FIRST-H ALF RE POR T

Transcription

1 FIRST-H ALF RE POR T

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 financial statements Statement of the person responsible for the interim financial report 47

3 1 COMMENTS ON NEOPOST S RESULTS AND FINANCIAL STRUCTURE Historical breakdown of income statements 2 Half-year highlights 3 Decline in Mail Solutions activities 3 Strong dynamism in Communication & Shipping Solutions activities 3 Current operating income 4 Net income 4 Healthy financial position 4 Capital allocation policy 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 FIRST-HALF REPORT / NEOPOST 1

4 1 Comments on Neopost s results and financial structure The Group recorded sales of million in the first half 2015, achieved by the traditional network of Neopost (Neopost up 10.4% versus the first half At constant exchange rates, Integrated Operations) and 0.6% achieved by the sales declined 0.3%. Organic growth was (1.1)%. Communication & Shipping Solutions Dedicated Units. Current operating income before acquisition-related expense Net attributable income totaled 64.7 million in the first half of totaled million compared with million in first half 2015 compared with 69.0 million in the first half of Net Current operating margin before acquisition-related margin (2) stood at 11.0% of sales compared with 13.0% in H1 expense (1) stood at 19.1% of sales compared with 22.4% in first half This reflects current operating margin of 21.3% Historical breakdown of income statements H H (In millions of euros) (ended 31/07/2015) (ended 31/07/2014) FY 2014 Sales % % 1, % Cost of sales (144.5) (24.7)% (117.3) (22.1)% (267.1) (24.0)% Gross margin % % R&D expenses (20.4) (3.5)% (17.8) (3.3)% (36.7) (3.3)% Selling expenses (155.9) (26.6)% (138.4) (26.1)% (288.8) (25.9)% Administrative expenses (96.6) (16.5)% (85.0) (16.0)% (172.0) (15.5)% Maintenance and other operating expenses (53.7) (9.2)% (49.3) (9.3)% (97.1) (8.7)% Employee profit-sharing and share-based (2.9) (0.5)% (4.2) (0.8)% (7.1) (0.6)% payments Current operating income before expenses % % % related to acquisitions Expenses related to acquisitions (6.1) (1.0)% (5.6) (1.1)% (10.8) (1.0)% Current operating income % % % Proceeds from asset sales and other (0.0) 0.0% (0.0) - Structure optimization expenses (2.2) (0.4)% - - (4.2) (0.4)% Non-current income related to acquisition - 0.0% Other operating expenses - 0.0% - - (11.6) (1.0)% Operating income % % % Financial income/(expense) (19.8) (3.4)% (17.6) (3.3)% (40.1) (3.6)% Income before taxes % % % Income taxes (20.4) (3.5)% (26.9) (5.1)% (45.1) (4.1)% Income from associated companies % % % NET INCOME % % % Attributable to: olders of the parent company % % % noncontrolling interests (0.6) (0.1)% - - (0.1) - (1) Current operating margin before acquisition-related expense = current operating income before acquisition-related expense/sales. (2) Net margin = net income/sales FIRST-HALF REPORT / NEOPOST

