Bpost Sa Ord

Good day and welcome to today's BPOS second quarter 2023 analyst conference call. This conference is being recorded. At this time, I'd like to hand the call over to Philippe Dartien, BPOS CEO. Please go ahead, sir.

Thank you very much, Sergei. Good morning, ladies and gentlemen. Welcome. I am pleased to present you our second quarter 2022 result as CEO and interim of BPOS Group. Welcome to all of you and thank you for joining us. With me, I have, as usual, Koun Alterman, our CFO at Interim, as well as Antoine Lebec from Investors Relations. We posted the materials on the website last night. We will walk you through the presentation and then take your questions. Two questions each will ensure everyone gets a chance to be addressed in the upcoming hour. I will get to the highlights of our second quarter results, which will provide you with more details on the financial. I will then take some time to update you on the compliance review, on the progress made on our management priorities and on our operational output. I am pleased to report a good set of results demonstrating our resilience and strength amid challenging conditions. Our performance is again exceeding our plan, and this despite the current turmoil and the impacts of the compliance issues. In this regard, and for the sake of clarity, As in the first quarter, our second quarter results include a negative revenue and EBIT impact of 6.25 million euros at Belgium level. As a reminder, this quarterly impact corresponds to one-fourth of the low end of the 25 to 50 million EBIT range we have identified in the context of the ongoing compliance review as a preliminary estimate for the performance of some services to the Belgian state for the year 2023. Our group operating income for the second quarter stood at €1,028,000,000 and remained roughly stable year over year. Our strong parcel volume in Belgium and cross-border and some resilient made revenue offsetting the revenue pressure in North America. Our Group Adjusted EBIT stood at €69 million with a margin of 6.7% or €75 million and a margin of €7.2 before the revenue recognition. This compares to an EBIT of €83 million and a margin of 8% last year. Unsurprisingly, due to the inflationary pressures on costs and macroeconomic trends, Group EBIT is down year over year. but our continued focus on productivity and cost control continue to bear fruit, and the decline in operational EBIT remains limited. Before handing over to Koun, I would also like to share with you that on May 17th, S&P reaffirmed the single A issuer credit rating of People's ESSA with a stable outlook. Their report is available on our ESSA's website. In a nutshell, S&P acknowledges the resilient earnings of last year and our strict cash protection measures resulting in an increase in ample financial leeway under our credit matrix. Kun, the floor is yours for more details on the financial of this second quarter.

