Bpost Sa Unsp/Adr

Hello, and welcome to the B-Post Analyst Call first quarter results. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you'll be connected to an operator. I will now hand you over to your hosts, CEO, Mr. Jean-Paul Von Avermaet, and CFO, Mrs. Lynn Hernal, to begin today's conference. Thank you.

Okay. Good morning, ladies and gentlemen. I'm pleased to be here to present you BPOST Group's first quarter 2021. I want to welcome you and thank you for joining us. With me, I have Leen Geernaert as the speaker set our CFO, as well as Saskia and Stephanie from our Investor Relations Department. I assume you already had the opportunity to read through the materials which we posted on our website last night. We will summarize the key messages so as to move on to the Q&A session. quite quickly. Throughout the presentation, you will have seen that our first quarter results were impacted by the spread of the COVID-19 virus and the linked governmental decisions taken to limit it. So, allow me to first comment on what we currently observe on that front. Our priority throughout the crisis has been to guarantee and is to guarantee the health and safety of our workers while ensuring the continuity of our services to the citizens. This is clearly not a walk in the park and unavoidably has an impact on our operations and also our financials. Although clear visibility remains very low, I do can already shed some more light on what's currently happening. First of all, in all divisions, we spend more on health and safety measures to protect our employees and customers. In mail and retail, we see a significant impact on mail volumes from the withdrawal of many plant campaigns, and this in particular since the ban on promotions at the start of the crisis in Belgium. Meanwhile, this has been withdrawn, but also the closure of non-essential stores that was effective here from the 18th of March and is still ongoing. Transactional mail is hurt to a lesser extent, we can say. but volume decline in smaller administrative volumes and registered letters is seen. The property and convenience retail network is impacted by a lower footfall in the retail points of sale, but that is also especially the case and heavy in travel environments. In the parcels and logistics Eurasia department, we observed that the confinement measures imposed on Belgian citizens really stimulate e-commerce and hence impact B2C parcels volumes. The impact on parcels Belgium-Netherlands volumes started modestly in March and is strongly trending upwards since. This also results in a higher use of subcontracts for parcels delivery. On the other hand, cross-border activities have been severely negatively impacted by reduced air freight capacity and also because of the closure of international borders. At the start of this crisis, the absenteeism rate at BPOS Belgium doubled. implying additional costs. Also, we have launched a COVID-19 premium that has been granted to operational staff in duty, applicable from March 1st till May 31st. Finally, in parcels and logistics North America, we see that e-commerce logistics client volumes met so far the expectations. This also supported by the closure of brick and mortar stores, which are shifting sales online. Radial North America witnessed limited operational disruptions through the first quarter of 2020. International mail, however, sees additional volume loss from the various lockdowns, as well as exceptional increases in air freight rates as carrier capacity decreases. As you will see later in the presentation, this impact was still quite limited on the first quarter 2020 results. Coming back to our first quarter results on slide three, group adjusted EBIT stood at 75.6 million euro. This includes an estimated negative impact of 16.7 million Euro related to the COVID-19 crisis. Excluding this, our first quarter 2020 results are above expectations, mainly driven by letters, mail volume that is better, and decline, lower decline than anticipated. This again, of course, excluding COVID-19. Mail and retail contributed for 65.2 million euro to group adjusted EBIT. This with a margin of 13%. Year on year, the segment was impacted by accelerating volume decline of minus 10%, with a significant impact from COVID-19 in March second half mainly. As mentioned before, In advertising mail, we witnessed a high number of advertising campaigns being canceled during this last month. This top-line development is the main driver behind the adjusted EBIT decline of about 30%. The estimated negative COVID-19 impact on mail and retail EBIT stands at 14.4 million euros. Parcels and logistics Eurasia generated €16.9 million adjusted EBIT, almost 8% margin. Top line was mainly driven by parcels Belgium-Netherlands, volume growth of 20.5%, and by a strong volume performance in e-commerce logistics as well. It was, however, offset by the significant negative impact of the COVID-19 from the partial suspension of cross-border activities, as I mentioned earlier. Excluding the unfavorable evolution in VAT recovery and also terminal due settlements, as well as the estimated net negative impact of COVID-19, adjusted EBIT for this business unit was up by 4.5 million euro. or 31% year-on-year, driven by business and operational performance. Net COVID-19 impact on EBIT is in this business unit estimated at 1.8 million. At Parcels & Logistics North America, new business in e-commerce logistics is gaining pace, and total operating income grew by 14.3%, to 261.3 million euro. The adjusted EBIT for the division increased by 0.4 million euro to minus 7.4. Positive EBIT evolution at Radial North America was to a large extent offset by continued margin pressure in the international mail activity. Net COVID-19 impact on EBIT estimated at minus 0.3 million and primary relates to additional health and safety measures cost. Our full year guidance as issued on March 17 is overruled by the difficult and unstable market conditions resulting from the spread of the virus. An updated full year guidance will be issued as soon as the full quantitative impact of COVID-19 can be accurately and reliably estimated. Unfortunately, we are not in a position to do so today. I will come back later on this in more details, but we'll first hand over to Lynn for more details on the financials. Lynn?