5 Comments on Neopost s results and financial structure 1 Half-year highlights Acquisition of a majority stake in Temando ODIRNANE issue On April 7, 2015 Neopost acquired a 55% stake in Temando, an On June 11, 2015 Neopost successfully issued senior unsecured Australian company that provides an intelligent fulfillment net share settled undated bonds convertible into new shares software platform to the e-commerce and logistics sectors, for and/or exchangeable for existing shares (ODIRNANE) for an AUD 50 million, of which AUD 20 million as part of a reserved amount of 265 million at a fixed annual nominal rate of 3.375% capital increase to finance the development of Temando in the for a seven-year period. The issuance is recognized in equity coming years. and related interests are treated as dividends, which strengthens Neopost s balance sheet structure. The acquisition contract provides an additionnal payment. This earn-out recorded in other non-current debts for an amount of The Group intends to anticipate the repayment of credit lines AUD 50.0 million or 33.0 million, is payable in 2020 and has maturing in 2016 and in 2017, which will allow for an extension been determined with realistic business plan assumptions. of its debt maturity. Neopost and Temando have also signed a put and call option contract, on the basis of which Neopost may gradually acquire the remaining capital of Temando. Neopost is targeting a return on capital employed of over 15% within a five-year horizon. Agreement with Esker Following the success of Neotouch in France, Neopost and Esker, one of the leading global providers of cloud-based digitized document process solutions, finalized the creation of a joint venture on July 31, 2015, owned 70% by Neopost and 30% by Esker. The purpose of the joint venture is to market software solutions to SME/SMI clients worldwide, which allow for the distribution of documents on demand, automation of supplier invoices as well as the digitization of customer invoices. Decline in Mail Solutions activities Mail Solutions sales fell 5.2% in the first half 2015 at constant exchange rates. The decrease was less significant in the second quarter than the first. This incipient improvement is expected to continue for the rest of the financial year thanks to the back log level, the portfolio of commercial opportunities and a more favorable basis of comparison in the second half of the year. Performance in the first half 2015 was contrasted by region. In North America, the Mail Solutions business declined moderately. Sales of equipment were down slightly. Recurring revenue declined slightly, a result of the continued fall in revenue from rentals and supplies, while revenue from services, leasing and postal rate changes increased. In Europe, the decrease in the Mail Solutions business was sharper, mainly owing to the UK and France, along with lower revenue from postal rate changes in Germany and the Nordic countries. In the rest of the world, the positive performance of export equipment sales did not offset the decrease in equipment sales in Asia-Pacific. Mail Solutions accounted for 78% of Group sales in the first half of Strong dynamism in Communication & Shipping Solutions activities Communication & Shipping Solutions sales rose 21.0% in in several countries; Neotouch, a digitized mail offer available in first-half 2015 at constant exchange rates. Excluding the scope France; and Neoship, a package shipping solution in the USA. effect related to the consolidation of ProShip, DCS and Temando, organic growth in Communication & Shipping The organic growth for Communication & Shipping Solutions Solutions was strong at +16.0%. achieved by CSS Dedicated Units came out at 5.4% in first-half Customer Communication Management solutions were up The organic growth in Communication & Shipping Solutions whereas Data Quality business was down: its integration into recorded by the Neopost distribution network (Neopost the Enterprise Digital Solutions division to promote synergies Integrated Operations) was particularly high at +28.2%. This with Customer Communication Management software is under performance illustrates the strong ramp-up of commercial way. In Shipping Solutions, Neopost benefitted from the growth synergies, particularly the success of sales of software from of ProShip, the strong momentum of Temando since its dedicated subsidiaries, including GMC Software Technology, integration, and the final phase of the contract with the French Satori and ProShip, by Neopost network. It also illustrates the Army. In addition, the rollout of Packcity will rather be success of proprietary sales of solutions by the Neopost continued in H distribution network, such as OMS-500 and OMS-200, new multichannel output management software for SMEs launched Communication & Shipping Solutions sales accounted for 22% of total sales in the first half of 2015 compared with 19% in H FIRST-HALF REPORT / NEOPOST 3

