2016 first-half financial report

Transcription

1 2016 first-half financial report

2 Contents 1 Comments on Neopost s results and financial structure 1 Ownership structure 5 Information on related parties 6 Risk factors 6 Outlook 10 2 Consolidated financial statements at 31 July Consolidated balance sheet 12 Notes to the consolidated financial statements 19 Statutory auditors review report on the half-yearly financial information 42 3 Statement of the person responsible for the interim financial report 43

3 1 COMMENTS ON NEOPOST S RESULTS AND FINANCIAL STRUCTURE Historical breakdown of income statements 2 Half-year highlights 3 SME Solutions 3 Communication & Shipping Solutions Dedicated Units 3 Current operating income 3 Non-current items 4 Net income 4 Healthy financial position 4 Ownership structure 5 Information on related parties 6 Risk factors 6 Legal risks 6 Market risks 6 Risks related to the Group s operations 7 Retirement benefit obligations 8 Industrial and environmental risks 8 Information on the level of technological risks represented by the Company 8 Risk related to shares 9 Taxation 9 Insurance 9 Outlook 10 1

4 1 Comments on Neopost s results and financial structure Group sales in H totaled 557 million euros, down 5.0% year-on-year, down 3.0% excluding currency effects, and down 3.3% organically. Current operating income before acquisition-related expense in H was 100 million euros, compared with 112 million euros one year earlier. Current operating margin before acquisition-related expense (1) stood at 18.0% of sales, compared with 19.1% in first-half This change is due to ramping up investments in Temando, acquired in April 2015, and in innovation projects, tight cost control in the SME Solutions division, and higher margins in the Enterprise Digital Solutions and Neopost Shipping divisions, excluding Temando. Net attributable income totaled 58.3 million euros in the first half of 2016 compared with 64.7 million euros in the first half of Net margin (2) stood at 10.5% of sales compared with 11.0% in H Historical breakdown of income statements (In millions of euros) H (ended 31/07/2016) H (ended 31/07/2015) FY 2015 Sales % % 1, % Cost of sales (137.0) (24.6)% (144.5) (24.7)% (300.2) (25.2)% Gross margin % % % R&D expenses (24.2) (4.3)% (20.4) (3.5)% (43.7) (3.7)% Selling expenses (144.9) (26.0)% (155.9) (26.6)% (312.0) (26.2)% Administrative expenses (96.7) (17.4)% (96.6) (16.5)% (195.7) (16.4)% Maintenance and other operating expenses (52.2) (9.4)% (53.7) (9.2)% (101.5) (8.5)% Employee profit-sharing and share-based payments (1.6) (0.3)% (2.9) (0.5)% (3.3) (0.3)% Current operating income excluding % % % expenses related to acquisitions Expenses related to acquisitions (6.1) (1.1)% (6.1) (1.0)% (12.3) (1.1)% Current operating income % % % Proceeds from asset sales (0.0) 0.0% (0.0) 0.0% % Structure optimization expenses (6.3) (1.1)% (2.2) (0.4)% (13.6) (1.1)% Non-current income related to acquisition Other operating expenses (1.5) (0.3)% Operating income % % % Financial income/(expenses) (13.0) (2.4)% (19.8) (3.4)% (37.0) (3.1)% Income before taxes % % % Income taxes (3.5)% (41.1) (3.5)% Income from associated companies % % NET INCOME % % % Attributable to: holders of the parent company % % % non-controlling interests (2.3) (0.4)% (0.6) (0.1)% (2.2) (0.2)% 2 (1) Current operating margin before acquisition-related expense = current operating income before acquisition-related expense/sales. (2) Net margin = net income/sales.

5 Comments on Neopost s results and financial structure 1 Half-year highlights Neopost made a number of acquisitions and entered into several partnerships in first-half 2016: April 2016: Temando-Magento partnership. Magento, the leading e-commerce platform in the world, chose Temando as its shipping partner to provide 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 GmbH, leader in the German market for customer communications management. SME Solutions Sales for the SME Solutions division were down 4.8% in first-half 2016, excluding currency effects (this division covers almost the same scope as the former Neopost Integrated Operations (1) -NIO-). Within the division, sales of Mail Solutions decreased by 5.8%, excluding currency effects, adversely affected by tough market conditions that caused a sharp decline in equipment sales in Europe in particular. On the other hand, measures introduced by the Group to limit the decline in recurring revenues continued to prove effective, as recurring revenues remained nearly stable in the United States, while the decrease was contained in Europe and the rest of the world. Communication & Shipping Solutions in the SME Solutions division posted moderate growth, given the switch to a SaaS (Software as a Service) business model. Communication & Shipping Solutions Dedicated Units H sales were up 11.2%, excluding currency effects, for Communication & Shipping Solutions Dedicated Units (CSS DU) as a whole, including Enterprise Digital Solutions and Neopost Shipping. Restated for the scope effect of the consolidation of Temando and icon Systemhaus GmbH, organic growth in sales by CSS DU stood at 8.8%. Turning to the Enterprise Digital Solutions division, customer communication management revenues continued to enjoy strong growth, while data quality revenues, now part of the Enterprise Digital Solutions line-up, stabilized. The Neopost Shipping division saw a slight decline in sales due to a high basis for comparison, since H was the most intensive phase in the roll-out of an RFID solution developed for the French Army (Direction générale de l armement). Restated for this item, which accounted for 4 million euros in revenue in the first half of 2015, organic growth in all sales by the CSS DU divisions would have been 14.6%. Current operating income Before acquisition-related expense, the current operating margin for the SME Solutions division remained practically unchanged at 21.0% of sales, from 21.4% one year earlier. The Group has seen particularly efficient results from its programs to reduce costs and optimize its organization to adapt to new market conditions. During the first six months of the year, the SME Solutions division's net operating expenditure was lowered by 15 million after being reduced by 13 million euros in For the CSS DU division as a whole, current operating margin before acquisition-related expense stood at 4.6% of sales, compared with 7.2% in first-half This contraction was due to operating losses at Temando. Stripping out Temando, the operating margin for CSS DU was 12.5% in July 2016, up from 9.7% one year earlier. The Group has stepped up its investment in Temando, particularly to prepare to launch the multi-carrier shipping module to be offered as a white-label solution on Magento's e-commerce platform. Operating losses at Temando amounted to 6.1 million euros in H1 2016, compared with 1.6 million euros in the same period in Note that Temando has been consolidated since April 7, Innovation projects focus on continuing to develop and market the CVP-500 automated packing system and new digital solutions for micro-businesses. Their impact on current operating income, before acquisition-related expense, was (5.3) million euros in the first half of 2016, compared with (4.1) million euros one year earlier. This level is in line with the annual budget of 10 million euros allocated by the Group to innovation projects. (1) The contract with Royal Mail previously recognized by NIO is now consolidated in Neopost Shipping. Sales generated under this contract in Q were reclassified to allow year-on-year comparison. 3