Yeah, thank you, Jean-Paul. Welcome to you all for a very special quarter, of course. I empathy the work you have to do as analysts because it's a quarter in which you have to scratch a bit to understand what's happening underneath it. And like Jean-Paul said, we're not in the position, having not all information yet, to come with a new outlook. What we do try is to deliver as much information as possible. as possible so that you can find out for yourself a bit what the direction underlying exactly is. So together we're on the page four, showing the EBIT bridge for the first quarter. So as you can see, EBIT showed a decline of 20.2 million euro compared to the first quarter of 2019. As Jean-Paul mentioned, this includes a net estimated COVID-19 impact in total of minus 16.7 million euro on EBIT level. In meal and retail, adjusted EBIT declined by 27.4 million and was mainly impacted by COVID-19, visible through the domestic meal volume decline at minus 9.9% in the quarter, and additional costs to guarantee the continuity of our service to the citizens. And that means costs for health, safety measures, and additional staff to cope with a higher absenteeism that we have observed during the last weeks of March. Parsons and Logistics Eurasia recorded an adjusted EBIT decline of minus 1.2 million euro. The adjusted EBIT figure of 16.9 million euro includes a couple of negative elements. We have a net 1.8 impact of COVID-19. We have a 1.4 million euro negative evolution in the settlements of terminal dues, so just different than it was last year, where we see more positive. And thirdly, there's a year-to-year decline in VAT recovery of 2.4 million euro. When we would exclude those elements, the adjusted EBIT would indeed increase by 4.5 million euro, which is an increase of 31%. year-on-year operationally. Then, part of North America, their adjusted EBIT increased slightly, with 400K versus last year. The positive EBIT development from e-commerce logistics, radio in particular, was largely offset by margin pressure in international mail, and I will explain that in more detail going forward. In corporate, adjusted EBIT uplift of 8 million euros is mainly explained by higher revenue from building sales, which was also expected in this quarter. Moving to page 5, that shows the key financials for the quarter. At group level, total operating income was up by 3.1%, positively impacted by strong growth in parcels, B&A, and in e-commerce logistics. More details on revenue and EBIT developments following the breakdowns per business units. As usual, we have on the one hand reported numbers and adjusted numbers, and the adjustment is also this quarter only for the non-cash amortization charges on intangible assets that were recognized following the purchase price allocation. These charges also positively impact the reported income tax. Net financial results of minus 4.3 million euros It increased with €3.2 million better versus last year, mainly due to lower non-cash financial charges relating to IAS 19 employee benefits and also improved exchange results. Adjusted income tax, it decreased by €8 million compared to first quarter last year, and that's, of course, a result of lower profit before tax. while the effective tax rate of 33% also decreased, mainly as a result of the lower Belgium corporate tax rate from almost 30% last year to 25% as from 2020. Normalized free cash flow, it increased thanks to an improvement in the working capital evolution. Primarily, we see that driven by the payables, also a positive year-on-year variance in tax assessments, and higher proceeds from building sales, partly offset, of course, by the lower operating results and higher CAPEX. I will come back on those cash flow elements also later in the presentation. All in all, the net debt marginally increased compared to the end of 2019. The CAPEX for the quarter amounted to €20.5 million, which is about €5 million higher than last year, and it primarily relates to the further build-out of the new fulfillment centers in North America, as well as the second active ants site, among others. Moving to page six, where we see the different operating segments, always a nice view. Mail and retail generates 86.2% of the group-adjusted EBITs. Parsons & Logistics Eurasia was a second contributor at 22.4%. Parsons & Logistics North America, this quarter, still contributing negatively. Then we move to the business unit, starting with meal and retail. External revenue at meal and retail declined by €28.7 million to €457.8 million. mainly impacted by a negative €17.6 million revenue loss from domestic mail. This was driven in the quarter by a mail volume decline of minus 9.9%, partly compensated by the positive price-mix effect. Mail volume decline for advertising and transactional mail shows very different patterns between year-to-date February and the month of March, of course impacted by corona in the last two weeks. What do we see in transactional mail? Mail volume decline in the quarter minus 8.2, of which 8.1% in the first two months of the year and minus 10.2 in March. COVID-19 impacted transactional mail, as Jean-Paul already said, to reduce small administrative volumes from big senders and SMEs, as well as less registered letters. The underlying trend here is a continuation of what we experienced in the previous quarters. We did benefit from an opportunity in the banking sectors. As banks are removing their self-service printers, we print and send bank statements at home, just to tell one opportunity that we could see in transaction mail. Then the advertising mail. Volume decline is strong, minus 16.5%. of which minus 3.9% only in the first two months, supported by the dedicated marketing and sale projects that we launched last year. And in March, it was minus 39.4%. This was fully driven by canceled advertising campaigns resulting from the ban on promotions imposed by Belgian government at the beginning of the COVID-19 crisis. Meanwhile, that one has been lifted. We also, of course, have seen the impact of the enforced closure of non-essential stores, which is still current to date. Press volumes, they are at minus 5.2%. They show the continuation of the trend towards e-substitution and rationalization. Proximity and convenience retail network revenues, they declined by 13.2 million euro, partly due to deconsolidation of Alvarez's explaining about 7.6 million. And then at the UBWay retail revenues, we've seen the impact of COVID-19 confinement measures, which led to a significant decrease in footfall, primarily in travel locations. Banking and finance revenues also declined due to the low interest rate environment. Valued added services, they increased by 2.2 million euros, higher revenue from fines and document management. Moving then to the EBITs of mail and retail on slide eight. Adjusted EBITs is 65.2 million euro, margin of 13%. This is a net decrease of 27.4 million euro compared to the first quarter last year, explained almost in full by the decrease in the revenues of 27.5 million euro. Whereas the OPEX, our costs, they remained broadly stable. As to that operating expenses, on the one hand, there were higher payroll and interim costs, reflecting higher absenteeism and also the COVID-19 premium that we granted to all operational workers in duty, which was applicable for the full month. So we paid it as from the 1st of March retroactively. There were also additional costs for the health and safety of our employees and customers, so that was extra. On the other hand, these additional costs were compensated by the favorable evolution of the FTE mix, again, deconsolidation of Alvarez, and also we profit here from a higher amount of recoverable VAT. To recap on the impact of COVID-19 for this business unit and that impact on the EBIT of 14.4 million euro explained by both top line developments at domestic mail and UBWay retail as well as the additional costs. On slide nine, parcels and logistics Eurasia. We record external revenue growth of 18.7 million euro. This is mainly driven by 17.3 million euro or 19.8% of parcels being it. Organic volume growth was solid, 20.5% for the quarter. When we split that to year-to-date February, there we had a growth of 17.9%, and in the month of March, it went up to 26%. This by increased online sales since the