6 1 Comments on Neopost s results and financial structure Current operating income Current operating income before acquisition-related expense For the CSS Dedicated Units, investments and expenses on totaled million compared with million in the first the development of new solutions by the specialized half of The variation results from the trend in the current subsidiaries, notably relating to Packcity, Temando, operating margins of the Group s two segments and their CVP-500 and SME Digital Solutions, were stepped up, which respective weight: explains why the operating margin, before acquisition-related expense, came to 0.6% in H1 compared The operating margin, before acquisition-related expense, of with 10.0% in H Neopost Integrated Operations was 21.3%, down from 23.5% in first-half 2014 owing to mix effects and a decline in After acquisition-related expense, current operating income in recurring revenue (rentals, supplies and postal rate the first half of 2015 totaled million compared with changes); million in the first half of Net income The net cost of debt stood at 17.2 million compared with 18.7 The average tax rate was 24.2% compared with 28.1% in million in first-half The Group benefited from the good first-half refinancing conditions achieved in The Group recorded 2.6 million in losses for foreign exchange and other financial Net attributable income totaled 64.7 million compared with items in the first half, compared with a gain of 1.1 million in the 69.0 million in first-half Earnings per share came to 1.85 same period in Overall, net financial income came to compared with 2.01 a year earlier. (19.8) million in the first half compared with (17.6) million a year earlier. Net margin stood at 11.0% of sales compared with 13.0% in the first half of Healthy financial position Cash flow before the net cost of debt and income taxes is Taking account of the ODIRNANE issue, shareholders equity strongly recurring, and remained extremely high, at came to 1,032.0 million at July 31, 2015 compared with million compared with million in first-half million a year earlier. Apart from a 37 million payment for a VAT settlement in the UK, the change in the working capital requirement was fully consistent with the changes generally observed for this period of the year. Net debt stood at million at July 31, 2015 compared with million at July 31, The Group would like to point out that its net debt is exceeded by future cash flows from its rental and leasing businesses. The portfolio of leasing and other financing services continued As such, the gearing came out at 78% of shareholders equity to make headway, totaling million at July 31, 2015, up compared with 117% at July 31, At July 31, 2015, the 5.7% year-on-year at constant exchange rates. leverage ratio (net debt / EBITDA) came at 2.6 compared with 2.8 a year earlier and the financial covenants were respected. Regarding external growth, the Group allocated AUD 50 million to the acquisition of a majority stake in Temando, of which AUD 20 million to finance its future growth. Capital allocation policy The Group is willing to achieve greater flexibility in its capital allocation policy and to optimize its cost of capital. Given the existing commitments relating notably to acquisitions already made and ongoing projects on the one hand, and the wish to seize acquisition and investment opportunities to accelerate transformation on the over hand, the Group has decided to set its annual dividend to 1.70 per share for the next 2 to 3 years subject to approval by the General Assembly of shareholders. The dividend will include an interim dividend paid in February and a final dividend paid in August every year. This dividend may be supplemented by share buybacks in case of excess cash flows FIRST-HALF REPORT / NEOPOST

7 Comments on Neopost s results and financial structure 1 Ownership structure Ownership structure At 31 July 2015, Neopost S.A. s share ownership was as follows: Number % Management and employees 755, % Directors (non-executive) 60, % Shares held under liquidity contract 123, % Treasury stock held for stock-option and free share allocations 13, % MFS Investment Management (a) 4,912, % First Eagle Asset Management (a) 3,416, % BlackRock Institutional Trust Company NA (a) 1,891, % Natixis Asset Management (a) 1,548, % Marathon Asset Management (a) 1,454, % Columbia, Wanger Asset Management (a) 1,195, % Alken Asset Management LLP (a) 1,107, % Norges Bank Investment Management (a) 871, % LSV Asset Management (a) 858, % Oddo Asset Management (a) 785, % Other shareholders 15,568, % TOTAL 34,562, % (a) Source Nasdaq as at 31 July Neopost was communicated the following thresholds for the first-half of 2015: Date Name of the Investment Funds Threshold cross 6 February 2015 Morgan Stanley Crossing upwards the 5% with 6.13% of voting right 9 February 2015 Morgan Stanley Crossing downwards the 5% with 4.83% of voting right 20 March 2015 BlackRock Institutional Trust Crossing upwards the 5% Company with 6.50% of voting rights 15 June 2015 Alken Asset Management Crossing downwards the 5% with 4.90% of voting rights 24 June 2015 Marathon Asset Management Crossing downwards the 5% with 4.17% of voting rights 2015 FIRST-HALF REPORT / NEOPOST 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 has also a stake of 6.53% in X Ange Capital, and 7.39% in X Ange 2, non consolidated companies. Transactions with Neopost specifies that it has a stake of 35.0% in Docapost BPO these companies are not material. IS and 24% in AMS Investissement, companies consolidated using the equity method. Transactions with these companies are not material. Risk factors 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 22 to the consolidated financial Based on the 2015 budget, the breakdown of sales and costs in statements. pounds sterling is as follows: sales 10.9%, cost of sales 11.9%, operating costs 8.6%. A 5% decrease in the euro/pound sterling exchange rate from the budget rate of 0.78 would have the Liquidity risk following impacts on the Group s income statement: sales The Group believes that its cash flow will easily enable it to (6.6) million euros, current operating income (2.0) million euros service its debt, given the current level of that debt. Group debt and net income (1.4) million euros. is subject to compliance with covenants. Failure to comply with these covenants may lead to early repayment of the debt. At The other currencies are not a major concern for the Group. 31 July 2015, the Group complies with all covenants, see None of them, individually taken, represents more than 5% of note 11-2 to the consolidated financial statements. the total sales. 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 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 15.5 million euros. The Group has adopted a policy of hedging exchange rate risk Regarding shareholder s equity, a decrease of 5% in the dollar (see financial instruments above). would have had an impact of million euros and a decrease of 5% in the sterling pound would have an impact of Neopost enjoys a natural hedge on its current operating margin +2.9 million euros on the accounts as of 31 January and its net income. Interest rate risk Based on the 2015 budget, the breakdown of sales and costs in United States dollars is as follows: sales 38.5%, cost of sales The Group has adopted a policy of hedging interest rate risk 47.9%, operating costs 32.4%, interest expenses 29.4%. A 5% (see financial instruments above). However, no guarantee can decrease in the euro/united States dollar exchange rate from be given regarding the Group s ability to hedge effectively the budget rate of 1.20 would have the following impacts on the against interest rate risk. Group s income statement: sales (23.3) million euros, current operating income (5.5) million euros and net income (3.2) million euros FIRST-HALF REPORT / NEOPOST

