Neopost Annual Report # 1 WORLDWIDE # 2 WORLDWIDE IN FOLDING / INSERTING SYSTEMS IN MAILING SYSTEMS

Transcription

1 Neopost 2003 Annual Report The mail facilitator # 1 WORLDWIDE IN FOLDING / INSERTING SYSTEMS # 2 WORLDWIDE IN MAILING SYSTEMS

2 Contents Incoming letters and parcels Chairman s Interview Neopost: Achieving ambitions Key figures History and organisation Strategy Neopost: a responsible company Stockmarket information Neopost: the mail facilitator Document systems Mailing systems Logistics systems Customer services Opening / Extracting Scanning Sorting and internal tracking Folding / inserting Address management Optimisation of franking expenses Franking Parcels shipment Tariffs management Neopost in figures Solid performance in Tracking and tracing Income statement highlights 31 Balance sheet highlights Historical data Outgoing letters and parcels

3 Neopost IM 35 Letters opener / extractor INCOMING MAIL COMPANY INTERNAL DEPARTMENTS Scanning of documents Neopost IJ 85 Franking machine With postal authorities certification Neopost Neomax Parcel shipping station With tracking and tracing Neopost BCT 110 Scale Neopost SI 30 Folder / inserter OUTGOING MAIL Neopost SI 68 Folder / inserter Neopost SA 1000 Addressing

4 Chairman s Interview I am very confident that we will continue our profitable growth. JEAN-PAUL VILLOT Chairman and CEO How was 2003 for Neopost? 2003 was a real turning point for Neopost. After acquiring Ascom Hasler and Stielow in 2002, we spent much of 2003 integrating these companies and strengthening our organisation was also a year of deployment, with the successful launch of highly competitive products in new market segments, and moves to increase our geographical coverage. Our online parcel management solutions were a big success, particularly with the UK and French postal authorities. In accordance with our sustained profitable growth strategy, we redefined our commercial priorities and allocated sales and marketing resources more efficiently around the world. Neopost is now in great shape to continue its development. How does this translate into figures? Neopost did well in At constant exchange rates, sales rose by 7.4%. On a pro forma basis, excluding currency effects and restated for various positive one-off events that took place in 2002 and 2003 such as changes in postal tariffs and

5 decertification programmes, organic growth was 2 to 3%. As far as earnings are concerned, we benefited from the success of our new digital products, along with synergies arising from our 2002 acquisitions. Operating income rose by 17% and net income by 20%. We are a year ahead of schedule compared to our original operating margin targets. This is a remarkable performance. Neopost s staff can be proud of their achievement, and I would like to thank them for their efforts. What does the future hold? In 2004, we expect organic sales growth in all our markets. We will continue to reap the benefits of our streamlining efforts. However, despite volume growth, the reduction in the time needed to manufacture our new digital franking machines means that we must cut production staff numbers. Further out, the outlook is bright, particularly in North America. Our industry is likely to be supported by several decertification programmes. As a result, we expect excellent performance between 2004 and 2008 in terms of both growth and productivity gains. What does this mean for Neopost s shareholders? Firstly, we have enhanced our payout policy, and we are proposing a 25% increase in the dividend per share. Over the last 18 months, we have turned Neopost into a stronger, more profitable company. At the same time, we have maintained our flexibility and responsiveness. We are paying greater attention to customers, while remaining highly decentralised. We have the financial, structural and human resources we need to achieve our strategy. I am very confident that we will continue our profitable growth, and I want to share this confidence with all our shareholders. 2 3

6 4 5 Neopost: achieving ambitions Neopost s strategy as a challenger is based on growth. Its target is to grow profitably, and more quickly than the market, while continually improving its products and services in order to help customers manage their letters and parcels flows more efficiently. Neopost also aims to be a leading partner of postal authorities and parcel carriers firms throughout the world. It intends to provide employees with a working environment in which they can all find personal fulfilment through teamwork. Neopost is strongly committed to respecting its environment. Neopost intends to realise its ambitions though technological innovation, which will make it increasingly competitive; greater productivity, to enhance performance; and geographical expansion, making it an increasingly international company.