start of the lockdown. We also noted actually a good performance at Dynalogic. As to price mix, we recorded still a slightly negative mixed effect, which was fully mixed-driven. E-commerce logistics revenues, they also increased nicely by €8.5 million, thanks to the client wins at Radio Europe, thanks to ActiveANZ organic business development, and also the acquisition of MCS Fulfillment, which is now a part of ActiveANZ, acquired in October 2019. Cross-border revenues, not surprising, of course, that revenues decreased there firmly, 7 million in total, impacted by COVID-19 for about 5.7 million euro. Operations had to be partially suspended given the lack of air freight capacity. Terminal due settlement, I showed a negative year-on-year evolution of minus 1 million euro on the top line. On slide 10, the EBIT for Parses and Logistics Eurasia. We already explained it because it's quite important to understand, so I'll probably repeat the message. So you see indeed an EBIT which is lower, which is surprising if you look at the top line. And of course, the top line drives it positively, but we did have additional operating expenses too. These additional expenses were driven by half a million unfavorable evolution of terminal due settlement in the transport costs and by a negative year-on-year impact of 2.4 million euro relating to VAT recovery. Excluding those two impacts, operating expenses increased by 14.9 million euro, mainly from higher payroll, interim and transport costs, relating to parcels and e-commerce logistics volume growth. As well, also here, the COVID-19 premium, increased costs due to absenteeism, and in addition to that, a negative channel mix as we had to use more subcontractors. Like said, excluding the impacts of VAT recovery, internal due settlements, and the COVID-19 premium, the adjusted EBIT would be up by 4.5 million euro. That represents operationally an increase of 31%. So on the full business unit impact that we've seen in March on the EBIT of COVID-19 is minus 1.8 million euro. Then going to North America. 33.5 million euro growth in external operating income of e-commerce logistics, driven by Radio North America. They recorded growth from existing customers, as well as new clients that were launched in 2019, and there was also a positive foreign currency evolution. This was only partly offset by some churn. International mail was a bit more complicated. They saw their external revenues declining by 700k or minus 3.2% despite the positive foreign currency evolution. COVID-19 did not yet have a material impact in March. Overall external revenues were up by 32.8 million euro for this business unit and reached 260 million euro. What does it mean to the EBITs? Adjusted EBITs increased by 400K to 7.4 million lots, including a negative 300K impact from COVID-19, essentially related to health and safety costs. This was driven by the positive top-line evolution in e-commerce logistics, in particular at radial, like SAX, partly offset by higher variable costs related to that growth, and of course, not surprisingly, increased depreciations from the three new fulfillment centers that we opened last. All in all, EBIT at Radial North America showed a positive evolution, and you can see that in the KPIs at the bottom of the table in US dollars. This is a materialization of the positive commercial trend seen for several quarters now. So we see $27.9 billion revenue growth, and that translated in an improvement in the EBIT of 2.3 million euro, that's about 8%. The positive evolution at radio was unfortunately largely offset by continued margin pressure in international mail. We see there higher competition, lower volumes, and higher transport costs. Like said, we did not see yet big impacts of COVID-19 over the first quarter 2020. Moving to the corporate segment on page 13, you will see that the external operating income increased by €4.9 million, primarily driven by higher building sales, which was expected since some of the disposals initially foreseen in 2019 were postponed to 2020 and partially realized this quarter. Naturally, in the segment operating income, OPEX decreased by 3.1 million euro, leading to an increase of EBITDA of corporate of 8 million euro. Then the cash flow in the first quarter. Operating cash flows to the 203.6 million euro It's 1.4 million higher than it was last year. This is due to improvement in working capital evolution of 35.2 million euro, primarily driven by favorable evolution of payables. We see that mainly at radio, due to phasing differences in end-of-year peak invoices of 2019 versus what we've seen in 2018. We also record favorable evolution of trade receivables at B post, partly driven by the lower invoicing to clients from the COVID-19 drop in advertising campaigns. I call it that unwinding of working capital. There was also a positive year-over-year of tax assessments on previous years, generating a positive delta of €21.3 million. These positive effects, they were offset by lower operating results, more cash payments related to the due to radial clients, which is mainly a calendar phasing effect. Remember also that on the initial slide, slide five, I think, that the due to effect is excluded from the adjusted free cash flow like we presented there. Then the cash flow from investing activities, it increases by 6.7 million euros. This was driven by €11 million higher proceeds from building sales compared to the first quarter last year, partly offset by higher CAPEX of about €5 million. I already indicated that the CAPEX is mainly relating to e-commerce logistics, Radial US, and the second site at Active Ends. As a consequence, the free cash flow increased by €8.1 million to €194.2 million. Cash flow from financing activities is minus 26.6 million euro in the quarter. It increased by 17.5 million euro versus the same period last year, and it has mainly to do with the issuance of commercial papers. Regarding the balance sheets on page 15, I just want to present it here. We mentioned the net debt. At six, €20 million, which remain broadly stable. The main balance sheet movements that we see is as to the decrease in trade and other receivables due to the peak sales of year-end 2019 on the one hand, and also the settlement of the SD&I receivable we typically always have, and that results in an increase in cash and cash equivalents. Trade and other payables, they decreased due to the phasing of year-end peak 2019. which was partially compensated by increase in other payables due to also an advance payment of the SG&I compensation. Then on slide 16, it's a slide that we added because we thought it might be useful to have an insight in our financing structure and also some insight in the liquidity of the group Total available liquidity at the end of March consisted of €844.4 million of cash and cash equivalents. We mentioned here that €653 million is readily available on the bank and current accounts and also on the short-term deposits. €156 million is in the network. That means in the bank. We also have, in addition to that, two undrawn revolving credit facilities for a total amount of €375 million. External funding, at the right-hand side, it amounts to roughly €1 billion, out of which €837 million is long-term debt, and the €165.2 million will be repaid or will be rolled over between the second and the fourth quarter of this year. That's mainly relating to short-term commercial paper. They vary between one month and three months. And I refer to the undrawn facilities that we have. They're in part also a guarantee for those commercial papers. So if we will not be able to roll it over, then we have the undrawn facilities. But I can notify you that last week, this rollover of commercial paper was successful. apparently enough liquidity to roll those over. The current portion of the European Investment Bank amortizing loan of €9.1 million needs to be repaid. That's in the fourth quarter. So we have sufficient short-term liquidity to serve our debt obligations, and she's in a very cautious way, given the lack of feasibility on the length and the severity of the crisis. I will now hand over to Jean-Paul. Yeah, we call it the outlook, but indeed giving some more explanation on the fact that we overruled the outlook and the effects that we have seen in the month of March.