Thank you, Philippe. Good morning, everyone. On page four, you can find an overview of the key financials for the quarter, both reported and adjusted. Filip already mentioned our group topline and EBIT. Our adjusted net profit amounts to 45.6 million euro or 50.2 million before the revenue correction. This includes higher non-cash financial charges related to IAS 19 employee benefits compared to last year when we had a very favorable impact due to the steep increase in discount rates. Let's move then to Belgium on page 5. At Belgium, we see that revenues increased by 27 million to 547 million euros. Domestic mail recorded an underlying mail volume decline of minus 8.3% for the quarter, against minus 7.5% in the second quarter of 2022. This impacted revenues by minus 25 million euro, yet was mitigated by a positive price and mix impact of plus 28 million euro, as well as 4.5 million of additional revenues from Albi Press, which was acquired on September 30th, 2022. Altogether, domestic mail revenues increased by 7 million year-over-year. Note that in advertising mail, market pressures continue as we observed in Q1, including the impact of a customer bankruptcy. Parcels Belgium recorded in Q2 an increase of €14 million in revenue, or plus 13.2%. Volumes increased by 7.8% year-over-year, reflecting our successful commercial hunting plan of 2022 and the absence of further Amazon insourcing impacts. It should be noted that this volume growth continued to occur under persisting unfavorable market conditions. In Belgium, online retail sales adjusted for inflation declined by 11%, 9% and 7% year over year in April, May and June respectively. Consumer confidence remains negative and only slightly increased versus Q2 last year when it took a big hit following the start of the war in Ukraine. Price mix stood at plus 5.3% in Q2, mainly driven by pricing. Proximity and convenience retail network revenues increased by €3 million following the indexation of the management contract, and value-added services increased by €4 million, mostly resulting from higher revenue from find solutions. Let's move then to the P&L of Belgium on page 6. As just explained by Philippe, our intersegment and other revenue comprise the negative number of minus 6.25 million, reflecting the preliminary estimates relating to the ongoing compliance review. We also see on the same line the higher intersegment revenues from inbound cross-border volumes handled in the domestic network for e-logistics Eurasia. On the cost side, operating expenses increased by 32 million euro year over year, mainly due to persisting inflationary pressures, but also to a certain extent from lower recoverable VAT this year. Our payroll costs per FTE increased by 7.5% year over year, following the impact of the five salary indexations of plus 2% each that occurred since April 2022. But our continuous focus on productivity helped us keep our FTE stable despite significantly higher parcel volumes. Bottom line, excluding the impact of the compliance review, our EBIT remains stable as inflationary pressures are successfully mitigated by our top-line development and continued efforts on productivity. Moving then to e-logistics Eurasia on page 7. Revenues were up 20 million euros, reflecting strong growth across subsegments. In e-commerce logistics, revenues increased by 5 million euros. Radial Europe and ActiveVans sales were up 18% year-over-year. This continued high growth is driven by our existing customers' expansion and by new customers' onboarding. At Dyna, lower volumes in DynaLogic's delivery network were mitigated by price indexations across all Dyna lines. Most notably, cross-border revenues increased by €15 million or plus 21%. This top line development is driven by both the consolidation of IMX since July last year and the plus 35% growth of our Asian sales where we continue to see the benefit of some recent customer wins. Let's move then to the P&L. Operating expenses increased by 21 million or 15%, mainly explained by higher transport costs in line with growth in e-fulfillment and cross-border activities. including the integration of IMX and the intersegment OPEX charged by our Belgium segment as just discussed, and higher payroll costs from inflation and e-commerce logistics growth. From a profitability standpoint, high revenues continue to support our EBIT margin recovery with 5.5% in Q2, a sequential improvement compared to our margins of around 3% in the third and fourth quarters of 2022, and just below 5% in the previous quarter. Moving on to eLogistics North America. As discussed in Q1 already, our top line in North America continues to be impacted by the economic softness, the market overcapacity leading to a high degree of competition and pricing pressures, as well as the insourcing of Amazon, which impacts land markets. The operating income of e-commerce logistics decreased by 13% or 49 million euro. At constant exchange rate, this corresponds to a decrease of minus 11%. At radial, top line decreased by 10% year over year, reflecting on the one hand the contribution of some new customer launches, but on the other hand, slightly lower sales from existing customers and the impact of some terminated contracts as discussed in the fourth quarter of last year already. You may want to put our 10% drop in US dollar revenues in context of a US parcel market which has been in decline over the last few quarters, as illustrated here with the volumes of UPS, FedEx and USPS. Keep in mind the correlation is not perfect for radio because we may benefit from outsourcing contract wins which can be lumpy. We would nonetheless expect the U.S. consumers to be the first to resume their online ordering, and in the meantime, as we will see in a minute, we continue to focus on productivity gains and margin enhancement, ensuring we are well prepared to seize the rebound when it comes. At Landmark, this is a different story, as besides general price pressures in the market, we continued in this quarter to record lower volumes due to Amazon's insourcing. Moving then to the P&L on slide 10. Alongside our total operating income, OPEX and DNA decreased by 9% at constant exchange rate. This also includes, by the way, higher depreciations from new site openings in the second half of last year. Variable OPEX evolved in line with revenue development, and we benefit from the continuous strong variable labor management and other productivity gains at radio, where the variable contribution margin, or VCM, continues to improve. Our margin has consistently improved and is currently at its highest level. Compared to last year, our VCM has increased by approximately 3%, delivering an impact of $8 million. These productivity gains are part of our management priority set for the year, and we are making significant progress, positioning us well when U.S. consumers resume their online offerings. In challenging market conditions, EBIT decline and margin dilution at segment level mainly reflect the revenue pressure at landmark and the lower fixed cost coverage, partly mitigated by productivity gains at radio. Moving then to the corporate segment on page 11. External operating income decreased by 1 million euro year over year from lower building sales. More importantly, OPEX and DNA increased by 15 million, or 15%, reflecting inflationary pressure, notably on payroll costs with more than 7.5% of salary indexation, as just discussed also for Belgium, partially offset by a reduction of 6.5% in overhead FTEs as part of our mitigating actions, but also additional costs related to the ongoing compliance reviews. In terms of payroll, this is now six quarters in a row that we are able to report a reduction in overhead FTEs. Then we move to the cash flow on slide 12, where the main items to flag are the following. Cash flow from operating activities before changes in working capital stood at 121.5 million and increased year over year. with lower prepayment of corporate income taxes offsetting the lower operating results. Change in working capital and provisions stood at minus 149 million, in line with typical seasonality of our second quarter. The positive variation of 53 million year-over-year is explained by higher supplier balances this year, due to cut-off effects impacting the payables, as well as different payment schedules of terminal dues advanced. The cash outflow from investing activities amounted to 23 million, 19 million less than last year. Besides the absence of M&A this year, this mainly reflects our lower capex. We spent this quarter 24 million mainly to support our e-commerce logistics expansion in the US and in the Netherlands, but also our domestic network with some additional parcel capacity and the development of our e-fleet. I now hand back over to Philip.