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8 Key figures Neopost achieved a significant increase in profitability in 2003, showing its ability to integrate acquisitions, realise synergies and boost productivity, sales growth and technological innovation all at the same time. Operating margin rose from 17.5% in 2002 to 20.7% in 2003, and net margin from 9.2% to 11.1%. 30% 13% 9% 41% 7% North America France UK Germany Rest of the world CONSOLIDATED SALES (in m) In 2003, sales decreased by 1.3% but rose by 7.4% excluding currency effects. On a pro forma basis and excluding currency effects, sales only decreased by 0.9%, which was a good performance given the various positive factors that boosted 2002 figures. SALES BY COUNTRY (% of total 2003 sales) Neopost benefits from a geographical split of sales that is in line with the market breakdown. In 2003, Neopost achieved positive organic growth in each of its three main markets, i.e. North America, France and the UK In 2003 Controlling currency risk Neopost successfully balanced its dollar sales and expenditures following decisions taken and implemented in previous years. As a result, Neopost can maintain its margins regardless of the dollar s movements, which only have a translation effect on the financial statements. This control over currency risk is a major advantage for Neopost. Refinancing Neopost refinanced its debt on excellent terms, through a private placement in the US market ($185m and 25m) and a 350m syndicated revolving credit facility. Neopost s debt structure is now ideally suited to the financing of its rental and leasing businesses, enabling it to optimise its cash management OPERATING INCOME (in m) The improvement in productivity is mainly the result of new digital products and synergies arising from the Ascom Hasler acquisition. As a result of a 17.2% jump in operating income in 2003, Neopost is one year ahead of its original schedule.

9 OPERATING INCOME 20.7 % of total 2003 sales NET INCOME 11.1 % of total 2003 sales 65% 37% 35% 24% 39% Mailing systems Documents and logistics systems SALES BY BUSINESS LINE (% of total 2003 sales) Neopost s main business line is mailing systems, which consist mainly of franking machines. Document and logistics systems are principally made up of folders/inserters and parcels shipping stations. Equipment sales Rental and leasing Services and other SALES BY REVENUE TYPE (% of total 2003 sales) One of Neopost s strengths lies in its strong recurring revenues. 61% of its sales come from rental, leasing and other services, which mainly include maintenance and consumables NET INCOME (in m) The 19.7% rise in net income came from a higher operating income, a firm grip on financial expenses and almost 2m of non-recurring tax savings. GEARING Neopost offers equipment rental and leasing services, and its gearing reflects the financing of these activities. After rising in 2002 following two acquisitions, gearing fell substantially in 2003 due to strong cash generation.

10 History and organisation Neopost has more than 75 years of experience, and has attained new scale following the acquisitions of Ascom Hasler and Stielow. These acquisitions have strengthened its position as the world s second-largest supplier of mailroom solutions. Neopost now has a streamlined, efficient organisation in all its markets and is ready to continue growing. Ghanzou Shenzen JAPAN CHINA 1992 Neopost was set up by a group of investors led by Fonds Partenaires, through the acquisition of Alcatel s mailroom equipment division. This division had been created in 1970 through the acquisition of Société des Machines Havas and Satas, both of which had operated in the French market for more than 40 years, and was subsequently strengthened by the purchases of Roneo Vickers UK and Dutch operations in 1980 and of US company FME Corp in Another group of investors, advised by BC Partners and in association with management, took control of Neopost Neopost was floated on the Premier Marché of Euronext Paris on 23 February at a price of 15 per share Neopost, which already ranked second in the world, substantially increased its market share by acquiring third-placed Ascom Hasler, the mailing systems division of Swiss company Ascom. Neopost consolidated its position in Germany, the world s third-largest market, with the acquisition of its German distributor Stielow, which specialised in mailroom equipment Neopost completed the integration of companies acquired in 2002, sold Stielow s non-core label printing and print finishing businesses, and strengthened its operating structures. Products distributed in 90 countries Neopost s international sales network is a key aspect of its business. Products are distributed in 90 countries, either by subsidiaries, local distributors or a combination of the two. Neopost also distributes some of its products through OEM contracts. Acknowledged technological expertise The three R&D centres each specialise in a single product line, and employ almost 300 engineers and technicians. These staff have in-depth understanding of postal requirements, and advanced skills in paper management, encryption, ink-jet printing and software development.