Thank you, Elaine. I would like to say as a preamble that the current exceptional crisis has unprecedented consequences across the globe. As Lynn also said, visibility of the length of the crisis and its economic impact is currently extremely low. Yet, it had already a visible impact in the first quarter on the operations and financials of our group. Therefore, the full year guidance we issued on March 17 is overruled by these difficult and unstable market conditions. And as mentioned already, an updated full-year guidance will be issued as soon as we are able to have the full quantitative impact of the COVID-19 crisis and that we can estimate it accurately. Today, we are not in a position to do so. What we can do, however, is summarizing some impacts that we have seen so far since the start of the lockdown, thus meaning in the second part of March. In mail and retail, as already mentioned, we saw a severe volume impact in advertising mail with declines above 60%. Transactional mail was also impacted, but to a lesser extent. Additional costs related to health and safety measures and also the COVID-19 premium to the staff amount approximately to €5 million on a monthly basis. Absenteeism doubled at BPOS Belgium at the start of the crisis in March. When we look to Parcels & Logistics Eurasia and Parcels Béné, the year-on-year volume growth is above 20% there. The impact was limited in the last two weeks of March, but it is strongly trending upwards. And we are currently on a daily basis around the levels that are usually the levels at the year-end peak. Cross-border, however, as we already highlighted also, is impacted significantly by the reduced air freight capacity and by the closure of the international borders. Additional costs for safety, the COVID-19 premium, absenteeism, and transports would represent approximately 1.5 million on a monthly basis. Within parcels and logistics North America, so far client volumes met expectations and we experienced very limited operational disruptions in the first quarter. Additional costs for health and safety measures are currently below 1 million euro on a monthly basis. When we look to the group as a whole, we will limit CAPEX to urgent and strategic needs only and we will strive to reduce it by at least €50 million to a maximum of €150 million CapEx spent. With regard to the dividend, we can say that the current dividend policy of paying out at least 85% of BGAP net result of the mother company is suspended. Exceptional circumstances require exceptional measures. Therefore, the Board will only decide on a new dividend policy when the longer-term impact of the COVID-19 crisis becomes more clear. And with this, we are happy now to answer your questions. Operator, please open the lines.

