached on
additional months. In addition, in the second quarter one new agreement was
signed and negotiations have continued with several newspaper publishers.
Itella has sought to work with publishers to find new solutions to the problem
of delivery profitability. We have proposed cooperation based on establishing
joint ventures with media companies specializing in early-morning deliveries.
We remain prepared to discuss cooperation on early-morning deliveries.
The drastic transformation of the industry is requiring us to continuously
implement various adaptation measures. In January, we started cooperation
negotiations for basic delivery operations in Itella Posti. The number of
dismissals decreased significantly during the negotiations, from an original
reduction need of 800 jobs to 407. The need for dismissals was successfully
reduced by the implementation of the Uusi polku (New path) program, which
offers not only financial support, but also training and support for job
seeking, retraining or starting a business. To date, a total of 620 employees
have applied for the program.
E-commerce is a very important focus area in our new strategy. I am very
pleased that we are able to launch a EUR 10 million construction project
related to e-commerce warehousing and dispatch operations at the Voutila
warehouse in Vantaa. The project will offer online retailers access to a
state-of-the-art warehousing and distribution system that allows consumers to
take delivery of products bought online even on the day of purchase.”
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 Q2/2014, July 18
Interim Report Q3/2014, November 3
IMAGES AND LOGOS
www.itella.com/media
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.
Interim Report for January-March 2014
Market situation and business environment
The overall economic situation remained weak in Finland and weakened in Russia.
The ruble depreciated by 22.7% year-on-year. The situation was also reflected
in Itella's results, with net sales decreasing by 3% at comparable exchange
rates in the first quarter. Taking the exchange rate effect into account, the
decline in net sales exceeded 5%.
The rate of digitization in postal services doubled. The volume of addressed
letters in January-March decreased by -10% from the previous year, while the
decrease from 2012 to 2013 had been -5%. The decline was particularly strong in
first-class letters at -13%. Newspaper and magazine volumes continued to
decline as well. Newspaper delivery volumes were down 8%, and magazine delivery
volumes 10%, compared to the corresponding period last year.
The growth in Itella's parcel services slowed down to 1% from the 4% rate
recorded a year earlier. The overall market for parcels is on the decline in
Finland due to weakening GDP. The situation is expected to continue.
The market situation in logistics and retail is challenging. This was reflected
in lower transport volumes in groupage logistics. The volume of heavy traffic
has continued to decrease for 22 consecutive months in Finland. The market
situation is weak in Finland and has remained challenging in Scandinavia,
although the volume of heavy traffic has resumed growth in Scandinavia. In
Russia, the market situation in logistics has thus far remained stable,
although political uncertainty and the threat of sanctions have led to downward
adjustments to growth forecasts. The Central Bank of Russia forecasts growth of
less than 1% for 2014, and the Ministry of Finance has adjusted its growth
forecast from 2.5% to 0.5%.
In OpusCapita, the strong growth of cloud services, which began in summer 2012,
is continuing, with the annual growth estimated at approximately 150%. The
outsourcing market for financial and payroll management is growing, which
offers good growth prospects for OpusCapita's outsourcing service business for
2014 and further.
The postal licenses that have been granted allow for competition in addressed
deliveries, but competition has not yet impacted Itella or its result. The
Finnish Government issued a postal delivery license to one of Itella's
competitors on 30 January 2014. Itella considers increased competition in the
postal market to be a positive development. However, in the view of Itella, the
decision to issue the postal license reduces its opportunities to profitably
provide services that fall under the universal service obligation in accordance
with the Finnish Postal Act. For this reason, the decision increases the need
for efficiency measures.
Profit performance and net sales
The Itella Group's net sales in January-March amounted to EUR 470.0 (496.0)
million. Net sales decreased by 5.2%. At comparable exchange rates, the decline
in net sales was 3.0%. The Group's net sales declined across all business
groups. Net sales declined by 3.1% in Finland and by 11.9% in other countries.
International operations accounted for 27% (29%) of net sales.
The operating result before non-recurring items improved to EUR 17.6 (12.4)
million, or 3.7% (2.5%) of net sales. The operating result before non-recurring
items decreased in Itella Mail Communications and improved in Itella Logistics,
Itella Russia and OpusCapita.
The result for January-March was burdened by EUR 13.3 (1.6) million in
non-recurring items, of which EUR 10.6 (1.6) million was related to personnel
restructuring and EUR 2.7 (0.0) million to other items.
