Itella Corporation
Interim report for January-September 2008
Interim Report Q3/2008 presentation (pdf)
Interim Report Q3/2008 (pdf)
Figures of Interim Report Q3 (pdf)
Market Overview
The general economical downward trend was not yet evident in demand for Itella’s services, with the exception of the Danish and Baltic business operations. Demand remained strong in Russia. Insecurity in the international financial and capital markets did not have an adverse effect on demand so far.
Net Sales and Profit Performance
Itella Group's consolidated net sales rose to EUR 1,391.5 million in January-September 2008 (EUR 1,247.4 million in January-September 2007), up by 11.6 per cent, organic growth accounting for 4.8 per cent and company acquisitions for 6.8 per cent. Net sales grew in all business groups. Finland represented 7.0 per cent and other countries 24.2 per cent of Group growth. International operations represented 30 per cent (27 per cent) of consolidated net sales.
Consolidated operating profit decreased by 14.6 per cent, to EUR 68.1 million (EUR 79.7 million), accounting for 4.9 per cent (6.4 per cent) of consolidated net sales. Itella Mail Communication and Itella Logistics showed a decrease while Itella Information showed an improvement in operating profit. The most important reasons for weaker profitability were the brisk increase in labour expenses as a result of last autumn's collective labour agreements, and increased fuel costs. Operating profit was boosted by one-off capital gains of EUR 5.4 million.
The Group’s net financial income totalled EUR 5.3 million (EUR 5.4 million). The Group’s taxes for the period came to EUR 24.4 million (EUR 22.7 million), and the effective tax rate was 33.2 per cent (26.7 per cent).
Key figures of Itella Group
|
|
7-9 |
7-9 |
Change |
1-9 |
1-9 |
Change |
2007 |
|
Net sales, |
468.0 |
396.5 |
18,0 % |
1,391.5 |
1,247.4 |
11,6 % |
1,710.6 |
|
Operating profit |
24.2 |
14.1 |
71,6 % |
68,1 |
79,7 |
-14,6 % |
101,8 |
|
EBIT margin, % |
5,2 % |
3,6 % |
|
4,9 % |
6,4 % |
|
6,0 % |
|
Profit before tax, |
29.4 |
15.5 |
89,7 % |
73,4 |
85,1 |
-13,7 % |
109,5 |
|
Return on equity, |
|
|
|
8,9 |
11,4 |
|
11,1 |
|
Return on |
|
|
|
14,1 |
15,6 |
|
15,6 |
|
Equity ratio,% |
|
|
|
51,0 |
64,1 |
|
65,9 |
|
Gearing, % |
|
|
|
21,1 |
-23,6 |
|
-36,4 |
|
Personnel |
29,482 |
26,360 |
11,8 % |
27,106 |
25,793 |
5,1 % |
25,623 |
|
Capital expenditure, MEUR |
264.5 |
34.8 |
660,1 % |
325,7 |
73,0 |
346,2 % |
94,2 |
Itella Mail Communication
In January-September, Itella Mail Communication improved its net sales by 2.8 per cent, to EUR 663.4 million (EUR 645.2 million).
Compared to last year’s figures, first and second-class letter volumes increased by 4 per cent.
Unaddressed direct-mail delivery volumes fell from last year’s level. The volume of newspaper deliveries decreased by 4 per cent from the previous year, while magazine delivery volumes remained constant.
Reported operating profit came to EUR 56.4 million (EUR 67.6 million), accounting for 8.5 per cent (10.5 per cent) of net sales. The reduced profitability was the result of an increase in production costs, especially personnel costs.
In February, Itella purchased DH Tools Oy, which specialises in enterprise marketing management services and has a staff of 16.
Itella Information
Itella Information increased its net sales to EUR 181.9 million (EUR 163.5 million) in the period, i.e. by 11.3 per cent. Net sales improved for all product lines, with the exception of Transactional Messaging. Geographically speaking, net sales improved in all countries.
Reported operating profit came to EUR 8.7 million (EUR 5.1 million), accounting for 4.8 per cent (3.1 per cent) of net sales. This improvement was due to streamlining measures in all product lines.
In June, the joint venture established by Norway Post and Itella Information began operating in Norway. In May, a new subsidiary established in Poland, Itella Information sp. z o.o, began operating. In September, Itella Information acquired Tuottotieto Oy, which offers consulting services, operating models and system solutions related to outsourcing financial administration processes and developing business operations. The company has approximately 100 employees.
