Bpost Sa Unsp/Adr

Hello and welcome to the BPAL Second Quarter 2020 Analyst Call. My name is Judy and I'll be the coordinator for today's event. Please note that this call is being recorded and for the duration of the call, your lines will be in 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. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand you over to your host, CEO, Jean-Paul Van Avermaet, and CFO, Lynn Gernadet, to begin today's conference. Thank you.

Okay. Good morning, ladies and gentlemen. I'm very pleased to be here to present you BPOST Group's second quarter 2020 results. I'd like to welcome you and thank you for joining us. With me I have Leen Geernaert, our CFO, as well as Saskia and Stephanie from Investor Relations. I assume you already had the opportunity to read through the materials which we posted on our website last night, and we will talk you through the presentation, and afterwards we will take your questions. Our second quarter results were obviously still impacted by COVID-19, and this until the end of May. The second quarter was fully dominated by the lockdowns in place, as well in Europe as in North America. This resulting in a net negative impact on the total group EBIT year over year. Also, when we exclude the gain on sale of the headquarters building we had last year, in May 2019. With regards to the timeline, let me remind you that the federal government in Belgium imposed a lockdown as from March 18th, including the closure of non-essential retail, and this until May 10th included. A promotion ban was also introduced at the start of that period and was in place till April 3rd. The month of June, on the other hand, proved to be unexpectedly and exceptionally strong. We will elaborate on that later on. Predictability remains very low since there are many unknown factors as to how COVID-19 will further evolve. However, we can say that we are seeing some structural trends emerging from this crisis. These trends also confirm that the diversification strategy, which Bepo's group embarked on since a few years, is really bearing fruits. I repeat, remaining an efficient mail operator in Belgium while growing in the areas of e-commerce and last mile delivery in the home country. For that purpose, we continue to invest in capacity expansion in those growing activities. This with two new parcel sorting machines in Antwerp and Brussels, and site expansion for e-commerce logistics in Europe and in North America. Coming back to our second quarter 2020 results on slide three, The group adjusted EBIT stood at 74.9 million euro. This includes an estimated net negative impact of 9.5 million euro related to COVID-19. This result is much stronger than our own expectations, driven by the sharp recovery during the month of June. where we have seen that mail volumes were much better than expected and e-commerce volumes remained at a very high level. Please do note that all COVID-19 impacts mentioned are best effort estimates based on actuals and are net of negative and positive impacts. Our mail and retail business contributed for 36 million euro to the group adjusted EBIT and this with a margin of 7.7%. The COVID-19 net EBIT impact over the quarter was still significant for this business and is estimated at minus 37 million euro. Year on year, the segment was impacted by accelerating mail volume decline at minus 17.7% and this with a severe negative development quarter to date May and a much higher than anticipated catch-up during the month of June. Our retail business as well was negatively impacted by COVID-19. These top line developments are the main drivers behind adjusted EBIT decline and are partly offset by cost phasing and the cost containment measures taken to face the current volatile environment. In our business parcels and logistics Eurasia, we generated 32.4 million euro adjusted EBIT, and this with a margin of 11%. Topline here was fueled by COVID-19-driven growth in all revenue lines, in particular in the parcels Belgium and Netherlands, with volume growth of 78.4%. This started only slowly at the end of the first quarter in March, but exceeded our expectations since that persisted to a large extent up to June. in the second quarter, and this despite the reopening of non-essential retail in the beginning of May. Excluding the unfavorable year-over-year evolution in terminal due settlements, adjusted EBIT was up by €13 million, or 76% operationally. The net COVID-19 impact on EBIT is estimated at plus 13.1 million euro going to north america north america was affected later in time by the pandemic while we did not see an impact in the first quarter the second quarter showed a significant e-commerce volume growth from existing clients at radial and positive operating leverage e-commerce logistics operating income grew by 53.5% to €331 million. The adjusted EBIT for the whole business unit increased by €18.1 million to €17.6 million. The positive EBIT evolution at Radial North America was partly offset by continued margin pressure in the international mail business. For this business line, the net COVID-19 impact on EBIT is estimated at plus €16.5 million for the quarter. Thanks to this contained net financial impact from COVID-19 on Bepo's group so far, we are able now to reconfirm our initial group adjusted EBIT guidance range of 240 to 270 million euro. The contribution by business unit, though, will be different versus what was initially foreseen and that you will understand. Of course, this outlook is based on the current situation. In fact, assuming no second national or important local lockdown during the rest to the remaining time of 2020. I will come back on this in more details, but we'll first hand over to Laine for more details on the financials of the second quarter. Laine?