6 1 Comments on Neopost s results and financial structure Before investments in innovation and Temando, the Group's operating margin was 20.1% in first-half 2016, virtually unchanged from 20.2% one year earlier. The Group's current operating margin before acquisition-related expense stood at 99.9 million euros, compared with million euros in first-half Current operating margin before acquisition-related expense was 18.0% of sales versus 19.1% in Acquisition-related expense was stable at 6.1 million euros. Current operating income was 93.8 million euros in first-half 2016, compared with million euros in the prior year. Non-current items As of July 31, 2016, Neopost recognized structure optimization expenses linked to the Group transformation in the amount of 7.8 million euros. This level is in line with the annual budget of 10 to 15 million euros announced previously. Current operating income after non-current items totaled 86.0 million euros at July 31, 2016, as against million euros in the prior year. Net income The net cost of debt was down to 14.5 million euros from 17.2 million euros at July 31, This reduction in the cost of debt mainly comes about as a result of refinancing some credit lines through an ODIRNANE (1) bond issue. The interest on the bond (4 million euros) is not recognized in income, in accordance with IFRS. In addition, the Group posted 1.7 million euros in foreign exchange gains and other financial items at July 31, 2016, compared with a 2.6 million euros loss at July 31, Net financial income amounted to (13.0) million euros at July 31, 2016, from (19.8) million euros for the same period in The tax rate was 23.3% at July 31, 2016, down from 24.3% in fiscal The Group's net attributable income came in at 58.3 million euros, which accounts for a net margin of 10.5%, compared with 11.0% at July 31, Net income per share was 1.56 euro, down slightly from 1.85 euro in the previous year. Healthy financial position EBITDA (2) was 138 million euros in H1 2016, versus 150 million euros in H Apart from the usual seasonal effects, the change in working capital requirement was slightly negative during the first half, particularly as regards trade accounts receivable. This slight deterioration is expected to be fully absorbed during the second half of the year. Leasing portfolio and other financing services receivables amounted to 780 million euros at July 31, 2016, from 802 million euros one year earlier, a decrease of 0.7% at constant exchange rates. Investments in tangible and intangible fixed assets amounted to 42 million euros, down from 44 million euros at July 31, In first-half 2016, the Group spent 23 million euros to acquire icon Systemhaus GmbH. In first-half 2015, the Group invested 26 million euros to acquire a 55% stake in Temando Shareholders equity amounted to 1,069 million euros at the end of the first half, from 1,032 million euros one year earlier. At 819 million euros on July (810 million euros on July ), net debt was practically stable an impressive achievement, especially when viewed in light of dividend payments still totalling 100 million euros in the rolling 12-month period. The Group would like to point out that its net debt is fully backed by future cash flows from its rental and leasing activities. Gearing came out at 76% of shareholders' equity compared with 78% at July 31, Leverage ratio (net debt/ebitda) was 2.7 at July 31, 2016, versus 2.6 one year earlier. All financial covenants are respected. 4 (1) ODIRNANE = convertible perpetual bond issue recognized in equity in accordance with IFRS accounting rules. (2) EBITDA = current operating income + provisions for depreciation of tangible and intangible fixed assets.