Itella Logistics
Itella Logistics increased its net sales to EUR 568.3 million (EUR 466.3 million) in the period. This represented growth of 21.9 per cent, of which acquisitions during the previous or ongoing year accounted for 17.4 percentage points.
The business group posted an operating profit of EUR 8.7 million (EUR 21.0 million), or 1.5 per cent (4.5 per cent) of net sales. This decrease was due to higher production costs, investments in service warehousing operations in Russia, and the decrease in road traffic volumes over the last few months, especially in the Baltic region and Denmark. In Finland, Express product volumes experienced moderate growth.
The business group acquired Kauko Group Oy, which specialises in international transport services, and the Swedish company Hansar Logistics AB in the spring, and they have been consolidated into Group figures from April onwards.
A deal to acquire the Russian logistics group NLC (National Logistic Company) was completed in late August. The sellers were investment funds managed by RosEvroGroup and Citi Venture Capital International (CVCI). The purchase price was EUR 199.6 million. RosEvroGroup will continue to operate as a minority shareholder with a share of 10 per cent until the end of 2010, and the current customs clearance operations of NLC were transferred to it in full as part of the transaction. The acquisition of the 10 per cent minority share, to be concluded at a later date, will increase the total purchase price by a minimum of approx. EUR 20 million. Real estate owned by the NLC Group formed a significant part of the total value of the acquisition. On the acquisition date, interest-bearing liabilities on NLC’s balance sheet totalled EUR 114.0 million. The purchase price was paid using Itella’s cash assets and existing credit limit. With a staff of roughly 6,000, NLC will have net sales of around EUR 180 million in 2008. The company was consolidated into Itella’s figures from August.
Key Figures of Business Groups, EUR million
|
|
7-9 |
7-9 |
Change |
1-9 |
1-9 |
Change |
|
Itella Mail Communication |
||||||
|
Net sales |
208,7 |
197,7 |
5,6 % |
663,4 |
645,2 |
2,8 % |
|
Operating profit (EBIT) |
14,9 |
14,1 |
5,7 % |
56,4 |
67,6 |
-16,6 % |
|
EBIT margin,% |
7,1 % |
7,1 % |
|
8,5 % |
10,5 % |
|
|
Itella Information |
||||||
|
Net sales *) |
59,2 |
53,2 |
11,3 % |
181,9 |
163,5 |
11,3 % |
|
Operating profit (EBIT) |
2,1 |
0,9 |
133,3 % |
8,7 |
5,1 |
70,6 % |
|
EBIT margin, % |
3,5 % |
1,7 % |
|
4,8 % |
3,1 % |
|
|
Itella Logistics |
||||||
|
Net sales |
207,6 |
159,0 |
30,6 % |
568,3 |
466,3 |
21,9 % |
|
Operating profit (EBIT) |
3,4 |
5,2 |
-34,6 % |
8,7 |
21,0 |
-58,6 % |
|
EBIT margin,% |
1,6 % |
3,3 % |
|
1,5 % |
4,5 % |
|
|
Other activities |
||||||
|
Net sales |
4,2 |
2,4 |
75,0 % |
12,9 |
10,6 |
21,7 % |
|
Operating profit/loss (EBIT) |
3,8 |
-6,1 |
.. |
-5,7 |
-14,0 |
.. |
|
EBIT margin,% |
90,5 % |
-254,2 % |
|
-44,2 % |
-132,1 % |
|
|
Intra-Group sales |
-11,7 |
-15,8 |
.. |
-35,0 |
-38,2 |
.. |
|
Itella Group |
||||||
|
Net sales |
468,0 |
396,5 |
18,0 % |
1,391.5 |
1,247.4 |
11,6 % |
|
Operating profit (EBIT) |
24,2 |
14,1 |
71,6 % |
68,1 |
79,7 |
-14,6 % |
|
EBIT margin,% |
5,2 % |
3,6 % |
|
4,9 % |
6,4 % |
|
*) The calculation principles for net sales were changed in Q2 to the previous year. The net sales figures have been converted into comparable figures in thee above table. The effect of change was +22,3 MEUR in 2007 into net sales but had no effect into profit.
Financial Position and Capital Expenditure
Consolidated net cash flow from operating activities totalled EUR 21.3 million (EUR 44.4 million) before investing activities.