11 CANADA NORWAY Memphis Shelton BELGIUM UK IRELAND FRANCE Bagneux Le Lude SPAIN NETHERLANDS Drachten GERMANY AUSTRIA ITALY USA Head office in Bagneux, near Paris. 3 R&D centres: Bagneux (France) for mailing systems, Shelton (USA) for infrastructure and networks and Drachten (Netherlands) for document systems. 2 assembly centres: Le Lude (France) for mid-range and high-end mailing systems and Drachten (Netherlands) for mid-range and high-end document systems. 2 outsourced assembly centres in China (Shenzhen and Guangzhou) for entry level mailing and document systems. 2 logistics platforms: Le Lude (France) and Memphis (USA). 8 9 Neopost has subsidiaries in 13 countries: Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, Netherlands, Norway, Spain, the UK and USA. Together, these countries account for 93% of the world s installed base of franking machines. 4,500 employees 800,000 customers worldwide The company has developed strategic alliances with well-known partners, concerning the supply of components or complementary technologies. An example of this is the alliance with Hewlett Packard concerning ink-jet technology. In 2003 Creation of two product customisation and logistics platforms: Le Lude (France), to cover the Europe and Rest of the World markets, representing an investment of 2m Memphis (USA), to cover the US and Canadian markets

12 Strategy Neopost is the world number two supplier of mailroom solutions. It has a number of strengths that enable it to take advantage of international trends in the market. While generating sustained growth, Neopost has maintained a flexible and highly decentralised organisation allowing all its staff to serve customers across the world with a high level of availability and responsiveness. In the next few years, Neopost is aiming to strengthen further its positions in the global mailroom solutions market. Its strategy for achieving this is as follows: Technological innovation Neopost currently spends the equivalent of 4 to 5% of its sales on research and development. This enables it to remain highly competitive and offer customers solutions at the forefront of technology. R&D spending has more than doubled in the last seven years, allowing Neopost to renew its entire product range in record time, while adding new patents to its portfolio. The company s main R&D Neopost has a highly international management team and Board of Directors. The company pays close attention to the needs and individual characteristics of its different markets, reflecting its desire to achieve greater global growth and move closer to its customers. AD. GILHAM Posts and partnerships AC. BENNETT Human Resources AA. MIDOWSKI Legal AD. THIERY Finance

13 efforts are now being focused on future Neopost also has an active acquisitions In generations of equipment, software, infrastructure and networks that policy aimed at winning market share and gaining greater control over its and early 2004, Neopost pursued its acquisitions strategy by buying four distributors in the USA (Cincinnati, Milwaukee, Sacramento and New York) and two in Europe (Norway and Ireland). manage information flows between customers and postal authorities and/or parcel carriers. Geographical expansion To achieve organic growth, Neopost is bolstering its sales teams in the most promising markets. In 2003, distribution, by gradually buying out local distributors. Enhancing productivity Beyond realising the cost synergies linked to the two companies it acquired in 2002, Neopost is working constantly to improve productivity. It invests heavily it adopted a new approach to in IT systems such as CRM (Customer marketing, allowing it to redeploy its Relationship Management) and ERP 2,000 direct and indirect sales force (Enterprise Resource Planning). and enhance their commercial efforts. Expanding the range of financing This international programme is services, together with sales growth tailored to local markets, and focuses and its new approach to marketing, on high-potential market segments. will also help increase margins. AJ.P. VILLOT Chairman and CEO AG. KERAVAL Europe AP. NANGLE North America AB. DURET Industry and R&D AJ. LIEVRE Logistics Systems

14 Neopost: a responsible company In 2003, Neopost formally set out its sustainable development policy. Respecting the environment and social responsibility are core concerns for Neopost, which long ago adopted a corporate governance policy in line with best practice. In Manufacturing units environmental performance in 2003 in accordance with France s new economic regulations (NRE) legislation. Consumption of water m 3 Consumption of electricity kWh Consumption of gas m 3 Neopost environmental responsibility Neopost s industrial activity consists mainly of assembly operations. Neopost s products are designed to minimise consumption of raw materials and energy, noise emissions and other pollution. The company has always favoured the refurbishing and recycling of its machines. Incineration is used to dispose of waste only as a last resort. At the same time, Neopost is developing maintenance programmes intended to extend the useful life of its products. A Sustainable Development officer has been appointed, reporting directly to Jean-Paul Villot, Neopost s Chairman and CEO. This officer is supported by two special committees, one covering Neopost s development and production activities and the other covering its distribution activities. These committees are made up of sustainable development correspondents from each of Neopost s subsidiaries. Production of packaging waste 578t Production of industrial waste* 933t including 18t of hazardous waste ** * Two thirds of industrial waste was recycled (paper, cardboard, steel and aluminium). ** In the sense of European directive External consultants have been appointed to assess the environmental impact of Neopost s production and distribution activities. Neopost is committed to obtaining ISO14001 certification for its production and distribution sites. Neopost social responsibility Neopost has a decentralised organisation in which each subsidiary