Thank you. And as a reminder, if you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. Please ensure your line remains unmuted locally. You will be advised when to ask your question. So again, that's star 1 on your keypad. And we do have a few questions in the queue. The first question comes from the line of Frank Clerson from Diggrove Petercom. Please go ahead.

Yes, good morning. Two questions, please. First of all, what is your experience so far with your new distribution model in Mill? And do you expect impact of COVID-19 on the rollout of this distribution model? And then secondly, what can we expect on the sale of buildings in 2020? And do you also expect to see their impact of COVID-19? Thank you.

Okay. On your first question, I will answer. We have launched the new distribution model officially since mid-March. And we are, as we told you before, we are evaluating the findings on a permanent basis. So it has not been postponed. It has really been launched mid-March. And we see that it functions for the moment as we have expected. So our sorting activities are now able to treat and deliver two clearly separated streams of products to the distribution offices, and this with a clear distinction between prior and non-prior mail. So technical aspects and changes made to the processes to establish and to launch this new distribution model are under control. For the buildings, Lynn?

For the buildings, indeed. Yeah, we had a plan indeed on the building sales. We continue to execute on that plan. But your question is the right question. Within the current context, property disposals might be a bit on hold. And it is to be seen when the normal activity will resume. But also there, sorry, I have to say the same. It's too early to make a judgment call on that. And we will take it up in a new outlook as soon as we have a better sight on the length of this crisis.

Okay, fair enough. Thank you.

Thank you. The next question comes from the line of Ruben Devos from KBC Securities. Please go ahead.

Yes, good morning. I had one on the exit plan that I started in Belgium since yesterday. I started with a softening of lockdown measures. I was wondering whether that changes much for BPOST in terms of running the business and related to that with more people being at work and no longer at home. Could that actually make things more difficult with potentially a less efficient delivery process? That's question one. The second one relates to the announcement of one of your peers with an opening of a new depot in Belgium. Basically, they've been increasing their footprint in Flanders. In the past, you've done the same in the Netherlands, mainly through acquisitions. I was wondering whether you could give an update on your strategy in the Netherlands. and whether at this stage you feel that capacity is sufficient to service that market, or are you potentially looking as well to increase your physical presence in the Netherlands? Thank you very much.

Perhaps briefly on the deconfinement, that's indeed the reason why it's so difficult to give a full year prediction, because the deconfinement, how successful it will be, and let's all hope it is very successful, will impact our business in one way or another. So it will impact meal again. It will impact parcels again. On the other hand, indeed, we also gain new customers on parcels. How faithful will they remain with this? It's indeed, like you said, delivery of parcels at home. But as long as kids are still not going to school, that might also have an impact. So it can go a bit either way. That makes it overly complicated. And I think as to the point, we really hope that key confinement measures are respected by everybody, and that we all, not only BPOs, we can go back to the new normal, in which indeed we believe it will probably be a new normal, but let's hope we don't need a second confinement. New Depot, you take us?

Yeah. Good morning. Well, we also read the press release, I think yesterday, from our colleague Postanel. It's clear that the e-commerce market is moving around, I would say. It's very busy. Everybody is looking for its place. Until now, if I'm not wrong, there was no real sorting center from them in our country. But we focus on the strategy we have chosen in the past, continuing our growth strategy with innovative solutions for our customers, like we have this where they can apply in the app for the location where their parcel has to be delivered. We can also say that our NPS score has been the highest ever in the last week, so I think we are doing a good job. We have also, of course, a big spreaded network of touchpoints and points where customers can get their parcels, and we will continue to invest in that also in the future in our delivery points that are open 24-7, And last but not least, we have invested in the past, I would say, in a big center in Brussels, as you know, with a capacity of around 300,000 parcels a day. And also, we have two other parcel distribution centers in the north in Antwerp and in the south in Charleroi, which are running heavily and running well at this moment and give us the possibility to live up with the demands from our customers, meaning that we have the volumes going on the last days, as you probably have read in the press as well, of around 500,000 parcels a day, which is in the same level or even a little bit above the level of the end-year peak.

Okay, thanks for that. Just add a small additional question on the CapEx guidance, which is reduced by 15 million. Just curious whether you could give a bit of a color on the CapEx envelope for this year, you know, which investments were prioritized at this stage, and does that imply we should see 15 million plus next year? Thank you.

Well, I think it's a very normal and good question. But it's too early to clearly give details on where the spend will be focused on. I could imagine that we will look if we need to spend more or faster than in the plans we might have had in the parcels business, of course, in the sorting business. to make sure that higher volumes that will probably come up in the coming years, that the volume increase will go a bit faster than what we expected earlier. But it's too early to really say where will we spend the €150 million maximum. We have installed, as we told you last call, more severe procedures to follow up on cap expense. And we will continue to do that, but we have to review where the need is the most and for our strategy and also for linked with the current crisis where we will need the CapEx maximally to continue to serve our customers and to support our growth strategy.