7 Comments on Neopost s results and financial structure 1 Ownership structure Ownership structure At 31 July 2016, Neopost S.A. s share ownership was as follows: Number % Management and employees 728, % Directors (non-executive) 62, % Shares held under liquidity contract 141, % Treasury stock held for stock-option and free share allocations 2, % MFS Investment Management * 4,334, % First Eagle Asset Management * 3,476, % Marathon Asset Management LLP * 2,223, % Braun, von Wyss & Müller AG * 1,736, % Norges Bank Investment Management * 1,053, % LSV Asset Management * 933, % Sycomore Asset Management * 853, % Franklin Templeton Investments Corporation * 741, % Dimensional Fund Advisors, L.P. * 698, % Natixis Asset Management * 670, % Other shareholders 16,904, % TOTAL 34,562, % * Source Nasdaq as at 31 July Neopost was communicated the following thresholds for the first-half of 2016: Date Name of the Investment Funds Threshold cross 18 March 2016 BlackRock Inc. Crossing downwards the 5% with 1.74% of voting rights 18 April 2016 Classic Fund Management AG Crossing upwards the 5% with 5.01% of voting rights 5

8 1 Comments on Neopost s results and financial structure Information on related parties Information on related parties No significant change occurred during the semester. Neopost specifies that it has a stake of 35.0% in Docapost BPO IS and 24% in AMS Investissement, companies consolidated using the equity method. Transactions with these companies are not material. Risk factors Neopost has also a stake of 6.53% in X Ange Capital, 7.39% in X Ange 2, and 8.10% in Partech Entrepreneur 2, non consolidated companies. Transactions with these companies are not material. Neopost reviewed the risks that could have a significant negative impact on its activity, its financial position or its results as well as on its capacity to reach its objectives. The Group considers that there are no other significant risks than those stated below. Legal risks As of today, the Group is not aware of any governmental, legal or arbitral proceedings likely to have a material impact, or which had over the past six months a material impact on the Group s financial position or profits. Market risks For more information see note 10-4 to the consolidated financial statements. Liquidity risk The Group believes that its cash flow will easily enable it to service its debt, given the current level of that debt. Debt by maturity is detailed in note 10-2 to the consolidated financial statements. Group debt is subject to compliance with covenants. Failure to comply with these covenants may lead to early repayment of the debt. At 31 July 2016, the Group complies with all covenants (see note ). However, this ability will depend on the Group s future performance, which is partly related to the economic cycle, which the Group cannot control. No guarantee can therefore be given regarding the Group s ability to cover its future financial needs. Exchange rate risk The Group has adopted a policy of hedging exchange rate risk (see note ). Neopost enjoys a natural hedge on its current operating margin and its net income. Based on the 2016 budget, the breakdown of sales and costs in United States dollars is as follows: sales 40.3%, cost of sales 45.4%, operating costs 33.1%, interest expenses 36.5%. A 5% decrease in the euro/united States dollar exchange rate from the budget rate of 1.11 would have the following impacts on the Group s income statement: sales (24.6) million euros, current operating income (6.5) million euros and net income (4.0) million euros. Based on the 2016 budget, the breakdown of sales and costs in pounds sterling is as follows: sales 10.6%, cost of sales 12.0%, operating costs 8.6%. A 5% decrease in the euro/pound sterling exchange rate from the budget rate of 0.72 would have the following impacts on the Group s income statement: sales (6.5) million euros, current operating income (1.7) million euros and net income (1.2) million euros. The other currencies are not a major concern for the Group. None of them, individually taken, represents more than 5% of the total sales. Beyond the natural hedge, no guarantee can be given, however, regarding the Group s ability to hedge exchange rate risk effectively. Regarding debt, borrowings in foreign currencies are mainly in dollars. An increase or a decrease of 5% in the dollar would lead to an increase or a decrease in gross debt of 16 millions euros. Regarding shareholder s equity, a decrease of 5% in the dollar would have had an impact of million euros and a decrease of 5% in the sterling pound would have an impact of +3.6 million euros on the accounts as of 31 January Interest rate risk The Group has adopted a policy of hedging interest rate risk. However, no guarantee can be given regarding the Group s ability to hedge effectively against interest rate risk. 6