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 stabilize. The Group s Mail Solutions activities are linked to mail volumes. Until now, Neopost managed to maintain its level of business in Mail Solutions thanks to market share gains and further geographic expansion, notably in the Asia-Pacific region. The Group will continue to innovate to gain market share but no guarantee can be given as to the Group s future ability to stabilize its level of business 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 2015 total Group sales is 22.0%. 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 3.8 billion dollars in 2014 and an operating margin before acquisition related costs of 19.1%. Its main market is North America. Francotyp Postalia is listed on the Frankfurt Stock Exchange. It achieved sales of 170 million euros and an operating margin of 5.8% 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, DCS and ProShip in May 2014 and Temando in April 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, DCS and ProShip in May 2014 and Temando in April 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 16.0% in the first-half The impact of this risk on the Group s financial position cannot be assessed FIRST-HALF REPORT / NEOPOST 7

10 1 Comments on Neopost s results and financial structure Risk factors Dependence on customers and suppliers Risk of losing key personnel The Group has nearly 800,000 customers, none of which To reduce the risk of losing key personnel, the Group has put in accounts for more than 1% of sales. place retention incentives such as phantom shares and free shares. It has also implemented contingency plans for all major The Group s main supplier is Hewlett Packard (HP) for inkjet key positions at the level of the holding company, Neopost S.A., printing heads and cartridges. In 2009, Neopost renewed its as well as at the level of each subsidiary. These plans are agreement with HP concerning ink cartridges and printing regularly updated and reviewed by the remuneration heads for another seven years. This agreement was signed as a committee. continuation of the agreement already in place for ten years. In 2014 and 2013, HP accounted for 11.3% of total Group purchases. The top five suppliers and the top ten suppliers Risk linked to protection of intellectual respectively account for 29.7% and 36.3% of total purchases in property 2014 versus 34.8% and 42.2% in The Group is the owner of its trademarks and has about 430 families of patents published. Neopost registered around fifteen A disruption in supply from these suppliers might significantly patents in The geographical coverage of these patents is affect the Group s business, despite the clauses in the essentially European and American. Neopost is not dependent agreements protecting the Group against this risk. The Group on any single patent which might bring the Group s level of has already put in place alternative solutions in case such an business or profitability into question. 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 Forecasts these three tier one suppliers. In the event a given supplier Neopost provides its shareholders with information on its 2015 should fail, the other two could take over the production of the forecasts. These forecasts were formulated based on the failed supplier. Neopost also has a choice of strategic tier two Group s 2015 budget and three-year plan. These forecasts were suppliers, and for each of these, a replacement supplier has also formulated based on market conditions at the beginning of been selected. In addition, the Group is the owner of all moulds, 2015, namely existing competitive dynamics between mailroom specific tools and industrial design. 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 new member in 2001 and the accrued benefits were frozen in June Every three years, the British authority requires a valuation based on different hypothesis than the one used according to the IAS 19. If this valuation leads to a deficit, then Neopost has to fill it. As of 31 July 2015, the British regulation did not identify any deficit. 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 3 of the 2014 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 FIRST-HALF REPORT / NEOPOST

