PROFITABILITY AND FREE CASH FLOW GENERATION MAINTAINED AT HIGH LEVELS DESPITE UNDER-PERFORMANCE FROM EDS DIVISION
- 2017 Full-year sales of €1.1 billion, down -4.1%, or -2.2% in organic terms[1]
- 2017 Fourth-quarter sales down -10.0%, or -4.4% in organic terms[2] owing to a decline in the EDS division
- Current operating margin[3] of 18.2% of sales
- Net attributable income: €134 million up +13.2%
- Cash flow after capital expenditure: €149 million
- Proposed dividend in respect of 2017: €1.70 per share
Indications for 2018
- Sales expected to decrease in organic terms
- Current operating margin3 of approximately 18.0% at identical innovation effort levels
Paris, March 26, 2018
Neopost, a global leader in digital communications, shipping and mail solutions, today announced its 2017 annual results (for the financial year ended on January 31, 2018). These financial statements were reviewed and approved by the Board of Directors at its meeting on March 26, 2018.
In full-year 2017, the Group generated sales of €1,112 million, down -4.1% and -2.0% excluding currency effects year on year, for an organic change of -2.2%.
Fourth-quarter 2017 sales came out at €290 million, down -10.0% and -4.8% excluding currency effects year on year, for an organic decrease of -4.4%. The organic decline in Group sales accelerated thus in fourth-quarter 2017, due to the lack of large license contracts in the Enterprise Digital Solutions (EDS) division. The 2 other divisions were consistent with the performance reported in the first nine months of the year.
Current operating income3 totaled €202 million in 2017, versus €216 million in 2016. Current operating margin3 remained at a high level of 18.2% of sales, compared with 18.6% in 2016.
Net attributable income amounted to €134 million, up 13.2%. Net margin[4] stood at 12.0% of sales, versus 10.2% in 2016. Cash flow after capital expenditure ended at a very high level, at €149 million versus €147 million in 2016.
Commenting, Geoffrey Godet, Chief Executive Officer of Neopost, said: "Neopost reported a mixed trend in business activity in 2017. The pace of the downturn at SME Solutions slowed slightly, while Neopost Shipping posted double-digit growth. The increase in Enterprise Digital Solutions sales came to a halt at year-end, but the division's customer base continued to grow and the share of sales related to services and maintenance is substantial. Enterprise Digital Solutions is thus expected to return to low growth in the coming quarters. While I will need more time to make a complete assessment of this business activity, we have already revised our sales approach.
The deterioration in sales in the fourth quarter should not mask the high levels at which Neopost successfully maintained its operating margin and free cash flow generation. Even though our sales will contract further in 2018 given the decline in mail-related activities, the Group's rigorous financial management and high proportion of recurring sales constitute robust fundamentals. Having recently taken up my position, I will be taking advantage of the coming months to prepare our strategic plan for the next few years. The plan will be presented at the Investor Day, to be held before the end of our fiscal year. I am convinced that Neopost has the strengths required to succeed in the upcoming phase of its transformation."
Income statement
€ million | 2017 | 2016 | Change |
Sales | 1,112 | 1,159 | -4.1% |
Current operating income before acquisition-related expense | 202 | 216 | -6.3% |
% of sales | 18.2% | 18.6% | |
Current operating income | 191 | 203 | -5.9% |
Net attributable income | 134 | 118 | +13.2% |
% of sales | 12.0% | 10.2% | |
Earnings per share[5] | 3.62 | 3.17 | +14.2% |
Diluted earnings per share | 3.35 | 2.87 | +12.8% |
Sales by activity and type of revenue
€ million | 2017 | 2016 | Change | Change at constant exchange rates | Organic change1 |
Mail solutions | 805 | 859 | -6.3% | -4.3% | -4.3% |
Communication & Shipping Solutions | 307 | 300 | +2.4% | +4.4% | +3.5% |
Total | 1,112 | 1,159 | -4.1% | -2.0% | -2.2% |
€ million | 2017 | 2016 | Change | Change at constant exchange rates | Organic change1 |
Equipment and license sales | 354 | 382 | -7.3% | -5.2% | -5,1% |
Recurring revenue | 758 | 777 | -2.5% | -0.4% | -0.9% |
Total | 1,112 | 1,159 | -4.1% | -2.0% | -2.2% |
The Group continued its business transformation in 2017, with Communication & Shipping Solutions accounting now for 28% of total sales compared with 26% in 2016. Recurring revenue, down slightly by -0.9%, showed good resilience owing to the contribution of new businesses. The share of recurring revenue increased slightly to 68% of total Group sales.