9 Comments on Neopost s results and financial structure 1 Risk factors Risks related to the Group s operations Decline in mail volume Mail volumes are down in most countries where the Group operates. Experts anticipate a further decline of about 3-5% per year until the 2020s, after which they expect mail volumes to stabilise. The Group s Mail Solutions activities are linked to mail volumes. The Group will continue to innovate to gain market share but no guarantee can be given as to the Group s future ability to control the pace of decline in Mail Solutions. The impact of this risk on the Group s financial position cannot be assessed. Given this situation, Neopost decided to invest in complementary activities, such as: Communication & Shipping Solutions activities which enjoy strong growth. Their share in the first-half 2016 Group sales is 24.4%. Postal authorities regulations Manufacturing, sales and services related to franking machines are regulated by the postal authorities in the Group s countries of operation. The Group s business may therefore be materially affected by changes in postal regulations. The Group cannot guarantee that such changes, particularly affecting the main markets in which it operates, will not have a negative effect on its business and operating income. Similarly, the Group s business is partly dependent on its ability to develop and maintain contacts with managers of postal authorities in the relevant countries. Such managers are likely to change and no guarantee can be given regarding the Group s ability to create and maintain such relationships in the future. Failing to maintain such relationships might have a negative effect on the Group s business and operating income. The impact of this risk on the Group s financial position cannot be assessed. Competition Neopost has two main competitors: world leader Pitney Bowes and Francotyp Postalia, No. 3 in the world. Pitney Bowes is listed on the New York Stock Exchange. It achieved sales of 3.6 billion dollars in 2015 and an operating margin before acquisition related costs of 20.0%. Its main market is North America. Francotyp Postalia is listed on the Frankfurt Stock Exchange. It achieved sales of 191 million euros and an operating margin of 4.7% in Germany is its main market. Although the Group believes that its competitive position in the mailroom equipment market is sustainable and that the industry framework is established by local postal regulations, it is not impossible for new competitors to break into the market for the supply of either products or services. The Group cannot guarantee that it will be able to maintain or increase its market share in the markets in which it already operates, or penetrate new markets. The Group recently made several acquisitions: GMC Software AG in July 2012, Human Inference in December 2012 and DMTI Spatial in October 2013, ProShip in May 2014, took a majority stake in Temando in April 2015 and icon Systemhaus GmbH in July These acquisitions operate on markets where the competitive landscape is different from that of Mail Solutions. Neopost s competitors in these new markets are more numerous and could have greater financial resources than the Group, which might affect the Group s competitiveness. The Group cannot therefore guarantee that it will be able to maintain or increase its market share in the markets. The impact of this risk on the Group s financial position cannot be assessed. Technological developments and new markets The markets for the Group s products, software and services are and will continue to be subject to rapid changes in technology, continual improvement of existing products and software, and the frequent introduction of new products, software and services. Developing and launching services requires major investments. The Group s results and future financial position will depend in part on its ability to improve its products and services and to develop and produce new ones at lower prices, and at the deadlines set by demand, as well as to distribute and market them. The impact of this risk on the Group s financial position cannot be assessed. Risk related to acquisitions The Group recently made several acquisitions: GMC Software AG in July 2012, Human Inference in December 2012 and DMTI Spatial in October 2013, ProShip in May 2014, took a majority stake in Temando in April 2015 and icon Systemhaus GmbH in July These acquisitions, as with all acquisitions, bring about uncertainty as to the consolidation of the acquired teams, and on the capacity to develop appropriate products and generate synergies within Neopost s historical distribution network. These recent acquisitions have been included in the Communication & Shipping Solutions Dedicated Units reporting segment, which achieved organic growth excluding currency effects of 8.8% in the first-half The impact of this risk on the Group s financial position cannot be assessed. 7

10 1 Comments on Neopost s results and financial structure Risk factors Dependence on customers and suppliers The Group has hundreds of thousands of customers, none of which accounts for more than 1% of sales. The Group s main supplier is Hewlett Packard (HP) for inkjet printing heads and cartridges. In 2009, Neopost renewed its agreement with HP concerning ink cartridges and printing heads for another seven years. This agreement was signed as a continuation of the agreement already in place since HP accounted for 8.0% of total Group purchases in 2015 and 11.3% in The top five suppliers and the top ten suppliers respectively account for 18.6% and 28.0% of total purchases in 2015 versus 29.7% and 36.3% in A disruption in supply from these suppliers might significantly affect the Group s business, despite the clauses in the agreements protecting the Group against this risk. The Group has already put in place alternative solutions in case such an event might occur. The Group works with three OEM vendors (tier one suppliers), which assemble the entry-level and mid-range machines in Asia. Production is divided between these three tier one suppliers. In the event a given supplier should fail, the other two could take over the production of the failed supplier. Neopost also has a choice of strategic tier two suppliers, and for each of these, a replacement supplier has been selected. In addition, the Group is the owner of all moulds, specific tools and industrial design. Risk of losing key personnel To reduce the risk of losing key personnel, the Group has put in place retention incentives such as phantom shares and free shares. It has also implemented contingency plans for all major key positions at the level of the holding company, Neopost S.A., as well as at the level of each subsidiary. These plans are regularly updated and reviewed by the remuneration committee. Risk linked to protection of intellectual property The Group is the owner of its trademarks and has about 440 families of patents published. Neopost registered around ten patents in The geographical coverage of these patents is essentially European and American. Neopost is not dependent on any single patent which might bring the Group s level of business or profitability into question. Forecasts Neopost provides its shareholders with information on its 2016 forecasts. These forecasts were formulated based on the Group s 2016 budget and three-year plan. These forecasts were also formulated based on market conditions at the beginning of 2016, namely existing competitive dynamics between mailroom equipment suppliers and the economic conditions of the countries in which the Group operates. If market conditions or competitive dynamics happen to change significantly, the Group could not guarantee that it would achieve its forecasts. Retirement benefit obligations In the United Kingdom, the pension plan was closed to any according to the IAS 19. If this valuation leads to a deficit, new member in 2001 and the accrued benefits were frozen in then Neopost has to fill it. As of 31 January 2015, the British June Every three years, the British authority requires a regulation did not identify any deficit. The next valuation will valuation based on different hypothesis than the one used be performed in Industrial and environmental risks Given the nature of the Group s assembly and distribution businesses, the Group is not aware of any environmental risk that might have a material impact on its financial position, business or results. Please refer to the social and environmental information detailed in the section 4 of the 2015 registration document. Regarding industrial risks, the Group updates a Disaster Recovery Plan every year. This plan allows the Group to assert that these risks would not have a material impact on its financial position, business or results. Information on the level of technological risks represented by the Company The obligations regarding information under article L of the French commercial code (Code de commerce) are not applicable to Neopost, given its activities. 8