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 2015, the Group owned 137,489 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. 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. 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 Considering the development of Neopost in software activities, with great difficulty, covered by insurance companies, such as it was decided on 1 February 2014 to cover the risk of possible damage resulting from unfair competition, counterfeiting, claims from third parties against Neopost for infringement of misleading advertising and failure to comply with copyright or copyright and of intellectual property. This insurance has been literary and artistic rights. taken out worldwide and covers risks up to 30 million euros per claim (10 million in the United States). The policy is signed for a The operating damage and loss insurance cover was two-year period. 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 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, 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 FIRST-HALF REPORT / NEOPOST 9

12 1 Comments on Neopost s results and financial structure Outlook Outlook Neopost confirms expecting organic sales growth between -1% and +1% at constant exchange rates in In terms of profitability, the Group confirms expecting a current operating margin before acquisition-related expense of between 19.5% and 20.5% of sales. This expectation is based on the following items: different profitability levels between the operating margins achieved by Neopost Integrated Operations and Communication & Shipping Solutions dedicated units; the rollout of the Packcity network; the continued development of the CVP-500; the launch of new projects such as SME Digital Solutions and Neopost Labs; the investments required for the implementation of Temando FIRST-HALF REPORT / NEOPOST

13 2 CONSOLIDATED FINANCIAL STATEMENTS AT 31 JULY 2015 Consolidated financial statements 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 20 Note 4 Goodwill 21 Note 5 Intangible fixed assets 22 Note 6 Tangible fixed assets 23 Note 7 Other non-current financial assets 23 Note 8 Receivables 24 Note 9 Inventories and work in progress 25 Note 10 Equity instrument 26 Note 11 Financial instruments and financial debts from credit institutions 27 Note 12 Acquisition of Temando 30 Note 13 Provisions 30 Note 14 Other non-current liabilities 31 Note 15 Tax position 31 Note 16 Segment information 33 Note 17 Expenses and gains related to acquisitions 36 Note 18 Other non-current operational expenses 36 Note 19 Details of expenses by category 36 Note 20 Earnings per share 37 Note 21 Share-based payments 38 Note 22 Risk management and commitments given and received 39 Note 23 Information on related parties 46 Note 24 Equity management 46 Note 25 Post closing events FIRST-HALF REPORT / NEOPOST 11

14 2 Consolidated financial statements at 31 July 2015 Consolidated financial statements Consolidated financial statements CONSOLIDATED ASSETS (In millions of euros) Notes 31 July July January 2015 Goodwill (4) 1, , ,045.4 Intangible fixed assets Gross value Depreciation (231.0) (184.9) (210.7) (5) Tangible fixed assets Gross value Depreciation (476.3) (411.5) (455.8) (6) Other non-current financial assets Investments in associated companies Other available for sale assets (net) Non-current financial derivative instruments Other non-current financial assets (7) Net long-term lease receivables (8) Other net long-term receivables (8) Deferred tax assets (15) Total non-current assets 2, , ,931.3 Net inventories (9) Net receivables Net accounts receivable (8) Net short-term lease receivables (8) Income tax receivables (8) Net other receivables (8) Prepaid expenses Current financial derivative instruments (11) Cash and cash equivalents Short-term and liquid investments Cash Total current assets ,110.9 TOTAL ASSETS 3, , ,042.2 The following notes form an integral part of the consolidated financial statements FIRST-HALF REPORT / NEOPOST

15 Consolidated financial statements at 31 July Consolidated financial statements CONSOLIDATED LIABILITIES (In millions of euros) Notes 31 July July January 2015 Shareholders equity Share capital Additional paid-in capital Reserves and retained earnings Cumulative translation adjustments 15.4 (52.3) 2.3 Treasury shares (5.7) (7.7) (6.2) Equity instruments * (10) Net income Total consolidated shareholders equity 1, Attributable to: holders of the parent company 1, non-controlling interests Non-current financial debts Financial debts from credit institutions (11) ,006.8 Other financial debts (12) , ,006.8 Long-term provisions (13) Non-current financial derivative instruments (11) Other non-current liabilities (14) Deferred tax liabilities (15) Total non-current liabilities 1, , ,190.5 Accounts payable Trade payables Other operating liabilities Income taxes Short-term provisions (13) Deferred income Current financial derivative instruments (11) Financial debts Short-term portion of credit institutions debts (11) Short-term portion of other financial debts (12) Bank overdrafts (11) (11) Total current liabilities ,033.9 TOTAL LIABILITIES 3, , ,042.2 The following notes form an integral part of the consolidated financial statements. * ODIRNANE: net share settled undated senior unsecured bonds convertible into new shares and/or exchangeable for existing shares (Obligation à Durée Indéterminée à option de Remboursement en Numéraire et/ou en Actions Nouvelles ou Existantes) FIRST-HALF REPORT / NEOPOST 13