Yes. Thank you, Jean-Paul, and good morning to you all. We are together on page four now. And that shows the Abbott Bridge for the second quarter. As you can see, the adjusted EBIT showed a decline of €32.6 million compared to the same period last year. Two big things that we noticed there, €19.9 million is due to the gain on the sale of our headquarter building that we had last year in the month of May. And as Jean-Paul mentioned, the second thing is the impact of COVID-19 with an estimated EBIT impact of negative €9.5 million. where on the one hand we had a decline in meal and retail, which was to a large extent compensated by a significant growth in our parcels and logistics businesses. Besides this COVID-19 and the headquarters sale, our second quarter EBIT was favorably impacted by targeted cost containment actions and cost phasing towards the second half of 2020. Emile retail adjusted EBIT decline by €38.8 million, mainly impacted by COVID-19. We estimate this as €37 million on a net basis. This was visible through the domestic meal volume decline at minus 17.7%, while specific cost containment actions as well as phasing helped us to smoothen significantly the impact at EBIT level. Partial and logistics Eurasia, they recorded an adjusted EBIT increase of 8.8 million euro. The adjusted EBIT figure of 32.4 million includes an estimated positive net impact of 13.1 million euro from COVID-19. And on the other hand, minus 4.2 million euro negative evolution in the settlement of terminal use. You will remember And last year in the second quarter, that was a very positive phasing. Parsons and Logistics North America adjusted EBITs, increased by €18.1 million versus the second quarter of 2019. This strong positive EBIT development from e-commerce logistics, and Radial in particular, was only slightly upset by margin pressure in the international mail in the U.S. Like said, in corporate, the adjusted EBIT decline of €20.7 million is largely explained by the gain on disposal of our headquarters in the second quarter of 2019. On the next page, we have an insight on the key financials for the quarter. At group level, total operating income was up by 12.5%. positively impacted by the strong growth in parcels, B&A, and e-commerce logistics, both in Europe and in North America. More details on the revenue and EBIT developments following the breakdowns per business unit later on. When looking at the EBIT, always we have the adjustment for non-cash amortization charges on intangible assets that were recognized in the purchase price allocation. These charges also positively impacted the reported income tax. That effect has been adjusted here as well. The net financial result of minus 14 million euro improved slightly by 0.8 million euro versus second quarter of last year, and that's mainly due to improved exchange rate results. Income tax expense decreased by 13.5 million euro as a result of lower profits before tax, while also the effective tax rate of 26.7% decreased mainly as a result of the lower Belgian corporate tax rate from 29.58% last year to 25% as of this fiscal year. The normalized free cash flow increased thanks to an improvement in the working capital evolution. This is primarily thanks to COVID-19 extended payment terms, and the absence of tax prepayments in the second quarter this year, something that was allowed by the Belgian federal government. These effects were partly upset by lower building sales, given the sales of our headquarters last year, and I will come back on the cash flow elements a bit later in the presentation. All in all, and by consequence, the net debt decreased compared to end of 2019, helped by the free cash flow generation, and of course also by the absence of paying a final dividend on 2019 in the second quarter of this year. Capital expenditure for the quarter amounted to €24.9 million, a decrease of €0.9 million compared to the second quarter of 2019, which spent primarily relating to capacity expansion, partial sorting on the one hand, and also in e-commerce logistics. Let's now have a look at the different operating segments. On this slide, you will find, we are on page six, the results by segment in which you see the contribution per business unit. And it shows a strong contrast to the previous quarter's due, or thanks to, if I can combine that with the word COVID-19. And it boosted the growth in parcels and logistics segments, contrary to the acceleration of mail volume decline in mail and retail. So indeed, mail and retail generated 48% of the group adjusted EBIT of 74.9 million Euro. Remember that on a full year basis, last year, mail and retail was contributing about 80% of the EBIT. Parcels and Logistics Eurasia was a second contributor at 43%, and Parcels and Logistics North America contributed positively as well, accounting for 24% of the group adjusted EBIT in the quarter. These