The Group's operating result was EUR 4.3 (10.8) million, or 0.9% (2.2%) of net
sales. The operating result decreased in Itella Mail Communications, increased
in Itella Logistics and Itella Russia, and stayed in OpusCapita on the previous
year's level.
The Group's net financing costs amounted to EUR 2.3 (3.2) million.
The Group's operating result after financing items was EUR 2.1 (7.7) million.
Income tax totaled EUR 1.9 (-3.0) million.
The Group's operating result for the period was EUR 4.0 (4.7) million.
Return on equity (rolling 12 months) was 1.0% (1.0%).
Performance improvement program
In April 2013, Itella launched a performance improvement program for 2013-2014,
aiming for more than EUR 100 million in cost savings. The program has
progressed in the business groups as well as in the Group's centralized
operations. As of the end of March 2014, the program has produced more than EUR
70 million in operational savings.
As part of the program, Itella has enhanced operational efficiency at Itella
Mail Communications and Itella Logistics, carried out cooperation negotiations
in the administration department and basic delivery, started national
cooperation negotiations in line haul production, improved the efficiency of
its sourcing process, reformed its ICT operating model, signed an extensive
partnership agreement, outsourced its ICT operations and sold Itella Bank to
the Savings Banks.
Itella Mail Communications
The net sales of Itella Mail Communications business group fell slightly in
January-March and amounted to EUR 286.4 (291.8) million.
Non-recurring personnel restructuring items recognized during the period
totaled EUR 10.4 (0.8) million. The business group's operating result before
non-recurring items declined slightly and stood at EUR 20.5 (21.7) million. The
result was weakened by a substantial decline in the volume of addressed mail.
However, the result was boosted by improvements in operational efficiency and
the increases in postage fees that took effect at the beginning of 2014. The
business group's operating result amounted to EUR 10.2 (20.9) million. The
percentage of operating result was 3.5% (7.2%).
Operations under the universal service obligation amounted to EUR 31.4 (32.1)
million, or 11.0% (10.7%) of the net sales of Mail Communications.
In January-March, delivery volumes of postal items developed as follows
compared with the corresponding period in 2013:
-- Total volume of addressed letters, -10% (-5%)
-- Unaddressed direct marketing, -23% (+21%)
-- Newspapers, -8% (-5%)
-- Magazines, -10% (-6%)
-- Parcel services, +1% (+4%)
-- Electronic letters, +3% (+18%)
The rate of digitization in postal services accelerated substantially in the
first quarter. The decline in volumes is accelerated by developments including
the digitization of invoicing; one out of two invoices are now transmitted
electronically via online banking services, Netposti or e-mail. The volume of
addressed letters fell by 10% in the first quarter, compared to a decrease of
5% in the corresponding period of the previous year. The volume of first-class
letters declined in particular. The volume of first-class letters fell by 13%,
while that of second-class letters decreased by 9%. The decline in the volumes
of newspapers and magazines also accelerated. Newspaper delivery volumes were
down 8%, and magazine delivery volumes 10%, compared to the corresponding
period last year.
Parcel services continued to grow, but the rate of growth was slower than in
the corresponding period in 2013. The slowing down of growth is due to a
decrease in GDP, and the related contraction in the business-to-business
market, weaker consumer purchasing power and the increasing popularity of
foreign online retailers among Finnish consumers. Itella delivered a total of
7.9 million parcels in January-March. Itella's share of parcel traffic has
increased to nearly 50% from 43% in 2010.
The number of Netposti users climbed to 547,000 at the end of March, increasing
by 18% from 2013. The number of users stood at 463,000 at the same time last
year.
Posti had 1,342 service points at the end of March. After 42 new parcel
terminals was taken into use in January-March, their number totaled 349 at the
end of the quarter. The use of parcel terminals increased during the first
quarter, with the number of parcels growing by 150% year-on-year. The goal is
to increase the number of the various service points to 1,700 by 2020.
In January, Itella Posti began cooperation negotiations concerning basic
delivery personnel. According to the initial estimate, the reduction need was
1,200 jobs at most. The negotiations were concluded in March and led to the
dismissal of 407 permanent employees.
During the first quarter, Itella Posti held negotiations with newspaper
publishers regarding the renewal of delivery agreements for the early-morning
delivery of newspapers, as early-morning delivery has not been profitable under
the current implementation and pricing, and with the current development of
circulation volumes. The negotiations resulted in the termination of five
early-morning delivery agreements. With some negotiation parties, an agreement
was reached on additional months. In addition, in the second quarter one new
agreement was signed and negotiations have continued with several newspaper
publishers. Due to changes related to early-morning delivery, Itella Posti
began cooperation negotiations in March for early-morning delivery in Central
Ostrobothnia, in parts of northern Finland and in Kainuu and Kemi-Tornio. The
target group of the negotiations comprises 281 employees.