16 2 Consolidated financial statements at 31 July 2015 Consolidated financial statements CONSOLIDATED INCOME STATEMENTS (In millions of euros) Notes 31 July July January 2015 Sales (16) ,113.4 Current operating expenses (19) Cost of sales (144.5) (117.3) (267.1) Research & development expenses (20.4) (17.8) (36.7) Sales and marketing expenses (155.9) (138.4) (288.8) Administrative expenses (96.6) (85.0) (172.0) Service and other operating expenses (53.7) (49.3) (97.1) Employee profit-sharing, share-based payments (21) (2.9) (4.2) (7.1) Expenses related to acquisitions (17) (6.1) (5.6) (10.8) Total current operating expenses (480.1) (417.6) (879.6) Current operating income Proceeds from asset sales (0.0) 0.0 (0.0) Structure optimization expenses net of reversals (13) (2.2) - (4.2) Other operational expenses (18) - - (11.6) Operating income Interest expenses (17.6) (19.0) (41.9) Interest income Net cost of debt (17.2) (18.7) (39.6) Losses on foreign exchange (4.4) (3.6) (7.3) Gains on foreign exchange Net gains (losses) on foreign exchange (22) (2.6) 0.9 (0.4) Other financial gains Other financial losses - - (0.1) Income before tax Share of results of associated companies Income taxes (15) (20.4) (26.9) (45.1) CONSOLIDATED NET INCOME Attributable to: holders of the parent company non-controlling interests (0.6) - (0.1) BASIC EARNINGS PER SHARE (20) (IN EUROS) DILUTED EARNINGS PER SHARE (20) (IN EUROS) The following notes form an integral part of the consolidated financial statements FIRST-HALF REPORT / NEOPOST

17 Consolidated financial statements at 31 July Consolidated financial statements CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions of euros) 31 July July January 2015 Net income Actuarial variances recognized in equity (9.0) Deferred taxes on actuarial variances recognized in equity (2.5) (1.0) 3.0 Sub-total of items that could not be reclassified in net income (6.0) Change in fair value of hedging instruments Deferred taxes on change in fair value of hedging instruments (0.4) - (0.1) Translation variance Sub-total of items that could be reclassified in net income TOTAL INCOME AND EXPENSE FOR THE YEAR Attributable to: holders of the parent company non-controlling interests (0.6) - (0.1) The following notes form an integral part of the consolidated financial statements FIRST-HALF REPORT / NEOPOST 15