Before sharing with you the progress we have made on our management priorities and the execution of our strategy, and before providing an update on the operational parameters underlying our initial guidance, I would like to update you on the press concessions and our compliance reviews and the latest developments since we last talked early May. I am on page 13. As you will remember, the Belgian government launched earlier this year a new tender for the distribution of newspapers and periodicals for the period 2024-2028 and reduced its annual budget from $175 to $125 million while adapting the tender specifications. The deadline to submit an offer was June 8th and Bitpost submitted a bid for the two lots, namely for the distribution of newspapers and periodicals. For your information, it was made public that at least two other operators participated in this tender. The Belgian distributor PPP for the newspaper and the French distributor Proximi for the newspaper and the periodicals. While the current concession runs until the end of this year, the timing of the award of the new concession starting on January 1st, 2024 is at this stage unclear. Let me also update you on our internal compliance reviews. First, on the price concession. We have closed the internal compliance review and the investigation of the Belgian Competition Authority remains ongoing. The progress made did not change our assessment of the risk of a fine, which is still assessed as possible but not probable. Then on the compliance review related to the three other services provided to the Belgian state, namely the management of the 679 bank accounts, the manufacturing and the delivery of the European license plate, and the traffic fines. These reviews, which are still ongoing, are now close to be finalized. Reaffirm the preliminary findings we shared with you on April 28th and confirm the need for an in-depth economic assessment of the remuneration charge to the patron state. BPOS asks the external support of an independent firm of economic consultants and other state aid experts. The assessment is ongoing and we are making good progress. While the analysis and initial conclusions diverge per service, we deem it probable probable that the preliminary results will be confirmed upon completion of this economic assessment and will probably result in a material adverse impact on our financial results. As to this financial impact, one has to make the distinction between, on one hand, the impact tied to the provision of the services for the year 2023 and going forward. This is the range of 25 to 50 million per year we disclosed in April already. Pending the ongoing assessment, we are not yet in a position to revise these amounts nor to narrow the range. And on the other end, there is an impact tied to the period preceding 2023. There, depending on several factors, such as, for instance, the relevant methodology to be used for the calculation of the remuneration, or the existence or not of some predetermined margins in the market for this kind of services, the assessment may result in different outcomes and can vary by year. Due to the multitude of factors impacting historical compensation, the approach applied to arrive at the preliminary estimate for 2023 cannot be used to determine the historic impact as it does not reflect in a meaningful range of outcomes. To put it simply, multiplying the annual impact of 25 to 50 million by 10 years, which is the maximum loopback period for the state aid matters, is not necessarily a good predictor of the outcome of this economic assessment. It is a complex matter, and I would show priority We are diligently working on it and we are doing our utmost to provide you with more clarity by the third quarter result announcements. We do need to recognize that we are dependent on external stakeholders, so the timing is not fully in our hands. To summarize, our estimates and our perception did not change since last time. Rest assured that on all these matters, we will communicate as soon as we can to bring the clarity to all of you understandably requested. Let's now focus on the progress on our management priorities and the execution of our strategy to be a global e-commerce and logistics service provider with a sustained anchor in Belgium, widely recognized as a reference in sustainability. Well, as you can see on slide 14, we are making progress on all fronts. And here you are an overview of what we have achieved so far and what will be our focus for the remainder of the year 2023. Before going over the achievement of our business unit, I'd like to highlight that despite the period of turmoil we have been facing for the past nine months since October last year, BPOS and all its employees continue to stay on course and remain focused on our operation, enabling us to consistently deliver strong results in a challenging market environment and amidst cost inflation pressures. In Belgium, the management and our social partners concluded on May 30th a CLA for the year 2023 to 2024, with a focus of the well-being of our people and the attractiveness of the job in the field, while ensuring the ability for B-Post to respond in a flexible way to the expectations of our customers and citizens. Besides social achievement, we also made progress on our environmental track, notably with our eco-friendly fleet and the addition of a 13th city to our ecozone network of zero-emission delivery cities. Besides the thousands even that was delivered in June, BPOACH runs more than 6,700 electric vehicles and bikes with or without trailer, which means that more than 40% of our domestic fleet is now 100% eco-responsible, and the transition continues as more than 600 events are scheduled to arrive by the end of this year. In Euregia, we continue to make progress in deploying our e-commerce logistic footprint, notably with the launch of a new cutting-edge site in Groningen for Radial Netherlands, as well as the official launch of ActiVents in Northampton, UK. and additional capacity investment for activants in Willebrug in Belgium. In North America, as discussed by Coon, although online sales are yet to recover, we are using this time to continue to improve our cost base, mainly by matching labor to volatility in demand patterns from our customers. Working on productivity and services quality today position our sales for any rebounds. A cross-border we developed during the first half of the year, the Asia-Canada lane, with volume expected to start to pick up in Q3. And we improved the lead times in our UK-North America lanes as well. As you can see, we continue to move forward. We are well equipped to tackle the second half of the year with the same momentum. Preparation and execution of year-end peaks are, of course, at the top of our agenda. But our focus also turns to the outcome of the press tender and the result of the economic assessment of the financial impact of the ongoing compliance reviews, which will help alleviate some of current uncertainty surrounding BPOST. We are conscious of this uncertainty caused by the situation But be assured that we will update you on these matters as soon as possible. Now a few words on our outlook for 2023. I'm on page 15. As you know, we had to withdraw in April our EBIT guidance of 240 to 260 million for 2023, following the primary result of the company's review indicating a negative adjusted EBIT impact of 25 to 50 million. As I just explained, the review is still ongoing. And while it's nearing completion, we are not able yet to reassess this preliminary estimate and therefore reintroduce a group EBIT guidance. However, we want to provide you with an update on the operational parameters underlying our initial guidance, reflecting for each of our business units the performance of the first half of the year, and our reviews for the coming months. For clarity, I emphasize that the financial impact of the compliance reviews, notably the negative EBIT impact of 25 to 50 million, are excluded from this update. So how does this compare to the initial guidance represented in late February at our Q4 results? Belgium outlook is revised upwards reflecting a favorable evolution of both revenues and costs. While North America will reflect the current revenue pressure while preserving our margin ambitions. Eurasia remains unchanged. For Belgium, while we were expecting a 3-5% topline growth, including the deconsolidation impact of UVA retail, notably driven by a parcel volume growth of a mid-single digit percentage and a mid-to-high single digit percentage price mix, we now anticipate a topline growth of 4-6%, supported by a parcel growth volume of a mid-to-high single-digit percentage and a mid-single percentage price mix. In terms of EBIT margins, continued progress on productivity and cost savings, together with a delayed salary indexation initially expected to occur in October 2023, but now in January 2024, are expected to result in a higher EBIT margin of 7% to 9% compared to a 6.5% to 8.5% initial. For North America, current market trends lead us to revive our top line ambition from slightly lower to a double digit percentage. But we are able to maintain our EBIT margin ambition thanks to the productivity gains. Based on our current views on the market, we expect that the net impact of these two to be positive. We are now ready to take your question. Again, two questions each, please, so that everyone gets a chance to be addressed during this session. Operator, please open the lines.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please signal by pressing star 1. If you wish to cancel your request, please press star 2. Now, the first question comes from Ivor Billfell-Kelly from UBS. Please go ahead.

Good morning, everyone. I'm sorry for laboring this point and starting on it straight away, but given it is so important, I just wanted to touch on the ongoing regime to press concession. Can you give us any context around, I suppose, the 75 million cost base highlighted in a recent book that was published in Belgium? What are the major discrepancies in that number compared to your understanding of the actual cost base there? And linked to that, given that you do continue to be confident that a fine is possible but not probable, what is it that you've seen from the ongoing BCA review that's in process that gives you that confidence, and what would need to change for a fine to be applicable? And then secondly, given your strong progress on the variable cost-based in North America, where do you expect your margins could land in the longer term once we see a recovery arising?