11 Comments on Neopost s results and financial structure 1 Risk factors Risk related to shares Neopost does not hold any stake in listed companies. The only shares owned are Neopost shares in relation to the liquidity contract or for future delivery to employees within the framework of long term incentive plans. As of 31 July 2016, the Group owned 144,639 shares. Please refer to Ownership structure section in this part of the first-half report. This risk is therefore not significant for Neopost. Taxation With regard to their current activities, Neopost entities are regularly subject to tax audits. Tax adjustments or uncertain tax positions not yet subject to tax adjustments are covered with appropriate provisions. The amounts of these provisions are regularly revised. In 2012, Neopost received a notification of tax adjustments in the Netherland related to financial years 2006, 2007, The Groups believes that it has serious arguments against the different points raised by the Dutch tax authorities. A mutual agreement procedure was initiated between France and the Netherlands regarding these tax adjustments. The procedure is still under way and at this stage of the process; therefore, no provision has been booked. In July 2014, the American holding received a notification of tax adjustments. Discussions are already engaged with the Internal Revenue Service. Insurance All Group companies are covered by a worldwide insurance program which covers operating damage and loss, liability, and transport risks. All Group subsidiaries participate in guarantees set up and negotiated at the Group level, subject to local regulatory restrictions or specific geographic exclusions. Neopost s risks include a high level of geographic dispersion, which substantially dilutes the consequences of any claim. The cover negotiated by the Group is high and is aimed above all at insuring the largest risks which might have a material impact on the Group s financial position. Certain risks are no longer, or with great difficulty, covered by insurance companies, such as damage resulting from unfair competition, counterfeiting, misleading advertising and failure to comply with copyright or literary and artistic rights. The operating damage and loss insurance cover was renegotiated on 1 February 2013, without any increase in the premium rate and without changing any of the guarantee conditions within a long-term agreement of two years. This policy was renegotiated on 1 February 2014 with the same conditions up to 31 January A renegotiation took place end of It led to a renewal for two years and a decrease of the premium by 21%. The insurance covering transport risks which includes a guarantee of 500,000 euros per claim and extension of coverage extended to the United States was renegotiated without any changes on 1 February On 1 February 2015 and on 1 February 2016, this policy was renewed with an increase of the guarantee per claim up to 600,000 euros at no additional cost. The insurance policy covering liability was renewed on 1 February 2013 with the same conditions as before. On 1 February 2014, this policy was renegotiated on a fixed premium basis, not linked with the sales level as before. This premium has been reduced by around 20% for a two-year period, as no claims had been filed. A renegotiation took place end of It led to a renewal for two years and a decrease of the premium by 10% without changing the guarantee conditions. Considering the development of Neopost in software activities, it was decided on 1 February 2014 to cover the risk of possible claims from third parties against Neopost for infringement of copyright and of intellectual property. This insurance has been taken out worldwide and covers risks up to 30 million euros per claim (10 million dollars in the United States). The policy has been renewed on 1 February 2016 for two years with an increase of the limit for the United States to 20 million dollars. Total cost of insurance amounted to 0.7 million euros in The Group s insurance policies are regularly updated to reflect the Group s scope of consolidation and to cover industrial risks within the global insurance market framework. The Group s guarantees are placed with leading insurers with worldwide reputations. 9

12 1 Comments on Neopost s results and financial structure Outlook Outlook The transformation of Neopost continues: in the SME Solutions division, the Group s cost-cutting plan has been increased to a target of more than 50 million euros per year from 2018, from the original forecast of million euros. Under this program, restructuring costs will remain unchanged at million euros per year for the next two financial years. Hand-in-hand with its drive to reduce net costs, the Group is accelerating the roll-out of digital and logistic solutions to offset the decline in sales of Mail Solutions; in the Shipping and Enterprise Digital Solutions divisions, the Group continues to invest to firmly anchor its leadership position in these two fast growing markets. The Group intends to continue to grow organically and to improve the profitability of these key businesses; moreover, the Group continues to invest in developing new innovation projects, including CVP-500 and digital solutions for micro-businesses, with an annual budget allocation of 10 million euros. This strategy is designed to return the Group to organic sales growth in the medium term. Neopost intends to maintain a current operating margin, before acquisition-related expense, above 18% throughout this transformation period, to aim for an operating margin, before acquisition-related expense, back above 20% in the medium term. The Group also intends to generate sufficient cash flow to sustain its development, fulfill its dividend distribution commitments and maintain a strong balance sheet structure. 10

13 2 CONSOLIDATED FINANCIAL STATEMENTS AT 31 JULY 2016 Consolidated balance sheet 12 Notes to the consolidated financial statements 19 Note 1 Presentation of the Neopost group and its consolidated financial statements 19 Note 2 Accounting policies 19 Note 3 Scope and principles of consolidation 21 Note 4 Intangible assets, tangible assets and other non-current assets 21 Note 5 Operating data 24 Note 6 Segment information 27 Note 7 Cash flow details 29 Note 8 Headcount and employee benefits 30 Note 9 Other provisions and contingent liabilities 31 Note 10 Financial instruments and financial debts 32 Note 11 Tax position 38 Note 12 Shareholders equity and earnings per share 40 Note 13 Post-closing events 41 Statutory auditors review report on the half-yearly financial information 42 11