Okay.

Thank you.

Thank you. Thank you. Thank you. The next question comes from the line of Mr. David Kerstens from Jefferies. Please go ahead.

Good morning, everybody. A couple of questions from my side, please. First of all, you mentioned that the parcel volume is strongly trending upwards in April. To what extent are you able to absorb the additional volume currently in your network? I understand for the Christmas peak period you're planning almost a whole year in advance. To what extent are these additional volumes that you're currently seeing as profitable as the peak volumes in December? And should we calculate with the one and a half million additional costs on a monthly basis, or does that number also move up in April with the additional volume? Then secondly, with regards to the 60% decline in advertising mill that you saw at the end of March, is that now improving now that the ban on advertising has been lifted? Do you see an improving run rate in April? And then the next question with regards to radial, you said there was only still a limited impact in the first quarter. The lockdown, of course, started later in the U.S. I was wondering if you could please comment on how the performance has been in April. Is Radial benefiting from growing e-commerce as well as strongly as your parcel business in Belgium? Thank you very much.

On the parcel volumes, your question is can we handle the additional volumes? I can inform you that as from the first day or even a bit before, of the lockdown, we had daily executive corona calls, I would call it, or COVID-19 calls to manage everything that has to be done. Our first priority was and is still all that has to be done for the health of our employees, but also our customers. So that was first priority. Second priority, when we saw volumes in parcels going up was to work on how can we produce them, how can we service them. We have had a few hiccups but only one week and currently we are fully operational, fully going in the right direction. We have not anymore asked customers to deliver less parcels the operations are doing very well and all parcels are being delivered when we get them from the customers because also there we see sometimes slowdowns because also they have their peaks of orders from customers and we see that sometimes it's a delivery problem from their side to us but what we get is being delivered now fully to the end consumer and everything goes well. Of course, we have taken various measures as we do at the end-year peak. All has been done now in an agile way and in a very fast and I would say very effective speed. With respect to your question on advertising mail, well, I think it's too early to see that it improves. I think it's very difficult to predict what will happen there. Questions come from retailers to look at it, but as you will know that between a question and an advertising mail that can be sent out, there's also a few weeks. And of course, also they are probably wondering if the dates that have been given from the government will be kept and how the consumer will react on the first opening of the stores. So there's a lot of uncertainty, in my opinion, on their side, which gives us, of course, also a lot of uncertainty and unpredictability on the advertising mail. We see questions coming in, but it is still in the question phase of would we be able to do a mailing in one or two or three weeks.

And then the question, oh, sorry.

No, sorry, please go ahead. Yeah, yes, please.

So for radial, exactly. So the shops being closed happened a bit later. So what we will see probably going forward, and I give a couple of insights, I think increase in revenue from our existing clients. So what we call The same store sales, that's indeed something that we might expect. And April month to date, what we also have lift. A bit depending, of course, what type of customer it is. Is it in luxury goods or is it in things that people really need? And I think our mixture there is pretty good. So in the things that people really need, we have a big customer base. For instance, that also delivers soap, hand shells, and things like that. So there we are expecting an increase in revenue. For the new client launches, happily, last year, in the last quarter, we launched 22 new customers because you can also expect new customers coming up. that they will be a bit more reluctant to move from one fulfillment center to another, or one provider to another. So that's something else, so that Rachel is anticipating a potential slowdown in those launches. Like I said, we launched most of them last year. And then on the opposite, we also talk about churn, churn will also improve. So customers that said that they would leave us, they will be slower in leaving us because it's not the right moment to do so. So that's a bit the ingredients for the second quarter to come up and which will indeed be in there when we present you in August.

Great. Very clear. Thank you very much.

Thank you. Thank you. The next question comes from the line of Mark from ING. Please go ahead.

Yes, good morning. Thank you for taking my questions. First, on the COVID-19 impact that you mentioned that has hit you in Q1, the 16.7 million. What is exactly in there? Because when I read it, it seems that it only includes the OPEX increases from absenteeism and health and safety measures. Is that correct? And is it related to only those last two weeks of March?

To answer your question, it's mostly related to the last two weeks of March, of course, but it includes everything we could pinpoint towards COVID-19. So it's loss of revenue, costs, absenteeism costs, et cetera. So it's really all included as far as we could, of course, say this is really linked to the COVID-19 crisis. So it really includes everything and not only what you mentioned in your question.

Okay. So if I then read your statements on March, the higher OPEX, is that something that will be added on top? say the 7.5 million on the monthly basis, is that on top of, say, if you make this a monthly number, is it an extra?

It's included, eh? So you refer what we state on the March impact? Is that correct?

Yeah. Because that's the monthly runway that you calculate. That's from there?

That's included. Sorry, the line is very bad.

Yeah, I have the same issue.

Could you repeat your question?

Yeah, so the $7.5 million of a sort of OPEX run rate that you mentioned in that March figure, that's included in this $16.7 million already, or will it increase slightly?