15 is fully responsible for its policy as regards human resources, hygiene and safety. All subsidiaries chairmen are in charge of ensuring compliance with national laws and regulations, and their actions are regularly reviewed by Neopost s head office management. When Neopost uses external suppliers or subcontractors, its contracts specify compulsory compliance with International Labour Organisation (ILO) conventions, UN resolutions and local legislation as regards working conditions, hygiene and environmental protection, and contain audit clauses. Sometimes, market developments may force Neopost to take the decision to cut production staff levels, as in early These decisions are only taken after considerable efforts to find alternative solutions, and are intended to maintain the company s competitiveness. Neopost Corporate Governance responsibility Neopost adopted an independent, international Board of Directors at a very early stage in its development. The Board is made up of seven Directors, of which six are independent DIRECTORS * MAIN FUNCTIONS FIRST APPOINTED NEOPOST TERM COMMITTEE OF OFFICE MEMBERSHIPS JEAN-PAUL VILLOT CHAIRMAN AND CEO, NEOPOST SEPTEMBER /01 01/04 APPOINTMENTS HENK BODT CHAIRMAN OF THE JUNE /03 01/06 AUDIT SUPERVISORY BOARD, ASML JACQUES CLAY COO EUROPE, JANUARY /03 01/04 REMUNERATION HARBOR INC AND APPOINTMENTS CORNELIUS GEBER CHAIRMAN AND CEO, JULY /02 01/05 REMUNERATION BETEILIGUNGS-MANAGEMENT AG AND APPOINTMENTS MICHEL GUILLET CO-FOUNDER AND MANAGING SEPTEMBER /01 01/04 REMUNERATION PARTNER, BC PARTNERS AND APPOINTMENTS ERIC LICOYS COMPANIES JULY /03 01/06 - DIRECTOR RAYMOND SVIDER MANAGING PARTNER SEPTEMBER /02 01/05 AUDIT BC PARTNERS *MR PIERRE BONNELLI, CHAIRMAN AND CEO OF BULL, WAS A DIRECTOR OF NEOPOST AND A MEMBER OF THE AUDIT COMMITTEE FROM OCTOBER 1999 UNTIL HIS DEATH ON 31 MARCH The Board of Directors is involved in all decisions affecting Neopost s strategy, acquisitions and development. In 2003, the Board met four times, with an attendance rate of 96%. Three Committees ensure the smooth running of the Board s activities. Each of these Committees met twice in The Board and Committees mode of operation, along with director independence criteria, are defined by a set of company bylaws, which was approved by the Board of Directors on 30 March 2004.

16 Stockmarket information Neopost is listed on the Premier Marché of Euronext Paris Two listed securities: Shares Convertible bonds ISIN code FR FR Reuters code NPOS.PA NPOSx.PA Bloomberg code NEO FP NEOPOS CORP Number of securities in issue OWNERSHIP STRUCTURE * (in % of capital) 98% Member of the SBF 120 and Next 150 indices Market capitalisation as at 30 April 2004: 1.4bn 2% Reporting schedule for the 2004 financial year 8 June 2004* Q sales Free float of which: institutional investors 95 % individual shareholders 3 % Management and employees 8 July 2004 Shareholders meeting 12 July 2004 Dividend payment 7 September 2004* Q sales 5 October 2004* H results 7 December 2004* Q sales 8 March 2005* Q sales March/April 2005* Full-year 2004 results GEOGRAPHICAL BREAKDOWN OF SHARES OWNED BY INSTITUTIONAL INVESTORS * 42% * Figures published after the closing of the Premier Marché of Euronext Paris 11% 43% 4% USA UK France Other countries Investor Relations GAËLE CHAGNAUD Tel: +33 (0) g.chagnaud@neopost.fr Two investment funds reported interests in excess of disclosure thresholds at 31 January 2004, i.e. Fidelity Investments (11.0%) and Harris Associates (5.38%). * Source: Thomson Financial report, 31 December 2003