Sales by division
€ million | 2017 | 2016 | Change | Change at constant exchange rates | Organic change1 |
Enterprise Digital Solutions (EDS) | 136 | 137 | -0.4% | +1.7% | -0.3% |
Neopost Shipping | 57 | 53 | +8.0% | +10.7% | +10.7% |
SME Solutions | 941 | 991 | -5.0% | -3.0% | -3.0% |
Eliminations | (22) | (22) | |||
Total | 1,112 | 1,159 | -4.1% | -2.0% | -2.2% |
Enterprise Digital Solutions (EDS)
In full-year 2017, Enterprise Digital Solutions sales rose +1.7% excluding currency effects. Restated for scope effects stemming from the acquisition of icon Systemhaus and the disposal of DMTI Spatial, sales declined by -0.3% on an organic basis.
The underperformance mainly resulted from the lack of sales of large license contracts by GMC Software for customer communications management, whereas the Group had expected a recovery in this activity in the fourth quarter. Yet, given the high number of large contracts signed in fourth-quarter 2016, GMC Software recorded an organic sales decline of -11.9% for in fourth-quarter 2017.
However, GMC Software's annual sales grew +3.2% excluding currency effects thanks to an increase in maintenance and service sales and to the signing of a significant number of new small license contracts, contributing to a continued increase in the customer base.
The underperformance from the EDS division is also attributable to a decline in organic terms in the data quality management business (-6.2%) and from icon Systemhaus (-11.0%) over the full-year.
Neopost Shipping
In full-year 2017, Neopost Shipping sales rose +10.7% excluding currency effects.
Double digit growth was driven by the strong performances in the roll-out of Packcity automated parcel lockers in Japan in partnership with Yamato Transport. The number of installed parcel lockers now totals 2,600, versus 200 a year earlier. As of today, Neopost manages a network of more than 3,000 automated parcel lockers around the world.
Growth in the division was also driven by accelerated sales in the CVP-500 automated packaging system whose placements reached 10 units this year versus 6 in the previous fiscal year.
In addition, Temando is currently preparing for the launch of its shipment module for Magento's new e-commerce solutions platform (set for spring 2018).
SME Solutions
SME Solutions sales in full-year 2017 were down -5.0% to €941 million and down -3.0% at constant exchange rates.
Mail Solutions sales fell -4.3% excluding currency effects. This business has shown more resilience in North America than in Europe, where the decline is more marked, confirming the trend observed for some time now.
Within this division, Communication & Shipping Solutions sales rose +5.5%, with a -6.0% decrease in graphic activities and a +17.5% increase in digital communications and logistics, thus demonstrating the division's ability to support its customers with customer communication and parcel management software.
CURRENT OPERATING INCOME
Current operating margin by segment
2017 | 2016 | ||||||||||
€ million | EDS | Neopost Shipping[6] | SME Solutions | Innovation[7] | Total | EDS | Neopost Shipping6 | SME Solutions | Innovation7 | Total | |
Sales | 136 | 57 | 941 | 0 | 1,112[8] | 137 | 53 | 991 | 0 | 1,1598 | |
Current operating income | 16 | (13) | 207 | (8) | 202 | 21 | (11) | 214 | (8) | 216 | |
Current operating margin3 | 11.6% | (21.8)% | 21.9% | n/a | 18.2% | 15.6% | (21.6)% | 21.6% | n/a | 18.6% |
EDS posted a decrease in its current operating margin3, which came out at 11.6% of sales versus 15.6% in 2016. The decline resulted from the contraction in the sales of licenses.
The current operating margin3 of Neopost Shipping6 was stable at -21.8%. Excluding Temando and CVP-500, the margin ended at 8.2% of sales compared with 8.8% in 2016.
The current operating margin3 of SME Solutions rose to 21.9% of sales from 21.6% in 2016. The savings and optimization programs continue to produce results. In 2017, SME Solutions' net operating expenditure was reduced by €21 million after already being cut by €23 million in 2016. In all, Neopost has reduced the cost base of this division by €57 million in three years, consistent with the announced target of at least €50 million.
Innovation expense includes the development of a web-based platform and also digital applications for small businesses. Total innovation expense came out at €8 million in 2017, the same as in 2016.
The Group's current operating income before acquisition-related expense stood at €202 million, versus €216 million in 2016. Current operating margin before acquisition-related expense was 18.2% of sales versus 18.6% in 2016.
Acquisition-related expense totaled €11 million, compared with €13 million in 2016.