figures do show that the business transformation is the right track towards sustainable EBIT growth. Over time, the growing EBIT contributions from our parcels and logistics business will increasingly compensate the EBIT decline in mail and retail. We can move to page 6, where we see the external revenue bridge of mail and retail. We see a decline in the external revenue of 71.9 million euro to 407 million euros. And we see a couple of things, 40.9 million euro revenue loss from domestic mail and 27.8 million euro decline in proximity and convenience retail networks. Domestic mail was driven by an underlying mail volume decline in the quarter of minus 17.7% and the absence of elections, partly compensated by positive price mix impacts. Mail volume decline shows a very different pattern between quarter to date May, it was at minus 22.3%, and between the month of June, which showed a stronger than anticipated recovery, and it stood at only minus 6.6%. The discrepancy in trend is particularly obvious for advertising and transactional mail. In transactional mail, the underlying mail volume decline was minus 16.7%, of which minus 19 in the first two months, and in June, we noted minus 8.9%. Transactional mail was relatively resilient to the impact of COVID-19, because it was still supported by big senders' administrative volumes, which were less impacted than the smaller administrative volumes, the daily and the registered mail. Despite this, all product categories were negatively impacted over April and May, with a catch-up in June. Then the advertising mail volume declined. It stood at minus 26.6%, of which minus 37% in April and May, still impacted by the ban on promotions in April and by the closure of non-essential stores. Advertising mail then gradually resumed, with food retail in the second half of April, and the other sectors as of May. In June, the picture was very different, with a minus 4.2% in advertising mail volume decline, which highlights indeed a sharp catch-up, although not in all sectors. The press volumes in the quarter are minus 8%. It shows a continuation of the trend towards e-substitution and rationalization, so normal trends relatively robust in the COVID-19. Proximity and convenience retail network revenues declined by 27.8, partly due to one, the consolidation of Alvarez, that explains minus 7.8 million Euro versus last year. Secondly, the YubiWei retail revenues that were impacted by the COVID-19 confinement measures, which led to significant decrease in footfall primarily in our travel locations. Then, thirdly, banking and finance revenues also declined due to less traffic in post offices and also less ATM transactions. Value-added services decreased by €3.2 million, and we observed that in phasing out of the EID activities, nothing to do with COVID-19. the document management and the European license plates, which was impacted by COVID-19. Looking then at the P&L for MNR, the adjusted EBIT amounted to €36 million with a margin of 7.7%. This is a net decrease of €38.8 million compared to the second quarter of 2019, explained by the decrease in total revenues of €53.2 million combined with a 14.4 million euro decrease in operating costs when including the adjusted DNA. Operating expenses declined as a result of the following. We did have higher paywall and interim costs. We did have specific COVID-19 OPEX. But on the other hand, that was more than compensated by lower costs from, again, technically, the material costs from ALVADIS, deconsolidation impacts, The fact that we have a higher recoverable VAT amount than last year, cost containment actions, and also a bit of cost phasing towards the second half of 2020. COVID-19 had an estimated net impact on mail and retail's EBIT of 37 million euro. And we see two things. Of course, the top line developments at domestic mail and in UBWay retail I just explained. as well as by additional costs linked to the COVID-19 premium, health and safety measures, an increase in absenteeism, and also additional debt at risk. Note that the estimated COVID-19 net impact was significantly negative quarter to date May, while in June we noted a faster than anticipated catch-up in the male volumes. Then we move to the parallels, and starting with Eurasia. On revenue, we recorded a growth of 95.6 million euro. This is driven by favorable development across all sub-segments, thanks to the strong increase in online demand due to the lockdown. Marshall's B&A to start with. It recorded an increase of 58.4 million euro. That's an increase of 64.2%. And that's driven by a significant organic volume growth of 78.4%. only slightly slowing down in the month of June from the peak levels recorded in April and in May. Also DynaLogic continued on a very good volume trend. E-commerce logistics revenue also increased nicely by 17 million euro, thanks mainly to positive COVID-19 impact on Radio