17 SHARE PRICE PERFORMANCE SINCE FLOTATION (BASE: 23 FEBRUARY 1999=100, SOURCE: JCF GROUP) , Neopost SFB 120 Neopost s share price has more than tripled in the last five years. International ownership More than 80% of Neopost s capital is owned by institutional investors based in the UK and USA. Dividend policy At its meeting on 30 March 2004, the Board of Directors decided to propose a dividend of 1.25 per share to the shareholders meeting convened to approve the 2003 financial statements. This represents a 25% increase on the previous year, and equals 45.4% of 2003 net income. Any dividend not claimed within the five-year eligibility period shall lapse in accordance with the law. MAIN STOCKMARKET DATA FOR THE LAST 18 MONTHS EARNINGS AND DIVIDEND PER SHARE Share price Share price Average daily Average daily hight low volume volume ( ) ( ) (shares) ( m) November , December , January , February , March , April , May , June , July , August , September , October , November , December , January , February , March , April , Source: Euronext Paris S.A EPS ( ) Dividend ( )

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19 Neopost: the mail facilitator Companies are increasing their productivity, they streamline and automate their mail operations and modernise their mailroom equipment. Neopost advises these companies, helps them to select products and offers appropriate financing services. Neopost installs machines and provides maintenance both preventative maintenance and repairs as well as updating franking machines software for changes in postal rates and supplying consumables. As regards parcels, Neopost s systems are used to produce transport documents, exchange information between shippers and carriers, track parcels and provide digital proof of delivery. Mailing solutions is a niche market that generates revenues estimated at $5bn per year.

20 Document systems Document management involves receiving incoming mail, opening envelopes and extracting the contents and then processing and distributing them within the company. It also involves in the same mailrooms folding letters and inserting them into envelopes, ready to be franked: document management systems simplify companies everyday operations and significantly increase their productivity. Comprehensive product range, meeting customer needs By designing, producing and commercialising dedicated machines and equipment, Neopost make it easier for companies to handle dayto-day incoming and outgoing mail. From incoming mail Neopost s range of incoming mail equipment includes several innovative opener/extractors, which can handle a wide range of letter and paper sizes. Neopost also distributes mailroom accessories, furniture and supplies bought in from external suppliers. Neopost also provides software that makes it easier to manage incoming mail, such as mail sorting solutions based on voice-recognition technology, along with global mail, and fax management software. to outgoing mail Neopost has a highly competitive range of outgoing mail solutions, folding/inserting machines, which automate the collation, folding and insertion of documents within envelopes. The entire range is highly innovative, modular and user-friendly. Basic products are intended for office use, and mid-range products for mailroom use.

21 A Folder/inserter SI In Neopost is constantly innovating, and it continued to improve its product range with the launch of the SI 30 folder/inserter. This machine is targeting at a new market segment small businesses and has been a big hit, enabling the company to increase its market share. Again, Neopost s offering is enhanced by software, which links with databases to offer functions such as print flow management, insertion preparation, collation and routing. Increasing customer demand Companies are modernising their mailrooms, like all their other departments. They are streamlining their processes to save time and increase efficiency, to control and reduce costs and to enhance their service. More and more functions are being automated, including insertion, scanning and letter-opening. With its worldrenowned document solutions, Neopost is anticipating and responding to its customers future needs. World leader in folders/inserters According to a report carried out by the UK competition authorities in 2002, Neopost is the world s leading manufacturer of office and mailroom folders/inserters, with global market share of 56%.

22 Mailing systems All over the world, Neopost plays a central role in relationships between postal authorities and companies. Companies use Neopost s mailing systems to frank their mail on demand, and to make secure payments to the postal authorities. Neopost s mailing systems division is its original and largest business line, and enhances the productivity of all Neopost s business customers. Highly competitive product range Mailing systems provide customers with a simple and effective way of managing the letters and parcels they send through the postal authorities, and of paying their franking expenses in a secure manner. Increasingly, franking machines are becoming fully-fledged postage terminals, linked to servers that collect data and exchange information, as well as automatically topping up franking credit and updating tariffs. Neopost has a comprehensive range of digital ink-jet mailing systems capable of handling between 1,200 and 13,000 letters per hour. These systems are used by customers with mail volumes from 15 letters per day upwards. Neopost s mailing systems are complemented by software that allows functions such as computerised control over franking machines, management and monitoring of sensitive mail particularly registered