Current operating income in 2017 amounted to €191 million, against €203 million the previous year.
Non-current items
The Group recorded a €13 million expense for the optimization of structures in 2017, compared with €15 million in 2016.
It finalized the disposal of its subsidiaries in Indonesia, Malaysia, Singapore and Thailand (SME Solutions), as well as its DMTI Spatial subsidiary (EDS). The Group also acquired Temando's minority interests in September 2017. Earn-out that was accounted for when Neopost took its first stake in Temando, was canceled to take account of the new business plan and the goodwill was depreciated consequently.
In all, income from disposals and other operational expense totaled €12 million, against €7 million in 2016.
After recognizing these non-current items, operating income came out at €166 million in 2017, versus €181 million in the previous year.
Net income UP
Net cost of debt amounted to -€32 million, compared with-€30 million in 2016. The carrying costs stemming from the refinancing transactions in 2017 (Schuldschein in February and revolving credit facility in June) amounted to €1 million.
In 2017 the Group also recorded currency losses and other financial items of -€2 million, compared with -€1 million in 2016. Net financial income amounted to -€34 million in 2017, versus -€31 million in 2016.
The tax rate came to 0.6%, down from 25.1% in 2016. This change resulted from the lowering of the tax rate in the United States as well as the cancellation of tax on dividends in France.
Net attributable income thus came out at €134 million, up 13.2% on 2016, for a net margin of 12.0% compared with 10.2% in 2016. Earnings per share stood at €3.62, compared with €3.17 in 2016, for an increase of 14.2%.
STRONG CASH FLOW GENERATION
EBITDA[9] totaled €285 million, compared with €295 million in 2016. The EBITDA margin grew slightly to 25.6% of sales, compared with 25.5% in 2016.
The change in the working capital requirement was positive at €20 million, thanks notably to the decrease in trade accounts receivable.
The leasing portfolio and other financing services were down -2.8% excluding currency effects, for a resource of €23 million. After recognizing the decline in the US dollar, the portfolio stood at €711 million, down from €798 million at January 31, 2017.
Investments in tangible and intangible fixed assets amounted to €99 million versus €82 million a year earlier. The increase was entirely due to the roll-out of Packcity in Japan.
In total, the Group generated €149 million in cash flow before acquisitions and dividends, equivalent to the total last year, while investments are higher in 2017.
In terms of external growth, the Group invested €23 million, mainly for the acquisition of the minority interests in Temando. The total was close to the previous year's €24 million.
Strong cash flow generation and the fall in the US dollar versus the euro led to a significant decrease in net debt, which at January 31, 2018 stood at €675 million, versus €763 million a year earlier. The
Group would like to point out that its net debt is fully backed by future cash flows from its rental and leasing activities.
At January 31, 2018, shareholders' equity was €1,169 million, against €1,139 million a year earlier.
Gearing came out at 58% of shareholders' equity compared with 67% at January 31, 2017. At January 31, 2018, the leverage ratio (net debt/EBITDA) improved. It stood at 2.4, compared with 2.6 on January 31, 2017.
DIVIDEND
The Board of Directors will submit its proposed dividend of €1.70 per share in respect of fiscal year 2017, the same amount as for fiscal year 2016, for the approval of the Annual General Meeting on June 29, 2018. If approved, the balance of €0.90 per share will be paid on August 7, 2018, following the payment of an interim dividend of €0.80 per share on February 6, 2018. The final 2017 dividend will be paid entirely in cash, as was the interim dividend.
INDICATIONS FOR 2018
Group sales are expected to continue to decline on an organic basis in 2018, owing to the following factors:
- Enterprise Digital Solutions: low-single-digit growth;
- Neopost Shipping: double-digit growth;
- SME Solutions: a continued decline in legacy and graphics activities between -4% and -6%, and double-digit growth in digital communication and shipping solutions.
On the basis of innovation efforts identical to those in 2017, and continued cost-cutting at SME Solutions, the Group's current operating margin excluding acquisition-related expense should come out at around 18%. The Group will continue to generate a high level of operating cash flow.
Meeting webcast
Neopost has scheduled a meeting in Paris on March 27, 2018 which will be webcast simultaneously starting at 9am Paris time/8am London time. The meeting will be held in English. To join the webcast, go to http://www.neopost-group.com/fr/finance. The recording of the webcast meeting will be available for a period of one year.
CALENDAR
First-quarter 2018 sales will be published on May 31, 2018 after market close.