14 2 Consolidated financial statements at 31 July 2016 Consolidated balance sheet Consolidated balance sheet CONSOLIDATED ASSETS (In millions of euros) Notes 31 July July January 2016 Goodwill (4-1) 1, , ,096.5 Intangible fixed assets Gross value (4-2) Amortization (4-2) (270.2) (231.0) (247.1) (4-2) Tangible fixed assets Gross value (4-3) Amortization (4-3) (465.0) (476.3) (459.3) (4-3) Other non-current financial assets Investments in associated companies Other assets available for sale Net Non-current financial derivative instruments (10-1) Other non-current financial assets (4-4) Net long-term lease receivables (5-2) Other net long-term receivables Deferred tax assets (11-2) Total non-current assets 2, , ,019.7 Net inventories and work in progress (5-5) Net receivables Net accounts receivable (5-2) Net short-term lease receivables (5-2) Income tax receivables Net other receivables Prepaid expenses Current financial derivative instruments (10-1) Cash and cash equivalents Short-term and liquid investments Cash Total current assets TOTAL ASSETS 2, , ,843.3 The following notes form an integral part of the consolidated financial statements. 12

15 Consolidated financial statements at 31 July Consolidated balance sheet CONSOLIDATED LIABILITIES (In millions of euros) Notes 31 July July January 2016 Shareholders equity Share capital Additional paid-in capital Reserves and retained earnings Cumulative translation adjustments (5.5) Treasury shares (3.1) (5.7) (3.4) Equity instruments (12-1) Net income Total shareholders equity 1, , ,068.6 Attributable to: holders of the parent company 1, , ,064.5 non-controlling interests Non-current financial debts Financial debts from credit institutions (10-2) Other financial debts (12-1-2) , Long-term provisions (9-1) Non-current financial derivative instruments (10-1) Other non-current liabilities Deferred tax liabilities (11-2) Total non-current liabilities 1, , ,053.0 Accounts payable Trade payables Other operating liabilities Tax payables Short-term provisions (9-1) Deferred income Current financial derivative instruments (10-1) Financial debts Short-term portion of credit institution debt (10-2) Short-term portion of other financial debt (12-1-2) Bank overdrafts (10-2) Total current liabilities TOTAL LIABILITIES 2, , ,843.3 The following notes form an integral part of the consolidated financial statements. 13

16 2 Consolidated financial statements at 31 July 2016 Consolidated balance sheet CONSOLIDATED INCOME STATEMENTS (In millions of euros) Notes 31 July July January 2016 Sales (5-1) ,190.4 Current operating expenses (5-3) Cost of sales (137.0) (144.5) (300.2) Research and development expenses (24.2) (20.4) (43.7) Sales and marketing expenses (144.9) (155.9) (312.0) Administrative expenses (96.7) (96.6) (195.7) Service and other operating expenses (52.2) (53.7) (101.5) Employee profit-sharing, share-based payments (1.6) (2.9) (3.3) Expenses related to acquisitions (5-6) (6.1) (6.1) (12.3) Total current operating expenses (462.7) (480.1) (968.7) Current operating income (5-3) Proceeds from asset sales (0.0) (0.0) 0.1 Structure optimization expenses - net of reversals (5-7) (6.3) (2.2) (13.6) Other operational expenses (1.5) - - Operating income Interest expenses (14.7) (17.6) (34.9) Interest income Net cost of debt (14.5) (17.2) (33.4) Losses on foreign exchange (1.3) (4.4) (8.1) Gains on foreign exchange Net gains (losses) on foreign exchange 1.7 (2.6) (3.6) Other financial gains Other financial losses (0.2) - - Income before tax Share of results of associated companies Income taxes (11-1) (17.0) (20.4) (41.1) NET INCOME Attributable to: holders of the parent company non-controlling interests (2.3) (0.6) (2.2) NET EARNINGS PER SHARE (IN EUROS) (12-2) DILUTED NET EARNINGS PER SHARE (IN EUROS) (12-2) The following notes form an integral part of the consolidated financial statements. 14

17 Consolidated financial statements at 31 July Consolidated balance sheet CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions of euros) 31 July July January 2016 Net income Actuarial variances recognized in equity (7.1) Deferred taxes on actuarial variances recognized in equity 2.4 (2.5) (4.0) Sub-total of items that could not be reclassified in net income (4.7) Change in fair value of hedging instruments Deferred taxes on change in fair value of hedging instruments (0.1) (0.4) (0.4) Translation variance (9.3) Sub-total of items that could be reclassified in net income (9.4) TOTAL INCOME FOR THE YEAR Attributable to: holders of the parent company non-controlling interests (2.3) (0.6) (2.2) The following notes form an integral part of the consolidated financial statements. 15

