NEOPOST : SIGNIFICANT CASH FLOW GENERATION SUPPORTING VERY HIGH LEVEL OF INVESTMENTS IN THE BUSINESS

SIGNIFICANT CASH FLOW GENERATION SUPPORTING VERY HIGH LEVEL OF INVESTMENTS IN THE BUSINESS

• Full-year 2016 sales down -2.7%, organic sales growth down -2.1%^[1]
• Q4 2016 sales up +0.6%, up +0.2% on an organic basis
• 18.6% current operating margin in 2016^[2]
• Net attributable income: €118 million
• Cash flow after capital expenditure: €147 million
• Proposed dividend per share: €1.70

MEDIUM-TERM AMBITIONS CONFIRMED

• Return to organic growth
• Maintain current operating margin2 above 18%, with the target of returning above 20.0% margin

Paris, March 28, 2017

Neopost, a global leader in digital communications, shipping and mail solutions, today announced its 2016 annual results (for the financial year ended on January 31, 2017) and fourth-quarter 2016 sales. These financial statements were reviewed and approved by the Board of Directors at its meeting on Monday, March 27, 2017.

In full-year 2016, the Group generated sales of €1,159 million, down -2.7% year-on-year, and down -1.3% excluding currency effects, with organic change of -2.1%. Sales in fourth-quarter 2016 came out at €323 million, up +0.6%, or +1.1% excluding currency effects, compared with the same period in 2015, giving an organic growth of +0.2%.

2016 current operating income before acquisition-related expense was €216 million, down from €234 million in 2015. The Group's current operating margin before acquisition-related expense was 18.6% of sales in 2016 versus 19.7% in 2015.

Net attributable income stood at €118 million. The net margin^[3] division was down from 11.2% of sales in 2015 to 10.2%. Cash flow after capital expenditure grew strongly to €147 million.

Denis Thiery, Chairman and Chief Executive Officer of Neopost, commented: "2016 saw us invest heavily in our transformation and achieve steady growth in our new businesses. Our Enterprise Digital Solutions division consolidated its leadership position, and was named as a leader by research firm Gartner for the fourth year in a row. Neopost Shipping is the only worldwide operator positioned across every aspect of the logistics chain. We are developing a range of digital communication and shipping solutions in our SME Solutions division to mitigate the decline in our legacy businesses. We are also continuing to control costs.

A particular source of satisfaction is the stabilization of our current operating margin² in the SME Solutions division and strong cash flow generation across the Group.

All in all, our performance in 2016 proves the value of our strategic choices. Looking forward, we confirm our medium-term objectives of returning to organic sales growth, maintaining a current operating margin² above 18.0%, rising above 20.0% in the longer term."

INCOME STATEMENT

SALES BY DIVISION

To allow a better understanding of the evolution of its activities, Neopost now details the performance of its divisions Enterprise Digital Solutions and Neopost Shipping separately. Prior to this, they were included under Communication & Shipping Solutions Dedicated Units. There is no change to the scope of SME Solutions. Historic quarterly data for 2016 and 2015 are given in the appendices.

* Including €4.5 million in sales generated by the CVP-500 automated packing solution.

* Including €1.7 million in sales generated by the CVP-500 automated packing solution.

Enterprise Digital Solutions (EDS)

Enterprise Digital Solutions posted a 19.4% increase in sales in full-year 2016 at constant exchange rates. Restated for the scope effects of the acquisition of icon Systemhaus, sales grew +11.2% on an organic basis.

Strong growth continued in Customer Communication Management, while more modest growth rates were recorded in Data Quality now fully integrated.

Fourth-quarter 2016 sales for Enterprise Digital Solutions were up +22.3%, at constant exchange rates. Restated for the scope effects of the acquisition of icon Systemhaus, sales grew +12.9% on an organic basis.

Neopost Shipping

In full-year 2016, Neopost Shipping's sales increased +9.7% at constant exchange rates. Restated for the scope effects of the acquisition of Temando, sales grew +7.8% on an organic basis. In 2015, Neopost had the benefit of a significant contract to deploy an RFID solution for the French Army (Direction générale de l'armement). Restated for this factor, growth in Neopost Shipping was 15% in 2016.

Fourth-quarter 2016 sales in Neopost Shipping were up +20.3% on an organic basis, lifted by the sale of two CVP-500 automated packing solutions in the United States.