I'm sorry, Eifert, but I must say the line was not great, so I didn't quite catch all of your questions. I'm looking around at my colleagues. Would you mind repeating?

One by one?

Yes. I'll try again. I'm sorry, everyone, about that.

Sorry, it's again the same. At the beginning of your sentence, it was great, and then it's breaking back.

I'm sorry, we don't hear you. And then linked to that, what is it from the ongoing VCR review?

Sorry, we don't hear you.

Ivor, I will ask you, please, to reconnect your line. We're going to move to our next question from Mark from ING. Please go ahead.

Yeah, good morning. Thank you for taking my questions. First of all, maybe on the partial volume side. Can you give a bit more color on the trends? Because we had this high single-digit and 9.1 in Q1, 7.8 in Q2. Obviously, the underlying 9.1 in Q1 was even a bit higher, given the impact of Amazon. So can you give us a bit more color on whether the trend was rather stable through the quarter and how things are going into the third quarter? That's my first question. Yeah.

Sure. Good morning, Mark. So on parcel volume, when you look at the trend, you see that Q2 versus Q1 is a slightly smaller growth. Now, to put that in perspective, when we look at what we saw in Q1, we actually had growth in line with Q2 in January and February, and we had a very high growth in the month of March, which was the month that the war in Ukraine started. So the trend you see between Q1 and Q2 is very much linked to the comparable of last year with a disproportionately high impact in March. For the rest of the year, we're actually expecting the trend to continue in the same way as we've seen in Q2 so far. So we don't expect any major changes on that front.

Okay, that's very clear. And then maybe, I think my colleague wanted to ask a question about a special session, but... I had actually sort of the same question, so maybe I can help them with that. Looking to the press concession, a couple of questions on that one. First of all, indeed, I think my colleague also mentioned that in that book that's published that indeed a former CEO talking about a cost base of 75 million is enough to provide the concession. So could you perhaps comment on those statements? And why is the outcome from the government or the EU, why is there still not an update? What is causing the delay in that? Can you give maybe a bit more follow-up there?

So Marc, I will take the first leg of your question on the press concession and I will let Koun answer the second one. So regarding what has been written in the book and declaration of the former CEO, I'm sorry but we are not able to comment on this one because we don't know so it's statement made by uh by by so if you have a question you ask him directly but we will not comment on that one moreover we do not really understand how will this come to this number our our view is still that the price that we need to to to continue delivering the service with a good level of quality is nowhere near this kind of price and i'm not making any extreme declaration in the bid that we have submitted, I can tell you we are not at a price which is so low. Exactly.

And so your other questions on why does it take so long to get the outcome from the government, the EU and so on, I would say this process is not slower than would be typical for this type of investigations. So the Belgian Competition Authority is running its investigation. Typical run-through times for these types of processes are in the 18 to 24 months timeframe. Now, we obviously hope we will have some visibility beforehand, but this is a very standard timeline which is happening. And I want to re-emphasize what Filip said, that based on the information currently at our disposal, There is no reason for us to think there is any case of overcompensation with regards to the press concession. If there would be, by the way, it would of course figure in our contingent liabilities or be even part of the numbers. So the fact that it's not there illustrates that we do not see the issue raised in the book.

Maybe a small follow-up, because you're using the lower end of the range of 25 to 50 million that you apply to the internal audit, but why do you apply the lower end of that range? Is it based on any preliminary findings, or you just chose, well, let's set it at 25, but normally you would say you use the mid-range if you don't know the outcome yet?

So we just apply here the IFRS rules, which stated in the case that you're not able... If we would make an estimate and we would say we think we'll be around the midpoint, and obviously we would provision for the midpoint. That is not the case here. The way we've gotten to that number is really do a number of scenarios, sort of best and worst case type analysis, which gives us this range. And in such a case where you're not able to make a reliable estimate, you provision for the lower end of the range, and you disclose the full range, which is exactly what we're doing. So this is an accounting treatment, exactly the same as we did in Q1. It is not any statement on where in the range we expect to end up.

But do I get this right? Did you say if you can make a number of scenarios that make sense, but if you can't make any scenario, then you go to lower end of the range, but you need to have scenarios to get to a range? So I'm still a bit puzzled how that works.

No, no, these are very complex files with many potential outcomes for each of them. And so in order to get to the 25 to 50, we just looked at all the possible outcomes, which gives a very, very broad range, which is the 25 to 50 million. Again, we have no idea on which scenario at this stage is more probable than any others. And so we apply the rule to say when you have such a case, you book the minimum of it and you disclose the entirety as part of the contingent liability.

Marc, if you allow me, I think the comment during the presentation that we're making progress on these files and that we should be able to come back to you before the announcement of the third quarter results. Of course, there is a small caveat to it is that There are also some excellent stakeholders involved in that one. We are trying to go as far as we can, but we are not. If they do not react rapidly, we might face some delay. But I think we've made great progress, but not enough to be able to revisit this range.

Oh, that's very clear. I just wanted to understand the dynamics, why you picked the low end, but accounting is then the answer. Yeah, that's very clear. Thank you very much. Thank you.

Thank you. And we have back with us Ivar Bilfackeli from UBS. Please proceed with your questions.

Good morning again, everyone. Sorry about the technical troubles. Can I confirm if you can hear me correctly this time?

We can hear you well now.

