Sustainable development

Interview

The global economy is experiencing a period of crisis on unprecedented scale. Is Neopost’s business affected?

Denis Thiery: One of the features of Neopost’s business is our ability to rely on recurring revenue, which has little sensitivity to changes in the economic climate. This includes revenue from services, rentals, financing and the sale of supplies, which together account for about two-thirds of our total sales. Equipment sales account for only the other third. Although not completely immune to economic conditions, Neopost is only moderately affected by the crisis. For 2008 as a whole, following the successful integration of PFE, we generated growth of more than 6% at constant exchange rates, a performance in line with the guidance we gave at the very beginning of the year. Another remarkable fact is that our sales grew in all of our markets.

To what do you attribute these strong performances?

Jean-Paul Villot: I believe that they reflect the strength of Neopost’s business model. Innovation; the ability, on a local level, to make the most of changes in postal regulations; the increase in revenue per customer through the expansion of services or of cross-selling (between mailing systems and document management systems), or indeed the strengthening of our direct distribution; the efficient integration of acquisitions, such as that of PFE this year, or the strong commitment of our staff – all these factors underpin the sustainability of Neopost’s business model and allowed us to continue to generate profitable growth in 2008.

Should one be concerned about the increase in Neopost’s debt?

Denis Thiery: No. Debt has been rising for a number of years as the result of a deliberate policy on our part of expanding financial services. All of our debt is allocated to the financing of our leasing and rental activities. Since 2004 we have grown our leasing portfolio in a fully controlled way, gradually extending this service to all of our European subsidiaries and beginning to offer it through our US distributors. So, we are not concerned about our debt, particularly as we are well within our covenants and we have the resources comfortably to cope with our financial commitments. Moreover, our business is a strong cash generator, thanks notably to our recurring revenue.

“The strong performances in 2008 paint a good picture of the strength of Neopost’s business model.”

Can you explain the advantages of expanding leasing operations?

Denis Thiery: Leasing lies at the heart of our strategy. This method of financing provides our customers with many benefits, starting with simplicity and highquality services, most notably allowing them to enjoy
latest-generation equipment at all times. For Neopost, it is a powerful marketing tool which gives us greater control over our installed base. In practice, leasing allows us to provide better support to our clients when they come to renew their equipment as contracts expire. In addition, from a strictly financial viewpoint, it is a profitable business on which risk has historically been very low.

In 2008 you launched a programme to optimise your structures. What does this plan consist of and how is its implementation progressing?

Jean-Paul Villot: Generating profitable growth is part of Neopost’s DNA. We seek constantly to identify new sources of progress within our organisation, which regularly integrates new entities whilst remaining highly decentralised. Then we can draw on our ability to generate economies of scale, improve the efficiency of our organisation, both commercially and industrially, and generate synergy from integrating our acquisitions. Enhancing our productivity has always been a key aspect of our business culture. This is why we decided, in early 2008, to launch a three-part programme. The first part consisted of bringing together our three US R&D centres in Austin. The second, which is now under way, covers the rationalisation of our supply chain and particularly the merging of our logistics platforms into two centres: one in Memphis for North America and the other in Le Lude for Europe. The third concerns the restructuring of our entire sales administration system in the United State, which includes the closure of our California headquarters – so that we now have only a single headquarter, in Milford, Connecticut – the and the savings generated are also likely to be in line with the figures we announced, namely between
€6 million and €7 million per year by 2010.

“The acceleration of the phenomenon of technological obsolescence generates faster renewal of equipment.”

Given current conditions, are you going to re-examine your policy of shareholder returns?

Jean-Paul Villot: No, we are not going to change the shareholder return policy we introduced in 2005. Since then we have returned 100% of the net increase in our shareholders’ equity to shareholders through dividends and share buybacks. In 2008, share buybacks totalled 2% of our capital and we have proposed a dividend of €3.80 per share, an increase on the dividend of €3.65 per share paid against 2007 earnings. We have also introduced a principle of paying an interim dividend in order to reward the loyalty of our shareholders by offering them more regular yield. For 2009, we will of course continue to pay an interim dividend and our intention is to maintain a high dividend. Only share buybacks will be limited, at most, to the dilution created by the exercise of stock options.

What are your ambitions as far as acquisitions are concerned and what are your selection criteria?

Jean-Paul Villot: Our acquisitions policy seeks either to strengthen our core business, namely mailroom solutions, or to enrich our offering through the targeted acquisition of small companies that can enhance our technological portfolio. For example, our activity in the field of logistics has allowed us to develop traceability solutions which we applied initially to the parcels segment and later deployed in the flat mail environment. We believe that the same will hold true of applications based on RFID(1) technologies.

Denis Thiery: The other main aspect of our acquisitions policy is the acquisition of our own distributors, in order to build up the share of direct distribution step by step. Although we do not intend to try to cover all our territories with our own branches or subsidiaries, the direct distribution approach gives us greater control over our marketing policy and our customer relations. From 31% direct coverage of our installed base in the United States in 2004, by early 2009 we had increased this to 53% and our intention is to further increase this to 60% in the near future. In Europe we have also acquired a number of distributors and there are further attractive opportunities available to us in Spain, Scandinavia and Switzerland.

Do you believe that Neopost can continue to grow?

Jean-Paul Villot: In recent years, Neopost has been able to grow faster than its market by taking advantage of the regulatory and technological changes that the evolution of the postal sector has brought. We are in a high-tech industry. Innovation will continue to play a key role, resulting in the development of new functionality and an acceleration in equipment replacement cycles. Neopost’s strength is our ability to make the most of these innovations, to increase our revenue per customer.

Denis Thiery: The success of our new IS range of mailing systems provides evidence of this. Fullydigital, with ink-jet printing and internet connectivity, they offer an unrivalled range of accessories and services in this segment. Postal operators, as they seek to optimise costs and improve services, will continue to build on the efficiency that the use of franking systems by their clients creates. These systems, as they grow increasingly sophisticated, are a source of greater automation of the mail-handling chain, and allow greater differentiation between postal services. In very concrete terms, better control over our distribution and the more widespread use of leasing contracts will allow us to take full advantage of the phenomenon of technological obsolescence and shorter product life-cycles. Nor should we forget that in a period of tough economic conditions, efficient management of mail can offer companies a source of savings, both from the rationalisation of their mailroom services and the optimisation of franking costs.