18 2 Consolidated financial statements at 31 July 2015 Consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOW (In millions of euros) Notes 31 July July January 2015 Net income attributable to shareholders of the parent company Net income attributable to non-controlling interests (0.6) - (0.1) Amortization (reversal) of tangible fixed assets (6) Amortization (reversal) of intangible fixed assets (5) Provisions (reversals) (a) (13) (5.3) (4.2) 9.4 Gain (losses) in fair value of financial derivative instruments 2.6 (0.9) 0.4 Proceeds (expenses) from share-based payments (21) Net gains (losses) on disposals of fixed assets Share of results of associated companies (net of dividends received) (0.5) (0.4) (0.7) Other, net (b) (0.9) (1.5) (5.7) Cash flow after net cost of debt and income taxes Income taxes expense (including deferred taxes) (15) Net cost of debt Cash flow before net cost of debt and income taxes (Increase) decrease in inventories (9) (6.9) (7.5) 0.3 (Increase) decrease in accounts receivable (8) (6.6) Increase (decrease) in deferred income (25.5) (36.1) (10.4) Increase (decrease) in accounts payable (14.0) (13.3) 6.4 Increase (decrease) in other current assets and liabilities (61.3) (22.8) (4.4) (Increase) decrease in lease receivables (8) (8.8) (6.5) (37.3) Cash flow from operating activities Interest paid (30.1) (21.0) (34.3) Income taxes paid (15) (20.1) (32.2) (63.2) Net cash flow from operating activities (A) Investments in tangible fixed assets (6) (24.4) (20.6) (44.1) Investments in intangible fixed assets (5) (20.0) (24.8) (42.5) Financial investments (26.0) (51.5) (55.4) Sub-total investments (70.4) (96.9) (142.0) Disposals of fixed assets (5) (6) Repayment of loans and other long-term advances (0.1) Net cash flow from investing activities (B) (69.6) (95.8) (136.8) Parent company capital increase Share buyback liquidity contract (0.6) (2.0) (2.0) Dividends paid to shareholders (62.0) (61.9) (134.3) New medium and long-term borrowings (11) Equity instruments issued (c) (10) Repayment of long-term borrowings (11) (289.4) (63.6) (134.8) Net cash flow from financing activities (C) (40.6) Cumulative translation adjustments on cash and cash equivalents (D) (4.4) 2.1 (8.6) Change in net cash (A)+(B)+(C)+(D) (104.9) Net cash opening Net cash closing Cash and cash equivalents Bank overdrafts (6.1) (3.6) (7.2) NET CASH CLOSING The following notes form an integral part of the consolidated financial statements. (a) At 31 July 2015, the provision variation is mainly related to provision reversals for 1.7 million euros and to reversal on assets depreciation for 3.6 million euros. At 31 July 2014, the provision variation was mainly related to provision reversals for 6.5 million euros and to added charges on assets depreciation for 2.2 million euros. (b) Including a price revision of 0.4 million euros on the acquisition of Hoepfner at 31 July 2015, of 1.4 million euros on the acquisition of Human Inference, Co-Winco and Pipermeyer at 31 January 2015 of 0.6 million euros on the acquisitions of GMC Software AG, Neosys and Human Inference at 31 July (c) ODIRNANE FIRST-HALF REPORT / NEOPOST

19 Consolidated financial statements at 31 July Consolidated financial statements CHANGES IN SHAREHOLDERS EQUITY (In millions of euros) Reserved retained Additional earnings Cumulative Par Number Share paid-in and net Treasury translation value of shares capital * capital * income shares adjustments Consolidated shareholders equity at 31 January EUR 34,548, (9.7) (61.4) Attributable to: holders of the parent company non-controlling interests - Net income Items that could not be reclassified in net income (6.0) - - (6.0) Items that could be reclassified in net income Total Total comprehensive income in Capital increase: share options exercised (14,601 shares) 1 EUR 14, Treasury shares liquidity contract (a) (0.6) (1.7) - (2.3) Free shares attributed (101,950 shares) (3.7) dividends - - (42.5) (29.8) - - (72.3) 2014 Interim dividends (62.0) - - (62.0) Share-based payments Other (12.7) - - (12.7) Consolidated shareholders equity at 31 January EUR 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 Total result first half of Capital increase: share options exercised (308 shares) 1 EUR Treasury shares liquidity contract (a) (0.3) Free shares attributed (18,959 actions) 1 EUR (0.6) - - (0.6) 2014 dividends (b) - - (63.8) (8.5) - - (72.3) Share-based payments Equity instruments (c) Put and call option (d) (48.1) - - (48.1) Other (0.3) - - (0.3) CONSOLIDATED SHAREHOLDERS EQUITY AT 31 JULY EUR 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. (a) At 31 July 2015, the Group had 123,631 shares held for the liquidity contract and 13,858 shares held to fulfill the commitments on the stock-option and free share attribution programs for employee and Group executives, compared to 109,584 and 22,839 shares respectively on 31 January Under the liquidity contract shares cannot be sold freely by Neopost except if the contract is cancelled. This contract was signed, in accordance with the French association of investment companies (AFEI) code of ethic, with Exane BNP Paribas on 2 November 2005 for one year renewable by tacit agreement. The amount allocated to this contract was 8 million euros originally. The purpose is to reduce excessive volatility of the Neopost share and improve liquidity. (b) Payment of balance of 2014 dividend amounting to 2.10 euros per share included 1.85 euro deducted from the additional paid-in capital. (c) ODIRNANE. (d) Put and call option on the acquisition of Temando s Pty Ltd minority interests FIRST-HALF REPORT / NEOPOST 17