23 A Franking machine IJ 85 with dynamic scale mail and control over franking budgets, by consolidating a company s mail data in one place. authorities with practical data and detailed statistics on their customers real needs. These systems therefore act Productivity gains for customers Mailing systems have major benefits for users. They remove the need to buy and affix stamps, and they can handle very large volumes of mail in a short period of time, as well as offering automated management of franking expenses. They allow companies to optimise franking expenses, and sometimes to benefit from preferential tariffs. and for postal authorities These systems also allow postal authorities to collect a large proportion between 30% and 50% depending on the country of their franking revenues in a secure, low-cost way. They also provide postal as a genuine CRM tool, enabling postal authorities to customise their service and enhance their competitiveness, particularly in order to prepare for the removal of national monopolies scheduled to take place in Europe in Entry barriers Franking machines print money on behalf of postal authorities. This sensitive aspect of Neopost s business represents a major entry barrier for potential new competitors. Postal authorities place a large number of constraints on suppliers of franking machines: suppliers must gain certification for both their products and manufacturing processes, and must market and maintain their In Always attentive to customer needs, Neopost expanded its mailing systems range in 2003 with the launch of a high-performance dynamic scale targeting the upper end of the market. This dynamic scale is available with the new IJ85 franking machine, and has received a warm welcome in the market.

24 M AILING SYSTEMS products across the entire country. Some countries require suppliers to retain ownership of some or all of their machines, and therefore to develop a rental base. Every country has its own postal procedures and regulations. It takes a very long time to acquire the knowledge to comply with these regulatory and technical constraints. Only a very small number of manufacturers, which have been established for a long period of time, have managed to develop trusted relationships with postal authorities. The mailing systems market Mailing systems represent the main segment of the mailroom solutions market. They generate strong recurring revenues from rental, leasing, maintenance and consumables. The market is highly Franking machine IJ 45 S concentrated, with five countries currently making up 81% of the world market, i.e. the USA, France, Germany, the UK and Canada. Neopost: a global challenger With an installed base of more than 700,000* machines, equal to around 26%* of the worldwide installed base, Neopost is the world number two and European number one manufacturer of franking machines. The company ranks number one or two in all markets in which it operates. Neopost has in-depth knowledge of the postal market, and over the last 75 years has become an expert on the regulatory and competitive environment of every country in which it operates. This enables it to anticipate regulatory changes and market developments. Changes in postal tariffs When in any country a postal authority decide to change its postal tariffs, specific information must be sent electronically (via smartcards or the Internet) to allow postage to be calculated on the basis of the new tariffs. These tariff changes generate additional one-off revenues for Neopost. Decertification Postal authorities are now encouraging or requiring users to replace their installed bases of franking machines more frequently, due to recent progress in digital printing, encryption and communication technology. This is known as decertification, and leads to additional business volumes for Neopost.

25 NEOPOST S MAIN MARKETS Four markets (North America, France, the UK and Germany) account for 81%* of the world s installed base of franking machines. Neopost operates in different ways in different markets, mainly due to local postal legislation. The characteristics of each market are set out below: NORTH AMERICA 2 brands in the USA: Neopost and Hasler 1 brand in Canada: Neopost 17% market share in the USA* 22% market share in Canada* Equipment rental and sales Direct and indirect distribution FRANCE 2 brands: Neopost and Satas 65% market share* Equipment rental Direct distribution UK 1 brand: Neopost 40% market share* Equipment sales Direct distribution GERMANY 1 brand: Neopost 21% market share* Equipment sales Direct distribution * As a percentage of the installed base of franking machines. Source: postal statistics and Neopost estimates

26 Logistics systems Neopost is at the forefront of innovation as regards using Internet technology in parcels management systems, including parcel shipping preparation and monitoring, tracking and associated services. This acknowledged technological expertise gives Neopost a clear advantage. There is also scope to apply the same functions to the letters segment, for instance via the evolution towards intelligent mail. Solutions for shippers and carriers Neopost Logistic Systems parcel transportation products and services mainly involve shipping stations, scanning of proof of delivery documents and parcels tracking. Neopost offers innovative solutions to carriers in Europe and shippers in the USA for managing parcel shipment information. These solutions enable shippers to improve productivity, and carriers to enhance efficiency. Information flows between shippers, carriers and addressees are a central concern in current developments in the transport sector. Shipping stations Neopost s main offer in this area consists of shipping stations, which are either dedicated terminals or software on PC or Internet. They enable users to handle their shipments more effectively, manage their addressee databases, select the best price among a range of carriers, generate shipping labels and documents. They also handle, together with the selected carrier, the entire parcel tracking process. These shipping stations provide a whole range of related services