Europe, Active Ants and DynaFresh, as well as the MCS fulfillment consolidation impact. cross-border revenues. Contrary to what happened in the first quarter, as you remember, we have now in the second quarter a very positive top-line impact from COVID-19, which explains an estimated 15.4 million euro of the 20.2 million euro increase year over year. The important activity loss that we experienced at the beginning of the COVID-19 outbreak relating to the lack of air freight capacity closure of international borders gradually recovered over the month of May, although still modest. But through June, the cross-border activities evolved exponentially, and especially for the parcels from Asia, as a result of the train solution that we put in place as an alternative to the air freight. What does it give in results? Adjusted EBIT for Parsons and Logistics Eurasia increased by €8.8 million to €32.4 million, with a margin of 11%. This was driven by top-line evolution I just talked about, partly offset by higher variable costs, and specifically also COVID-19-related costs. In addition to that, and that's €4.2 million less terminal use settlements than we experienced last year. Excluding those terminal use impacts, the adjusted EBIT would be up by €13 million or 67% operationally. COVID-19 had an estimated net positive EBIT impact of €13.1 million, supported by a much stronger month of June than anticipated with e-commerce volumes remaining at high levels and cross-border showing a strongly positive evolution as opposed to what we've seen to a quarter to date, May. Then let's talk North America. Operating income of e-commerce logistics. We've been in pools of COVID-19 lockdowns and they started a bit later in North America than they did in Europe. But we experienced the growth of 115.4 million Euro. It was mainly driven by Radio North America recording 49% growth from existing customers, as well as significant growth from the new clients that we launched end of 2019. This was only to a small extent offset by churn. In international mail, we saw external revenues declining by 1.4 million, that's minus 6.5%, this despite positive foreign exchange evolution. This was due to negative impact on business from mail from COVID-19. Overall external revenues were just up by 113.9 million euro for the business unit. We estimate here, just to give you a bit of color, that COVID-19 impact on revenues is 90 million euro positive. On slide 12, we see that that positive top line development translated into a strong adjusted EBIT increase of €18.1 million to amount now to €17.6 million and an EBIT margin of 5%. I think we all agree that this is a very promising result, as it does show the importance of reaching a critical scale in that business and that North America, radio in particular, is geared to do that. The positive evolution at Radial was slightly offset by continued margin pressure in international mail from lower volumes and also higher transport costs. The COVID-19 net impact is estimated at a positive €16.5 million and is the net of a higher variable margin contribution driven by the volumes on the one hand, and on the other hand, costs of additional health and safety measures and increased transport costs for international mail, and also . May I also point your attention to the bottom of the table, where you see Radial North America had an EBIT margin of 4.3%, as you can see in the US dollar KPIs. With the result of the second quarter, Radial achieves a break-even result after the first half year. In total, North America is now contributing positively to BIPO's group with an adjusted EBIT of €10.1 million. Then moving to the corporate segment, not many things to say because we already said it all. It's mainly the gain on the disposal of headquarter buildings in the second quarter last year. Net net of interest rating income, the OPEX was flat. And it's led to an adjusted EBIT decline within corporate of 20.7 million euro. On slide 14, you can see that the reported free cash flow stood at 130.2 million euro, which is an increase of 108.7 million euro versus the second quarter of 2019. The cash flow from operating activities stood at 138.3 million euro, which is a 165.7 million improvement compared to last year. That and a couple of things. The cash flow from operating activities before the change in working capital at 135.2 million Euro or 53 million better than last year. This is primarily because we made use of the fact that we could postpone our tax prepayments in 2020. We used the possibility offered by the Belgian government. Secondly, we have the cash relating to the collected proceeds due to ratios clients, as we call it, and that amounted to 69 million euro, which is an increase of 83 million. Remember that that due to effect is excluded from the adjusted free cash flow that we present in the key financials on slide five. Finally, the