We gave there a monthly estimate based on what we've seen in March. The difference between the $16.7 million is that it's EBIT, so revenue impact, $7.5 that you calculate over the different business units is cost only and indeed based on March for a full month.

Okay? So if you would divide it by two, it's in .7.

Sort of, yes.

Yeah, okay. I think I got that. The line is very bad. Then another one. Is there any state aid that you might have in terms of labor cost compensation or anything? Because your business obviously is running and you need everybody you can get. But is there any aid support packages that you see in April, for instance?

No? So there is state aid available. Since we are in business, for instance, technical unemployment, we consider it not applicable for people. We did look into our different businesses and have seen where is it applicable, for instance, in the retail part. So where possible and where feasible, I have to say. Indeed, we can apply it. But actually, because we're in business, we're not really looking into it. As to liquidity, also the government and the tax authorities, they give some extra breathing room. There, of course, we will profit from that where we think it's feasible.

Maybe as a follow-up, is that decision not to use it, is that linked to still keeping open the possibility to pay some dividends?

Sorry?

Is the fact that you're not using the state aid while you might qualify for it, is that because you want to keep all options open in terms of still paying the dividend?

I think that the state aid, which I don't exactly understand which state aid you are referring to, because there is no state aid for companies that continue to work, as far as I know, except for postponing... possible payments and even that is more linked to companies that have been obliged to stop their activities and thus have a complete lack of income. We have not any state aid requested as some other companies because we continue to work of course. The only thing we have used but very limited in the retail network where we had to close certain activities there we have used of course the unemployment aid but that's not I would not call it a real state aid it's a normal system I would say and for the rest what Lane also said we will look if we can use any of the payment postponements that are possible. But also there, there are a lot of rules linked to it. And we will see what is possible.

So there's no conditions set to paying a dividend linked to any of those schemes you could be using?

In our decisions, that link was not taken into consideration. Okay.

Sorry, could you repeat that?

In our decision, whether or not to ask for state aid, the link with dividend was not taken into consideration.

Okay.

So, like I said, we come back on dividend policy when we have more visibility.

Yeah. Is a scenario, talking about the dividend, is there a scenario possible where you might postpone it completely because, yeah, simply because to be fair, in line with all the other companies that maybe postpone it or just don't pay it.

We cannot, Mark, we cannot comment on that. We stick to the state.

Yeah. Okay, fair enough. And then the last one from my side. Yesterday, obviously, you heard Paul Schnell talking about multi-fender ship impacting volumes. Do you see any trends of that also in Belgium? for early trends.

And what did they, sorry, the beginning of the question was not clear.

Yesterday, personnel mentioned the multi-vendorship, that clients opt for multi-vendors, that it has impacted the parcel volumes. Do you see any of these developments also happening in Belgium at the moment?

It's a good question, but I think the ones that were multi-vendors probably stay multi-vendor. But it's not something, in my opinion, specifically to the COVID crisis or whatever. It's a normal way when customers, so senders, have increased volumes. It seems not so unusual that they would possibly go to multi-vendor. I think for the moment, we must say that Yeah, the customers, as Lynn also said, what we feel in the U.S. is also here a little bit. It's not the right time or the right moment to change from your partner, I would say, or to do heavy changes. We do got questions from customers of our colleagues if we could take more volumes. So maybe that's something which is referred to. And since we are now fully operational and able to do 500,000 or even more volumes, we have not said no. But there's no big, big, big movement or big new change in their policies.

Okay. That's right. Thank you. And sorry for the bad line. But thanks for answering the questions.

Thank you, Mike.

Thank you.

Thank you. The next question comes from the line of Mattia Herguelet from Goldman Sachs. Please go ahead.

Yes. Hello. Good morning. Two questions on my side, both related to parcels and both related to April. So you mentioned that no cross-border was down in March and What kind of, say, level of decline are you still seeing in April? And are you starting to see any easing, any improvement in the cross-border trade? Because I saw that generally cross-border trade was still, you know, governments were trying to keep it as open as possible. And then secondly, going back to now David's question about the surge in parcels volumes. I mean, as far as I know, you have an integrated delivery, mail and parcels. But now, are we going to see a very – no. are you seeing effectively like a positive operating leverage kicking in in parcels? Now with a 50% or so increase in parcels volumes, we should have a very significant improvement in margins in the division because the surge in volume should be more, should more than offset the one and a half million increase in costs in my view. But any color there, I think, no, we're just trying to understand whether basically actually see, and this is, I think, one of the key themes in the sector, a big material surge in profitability and thus effectively offsetting to a good extent the decline in mail. Thank you.

Okay, the cross-border question. Yeah, like I said, we use freight capacity, and if there is limited air freight capacity, it's very limited to do business. So also there, it will be the pace of the deconfinement that will show its impact on the cross-border activity. As to the surcharge on Brussels?