Fantastic. Thank you. And sorry if this question was already asked by Mark, but I'm going to follow up and forgive me if I'm repeating this. But in the context of the review into the press conference session, given your confidence that a fine is not probable, can you please just confirm that, is it just a question of over-earning or potential over-earning that was being under review, or are there other factors in terms of how the contracts were won, for example, which could then alter the dynamics and then potentially lead to a fine? And then secondly, given the strong progress on the variable cost base in North America and maintaining your margin range, Where could we actually expect this margin to land in the medium term once we do see a recovery in the U.S.?

Okay, so let me take the first one on the press concession. So when it comes to press concession, which is what we call the Cleopatra file, which is totally different than the other three, then the question is not over compensation. It's about potential cartels. So agreement of people to come to an anti-competitive range. So in that case, the authority which is competent, and by the way, the issue we heard from your first question was relating to BCA. Indeed, it is the competence of the Belgium Competition Authority who are reviewing these matters. So they are absolutely of different nature compared to the other three files that we have mentioned.

And as to your question, why we assess it as not probable, we obviously cannot share any of the details of the ongoing investigation, but rest assured that the assessment of this is backed up by all our external advisors working on this. And so it reflects really our best estimate of the outcome of this investigation.

And including our external auditors as well because they agreed to the accounting decision that we've made back then in the fourth quarter when we published the 2022 results. Exactly.

And now for your question on the US. So first of all, if we look just at the rest of the year in terms of our margin range, We do expect that the top-line pressure will lead to some margin dilution, notably by lower fixed cost coverage. And so while we maintain our range, we do expect we will be towards the lower end of it for this year. For the longer-term perspective, what we envisage for this business or for that unit as a whole is to very much be somewhere in the 5% to 7% range of margin on a recurring basis.

That's very clear. Thank you very much. Our next question comes from Henk Slotboom from The Idea. Please go ahead.

Good morning, Philippe Coen and Antoine. I've got two questions, if I may. First of all, regarding the press distribution contract. It's now the beginning of August. A lot of people are on holiday. It's not clear when the awards of the tender will take place. But certainly in the case of PPP and proximity, time is running out to get a whole infrastructure built up. If the contract starts in 2024, then they face quite a challenge to be ready to handle the newspaper and magazine distribution. Are there any backup scenarios and that sort of things? And is it fair to assume that the longer it takes before the award takes place, that it is in the favor of BPOS one way or another, whether you win the contract or you don't win it? I guess that there's this half-year extension possibility that at least you can keep the contract for another half-year if you don't win this contest. The second question I have is, I think it's fair to assume that there are three company-specific uncertainties at this moment playing a role at Bpost. One is the review in the broad sense, in the broad meaning of the word. The second one is the uncertainty surrounding who gets the press distribution contract. And the third uncertainty is finding a new CEO Now if I approach it quite pragmatic and I look back at the most recent quarters then compliments to the management team which is in place right now. You've been surprising the market at least for the last few quarters. So obviously things are working well in this management team. Why is there so much emphasis on finding an external candidate because certainly in against the background of the uncertainties I just referred to, it will be difficult to sign up a suitable candidate from outside the company. And perhaps I should ask this question to Audrey, as the chair of the management board. If that's your answer, then I would like to rephrase it, Philippe, how should Dutch

Thanks for your question. I will start with the second one because it's always good to hear some compliments, especially in a turmoil situation. We always said it. I think BPOST is in a very particular situation. There are bad elements and good elements. The good element that I've always seen is that there is a very clear strategy for BPOS that has been established since 2016-17, I would say, which is to become an e-commerce logistic player across the world, strongly anchored in Belgium, with an ESG focus. even when we were in a turmoil situation, when the strategy is clear and not challenged, and it's not been challenged because since 2017, there's been the acquisition of Regal. Yes, the acquisition of Regal was not easy at the beginning, but thanks to the work of the team, the team has been able to turn that around. And now we really see the benefits and the value of having a portfolio of activities and also being active on different continents. So when the strategy of a group is solid, I think it's easier for a group to be able to survive in difficult situations, which is exactly this one. So I think BPOST is still very equipped to face this kind of stuff. When it comes to the decision of going for another CEO and potentially a new XCOM team, you said it nicely, you should better direct that question to Audrey, with the chair of the board, but you also need to bear in mind that there are some rules applicable to the fact that BPOST is a public company. that there is a rule saying that it's obvious for people who are living in Belgium that there are three official languages of which two major ones Dutch and French and there is a rule which is applicable to be posed since many many years whereby when the chair of the board is French native, the CEO has to be a Dutch native speaker. That's a fact that's in the law, that's also in the agreement, the way that the government has always managed this company. So obviously I'm a French-speaking person, so I think the question is not even to be put on the table because from a legal standpoint, I could, a French-speaking person, it's not me, any French-speaking person bearing a Belgian passport could not be the CEO of V-Post right now under the present condition. So this being said, for furthermore, please ask your question to Audrey. But nevertheless, I can tell you that the current management team takes your compliments with great pleasure because we need it. It's a difficult situation. When it comes to the press concession contract, Sorry that I'm not answering directly your question, but it's not in our hands to decide if and when the winner will be awarded a contract. It's up to the government. You have read in the press that the government had said that they would not award the contract before having the conclusion of the audit. on the press concession, so it has been made public by politicians, so it's one element of information. But second, an element which is important to know, because you make the link between the longer it lasts, the more change we have for BPOS, because the contract starts on January 1st, 2024, you need to understand that there is, in the case, BPOS would not win the concession, meaning someone else would be awarded the concession. In fact, there is a six-month period to transfer from BPOS to the new potential operator, so the deadline of January 1st is less critical, I would say.

Okay, that's clear. Thank you very much.

Our next question comes from Nicholas Mauder from Kepler Chevrolet. Please go ahead.