20 2 Consolidated financial statements at 31 July 2015 Consolidated financial statements (In millions of euros) Reserved retained Additional earnings Cumulative Par Number of Share paid-in and net Treasury translation value shares capital * capital * income shares adjustments Consolidated shareholders equity at 31 January EUR 34,548, (9.7) (61.4) Attributable to: holders of the parent company non-controlling interests - Movements first half of 2014 Net income Items that could not be reclassified in net income Items that could be reclassified in net income Total Total result first half of Capital increase: share options exercised (11,050 shares) 1 EUR 11, Treasury shares liquidity contract (a) (0.1) (2.1) - (2.2) Free shares attributed (76,430 actions) 1 EUR (2.5) Dividends (b) - - (42.5) (29.8) - - (72.3) Share-based payments Other CONSOLIDATED SHAREHOLDERS EQUITY AT 31 JULY EUR 34,559, (7.7) (52.3) Attributable to: holders of the parent company non-controlling interests 0.6 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. (a) At 31 July 2014, the Group had 96,932 shares held for the liquidity contract and 42,601 shares held to fulfill the commitments on the stock-option and free share attribution programs for employee and Group executives, compared to 55,514 and 118,361 shares respectively on 31 January Under the liquidity contract shares cannot be sold freely by Neopost except if the contract is cancelled. This contract was signed, in accordance with the French association of investment companies (AFEI) code of ethic, with Exane BNP Paribas on 2 November 2005 for one year renewable by tacit agreement. The amount allocated to this contract was 8 million euros originally. The purpose is to reduce excessive volatility of the Neopost share and improve liquidity. (b) Payment of balance of 2013 dividend amounting to 2.10 euros per share included 1.23 euro deducted from the additional paid-in capital FIRST-HALF REPORT / NEOPOST

21 Consolidated financial statements at 31 July Notes to the consolidated financial statements Financial statements for half-year ended 31 July 2015 and 2014 and fiscal year ended 31 January (Unless otherwise indicated, all amounts stated hereafter are in millions of euros, rounded to one decimal place). Note 1 Presentation of the Neopost group and its consolidated financial statements 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 listed on the Paris stock market. 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 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, specialist in Master Data Management. In 2013, Neopost acquired DMTI Spatial, the leading Canadian provider of location-based Data Quality solutions. In 2015, Neopost took a majority stake in Temando Holdings Pty Ltd, an Australian technology company providing an intelligent fulfillment platform for the e-commerce and logistics industries. 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 113 rue Jean-Marin-Naudin Bagneux (France). Neopost S.A. shares are listed on the section A of Euronext Paris and are components of the SBF 120 indexes. The consolidated half-year financial statements were approved by the Board of directors on 28 September Some amounts at 31 July 2014 and 31 January 2015 have been reclassified to conform to the presentation adopted at 31 January Note 2 Accounting policies The interim consolidated accounts ended 31 July 2015 comply International accounting standards include IFRS, with the principles of the norm IAS 34 with summarized IAS (International Accounting Standards), and interpretations financial statements completed by detailed notes. of these (SIC and IFRIC). The interim consolidated accounts at 31 July 2015 do not The new standards and interpretations, adopted by the include all information required in the fiscal year accounts and European Union and subject to mandatory application for must be read along with the fiscal year accounts ended financial years starting after 1 February 2015, had no significant 31 January 2015 and published on the 29 April impact on the accounts as at 31 July 2015: 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 2015 as approved by the European Union. The IFRS are available on the European Commission website: #adopted-commission IFRIC 21: Levies; amendments IAS 19: Defined benefit plans employee contributions. Moreover, the Group does not apply the following texts which were not adopted by the European Union at 31 July 2015: IFRS 9: Financial instruments; amendments IFRS 11: Accounting for acquisitions of interests in joint venture; IFRS 14: Regulatory deferral accounts; IFRS 15: Revenue from contracts with customers FIRST-HALF REPORT / NEOPOST 19