27 A Shipping station Neomax Plus In Neopost won two major contracts in this market, showing the extent to which its expertise is acknowledged in the industry. In September, Royal Mail subsidiary Parcelforce chose Neopost Logistic Systems solutions for the online management of all its parcels shipping services. This initial, highly prestigious contract win was followed in December by a similar contract with Geopost, a subsidiary of La Poste in France. allowing users to track a parcel until it is delivered, and to check billing-related information. They also allow fully centralised management of shipments made by multiple users within single or multi-site organisations, with each shipper having individual access Information flows relating to these parcels are growing even more quickly. Neopost uses technologies that dematerialise, digitise and electronically distribute transaction information. Every day, Neopost inputs, processes and manages hundreds of thousands of pieces of information and transport In the USA, Neopost signed new contracts with companies like Fleet, Olympus and Verizon, after winning contracts from Cisco and General Motors in to data concerning his/her shipments and being able to consult all past shipments. Data is routed by Neopost s secure servers to the systems of each operator who is a Neopost customer. documents. Neopost now partners France s leading carriers (DHL, Geodis/Calberson, Mory Group, Geopost, etc.) as regards the digitisation and archiving of receipts, which can be accessed Reliable management of parcel rapidly on the Internet. It also offers flow information database hosting and isdeveloping Parcel flows are increasing constantly, interactive services unique to the particularly as a result of e-commerce. transport industry.

28 Customer service: a core concern Neopost seeks to form genuine partnerships with customers, assisting them across their entire mailing management process. It provides advice, training, remote support, installation and maintenance, and offers a personalised service at every stage. Financing solutions rental or leasing are also central to Neopost s offering. This comprehensive set of services gives Neopost recurring revenues, which make up around 60% of its total sales. Partnering postal authorities All over the world, postal authorities are undertaking initiatives to improve efficiency and service quality. Neopost has always focused on innovation, and has developed very close relationships with postal authorities, allowing it to play a key role in the technological development of franking machines approved by these authorities. As well as benefiting Neopost s business customers, these innovations are intended to boost postal authorities productivity and make their management more efficient. and advising businesses Neopost s business customers appreciate Neopost s specialist expertise, which helps them select the solutions most appropriate to their mail management needs. Neopost provides important advice and training on mailroom organisation and the choice of equipment and furniture, depending on each customer s

29 A Consulting and training in mailroom equipments In Neopost reinforced its financing services in 2003 by setting up two dedicated subsidiaries, one in the USA to serve the Hasler network and the other in Germany. In December 2003, Neopost France won France Telecom s i-contact trophy for the best after-sales service call centre. requirements. As part of this service, Neopost also includes all of its mail management software tools, which help users to achieve genuine automation of their mail functions. Maintenance: forming close bonds with customers In all countries in which it operates directly via a subsidiary, Neopost has call centres and maintenance teams that carry out preventative maintenance and repairs on all its products, along with the regular inspections of mailrooms required by the postal authorities. These services are provided under maintenance and service contracts, and are paid for by Neopost s customers. Supplying consumables completes Neopost s comprehensive range of services. Financing: solutions for all types of customer Neopost has wholly-owned leasing subsidiaries in the USA, the UK, France, Canada and now Germany. These subsidiaries offer financing services exclusively to Neopost customers. This leasing service is very popular among customers, and forms an integral part of Neopost s marketing strategy. Franking machine rental contracts are generally for an initial period of between one to four years, depending on the country s postal regulations and standard practices, whereas leasing contracts last between four to six years.

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31 Neopost in figures 2003 was a turning point for Neopost. It was a year of consolidation, with the successful integration of Ascom Hasler and Stielow, which had been acquired in It was also a year of deployment, thanks to the launch of competitive new products and efforts to increase market coverage. Sales rose by 7.4% excluding currency effects. Operating income grew by 17.2%, and reached 20.7% of sales. Neopost made a net income of 84m, and for the first time in its history achieved double-digit net margin of 11.1%.