Hi, good morning. Thanks for taking the questions. I'd like to go one by one for the questions. So the first one is on the good parcel volume growth. Can you perhaps try to allocate it into a few buckets like let's say overall consumer spending, e-commerce penetration, market share gains, etc.? ? so we can better understand how you are able to produce these growth levels in what seems to be a still challenging environment. Thank you.

So on this one, when we look and we decompose our growth into different components, we can see that in fact the bulk of our growth, the large majority, is coming from the commercial hunting plan and the new customers we signed last year. This is where the majority comes from. When we look at sort of the overall evolution of the market as a whole, that is rather in around flattish territory. So really due to the efforts we've taken in terms of commercial hunting and so it's market share gain.

Okay, so just to clarify, when you say the overall market is flattish, you mean the overall B2C e-commerce parcel market rather than consumer spending at all. Okay, thank you. And secondly, can we please talk again about the EBIT associated with the press concession business? Now that it has been printed that there is competitors in the race and that there is some chance, whatever the probability, that you... that you lose the business so understand that the government that there is this government subsidy of 170 million but that there is an even larger top up coming from the publishers and that the margin on the total which should represent almost the entire press revenue line in the belgium segment has a profitability cap of around seven percent now that would put ebit at risk somewhere below 24 million if i'm if i'm correct there um so is that calculation correct and can you can you maybe comment whether that would probably go down even in case you win the tender and by how much thank you

So first, so indeed in terms of the compensation for the concession, there are two components. There is the compensation coming from the state, which is a number which is indeed out there and is 170 million or approximately in that range. And there is a compensation coming from the editors. Now, this compensation coming from the editors is smaller than the part coming from the state. It's rather in the range of around 100 million, bringing the total for the concession to 270, which, as you rightfully say, is subject to a cap in terms of profitability, which is at 7.5%. And where we've already shared in the past that we are not reaching this gap on that contract. Obviously, I cannot go in more detail as that would also share competitive information, which I cannot do in the context of the ongoing tender. If we look at the new contract, though, and here I want to emphasize two things. The changing conditions for the tender, it goes much beyond just that reduction of the 50 million euro in subsidy which is being mentioned. The cost of the concession, it depends obviously on the requirements which are put forward and there are some changes in terms of the requirements, in terms of the service levels and so on, which will allow BPOS to realize a certain level of cost savings. Secondly, and more importantly, the compensation mechanism of the concession has changed. So there are still the two parts, but compared to the previous concession, the operator that wins has much more leeway in determining how much the compensation from the editors should be. So the concession allows for different ways to reach an economic equilibrium as compared to the previous one. So I cannot share more detail, again, given that we're in an ongoing process, but know that the whole setup of the concession is different, and just looking at the reduction in subsidy would be looking at only half of the story.

Okay, I dare to ask one more follow up. So can you perhaps comment how much of sort of sticky fixed cost is associated with the business? Because yes, we can calculate some sort of EBIT risk. But is there some cost that would stay with you even in case you don't perform the service anymore?

So, as always, when a service suddenly disappears, we will go through a period in which we're not able to take away the costs directly at that moment. I think there's a reality there that there will be some restructuring efforts needed to absorb this. And so we will be facing a financial impact in the short term. In the longer term, as we reorganize, That stickiness should not be very big. And keep in mind that whenever we look at how we bid for this type of concession, obviously we also compare it to the alternative of not having it. So we will, of course, look at that from a business case perspective and decide whether or not to bid and at what price, also in function of whatever costs would potentially remain. But I cannot share more now, but again, it would be competitively sensitive information.

Thanks for your time. Thank you.

Thank you. Our next question comes from David Kirstens from Jefferies.

Please go ahead. Thank you. Good morning, gentlemen. I've got two questions, please. First, on the upgraded margin guidance for Belgium on the back of the better-than-expected parcel growth, the 7% to 9% implies still a materially weaker margin in the second half of the year than in the first half. And I think the first half does include the impact of the 25 to 50 million related to the government contracts. Is that normal seasonality that you expect margins to be so much weaker in the second half of the year? Or is there something else that you are already accounting for in that outlook for the second half of the year? And then the second question around the top line momentum of radial, now expected to be down low double digits. Can you break that out into volume and price? And I saw you are now benchmarking with UPS, FedEx, and USPS. Is that market maybe more in line with the market due to overcapacity post-COVID normalization? When do you expect that overcapacity to have been absorbed and pricing to recover? Thank you very much.

So let me start on the first one in terms of the guidance for Belgium. Our guidance just reflects indeed normal seasonality. you will see that typically, especially the third quarter, is substantially weaker in terms of margins due to the holiday period and the lower volumes in that moment of the year. So there is nothing specific there to mention regular seasonality. As for the US, sort of splitting it in volume and price effect, I cannot comment on that specifically. What we can say, though, is that Especially for the volumes, we know we are exposed to certain verticals and certain customers which can introduce some type of lumpiness in our results. We operate a number of very big sites, some of which are single customer. When one customer switches or insources volumes, we see big impact straight away, which means that our trend Although broadly in line with what you would see in the market can fluctuate both positive and negative. And when you look at 2022, we were doing much better than the market. And we have seen examples, and I think I mentioned that also in the previous time, of customers who have both insourced and outsourced fulfillments. In the current situation with the reduction of volumes, they will obviously concentrate volumes to optimize their own capacity utilization, which means that we are disproportionately impacted beyond what the normal market trend is.