SME Solutions

SME Solutions' sales for full-year 2016 were down -5.0% to €991 million, and were down -3.8% at constant exchange rates.

Within this division, sales generated by Communication & Shipping Solutions were up by +2.1%, excluding currency effects. This limited growth is linked to an adverse business cycle in graphic activities. Excluding graphic activities, growth generated by digital communications and shipping solutions was +12% in 2016.

Sales of Mail Solutions decreased -4.6%, excluding currency effects, in persistently tough market conditions. However, the decline is less acute than the -5.3% decrease recorded in 2015. The decline in Mail Solutions was more contained in North America, and steeper in Europe.

In fourth-quarter 2016, sales in the SME Solutions division were down -2.2%, excluding currency effects, compared with the same period in 2015. This moderate decline was due primarily to a better performance in equipment and license sales.

Neopost Group

Communication & Shipping Solutions accounted for 26% of total Group sales in 2016, up from 23% in 2015. The percentage was 28% of sales in Q4 2016.

Acquisitions and Partnerships

Neopost made the following operations in 2016:

• April 2016: Temando-Magento partnership. Magento, the leading e-commerce platform in the world, chose Temando as its shipping partner to provide its 250,000 clients with a multi-carrier shipping module;
• May 2016: joint venture with Yamato Transport signed to operate an open network of secure automated parcel lockers for parcel delivery in Japan;
• July 2016: acquisition of icon Systemhaus, leader in the German market for Customer Communications Management (CCM).

CURRENT OPERATING INCOME

Current operating margin by segment

*Excluding Temando
** Innovation include the costs of developing a web-based platform and applications for small businesses, as well as the CVP-500 sales and related expense.

Before acquisition-related expense, the current operating margin for the Enterprise Digital Solutions division remained practically unchanged. It came out at 15.6% compared with 15.5% of sales in 2015. 

Current operating margin before Temando and acquisition-related expense for the Neopost Shipping division was slightly up at 8.8% of sales in 2016 versus 8.1% in 2015.

Current operating margin before acquisition-related expense for the Neopost SME Solutions division was almost stable at 21.6% of sales in 2016 versus 21.7% in 2015. Our new digital communications and shipping businesses are not dilutive and we are continuing to see results from our programs to reduce costs and optimize our organization to adapt to difficult market conditions. During the 2016 fiscal year, the SME Solutions division's net operating expenses were lower by €23 million, following the €13 million reduction in 2015. In the space of two years, Neopost reduced the cost base of this division by €36 million, on course to meet the target of cutting costs by €50 million^[6] by the end of 2017.

Before investments in innovation and Temando, the Group's operating margin stabilized at 20.8% in full-year 2016, from 21.0% one year earlier.

Innovation-related expenditure concerned the development of the CVP-500 automated packing system and the development of a web distribution platform and digital applications for small enterprises. The total spent in 2016 was €12 million, including sales of the CVP-500, from €9 million in 2015.

The Group's current operating income before acquisition-related expense came out at €216 million in fiscal year 2016, from €234 million in 2015. Current operating margin before acquisition-related expense was 18.6% of sales, versus 19.7% in 2015.

Acquisition-related expense totaled €13 million in 2016, versus €12 million one year earlier.

2016 current operating income came out at €203 million, compared with €222 million in 2015.

Non-current items

As announced during our 2014 annual results presentation, the Group recognized structural optimization expenses in the amount of €15 million in 2016.

Neopost took the decision in 2016 to change its distribution model in some secondary markets in its SME Solutions division with resulting asset disposals in 2016, and disposals scheduled for 2017. A €7 million charge was booked in 2016. The change in distribution model will have a non-material negative impact on 2017 sales.

After these non-current items, operating income totaled €181 million on January 31, 2017, versus €208 million one year earlier.

Net income

The Group's net attributable income came in at €118 million from €134 million in 2015, which represents a net margin of 10.2%, compared with 11.2% at year-end 2015. Net income per share⁴ was €3.17, down from €3.72 in the previous year.

The net cost of debt was down to -€30 million from -€33 million in 2015. The coupon on the ODIRNANE bonds^[7] is not recognized in the income statement, in accordance with IFRS rules. Interest on the bonds amounted to -€9 million in 2016, versus -€6 million in 2015.

The Group also recorded -€1 million in foreign exchange losses and other financial items in the 2016 financial year, compared with a loss of -€4 million in 2015. Net financial income amounted to -€31 million in 2016, compared with -€37 million in 2015.