working capital excluding that due to represented an outflow of €63.7 million for the quarter, which is also €30 million better than last year. And this is primarily driven by extended payment terms during the COVID-19 period, partly offset by high receivables due to increased sales. Looking at the cash flow from investing activities that decreased by €56.9 million year-on-year, was driven by the proceeds on the sales of our headquarters last year. Apex of €24.9 million, like said, was spent on capacity expansion. We've done that at Radial, at the Barshels B2C, and at Active Amps. The cash flow from financing activities at minus €24.4 million in the quarter It's also improved by 36.4 million Euro versus the same periods of last year. Of course, that's explained by the absence of dividend payment in the second quarter 2020. Having a look at the balance sheet, we already mentioned the net debt at 539.5 million Euro. That includes, of course, now IFRS 16. And a decrease versus the same quarter last year as a result of the cash generation that which is explained. The main balance sheet movements versus end of 2019 relate to decrease in trade and other receivables due to the usual settlement of the SG&I receivable in the first quarter, which also resulted in an increase in cash and cash equivalents. The other liabilities that there is increase in, that's due to the income tax payable as no prepayments were done in 2020 yet. Like previous quarter and given the current circumstances, we also like to give you some more insight in our financing structure and liquidity. The total available liquidity at the end of June consisted of 925 million euro of cash and cash equivalent, of which 718.5 million euro is readily available on bank current accounts and as short-term deposits. BPOS Group also has two undrawn revolving credit facilities for a total amount of €375 million. Looking at the total external funding, it amounts to roughly €1 billion, out of which €833.4 million is long-term debt. And then looking at outstanding commercial papers, they amount to €168 million, with a maturity between one and six months. Early July, remaining prudent on liquidity, we took the advantage of favorable market conditions to issue €100 million, and this secured a major part of our short-term funding until the collection of the next SD&I payment in January 2021. The current portion of the European Investment Bank amortizing loan of €9.1 million will be repaid in the fourth quarter. So we can conclude. that we have sufficient short-term liquidity to serve our debt obligations, and we keep on managing this in a very cautious way, given the lack of visibility on the length, the impact, and the severity of the crisis. I hand back to you, Jean-Paul, for the outlook.

Okay, thank you, Lynn. The current exceptional crisis has and will continue to have unprecedented consequences and this across the globe. Visibility and predictability on the length of the crisis and also on its economic consequences, we must say that this remains extremely low. Yet COVID-19 had already a visible impact in the first half year of 2020 on our operations and also on our financials. and this with the net EBIT impact estimated at minus 26.2 million. Nevertheless, the recovery that we have experienced in June in our mail business and the potentially sustainable higher growth in the e-commerce activities, be it in Eurasia or in North America, enables us to reiterate our initial outlook at adjusted EBIT group level. This represents a figure between 250 and 270 million euros. 240 and 270 million euros. My excuse. The respective contributions of the different business units, though, will most likely, and we are pretty sure, be highly different than what was initially foreseen, as you understand from the second quarter results. These assumptions are based on the absence of a second national in any country or important local lockdown in 2020. And again, the uncertainties related to the evolution of the crisis may also still further impact our full year results. We do continue to strive for capital expenditures for the year 2020, below or at maximum €150 million, as already announced during the last quarter publication. In order to preserve BPO's balance sheet, cash reserves, and the capacity to invest on the longer term in the growing businesses, the Board of Directors will recommend to the Annual General Meeting not to grant a dividend on 2020 results to the shareholders. Although we realize that this may come as a disappointment in the light of the outlook reiteration, we believe that prudency must still prevail, especially in this context of a transforming industry. The Board will announce a new dividend policy going forward, when the longer-term impact of COVID-19 becomes more clear. And with this, we are happy to your questions now. Operator, you may open up the lines. Thank you.