As to your question of when it will recover... If you allow me to add one more element, but it's already mentioned that I really want to re-emphasize is that if you look at the macroeconomicals of the different segments in the US, they are totally different from one to the other. You've got health and personal care products going up. while others are really deeply going down. So also when you're comparing with our competitors who have a broader exposure, again, as Kun mentioned it, then there is a dilution, in fact, of this. We are big, of course, but we are not representative of the entire U.S. economy. So there is that effect, which is unfortunate, but it's reality.

And then as to the question of when, obviously that's the million-dollar question. I wish I had the crystal ball. Fortunately, we don't know. What we can say, though, is that in the update we've given you today, our expectation is for the market circumstances to continue along the same way as they were.

Yeah, understood. Can I ask one follow-up related to Belgium, please? The 25 to 50 million is excluded from your outlook now, right? And whereas in your reported numbers, it's still included based on the 25 million, the lower end of the range. Once you have clarity on the historical number of overcompensation, how will that be booked technically in the accounts? Will it still be an adjusted EBIT or will it be below the line? And will we see it mainly in the balance sheet come up?

So for the three contracts where we're looking into a potential overcompensation, the impact would be similar as the one you see today, which is namely a reduction in revenue. So it would be in the EBIT numbers. That said, depending on the size of the impact and if it's a one-off impact, we have a threshold of 20 million of one-offs when we correct for it in the adjusted EBIT. So it depends on the final size of that impact. whether or not it will be corrected. Again, this is for the one-off, given that the 25 to 50 million is the impact for 2023, and there will be an impact going forward. This would not be neutralized, of course, in the adjusted numbers.

No, so only the historical. But the historical might be depending on the size. Understood. Thank you very much, gentlemen.

You're welcome. Thank you. And our last question in the queue comes from Frank Klaassen from the Groove Peterkamp. Please go ahead.

Yes, good morning all. Two questions left indeed. Also on radial, but more focused on the commercial wins. Did you have some new contracts signed up in Q2 and did you notice price pressure with these new contracts? And then also on CAPEX, is the guidance still around 200 million and what are the main projects you're going to spend the CAPEX on in 2023? Thank you.

Thank you, Frank, for the question. We'll answer both. I mean, could we start with Radial and on K5 we'll do it forehand.

Exactly. So for Radial, obviously we are working very hard on our commercial efforts to make sure we sign new customers also in these difficult market circumstances. We have succeeded in signing a significant amount of contracts. Now, we only share these numbers normally on an annual basis. Again, this can be very lumpy. So you will see we will share this together with the full year numbers. But so far, there has been some commercial traction, obviously, in a difficult market context, which we need to take into account. I also want to highlight that. we don't want to sign contracts just for the sake of bringing in the revenue if we would have to do it at margins which are not attractive to us and certainly which would not meet our return on invested capital requirements. So we do remain selective and we are not chasing top line just for the sake of top line. It's important we have the right return metrics as well for any new contract we sign.

And we have to announce a contract that represents exactly the characteristics that Kun is describing, and since it doesn't fit our strategy, we have decided not to go for this time of contract.

And obviously there's a difference between contracts which would allow us to fill up existing capacity, which obviously changes the metrics, versus contracts where we have to invest in new capacity, automation, and so on, where what I said on the return obviously applies.

For the CAPEX, I will make the introduction, and Koun will give you the details for the main contributors for the CAPEX for the year. But as a general statement, what I would like to say is, first, that BPOS Group has a growth strategy. It has been always clear, and it's still the case right now. We have a very sound balance sheet. The comment I made on the S&P rating just reinforced that one. We have leeway to leverage our balance sheet and we have the cash. So I mean all the conditions are there to be able to execute our growth strategy. So there is absolutely no reason to stop that one. This being said, we are very selective when it comes to investment. It needs to respect our returns, the expected returns. And if and when they are good projects, we will go for it. That's the message I'm continuously passing on to the commercial team. So does Kun. Do not be shy of coming with projects. If the projects are good, we will invest. Luckily enough, in our business, we invest when we have a contract. We don't want to go to an equivalent of a merchant type of investment. No, we link it and it's part of our strategy with the contract. Philosophically, I would say there is absolutely no reason, philosophically or strategically, there is absolutely no reason to change that statement. So this is the mindset in which we are when we contemplate CAPEX in 2023 and going forward. And for the details of what's included, I give the floor to Koulib.

So I would say there's three big buckets in there. One is, of course, maintenance capex, which we have and where I'm sure you can make an estimate based on some of the other numbers we report as to what that could be. Then we have two big parts, I would say, within more the growth-oriented capex. One is We plan to invest in an extension of our parcel sorting capacity in the Belgian market, specifically in Charleroi, which will start coming in the second half of the year. So that's a big bucket. And then there is also further expansion in e-commerce logistics activities, both in Europe and in the US. where it can be expansion, but it can also be further automation where that makes sense. So those are the big components. I will not give you a split per block, though. But these are the major ones.

But to be clear, so the guidance remains 200 million roughly for 23, right?

At this stage, we see no need to change that. Again, we invest with the idea of doing that through the cycle. We will not react in the short term to some of the market pressures. If we see good opportunities, we will continue to invest. Our balance sheet allows us to do it. But also, as Finit said, For much of our investment, it is only when the concrete contracts are there. Okay, thank you very much.

Okay, very good. Thank you.

Sumit Mehrotra from Societe Generale. Please go ahead.

Thank you. First, thanks to Henk for extending the compliments and bringing up the question on the CEO candidature. My first question is, it's going to be a bit detailed. I'm sorry if to bring this up at the last end of the call. Please walk us through your logic of assessing the stable state of Belgium's segment EBIT. What could be the building blocks for us to assess that two years from now? What could be the contribution from this segment considering the lower value of the future press concession contract? That's my only question.