Itella Mail Communications' investments amounted to of EUR 7.0 (4.0) million in
the first quarter. The majority of the investments were related to the
transport fleet and parcel terminals.
Itella Logistics
Itella Logistics' net sales declined in January-March by 7.9% and amounted to
EUR 147.3 (160.0) million. The decrease in net sales was due to the weak market
for road, air and sea freight services and the tight competitive situation.
This was reflected in weaker sales in Finland as well as Scandinavia. Net sales
developed positively in the Baltic countries in the first quarter.
Non-recurring items in the review period totaled EUR 0.2 (0.8) million. The
business group's operating result before non-recurring items improved to EUR
-4.8 (-8.3) million. The improvement in the result was supported by a better
sales margin due to improved production efficiency. The result was also boosted
by a reduction in fixed costs related to premises and personnel, as well as
lower depreciation. The profitability of warehousing operations in Finland has
improved primarily as a result of warehouse consolidation. Nevertheless, the
result was still weakened by the low profitability in domestic cargo and the
weak situation in the Nordic Region. The operating result improved to EUR -4.9
(-9.1) million.
Itella Logistics' investments amounted to EUR 1.5 (3.4) million in
January-March. The investments were related to terminal improvement projects.
Itella Russia
Measured in local currency, the net sales of the Itella Russia business group
grew by 7.3% in January-March. However, due to the depreciation of the ruble,
growth measured in euros was negative at -10.3%, EUR 41.4 (46.3) million.
Among the business group's operations, the strongest growth was seen in road
freight as well as air and sea freight, both of which grew by more than 20%.
Contract logistics also grew in January-March. The growth in contract logistics
was due to improved fill rates in warehouses outside Moscow and, in particular,
the Shushary warehouse, which has been recommissioned after a warehouse
accident that occurred in 2012 and saw an increase in fill rate from the
previous year's level of zero to nearly 50%. The fill rates of terminals in the
Moscow region, which had previously accounted for the majority of growth, have
decreased slightly from the previous year, while the fill rates for warehouses
in other regions have increased faster than before.
Non-recurring items recorded in the review period totaled EUR 0.1 (0.0)
million. The business group's operating result before non-recurring items was
EUR -2.2 (-2.3) million.
As the Russian logistics business involves substantial seasonal variation, net
sales and the operating profit do not accrue evenly over the year. The result
for January-March is weak due to low volumes, with the second half of the year
having a more significant role in shaping the result. The operating result was
EUR -2.2 (-2.3) million. The situation in Ukraine has thus far not had a local
effect on Itella Russia's result.
Itella Russia's investments amounted to EUR 0.3 (1.7) million in January-March.
A large part of the shelving system in Itella's Shushary warehouse in St.
Petersburg collapsed in July 2012. Measures to minimize the environmental
impact of the collapse were initiated immediately in accordance with
instructions issued by the authorities. In January 2014, Itella's management in
Russia were acquitted of charges relating to the inappropriate handling of
environmentally hazardous material. The processing of the insurance
compensation has progressed, but the amount has not yet been confirmed in full.
For this reason, the ultimate effects of the accident are yet to be determined.
The indemnity is recognized in other receivables on the balance sheet, and a
short-term provision for costs is recognized in liabilities.
OpusCapita
The comparable net sales of the OpusCapita business group remained at the
previous year's level. Net sales in January-March decreased by 3.9% and
amounted to EUR 67.1 (69.9) million. The decrease in net sales was due to the
sale of the printing services in Poland carried out in 2013, as well as the
depreciation of the Norwegian and Swedish currencies.
OpusCapita recorded a good result. The business group's operating result before
non-recurring items improved to EUR 6.8 (6.4) million. Non-recurring items
recorded in the review period totaled EUR 0.5 (0.0) million. The operating
result amounted to EUR 6.4 (6.4) million.
Continuous service business operations make up 95% of OpusCapita's net sales,
or approximately EUR 64 million. This includes multichannel invoicing and
invoice management solutions for paper and electronic invoices, as well as
software maintenance fees, and regularly invoiced outsourcing services.