18 2 Consolidated financial statements at 31 July 2016 Consolidated balance sheet CONSOLIDATED STATEMENTS OF CASH FLOW (In millions of euros) Notes 31 July July January 2016 Net income attributable to shareholders of the parent company Net income attributable to non-controlling interests (2.3) (0.6) (2.2) Expenses (income) with no cash effect (7-1) Share of results of associated companies (net of dividends received) 0.0 (0.5) (1.0) Income taxes expense (including deferred taxes) (11-2) Net cost of debt Cash flow before net cost of debt and income taxes Working capital variation (7-2) (42.6) (74.0) (37.5) Increase (decrease) in lease receivables 18.6 (8.8) (21.9) Cash flow from operating activities Interest paid (16.3) (30.1) (45.9) Income taxes paid (1.0) (20.1) (38.6) Net cash flow from operating activities (A) Investments in tangible fixed assets (4-3) (23.4) (24.4) (45.3) Investments in intangible fixed assets (4-2) (18.4) (20.0) (40.6) Financial investments (7-3) (22.8) (26.0) (27.8) Sub-total investments (64.6) (70.4) (113.7) Disposals of fixed assets Repayment of loans and other long-term advances 1.4 (0.1) (1.3) Net cash flow from investing activities (B) (62.7) (69.6) (113.6) Parent company capital increase Share buyback liquidity contract (0.1) (0.6) (3.1) Dividends paid to shareholders (27.5) (62.0) (134.3) New medium and long-term borrowings (10-2) ODIRNANE issued * (12-1-2) (4.5) Repayment of long-term borrowings (10-2) (26.0) (289.4) (473.7) Net cash flow from financing activities (C) (23.8) (40.6) (354.1) Cumulative translation adjustments on cash and cash equivalents (D) 10.6 (4.4) (15.5) Change in net cash (A) + (B) + (C) + (D) 10.1 (104.9) (333.0) Net cash opening Net cash closing Cash and cash equivalents Bank overdrafts (6.6) (6.1) (11.5) NET CASH CLOSING The following notes form an integral part of the consolidated financial statements. * ODIRNANE: senior unsecured net share settled undated bond convertible into new shares and/or exchangeable for existing shares. 16

19 Consolidated financial statements at 31 July Consolidated balance sheet CHANGES IN SHAREHOLDERS EQUITY (In millions of euros) Par value Number of shares Share capital * Additional paid-in capital * Reserves retained earnings and net income Treasury shares Cumulative translation adjustments Consolidated shareholders equity at 31 January 2015 EUR 1 34,562, (6.2) Attributable to: holders of the parent company non-controlling interests 0.5 Net income Items that could not be reclassified in net income Items that could be reclassified in net income Total comprehensive income Capital increase: share options exercised (308 shares) EUR Treasury shares liquidity contract (2.3) (0.7) Free shares attributed (48,873 shares) (1.6) (0.4) 2014 dividends - - (63.7) (8.6) - - (72.3) 2015 interim dividends (27.5) - - (27.5) Share-based payments Equity instruments ODIRNANE, net of issue costs ODIRNANE interests (5.6) (5.6) Put and call options (45.3) - - (45.3) Other (1.4) - - (1.4) Consolidated shareholders equity at 31 January 2016 EUR 1 34,562, (3.4) 3.8 1,068.6 Attributable to: holders of the parent company 1,064.5 non-controlling interests 4.1 Movements first half of 2016 Net income Items that could not be reclassified in net income (4.7) - - (4.7) Items that could be reclassified in net income (0.1) - (9.3) (9.4) Comprehensive income first half (9.3) 41.9 Treasury shares liquidity contract Free shares attributed (4,111 shares) (0.1) (0.1) 2015 dividends - - (11.6) (19.4) - - (31.0) Share-based payments (0,6) - - (0.6) Equity instruments ODIRNANE interests (4.5) - - (4.5) Other Consolidated shareholders equity at 31 July 2016 EUR 1 34,562, (3.1) (5.5) 1,077.5 Attributable to: holders of the parent company 1,068.5 non-controlling interests 9.0 The following notes form an integral part of the consolidated financial statements. * The share capital is fully released. Additional paid-in capital includes issue and translation premiums. Total 17

20 2 Consolidated financial statements at 31 July 2016 Consolidated balance sheet (In millions of euros) Par value Number Share Additional paid-in of shares capital * capital * Reserved retained earnings and net income Treasury shares Cumulative translation adjustments Consolidated shareholders equity at 31 January 2015 EUR 1 34,562, (6.2) Attributable to: holders of the parent company non-controlling interests 0.5 Movements first half of 2015 Net income Items that could not be reclassified in net income Items that could be reclassified in net income Comprehensive income first half of Capital increase: share options exercised (308 shares) EUR Treasury shares liquidity contract (0.3) Free shares attributed (18,959 actions) EUR (0.6) - - (0.6) 2014 dividends - - (63.8) (8.5) - - (72.3) Share-based payments Equity instruments ODIRNANE, net of issue costs Put and call option (48.1) - - (48.1) Other (0.3) - - (0.3) Consolidated shareholders equity at 31 July 2015 EUR 1 34,562, (5.7) ,037.8 Attributable to: holders of the parent company 1,032.0 non-controlling interests 5.8 The following notes form an integral part of the consolidated financial statements. * The capital is fully released. Additional paid-in capital includes issue and translation premiums. Total 18