I think, yeah, the question was not on the surcharge. I think it's... Yeah, I understand the question. I think what we've done, what we've been looking at is maximally be able to service the increased volumes. For the moment, it's early to see and to judge what it will bring financially. But our first priority was to make sure that all parcels that are requested to be delivered from customers, existing customers also, but also from new customers, that we could operationally produce them and service them. I think that was our main priority, not to have to say, as colleagues did, that to new customers you cannot come with parcels, we do not let you come. We have said no to nobody. The only thing we did, which is normal in the sector, is that we have tried to spread the delivery of parcels for sorting and also for distribution. But the question if this is now going to have a positive financial impact, this is a very difficult one for the month of April because, of course, everything has been done to get the operations started. And as we also mentioned also in March, we needed to use extra staff, also extra subcontractors next to all the measures linked to the COVID-19 crisis.

Okay. Thank you very much.

Thank you. The next question comes from the line of Hank Slotboom from The Idea. Please go ahead.

Good morning, Jean-Paul. Good morning, Leen. Thanks for taking the time.

Hello. Good morning.

I have three, two easy ones and one perhaps that requires a little bit more time. The easy ones, with regard to parcels Eurasia, you're labeling a couple of items as sort of one-off. The COVID-19, I can understand. but there's also the issue of the VAT recovery in the terminal dues. And what I remember, but I can look that up, last year you had a pretty strong year in terminal dues. Can you perhaps indicate how much of that will affect the next quarter, the current quarter, for example? Then the second question would be... That was a difficult question? No, that was an easy question.

Okay, go ahead. Sorry.

And then the second question is another easy question. Last time, Jean-Paul, you mentioned that the press contract was being reviewed by the European Commission and that the government was in the phase of getting approval for the renewal of the press contract. Have there been any developments since? And then, yeah, the more difficult one, I'm still a bit, I'm possibly really surprised about the performance of Radial. And I think congratulations are in place there. You said that the impact of COVID-19 kicked in later in the U.S. That's something I understand. But if I look at the retail sales, for example, in fashion in March in the U.S., they were down 50%. And what I always understood is that the focus of Radial lies on three segments, apparel, luxury, and sports. Now, how much of the sales of radio depends on these three segments? And yeah, what is really triggering the positive surprise there? If I look at the revenues, is it mainly the fact that you added 22 clients or is it, yeah, well, perhaps you can elaborate about that. Okay.

So your first question on the VAT and terminal dues, you cannot really flag them as such because they're normal to our business. So it's more where their phasing is. And in the full year 2019, we were indeed profiting from positive terminal dues settlements. especially in the second quarter 2019. And you can look it up. We had then a positive impact on EBIT of 4.1 million euro in the second quarter. But in the full year, the balance was overly more positive. And now in this quarter, we see indeed that is a negative saving. Predicting that is a difficult thing to do. Press concessions. Yes, so the notification is ongoing. It's not concluded yet, but it's ongoing and we're on track. I cannot flag anything more particular as to that point. And then moving to radio, yeah. Cosmetics and sporting goods. In the cosmetics, we also have... A lot as to how shall I call it? Yeah, it's soaps and gels. So bath and body. I'll call it that way. So that's quite a basic product. And that's also the customers that actually are doing well. Also cosmetics products. We also have some pet food, for instance. All those things are things which, throughout the crisis, are actually rather stable. And don't forget, because you're now comparing perhaps a crisis situation, an economic crisis situation, but in this case, the fact is that stores are closed. And our customers, a lot of them even in apparel, We deliver both to their stores as we deliver online. If they don't have the stores, don't have the bricks and mortar, the only sales channel is the online. And that's also a bit what we see in the parcels, of course. If it's the only channel, by definition, the sales will go via that channel. So very much different from is it now in apparel or in cosmetics or in luxury goods. And I think looking at the full businesses that we do, They're not all in luxury, and even for luxury goods or for sport goods, for instance, that's something that we're very strong at. Also there, if the only sales channel is online, they will buy via online.

Okay. Thank you very much, Elaine.

Yeah, okay. You're welcome. Thank you. The last question for today comes from the line of André Mulder from Kepler Chivre. Please go ahead.

Yeah, good morning. I can imagine in a way that you don't want to give a range for the full year outlook. But the dividend payout ratio stretches out to the long term. What are the parts why you cannot give an update on the dividend payout ratio?

Yeah, I think... Because we, prudency, I think we have to call it like that. I think as management, we have a plan. We have a plan also based on what we see now, how future can evolve. But through this, do we really know what will deconfinement mean? Will there be a second lockdown? How soon will the vaccine be there? Will we live in confinement, reconfinement all the time? It would be rather unprudent to now make a statement on the longer term if we cannot even predict the short term and have to say to you, look, we're not in the possibility to give an outlook, but we do make a bold statement on the dividend policy.

Okay.

Thanks. You're welcome. Thank you. There are no further questions in the queue, so I'll hand the call back to our speaker to conclude today's conference.

Okay.

I would like to thank you all for attending this conference. I think also like to thank you for all the interesting questions. I hope we have been able to give you the answers for most of them. I would say we are looking positively to the future. We hope that we can be at full speed again in all the businesses after the COVID crisis and that we can all stay in good health. And I wish the same for you all. And thank you for your attention.

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