OpusCapita transmitted a total of 48 million electronic transactions in
January-March. The share of electronic transactions of the total volume of
transactions is increasing and stood at 30%. Growth was strongest in the
e-invoice business at 13%.
OpusCapita's software solutions are used in 54 countries on all continents. The
strong growth of cloud services (SaaS), which began in summer 2012, is
continuing, with the annual growth estimated at approximately 150%. In
January-March, the rate of growth was substantially higher than this due to a
number of significant transactions. The growth in cloud services has been
boosted particularly by automation solutions for accounts payable and
receivable and payment traffic services launched in late 2013.
The outsourcing market for financial and payroll management is growing, which
offers good growth prospects for OpusCapita's outsourcing service business for
2014 and further.
OpusCapita's investments amounted to EUR 1.3 (0.4) million. The investments
were related to capitalized development projects.
Key Figures for Business Groups (EUR 1-3/2014 1-3/2013 Change 1-12/2013
million)
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Net sales
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Mail Communications 286.4 291.8 -1.9% 1,155.5
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Logistics 147.3 160.0 -7.9% 641.8
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Russia 41.5 46.3 -10.3% 205.6
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OpusCapita 67.1 69.9 -3.9% 263.4
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Other operations 11.0 13.7 -19.8% 54.4
--------------------------------------------------------------------------------
Intra-Group sales -83.3 -85.7 -343.8
--------------------------------------------------------------------------------
Itella Group 470.0 496.0 -5.2% 1,976.8
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating result (non-IFRS)*
--------------------------------------------------------------------------------
Mail Communications 20.5 21.7 -5.4% 66.6
--------------------------------------------------------------------------------
Logistics -4.8 -8.3 neg -24.5
--------------------------------------------------------------------------------
Russia -2.2 -2.3 neg 5.3
--------------------------------------------------------------------------------
OpusCapita 6.8 6.4 6.2% 22.5
--------------------------------------------------------------------------------
Other operations -2.8 -5.1 neg -19.4
--------------------------------------------------------------------------------
Itella Group 17.6 12.4 41.7% 50.5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating result (EBIT)
--------------------------------------------------------------------------------
Mail Communications 10.2 20.9 -51.3% 64.0
--------------------------------------------------------------------------------
Logistics -4.9 -9.1 neg -50.1
--------------------------------------------------------------------------------
Russia -2.2 -2.3 neg 4.3
--------------------------------------------------------------------------------
OpusCapita 6.4 6.4 -1.1% 17.0
--------------------------------------------------------------------------------
Other operations -5.0 -5.1 neg -25.3
--------------------------------------------------------------------------------
Itella Group 4.3 10.8 -60.1% 9.9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating result (non-IFRS), %*
--------------------------------------------------------------------------------
Mail Communications 7.2% 7.4% 5.8%
--------------------------------------------------------------------------------
Logistics -3.2% -5.2% -3.8%
--------------------------------------------------------------------------------
Russia -5.2% -4.9% 2.6%
--------------------------------------------------------------------------------
OpusCapita 10.2% 9.2% 8.5%
--------------------------------------------------------------------------------
Itella Group 3.7% 2.5% 2.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Operating result (EBIT), %
--------------------------------------------------------------------------------
Mail Communications 3.5% 7.2% 5.5%
--------------------------------------------------------------------------------
Logistics -3.4% -5.7% -7.8%
--------------------------------------------------------------------------------
Russia -5.3% -4.9% 2.1%
--------------------------------------------------------------------------------
OpusCapita 9.5% 9.2% 6.4%
--------------------------------------------------------------------------------
Itella Group 0.9% 2.2% 0.5%
--------------------------------------------------------------------------------
*) Non-IFRS = excluding non-recurring items
Financial position and investments
The consolidated cash flow from operating activities before capital expenditure
was EUR 27.4 (23.4) million.
Capital expenditure amounted to EUR 10.5 (10.1) million. More details on
investments are provided in the sections on each business group.
At the end of March, liquid assets totaled EUR 176.6 (147.8) million, and
undrawn committed credit facilities amounted to EUR 120.0 (120.0) million. The
Group's interest-bearing liabilities were EUR 297.1 (310.9) million. Equity
ratio stood at 46.6% (46.7%), and gearing was 18.7% (21.7%).
Employees
At the end of March, Itella Corporation employed 24,789 (27,655) people, of
whom 19,225 (21,607) worked in Finland. The Group's average number of personnel
was 25,066 (27,561).