ABOUT NEOPOST NEOPOST is a global leader in digital communications, logistics and mail solutions. Its mission is to help companies improve the way they manage interactions with their clients and partners. Neopost provides the most advanced solutions for physical mail processing (mailing and folder-inserter systems), digital communication management (Customer Communications Management and Data Quality applications), and supply chain and e-commerce process optimization (from point of sale to delivery, including associated tracking services). With a direct presence in 29 countries and more than 5,800 employees, Neopost reported annual sales of €1.1 billion in 2017. Its products and services are sold in more than 90 countries. Neopost is listed in compartment A of Euronext Paris and belongs to the SBF 120 index. |
For more information, please contact:
Gaële Le Men, Neopost | DDB Financial |
Financial & Corporate Communications Director | Isabelle Laurent / Fabrice Baron |
+33 (0)1 45 36 31 39 | +33 (0)1 53 32 61 51 /+33 (0)1 53 32 61 27 |
g.le-men@neopost.com / financial-communication@neopost.com | isabelle.laurent@ddbfinancial.com / fabrice.baron@ddbfinancial.com |
Or visit our website: www.neopost-group.com
APPENDICES:
Glossary
- Enterprise Digital Solutions (EDS): division offering Customer Communications Management (CCM) and Data Quality (DQ) solutions for large companies. It includes GMC Software, Human Inference and Satori, now combined in Quadient, as well as icon Systemhaus.
- Neopost Shipping: division offering management solutions for shipping and delivery; tracking of goods and merchandise for players in e-commerce, distribution and carriers. It includes ProShip and Temando.
- SME Solutions: division offering Mail Solutions products and services for small and mid-sized enterprises, the Group's long-standing customers. This division also delivers digital, shipping and graphic solutions for the same customer base.
- Mail Solutions: mailing systems, document management systems (folder/inserters for offices and mailrooms; other mailroom equipment) and related services
- Communication & Shipping Solutions (CSS): customer communications management and data quality solutions, logistics solutions, document finishing solutions and graphics solutions
Sales by division in Q4 2017
€ million | Q4 2017 | Q4 2016 | Change | Change at constant exchange rates | Organic change2 |
EDS | 34 | 43 | -20.0% | -15.0% | -12,2% |
Neopost Shipping | 17 | 16 | +4.1% | +9.0% | +9.0% |
SME Solutions | 247 | 271 | -8.8% | -3.5% | -3.5% |
Éliminations | (8) | (7) | |||
Total | 290 | 323 | -10.0% | -4.8% | -4.4% |
Sales by activity in Q4 2017
€ million | Q4 2017 | Q4 2016 | Change | Change at constant exchange rates | Organic change2 | |
Mail solutions | 210 | 234 | -9.9% | -4.6% | -4.6% | |
Communication & Shipping Solutions | 80 | 89 | -10.4% | -5.3% | -3.8% | |
Total | 290 | 323 | -10.0% | -4.8% | -4.4% |
Sales by revenue type in Q4 2017
€ million | Q4 2017 | Q4 2016 | Change | Change at constant exchange rates | Organic change2 | |
Equipment and license sales | 97 | 117 | -16.9% | -12.1% | -11.4% | |
Recurring revenue | 193 | 206 | -6.1% | -0.7% | -0.5% | |
Total | 290 | 323 | -10.0% | -4.8% | -4.4% |
Sales by region in Q4 2017 and FY 2017
€ million | Q4 2017 | Q4 2016 | Change | Change at constant exchange rates | Organic change2 | 2017 | 2016 | Change | Change at constant exchange rates | Organic change1 | |
North America | 125 | 142 | -11.3% | -1.6% | -0.6% | 493 | 516 | -4.4% | -1.3% | -0.7% | |
Europe | 145 | 159 | -9.1% | -8.2% | -8.2% | 531 | 558 | -4.9% | -3.7% | -4.7% | |
Asia-Pacific and others | 20 | 22 | -8.3% | -1.1% | -1.1% | 88 | 85 | +3.3% | +4.4% | +4.4% | |
Total | 290 | 323 | -10.0% | -4.8% | -4.4% | 1,112 | 1,159 | -4.1% | -2.0% | -2.2% |
2017
Consolidated income statement
2017 (year ending January 31, 2018) | 2016 (year ending January 31, 2017) | ||||||
€ million | % | % | |||||
Sales | 1,112 | 100.0% | 1,159 | 100.0% | |||
Cost of sales | (280) | (25.1)% | (294) | (25.3)% | |||