Thank you. So on this one, Sumit, I'm afraid we will not answer today. I think we're in longer term forecasts here. At this moment, there is a lot of uncertainty around these contracts. We cannot answer this question today until we have some more clarity on the different outstanding parts of which the press concession is one, but of which also the other contracts are an important component with that 25 to 50 million range. You see that would introduce a very big variance, so it is too early now to give any longer-term forecast at this stage. We may come back to that once we have more clarity on those contracts.

Okay, then I can slip a second one. For US, either radial or landmark global, can you give us your observations on the incremental customer wins or the deals out there? Are we now looking at an extended phase of tougher pricing where you could just about meet the inflation pressure in US? Thank you.

So as I mentioned before, for Radial, we don't share any numbers of new customers signed except for on an annual basis. So you'll have to wait for the Q4 results for that. But we are signing new customers. What we see when we look more at our cross-border activities in the U.S., the biggest impact really in our numbers is from that Amazon insourcing. For the rest we do keep a good traction generally, even though there is a high degree of competition in the market. We are also developing new cross-border lanes to bring volumes from Asia into North America, which will also further support the growth there. So we do see we have some traction again commercially. The biggest impact really is the Amazon contract, for which, by the way, the tender is ongoing and where we are awaiting the outcome of that tender, which would not exclude that volume may continue to head our way even more than we've had in the second quarter. But that depends on the outcome of that tender process.

Thanks, but I just wanted to know the incremental wins that you have for radial head. What's the pricing pressure looking like? Do you think it's going to continue being tough in terms of pricing in U.S.?

Samit could make it very clear. There is an overcapacity in the U.S. right now, so the answer is yes. Thank you.

Thank you. Our next question comes from Marco Limide from Barclays.

Hi, good morning. Thanks for taking my question. The first question is on your portfolio of businesses. Clearly, you're facing the risk of financial cash out from all the contracts under review. So I was wondering if it's part of your strategy thinking to eventually dispose of some of the minor businesses that are maybe not profitable just to strengthen your balance sheet and to be in a better position eventually to face any payment of fines. That's my first question. And the second question, a bit more medium term. So across, let's say, your divisions, e-logistic Europe and North America are, let's say, set for growth alongside e-commerce growth. But when we think about Belgium, clearly, there you've got the mail and the parcel mix. So just wondering how confident you are on the medium term to be able to achieve profitability growth also in Belgium, or if we should think about Belgium as a steady state type of profitability, so not really growing over time. Thank you.

Okay, so I take the portfolio one and Koun will take the second one. When it comes to the portfolio, so first, I think it's our way of working to permanently assess the quality and the relevance of the different assets that we have in our portfolio. Historically, BPOS has demonstrated that they are buying and disposing of assets if and when the conditions are there. That position has not changed. We will always be contemplating potential acquisitions and potential disposals. But nevertheless, thanks to the strong balance sheet, there is no need to potentially have to dispose assets. And by the way, we still don't know how much these potential reimbursements will amount to. So, too early, but fundamentally, asset rotation is still on the agenda. We're contemplating looking at it, and there is no urgent need. We are not in a cash situation that forces to sell assets. And by the way, when you have to sell assets, it's not the low performing that bring the more cash. So in any cases, it would not be the reason to dispose them off.

And as to for your second question, so clearly in Belgium, indeed, as you mentioned, we have the two activities, one which will be in a structural decline, which is the male activity, another one which there is a structural growth. Our expectation is that at some point, given that the size of one continues to decrease and the size of the other continues to grow, that the growing business will overtake the declining one. We are not there yet at this stage. I think that is clear. It will come on the exact timing. Again, that's a bit of a crystal ball. We've seen parcel volume growth in the past few years fluctuate very wildly. So it's difficult to predict when that will come. However, the belief is that at some point indeed the parcel business will overtake the mail business and we will even for Belgium return to an area where we see growth from an EBIT contribution. That said, and I do want to add it, it will probably be at a lower margin level than it is today, as obviously the margin levels for a mail business and a parcel business are different. So we do expect some further margin dilution in the coming years on that business.

Okay, I think... Sorry. No, no, thank you. That's it.

Thank you. Thank you. Thank you. We will now take our very last question today from Paul Kivianov from Bank of America.

Hi, good morning. Paul Kivianov from Bank of America. Just one question, I promise, last one. Just on costs, you had six quarters of workforce optimization now. Are you now finding the right levels of FTEs or can we expect that to continue going forward? And if you're close to that level, would that mean we can expect sort of a step up and focus on productivity or is that not the case?

Thank you, Paul, for your question. Yes, we are continuously reducing the workforce. Are we still at the bone? I don't think so. There's still meat around the bone. We can always benefit from... more digitalization and different ways of working. Also, depending on the services that we are offering to our customers, we might end up with a different structure of workforce. This being said, this one element, the second element, As the company evolves, there are areas where we can continue decreasing the workforce, but there are maybe others where we need to reinforce them. But nevertheless, we are quite confident that for the coming quarters, the net effect of both will still be positive.

Great. Thank you.

Thank you. Thank you. With this, I'd like to hand the call back over to Philippe Dactien for any additional or closing remarks. Over to you, sir.

Thank you very much. So I would like to thank everyone for being in the call with us. Sorry we went a little bit longer than typically, but there was a lot of very interesting questions. So I hope, thank you for the one who stayed a little bit longer. We hope we answered this question in a way which is acceptable for you. We will hear from you, the conference will be going to attend in London in September. Looking forward to stay in touch on our third quarter results, which will be released in November. In the meantime, you can always stay in contact as you are with Antoine at your disposal. And more than likely, as we are expecting, we should come back to you prior to the release of the third quarter results with an update of the compliance review file. For the one who has not been on holiday yet, I wish you a very happy holidays. Thank you very much and see you soon. Bye-bye.

Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.