Personnel distribution was as follows:
Itella Mail Communications 15,653 (17,512)
Itella Logistics 3,154
(3,624)
Itella Russia 3,301
(3,586)
OpusCapita 2,118
(2,257)
Group and other functions 563 (676)
The Group's personnel expenses decreased by EUR 9.3 million, or by
approximately 4.1 percent in comparison to the previous year. Personnel
expenses included EUR 10.6 (1.6) million in restructuring costs. Excluding
restructuring costs, personnel expenses declined by 8% year-on-year.
In January, Itella launched the Uusi polku (New path) program, which offers not
only financial support, but also training and support for job seeking,
retraining or starting a business. As of the end of April, 620 employees have
applied for the program.
Decisions adopted by the Annual General Meeting
Itella Corporation's Annual General Meeting was held in Helsinki on March 25,
2014. The Annual General Meeting adopted the 2013 financial statements and
discharged the members of the Supervisory Board and the Board of Directors and
President and CEO from liability.
It also decided that the Board of Directors be composed of eight members. The
Annual General Meeting re-elected the following members of the Board of
Directors: M.Sc. (Econ.) Arto Hiltunen, Country Director Jussi Kuutsa, CFO
Päivi Pesola, Executive Vice President Riitta Savonlahti and Managing Director
Suvi-Anne Siimes.
The Annual General Meeting elected Mölnlycke Health Care's Global Supply Chain
Planning Director Petri Järvinen, Google Deutschland GmbH's Director, Retail
Petri Kokko and Senior Financial Specialist Marja Pokela from the Government
Ownership Steering as new members of the Board of Directors.
Arto Hiltunen will continue as the Chairman and Päivi Pesola as the Vice
Chairperson.
Itella's Supervisory Board consists of twelve members. The Annual General
Meeting re-elected MP Ritva Elomaa (True Finns), MP Lars-Erik Gästgivars
(Swedish People's Party), MP Maria Guzenina-Richardson (Social Democratic
Party), student Sari Moisanen (Left Alliance), MP Outi Mäkelä (National
Coalition Party), entrepreneur Reijo Ojennus (True Finns), MP Mauri Pekkarinen
(Centre Party), MP Raimo Piirainen (Social Democratic Party), MP Tuomo Puumala
(Centre Party), Executive Manager Teuvo V. Riikonen (Christian Democrats) and
MP Kimmo Sasi (National Coalition Party) as members of the Supervisory Board.
MP Satu Haapanen (the Greens of Finland) was elected as a new member of the
Supervisory Board.
Mauri Pekkarinen will continue as the Chairman of the Supervisory Board. Satu
Haapanen was elected as the Vice Chairperson.
The Annual General Meeting approved the Board of Directors' proposal regarding
the dividend distribution. Dividends will not be paid and the profit for the
period will be transferred to deductions from retained earnings.
The authorized public accountancy firm PricewaterhouseCoopers Oy was elected as
Itella Corporation's auditor, with Authorized Public Accountant Merja Lindh as
the principal auditor.
Members of the Board of Directors receive a monthly remuneration and a meeting
fee. Members of the Supervisory Board receive a meeting fee.
Key short-term business risks and uncertainty factors
The business risks are described in the Group's 2013 Financial Statements.
Risks that have been emphasized after the turn of the year include the currency
risk of the Russian ruble and the Russian country risk due to the prevailing
political situation, as well as trade policy measures that could potentially be
associated with the situation.
Key strategic risks were related to the decline in postal delivery volumes,
which progressed more rapidly than expected, as well as the economic recession
and other changes related to markets or the business environment that were
unexpected or more extensive than anticipated. Other strategic risks were
related to Itella's competitive ability and regulation by the authorities.
Operative risks were primarily related to profitability, the reform of ICT
operations, and business interruptions and other disruptions.
The postal licenses that have been granted allow for competition in addressed
deliveries, but the competition has not yet impacted Itella or its result. The
Finnish Government issued a postal delivery license to one of Itella's
competitors on 30 January 2014. Itella considers increased competition in the
postal market to be a positive development. However, in the view of Itella, the
decision to issue the postal license reduces its opportunities to profitably
provide services that fall under the universal service obligation in accordance
with the Finnish Postal Act. For this reason, the decision increases the need
for efficiency measures.
Significant market risks include the digitization of postal services at a more
rapid rate than expected and other unanticipated changes in this area, such as
an unexpectedly strong decline in the volumes of letters, magazines, and
newspapers. Due to the drastic transformation in the postal industry, Itella is
required to adjust its delivery and sorting capacity and substantially enhance
the efficiency of its operations in the coming years. This may involve risks
that can cause disturbances to postal deliveries and processes.