32 Solid performance in 2003 Sharp increase in margins in 2003 In 2003, sales decreased by 1.3% but rose by 7.4% excluding currency effects. On a pro forma basis and excluding currency effects, sales decreased by 0.9%, which was a good performance given the various positive factors that boosted 2002 figures. Operating income rose by 17.2% to 156m, giving operating margin of 20.7%. This increase was due to: synergies resulting from the successful integration of Ascom Hasler, the success of new digital products, the final elimination of losses and cessation of activities at Neopost Online, a firm grip on currency risk. Net income grew by 19.7% to 84m, giving net margin of 11.1%. Stronger financial position Gearing fell from 1.5 to 1.0, thanks to: strong cash flow, reduced working capital requirement, the weaker dollar. During 2003, Neopost successfully refinanced all of its non-leasing debt. The very good terms of this refinancing clearly demonstrate the market s recognition of Neopost s excellent credit quality. This refinancing will enable Neopost to redeem its 135m convertible bond issue maturing on 1 February 2005, as well as fund its future developments outlook With its stronger organisation and its increasingly competitive range of products and services, Neopost is expecting positive organic sales growth in The company will also continue to increase productivity. Operating margin should be at least 22% in 2004, regardless of movements in the dollar.

33 Income statement highlights The financial statements for the year ended 31 January 2004 include Ascom Hasler and Stielow core businesses for the full 12 months. They also include Stielow s label printing business, which was sold on 1 September 2003, for 8 months and Stielow s print finishing business, which was sold on 1 March 2004, for 12 months. The financial statements for the year ended 31 January 2003 included Ascom Hasler s North American business for 11 months, Ascom Hasler s non-north American activities for 8 months and Stielow for 5 months. To make it easier to analyse Neopost in its new configuration, pro forma financial statements have been drawn up in accordance with the group s accounting principles. These financial statements include all Ascom Hasler and Stielow businesses, for 12 months in 2002 and 2003, except for the non-core Stielow businesses that have now been sold. Year ended 31 January 2004 Year ended 31 January 2004 m Neopost Neopost Neopost Neopost Pro forma Pro forma Sales % % % % Cost of sales (211.1) (28.1)% (199.1) (27.2)% (236.0) (31.0)% (248.0) (30.8)% Gross margin % % % % R&D expenses (32.8) (4.4)% (32.7) (4.5)% (33.4) (4.4)% (38.2) (4.7)% Sales and marketing expenses (191.4) (25.5)% (187.9) (25.7)% (195.1) (25.6)% (206.4) (25.7)% Administrative expenses (93.4) (12.4)% (91.1) (12.4)% (100.2) (13.2)% (105.8) (13.2)% Service and other operating expenses (64.6) (8.6)% (61.2) (8.4)% (61.4) (8.1)% (66.0) (8.2)% Employee profit-sharing (1.9) (0.3)% (2.0) (0.3)% (1.6) (0.2)% (1.6) (0.2)% Operating income % % % % Net financial income (expense) (26.7) (3.5)% (26.7) (3.7)% (25.0) (3.3)% (27.0) (3.3)% Profit on ordinary activities before tax % % % % Net extraordinary income (expense) Income tax (40.5) (5.4)% (40.9) (5.6)% (33.3) (4.4)% (34.5) (4.3)% Results of associated companies % % % % Minority interests (0.1) - (0.1) - Goodwill amortisation (6.0) (0.8)% (6.0) (0.8)% (5.7) (0.8)% (6.0) (0.8)% Net income % % % %

34 Balance sheet highlights 31 January ASSETS ( m) Goodwill Intangible fixed assets Tangible fixed assets Financial fixed assets Lease receivables Long-term deferred tax assets Inventories Trade receivables Cash, cash equivalents and short-term investments Other short-term assets Total assets 1, , January LIABILITIES ( m) Shareholders equity Provisions Debt Lease payables Long-term deferred tax liabilities Prepaid income Other short-term liabilities Total liabilities 1, ,325.1

35 Historical data SALES (in m) Between 1992 and 2001, Neopost generated average sales growth of 9% per year, of which around 8% consisted of organic growth. The sharp rise in 2002 was due to the Ascom Hasler and Stielow acquisitions. OPERATING INCOME (in m) Excluding Neopost Online Neopost Online Since 1992, Neopost s operating income has risen by 23% per year on average. In 1998, Neopost started investing heavily in Internet-based franking solutions, and set up the dedicated Neopost Online subsidiary. However, this unit s costs remained too high for it to be profitable, and Neopost decided to close it down. Nevertheless, the investment carried out between 1998 and 2002 enabled Neopost to build a vital base of technology for the future. CONCEPTION, WRITING AND DIRECTION: Gavin Anderson & Company - Neopost DESIGN: Michel Jeanne ILLUSTRATIONS : Stéphane Jungers PHOTOS : Philippe Zamora and Bob Grier

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