bpost NV/SA

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 Meanwhile, this has been withdrawn, but also the closure of non-essential stores that was effective here from the 18th of March and is still ongoing.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.