Capital expenditure totalled EUR 325.7 million (EUR 73.0 million), company acquisitions accounting for EUR 258.6 million (EUR 20.9 million). The most significant investments were allocated to bundle and parcel sorting machines for mail processing, letter sorting transport systems and premises in Finland.
At the end of September, cash and cash equivalents stood at EUR 160.5 million (EUR 203.7 million), and investments issued in commercial papers amounted to EUR 73,2 million. The Group’s interest-bearing liabilities totalled EUR 318.8 million (EUR 34.5 million), of which Itella-NLC’s interest-bearing liabilities accounted for EUR 108.9 million. The Group’s equity ratio was 51.0 per cent (64.1 per cent) and gearing stood at 21.1 per cent (-23.6 per cent).
Personnel
The number of employees in the Itella Group for January-September averaged 27,106 (25,793), while the period-end staff totalled 30,988 (25,022). This year-on-year increase in Group staff numbers stemmed from company acquisitions carried out by Itella Logistics and Itella Information. In Finland the number of staff fell by 95, while in other countries it increased by 6,061. At the end of the period, Group staff numbers by segment were as follows: Itella Mail Communication 18,595, Itella Information 1,964, Itella Logistics 10,397, and other Group operations 32.
In joint discussions concerning Itella Information’s printing operations carried out in Q2, the required reduction was specified to 20 persons, with 12 persons to be reassigned. The current jobs of 70 employees will be terminated as a consequence of changes in the post office network. Due to postal outlets’ mergers, the jobs of approximately 110 employees may change or be terminated. In addition, a reduction of a maximum of 100 work-years will have to be implemented to streamline postal outlets’ operations.
In joint discussions carried out at Itella Mail Communication in Q2 concerning Itella TGM’s production, the required reduction was specified as 38 work-years.
In June, the maintenance and small-scale development of SAP systems was outsourced to Accenture Oy, with 15 Itella staff transferred to Accenture.
In January-September, Itella concluded 1,700 new permanent employment contracts in Finland. The Group is also a major provider of seasonal employment.
Changes in Corporate Structure
DH Tools Oy, specialising in enterprise marketing management and acquired by Itella Mail Communication, was incorporated into the Group as of the beginning of February.
The Finnish company Kauko Group Oy, specialising in international transport, was purchased and added to the Itella Logistics business group. In connection with the deal, the entire share capital of Kauko Group’s Swedish associated company, Hansar Logistics AB, was purchased. These companies are consolidated in Itella Group’s figures from April onwards. The Itella Logistics business group’s 51 per cent share in CF Geologistics A/S was sold in June.
The NLC Group, which operates in Russia, was added to the Itella Logistics business group in August. Its operations continue under the name Itella-NLC.
May saw Itella Information sp. z o.o begin operating, to which the business operations of the Polish BusinessPoint S.A., purchased in January, were transferred. The joint venture Itella Information AS, of which Itella owns 51 per cent and Norway Post 49 per cent, began operating in June.
Tuottotieto Oy was incorporated into the Itella Information business group in September.
Short-term Business Risks and Uncertainties
Risks related to Group operations are explained in connection with the previous annual financial statements.
Global financial uncertainty is making it difficult to forecast demand for Itella’s services. In addition, changes in the Russian market are reflected in Itella’s figures more strongly than before.
Seasonal Fluctuation
Seasonal fluctuation is characteristic of the Group’s business performance, for which reason the business segments’ net sales and operating profit are not distributed evenly throughout the year. In particular, Q1 and Q4 are strong, whereas Q2 and Q3 are usually weaker in performance. Since Easter occurred in Q1 this year, the difference between Q1 and Q2 was diluted for 2008.
Prospects towards the Year-End
An economic downturn is evident, and is likely to be reflected initially in the demand for logistics and marketing communication. Prospects relating to demand for Itella’s other services remain positive. Itella Group’s net sales will grow significantly over the previous year, due to acquisitions made during 2008.
However, relative profitability is not expected to reach last year’s level, due in particular to sharp increases in production costs. The Group will continue to take measures to improve productivity and adjust production costs to fluctuations in volumes.
Reforms in Itella Mail Communication's production structure in Finland will increase investments in fixed assets from those of the previous year.
Accounting Policies
This interim report has been carried out in compliance with IFRS-based recognition and measurement principles. The same accounting policies and calculation methods have been applied as in the previous annual financial statements.
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