NEOPOST_REGISTRATION_DOCUMENT_2017

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Management Report

Risk factors

The table below gives a precise description and dedicated action plan for each of the 17 identified risks and the way these risks are mitigated.

Highest risks

Risks

Risk management system

Decline in mail volumes

Mail volumes decrease in most countries where the Group operates. Experts anticipate a further decline of about (3) to (6)% per year. The Group’s Mail Solutions activities are linked to mail volumes. Excluding currency effects these activities were down by (5.3)% in 2015, by (4.6)% in 2016 and by (4,3)% in 2017. Developing and launching products requires major investments. The Group’s results and future financial position will depend in part on its ability to improve its products and services, develop and produce new ones at lower prices, deliver on time as well as distribute and market them. Neopost has two main competitors in its legacy business (Mail Solutions): world leader Pitney Bowes and Francotyp Postalia, No. 3 worldwide. Pitney Bowes is listed on the New York Stock Exchange and its main market is the United States of America. Francotyp Postalia is listed on the Frankfurt Stock Exchange. Germany is its main market. Regarding Neopost's digital communications and shipping activities, the Group had made several acquisitions since 2012: GMC Software AG in July 2012, Human Inference in December 2012, DMTI Spatial in October 2013, ProShip in May 2014 and icon Systemhaus in July 2016. In addtion, between April 2015 and September 2017, Neopost took full control of Temando. All these companies 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, a factor that could impair the Group’s competitiveness. To counter the decline in mail volumes in its legacy business, the Group is developing new activities. This entails a considerable efforts in terms of transformation. The rate at which this transformation can be achieved is a key factor for the Group financial results in the future. Intellectual and human capital is a real source of productivity and talent management has become essential. In a constantly changing employment market, it is essential to retain and motivate talent. Some positions require particular attention due to their key role in the organization and the associated specific skills. The succession plan is a tool that should ensure the continuity of the organization’s business by identifying these key positions, measuring the risk of failure of the people occupying them and implementing the actions necessary to ensure the succession.

To mitigate this decline the Group continues to innovate to gain market share and is developing complementary activities which enjoy strong growth. Thanks to these activities, Neopost limited the organic decline of its Group sales by (1.8)% in 2015, (2.1)% in 2016 and (2,2)% in 2017. A very strict procedure is applied for each new product launch. It involves a Group project, planning, risk assessment and steering committee. All departments concerned are involved in the Group project and in the steering committee. The strategic and marketing department regularly analyzes the competition, this topic is discussed with the executive committee and the Board on directors at least once a year. With regard to the new activities related to digital communication and shipping, the group has access to market research carried-out by major research consulting firms.

Launch of new products

Competition

Transformation

Training programs have been organized for managers and sales teams to familiarize them with new products. In addtion, a one-year training program has been launched to provide continuous support to managemant committees of the SME division to help them better manage all aspects of this transformation. To reduce the risk of losing key personnel, the Group has put in place retention incentives such as phantom shares and free shares. It has also implemented contingency plans for all major key positions at the level of the holding company, Neopost S.A., as well as at the level of each subsidiary. These plans are regularly updated and reviewed by the remuneration committee and the nomination committee.

Attractivity, talent retention and succession plan

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REGISTRATION DOCUMENT 2017 / NEOPOST