During the first quarter, Itella Posti held negotiations with newspaper
publishers regarding the renewal of delivery agreements for the early-morning
delivery of newspapers, as early-morning delivery has not been profitable under
the current implementation and pricing, and with the current development of
circulation volumes. The negotiations resulted in the termination of five
early-morning delivery agreements. With some negotiation parties, an agreement
was reached on additional months. In addition, in the second quarter one new
agreement was signed and negotiations have continued with several newspaper
publishers. This may cause non-recurring items in the short term if the
capacity and general costs must be reduced.
In logistics, unexpected changes related to increasing international
competition and the ensuing decline in volumes in the Nordic countries are also
seen as risks.
Itella's investments in Russia are anticipated to grow. In Russia, the
development of the economic, social, legislative and other areas of the
business environment may pose a strategic market risk for Itella. The
fluctuation and weakening of the ruble affect shareholders' equity through
changes in the value of capital employed in Russia. In accordance with Itella's
financial policy, transaction risk is hedged against fluctuations in the ruble
exchange rate, but equity investments, i.e. translation risk, are not hedged.
A large part of the shelving system in Itella's Shushary warehouse in St.
Petersburg collapsed in July 2012. Measures to minimize the environmental
impact of the collapse were initiated immediately in accordance with
instructions issued by the authorities. In January 2014, Itella's management in
Russia were acquitted of charges relating to the inappropriate handling of
environmentally hazardous material. The processing of the insurance
compensation has progressed, but the amount has not yet been confirmed in full.
For this reason, the ultimate effects of the accident are yet to be determined.
The indemnity is recognized in other receivables on the balance sheet, and a
short-term provision for costs is recognized in liabilities.
Changes in corporate structure
In March 2014, Itella sold its entire share capital in its associated company
Porlogis Transitos e Logistica Lda. Itella's share in the company was 35%. The
transaction did not have a material impact on the Group's result.
Events after the review period
Itella Posti's negotiations on early-morning newspaper delivery in Savonia were
concluded on April 1, 2014. Itella's early-morning delivery will be terminated
at the end of September 2014, and its weekend delivery of newspapers will be
terminated at the end of June 2014.
Due to the termination of the early-morning newspaper delivery agreement,
Itella started cooperation negotiations concerning early-morning delivery in
the Vaasa, Närpes and Pietarsaari areas. The target group of the negotiations
comprises 60 employees.
Itella started national cooperation negotiations concerning line haul
production on April 14, 2014. The negotiations concern a total of 420 drivers
of road trains. The reduction need is 85 permanent employees at most. The
negotiations may also entail changes to the current duties of at most 10
persons and relocation of at most 40 persons.
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. The first phase of the project involves building
an automated warehouse, which is scheduled for completion in 2015. The second
phase will involve an expansion of the current Voutila warehouse by 2018.
The Tampere service centre of OpusCapita's Finance and Accounting Services
business unit started cooperation negotiations on April 24, 2014. The
negotiations concern all of the unit's personnel, 43 employees, and the
estimated reduction need is 43 employees at most.
At a meeting held 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 is expected to take effect on January 1, 2015. The change is
part of Itella's new vision and strategy. The change will have no effect on
OpusCapita, which will continue as a subgroup of Itella and one of Itella
Group's business groups.
Outlook for the rest of the year
The Group's business is characterized by seasonality. Net sales and operating
profit in the business groups are not accrued evenly over the year. In Mail
Communications, the first and fourth quarters are typically strong, while the
second and third quarters are weaker. In Logistics, the second half of the year
is stronger.
Comparable net sales in euros for 2014 is expected to decrease compared to
2013. The factors contributing to this expected decrease include lower postal
volumes in Itella Mail Communications, the weaker-than-expected market
situation in Logistics, and exchange rate fluctuations. The Group's operating
result before non-recurring items for 2014 is expected to improve significantly
from 2013. However, the operating result may continue to be burdened by
significant non-recurring items.
The political and market uncertainty related to Russia, and the depreciation of
the ruble, can have a negative effect on the growth of Itella's net sales and,
should the situation persist, on the Group's operating result.
Investments are expected to increase from 2013.
Helsinki, April 29, 2014
Itella Corporation
Board of Directors
APPENDICES
Key figures of Itella Group
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated cash flow statement
Consolidated statement of changes in equity
Notes to the Interim Report
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