The Group's tax rate in 2016 was 25.1%, compared with 24.0% one year earlier, primarily due to a larger share of Group profits in high-tax countries.

STRONG CASH FLOW GENERATION

EBITDA^[8] was €295 million in 2016, versus €310 million in 2015.

The -€9 million reduction in the working capital requirement was due in particular to the increase in trade accounts receivable. In 2015, the -€37 million change was attributable to a VAT payment in the United Kingdom.

The leasing portfolio and other financing services were down -1.8%, at constant exchange rates to €798 million on 31 January 2017, from €814 million on January 31, 2016.

Investments in tangible and intangible fixed assets amounted to €82 million, 4% lower than in 2015.

In total, cash generated by Neopost was higher than in 2015 at €147 million, before acquisitions and dividends, even when restated for the VAT payment, i.e. €101 million.

In terms of external growth, Neopost invested €24 million in acquisitions, mainly for icon Systemhaus, compared with the €28 million spent in 2015, which was primarily for the 55% stake in Temando.

The strong cash flow generation brought net debt down significantly to €763 million on January 31, 2017, from €814 million on January 31, 2016. Neopost points out that its net debt is fully backed by future cash flow expected from its rental and leasing activities.

On January 31, 2017, shareholders' equity was €1,139 million, up from €1,069 million for the previous year.

As such, gearing came out at 67% of shareholders' equity compared with 76% on January 31, 2016. The leverage ratio (net debt/EBITDA) remained stable at 2.6 on January 31, 2017. All banking covenants are met.

Capital allocation policy: DIVIDEND of €1.70 per share

According to the capital allocation policy announced in September 2015, the Board of Directors will submit its proposed dividend of €1.70 per share in respect of fiscal year 2016, for the approval of the Annual General Meeting on June 30, 2017. If approved, the balance of €0.90 per share will be paid on August 8, 2017, following payment of an interim dividend of €0.80 per share on February 7, 2017. The final 2016 dividend will be paid entirely in cash, as was the interim dividend.

In September 2015, the Group committed to the dividend payment of €1.70 per share for fiscal 2015, 2016, and 2017.

MEDIUM-TERM AMBITIONS CONFIRMED

The transformation of Neopost continues:

• in the Enterprise Digital Solutions division, the Group continues to invest to firmly anchor its leadership position and will benefit from icon Systemhaus' complementary range. The Group is targeting growth in excess of 10% per year and improved profit margins;
• in Neopost Shipping division, the Group's offering is now established and will be rolled out to generate significant organic growth and improve profitability;
• in SME Solutions division, the Group is accelerating the roll-out of digital and shipping solutions to mitigate the decline in sales of mail solutions. Meanwhile, Neopost will continue to lower net costs by at least €50 million⁶ by January 31, 2018 in order to stabilize its operating margin around 22%;
• in addition, the Group will carry on investing in innovation with an annual average budget of €10 million.

This strategy is designed to return Neopost to organic sales growth in the medium term. It will also ensure the Group maintains a current operating margin, before acquisition-related expense, above 18.0% throughout the period of transformation, and return it to above 20.0% (before acquisition-related expense) in the long-term.

The Group also intends to hold sufficient cash flow to sustain growth, meet its dividend distribution commitments and maintain a solid balance sheet structure.

CALENDAR

First-quarter 2017 sales will be published on June 1^st, 2017 after market close.

For more information, please contact:

Or visit our website: www.neopost.com

Appendices:

Glossary

• Enterprise Digital Solutions (EDS): division offering Customer Communication Management and Data Quality solutions for large companies
• Neopost Shipping: division offering management solutions for shipping and delivery; tracking of goods and merchandise for players in e-commerce, distribution and carriers
• 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 office and mailroom; other mail room equipment) and related services
• Communication & Shipping Solutions: digital solutions software (customer communication management and data quality software), shipping and graphic solutions

Change in sales by activities

Change in sales by region

Change in sales by revenue type

2016

Consolidated income statement

2016

Summary consolidated balance sheet

2016

Simplified cash flow statement

REVIEW IN CHANGE IN SALES BY DIVISION AND BY QUARTER

*Including €0.1 million in sales generated by the CVP-500 automated packing solution.

*Including €1.3 million in sales generated by the CVP-500 automated packing solution.

* Including €1.4 million in sales generated by the CVP-500 automated packing solution.

* Including €1.7 million in sales generated by the CVP-500 automated packing solution.