NEOPOST_REGISTRATION_DOCUMENT_2017

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Financial statements

Consolidated financial statements

Market risks 11-4-2: The Group is mainly exposed to currency exchange rate risks through its international activity and to interest rate risks through its debt. The Group treasurer, who reports to the Group chief financial officer, monitors exchange rate and interest rate risks for all Neopost group entities. A report showing the Group’s underlying position and hedges is sent each month to the chief financial officer to provide complete visibility on the financial risks relating to hedging activities, and to measure the financial impact of unhedged positions. Neopost uses the services of an independent consultancy based in Paris. This consultancy helps Neopost in its exchange rate risk hedging policy, and values its portfolio of hedging instruments under IFRS. This ensures the consistency of methodologies used and provides a financial opinion independent of any financial institution. This Company has the technical and human resources to monitor interest rate and exchange rate trends every day and alert the Group treasurer in light of the strategy in place. However, no guarantee can be given regarding the Group’s ability to hedge effectively against market risks. Exchange rate risk Natural hedge Neopost enjoys a natural hedge on its current operating margin and its net income. Based on the 2018 budget, the breakdown of sales and costs in United States dollars is as follows: sales 41.5%, cost of sales 48.8%, operating costs 32.6%, interest expenses 27.1%. A 5% decrease in the euro/United States dollar exchange rate from the budget rate of 1.20 would have the

following impacts on the Group’s income statement: sales (22.8) million euros, current operating income (6.0) million euros and net income (3.9) million euros. Based on the 2018 budget, the breakdown of sales and costs in pounds sterling is as follows: sales 9.0%, cost of sales 6.6%, operating costs 10.5%. A 5% decrease in the euro/pound sterling exchange rate from the budget rate of 0.91 would have the following impacts on the Group’s income statement: sales (4.9) million euros, current operating income (1.6) million euros and net income (1.2) million euros. The other currencies are not a major concern for the Group. None of them, individually taken, represents more than 5% of the total sales. Beyond the natural hedge, no guarantee can however be given regarding the Group’s ability to hedge exchange rate risk effectively. Risk management policy Neopost has a policy of centralizing its foreign currency risk, enabling it to monitor the Group’s overall exchange rate risk exposure and to gain full control over the market instruments used in hedging operations. For each consolidated position managed, Neopost implements a hedging strategy at the same time as it sets the reference exchange rate to be defended. The hedging strategy involves a combination of definite or optional forward currency purchases or sales, along with open positions protected by stop losses. These stop losses are predetermined exchange rates that trigger hedging transactions when they are hit. As a result, the hedging strategy enables Neopost to defend a reference exchange rate for the entire position in the event of adverse exchange rate fluctuations.

Year-end position The tables below represent Neopost’s year-end positions as regards exchange rate hedging for commercial activities.

FINANCIAL YEAR 2017 – ASSETS AND LIABILITIES HEDGING: HEDGING POSITIONS COVERING FINANCIAL ASSETS OR LIABILITIES ON NEOPOST S.A.’S BALANCE SHEET AT 31 JANUARY 2018 AND EXPECTED TO BE REALIZED NO LATER THAN APRIL 2018

Notional value

USD GBP CAD NOK JPY SEK CHF DKK CZK SGD AUD PLN

Total assets

47.0 9.3 5.6 9.3 1,653.8 7.2 17.2 11.8

7.0 (0.1)

4.8 1.5

Total liabilities

25.7 9.8 5.6 1.3 194.1 4.2 11.2 7.8 146.5 3.8 1.6 0.4

Net exposure before hedging

21.3 (0.5) (0.0) 8.0 1,459.7 3.0 6.0 4.0 (139.5) (3.9) 3.2 1.1

Hedging - NET EXPOSURE AFTER HEDGING (1.9) (0.5) 1.4 8.0 558.1 2.2 16.9 4.0 (17.4) (4.5) 3.2 1.1 (23.2) - 1.4 - (901.6) (0.8) 10.9 - 122.1 (0.6) -

Neopost uses notably symmetrical options tunnels. These instruments are unlikely to be exercised in a reciprocal manner in terms of the spot exchange rate or expiry date. As a result, for each tunnel only one of the two options is reported in the table above. The value of the commitment in these symmetrical options was 2.0 million United States dollars sold and 100.0 million Japanese yen sold.

Neopost also makes use of asymmetrical options tunnels. The asymmetrical part of this kind of transaction is presented in the table above with a view to reflecting the Group’s commitment as closely as possible. By currency the asymmetrical part is as follows: 2.0 million United States dollars sold and 50.0 million Japanese yen sold.

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REGISTRATION DOCUMENT 2017 / NEOPOST