21 Consolidated financial statements at 31 July Notes to the consolidated financial statements Notes to the consolidated financial statements Financial statements for half-year ended 31 July 2016 and 31 July 2015 and fiscal year 31 January The consolidated half-year financial statements were approved by the Board of directors on 26 September Unless otherwise indicated, all amounts stated hereafter are in millions of euros, rounded to one decimal place. Therefore, the sum of rounded amounts may present immaterial differences with the total shown. Some amounts as at 31 July 2015 and 31 January 2016 have been reclassified to be comparable to the presentation adopted as at 31 July Note 1 Presentation of the Neopost group and its consolidated financial statements Neopost supplies mail-handling solutions to its customers. The Group offers solutions covering franking, folding, insertion and addressing, documents and logistics management, data quality, as well as logistics traceability. Neopost offers a full range of services, including consulting, maintenance and financing solutions. The term Neopost S.A. refers to the parent company (excluding consolidated subsidiaries), which is listed and registered in France, while Neopost and the Group refer to the economic group formed by the parent company and its consolidated subsidiaries. The parent company s head office is located at avenue Aristide Briand, Bagneux (France). Neopost S.A. shares are listed on compartment A of Euronext Paris and are included on the SBF 120 index. 1-1: History Neopost was created in 1992 through a Leveraged Buy-Out (LBO) of Alcatel s mail processing equipment division. A second LBO took place in In February 1999, the Group was listed on the Paris stock exchange. Since then, Neopost has made acquisitions of various sizes, of which the largest was the purchase in 2002 of Ascom Hasler the mailing systems division of the Swiss company Ascom which ranked third in the world in its market and the acquisition in 2008 of PFE International Ltd, a worldwide folder/inserter company. In 2012, Neopost acquired GMC Software AG, parent company of the group GMC Software Technology, leader in the field of customer communication management and Human Inference, a specialist in master data management. In 2013, Neopost acquired DMTI Spatial, the leading Canadian provider of location-based data quality solutions. In 2015, Neopost acquired a 55% stake in Temando Holdings Pty Ltd, an Australian company that provides logistic solutions to the e-commerce sector. 1-2: Main events of the period Creation of PackCity Japan As at 11 Mai 2016, Yamato Transport and Neopost formed a joint venture to operate an open network of secure automated parcel lockers for the delivery of parcels in Japan. Acquisition of ICON Systemhaus GmbH As at 14 June 2016, Neopost acquired Icon Systemhaus GmbH, the German leader in customer communication management solutions. Icon is mainly active in Germany and Austria. Note 2 Accounting policies 2-1: Accounting standards applied The interim consolidated accounts ended 31 July 2016 comply with the principles of the norm IAS 34 with summarized financial statements completed by detailed notes. The interim consolidated accounts at 31 July 2016 do not include all information required in the fiscal year accounts and must be read along with the fiscal year accounts ended 31 January 2016 and published on the 29 April Accounting standards used for the preparation of the interim consolidated financial statements are the same as those used for the preparation of the annual consolidated financial statements at 31 January Neopost group s consolidated financial statements comply with the international accounting standards (standards IFRS: International Financial Reporting Standards) issued by the IASB (International Accounting Standards Board) applicable to 31 July 2016 as approved by the European Union. The IFRS are available on the European Commission website: ias_fr.htm #adopted-commission International accounting standards include IFRS, IAS (International Accounting Standards), and interpretations of these (SIC and IFRIC). 19

22 2 Consolidated financial statements at 31 July 2016 Notes to the consolidated financial statements Standards, amendments and interpretation adopted by the European Union that are mandatory for financial years beginning on or after 1 February 2016: amendments IAS 1: Disclosure initiative presentation; amendments IAS 16 and IAS 38: clarification of acceptable methods of depreciation and amortization; amendments IFRS 11: accounting for acquisitions of interests in joint operations. These new standards applicable to Neopost for financial year starting on 1 February 2016 had no significant impact on the financial statements. Standards, amendments and interpretations adopted by the European Union and that are mandatory for financial years beginning after 1 February 2017 and not early adopted by the Group: amendments IAS 7: disclosure initiative; amendments IAS 12: recognition of deferred tax assets on unrealized losses. The Group is currently assessing the effects of these new standards but does not expect any significant impact on its financial position. Standards, amendments and interpretations published by the IASB but not yet adopted by the European Union: IFRS 9: Financial instruments; IFRS 14: Regulatory deferral accounts; IFRS 15: Revenue from contracts with customers; IFRS 16: Leases; amendments IAS 28 and IFRS 10: sale or contribution of assets between an investor and its associate or joint venture; amendments IFRS 2: classification and measurement of share-based payment transactions. 2-2: Translation of financial statements denominated in foreign currencies The operating currency for each of the Group s entities is the currency of the economic environment in which that entity operates. Assets and liabilities of subsidiaries operating outside France, which are presented in local currencies, are translated into euros the currency used in the Group s financial statements at the year-end exchange rate. Income and expenses are translated at the average exchange rate over the period. The resulting translation variance is recognized in the translation adjustment reserve under shareholders equity. The exchange rates for the main Group s currencies are as follows: 31 July July January 2016 Period end Average Period end Average Period end Average United States dollar (USD) Pound Sterling (GBP) Canadian dollar (CAD) Swiss franc (CHF) Japanese yen (JPY) Norwegian kroners (NOK) Swedish kroners (SEK) Danish kroners (DKK) Australian dollar (AUD) Singapore dollar (SGD) Indian rupee (INR) Brazilian real (BRL) Chinese yuan (CNY) Czech koruna (CZK) Hungarian forint (HUF) Polish zloty (PLN) Indonesian rupiah (IDR) 14, , , , , , Thai baht (THB) Malaysian ringgit (MYR) New-Zealand dollar (NZD)