Gross margin | 832 | 74.9% | 865 | 74.7% | |||
R&D expenses | (57) | (5.1)% | (52) | (4.5)% | |||
Sales and marketing expenses | (280) | (25.1)% | (293) | (25.4)% | |||
Administrative expenses | (195) | (17.6)% | (197) | (17.0)% | |||
Service and other operating expenses | (100) | (9.0)% | (107) | (9.2)% | |||
Employee profit-sharing and share-based payments | 1 | (0.0)% | (0) | (0.0)% | |||
Current operating income before acquisition-related expense | 202 | 18.2% | 216 | 18.6% | |||
Acquisition-related expense | (11) | (1.0)% | (13) | (1.1)% | |||
Current operating income | 191 | 17.2% | 203 | 17.5% | |||
Proceeds from asset disposals | 0 | 0.0% | 0 | 0.0% | |||
Structure optimization expenses | (13) | (1.2)% | (15) | (1.3)% | |||
Other operating expense | (12) | (1.0)% | (7) | (0.6)% | |||
Operating income | 166 | 15.0% | 181 | 15.6% | |||
Financial income/(expenses) | (34) | (3.1)% | (31) | (2.6)% | |||
Income before taxes | 132 | 11.9% | 150 | 13.0% | |||
Income taxes | (1) | (0.1)% | (37) | (3.3)% | |||
Share of results of associated companies | 2 | 0.1% | 1 | 0.1% | |||
Net income | 133 | 11.9% | 114 | 9.8% | |||
Minority interests | 1 | 0.1% | 4 | 0.4% | |||
Net attributable income | 134 | 12.0% | 118 | 10.2% |
2017
Simplified cash flow statement
Assets € million | January 31, 2018 | January 31, 2017 |
Goodwill | 1,062 | 1,121 |
Intangible assets | 191 | 223 |
Fixed assets | 136 | 132 |
Other non-current financial assets | 60 | 53 |
Leasing receivables | 711 | 798 |
Other non-current receivables | 4 | 3 |
Deferred tax assets | 5 | 17 |
Inventories | 66 | 72 |
Trade receivables | 243 | 269 |
Other current assets | 112 | 100 |
Financial instruments | 0 | 0 |
Cash and cash equivalents | 193 | 96 |
Assets discontinuing activities | - | 2 |
TOTAL ASSETS | 2,783 | 2,886 |
Liabilities € million | January 31, 2018 | January 31, 2017 |
Shareholders' equity | 1,169 | 1,139 |
Long term provisions | 28 | 28 |
Non-current financial debt | 846 | 753 |
Other non-current liabilities | 14 | 50 |
Current financial debt | 22 | 106 |
Deferred tax liabilities | 156 | 197 |
Non-current financial instruments | 0 | 0 |
Deferred income | 201 | 217 |
Current financial instruments | 0 | 1 |
Other current liabilities | 347 | 395 |
TOTAL LIABILITIES | 2,783 | 2,886 |
2017
Simplified cash flow statement
€ million | 2017 (year ending January 31, 2018) | 2016 (year ending January 31, 2017) |
EBITDA | 285 | 295 |
Other elements | (26) | (20) |
Cash flow before net cost of debt and tax | 259 | 275 |
Change in the working capital requirement | 20 | (9) |
Net change in leasing receivables | 23 | 15 |
Cash flow from operating activities | 302 | 281 |
Interest and tax paid | (54) | (52) |
Net cash flow from operating activities | 248 | 229 |
Capital expenditure | (99) | (82) |
Net cash flow after investing activities | 149 | 147 |
Acquisition of shares and granting of loans | (23) | (24) |
Disposals of assets and other | 1 | 3 |
Net cash flow after acquisitions and disposals | 127 | 126 |
Capital | (1) | |
Dividends paid | (59) | (59) |
Change in debt and other | 46 | (51) |
Net cash flow from financing activities | (14) | (110) |
Impact of exchange rates on cash | (16) | 11 |
Change in net cash position | 97 | 27 |
[1] Full-year 2017 sales are compared with 2016 sales, with the addition of €2.7 million corresponding to the sales generated by icon Systemhaus minus those of DMTI.
[2] Q4 2017 sales are compared with Q4 2016 sales, from which are deducted €1.4 million corresponding to DMTI.
[3] Excluding acquisition-related expense.
[4] Net margin = net attributable income/total sales.
[6] Including Temando and CVP-500.
[7] Innovation includes the costs of developing a web-based platform and SaaS applications for small businesses.
[8] After the elimination of inter-company sales of €22 million in 2017 and 2016.
[9] EBITDA = current operating income + provisions for depreciation of tangible and intangible fixed assets.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: NEOPOST via Globenewswire