Thank you, Jean-Paul. And as a reminder, if you would like to ask a question or make a comment on today's call, please press star 1 on your telephone keypad. The first question is coming from the line of David Carstens from Jefferies. David, you're unmuted and may now go ahead.

Hi. Good morning, everybody. I've got three questions, please. First of all, on your parcel business in Belgium and the Netherlands, I was wondering how were you able to accommodate a 78% increase in volume? And could you give an indication on how capacity utilization has developed as a result of that spike in parcel volume? And is it fair to assume that if volume will slow in the second half that profitability will improve? Then on the second question, it was very interesting you highlighted the train solution in your cross-border business. Could you give an indication how the train solution compares versus air freight in terms of differences in capacity, transit times, and prices? We've seen air freight rates spike in May. I think there were a perfect of four. and how it's becoming more competitive in such an environment. And then maybe finally on the longer-term capex outlook, as you highlighted as one of the reasons to skip the dividend, what do you foresee in terms of capex longer-term? I understand no more than 150 million this year, but I think you were previously guiding from capex up to closer to 200 million for the foreseeable future. Any further call on that would be much appreciated. Thank you very much.

Okay, thanks for the question. Well, your first question was how did we tackle the volume increase. I think we've used every mean possible to fulfill the requests of our customers. We did, importantly, also worked closely with customers to spread their deliveries along the weekend because in that business it's clear that some days are much more, I would say, heavy and it's mainly in the beginning of the week after people have ordered during the weekend. So we have been able to spread, we have been able to adapt also our distribution, partly helped by the mail decline period. But also in the sorting, we've been using the sorting machines more than during normal operation and I would say normal planning hours. So this was really a possibility. And as you have seen in our press release and in the presentation, we have also now invested into new sorting machines to be able to do more parcels in the normal planning, I would say, in the normal operational planning also for the year-end peak. As far as U.S. and other e-commerce logistics activities are concerned, there we really have capacity If it's about, I would say, about the fixed assets, but also there and also in the parcels, Belgium and the Netherlands, we have been pulling up temporary workers and to make sure that we were able to fulfill the demand of all the customers. So it was a huge job and definitely also a lot in the U.S., but I would say we have passed the test very well. So we used capacity as we had it, but also beyond, I would say, a normal operational planning. In distribution, we have had certain weeks where we did a second wave of distribution, We had a second wave of sorting machine usage. So all that showed us that we really had the necessary capacity to cope together with some spreading during the days of the week.

As to your question on train solutions, I think in the first instance, it was driven by the fact how can we serve our customers And how can we solve that? That was actually our first intent. We still have to do the deep dive now to compare indeed what's the advantages, disadvantages of the two solutions, because I understand that your question is what solution will they choose on the longer term, and we're not there yet.

Maybe to add on that, on the train solution, I think it's... Your questions are very much detailed. You will understand that the train solution is, of course, less fast solution. But because of COVID-19, the air freight solution was very much limited and was becoming at a very high cost, the capacity that was available. And we've been very flexible and agile to adapt also our operation to the train solution because you will understand that one train arriving with a huge number of containers full of parcels demanded another way of operating. There was much more peak, I would say, in that. to start handling all these volumes. But of course, I think what will be the future, I think for us it was mainly how can we get that volume in as much as possible. Is it now by train or by air freight? We want to work the volume. I think it will be the customer in the future and the consumer that will decide if he's happy with the time delay, yes or no. and that will probably drive the train solution up or not. Very interesting.

Your question on capital expenditure, so guidance going forward, so this year 150, indeed you say, but it was initially planned for 200. What does it mean for the future? I think that's an exercise that we're in the middle of. Like Jean-Paul explained, and you could read between the lines, I think what we were able to do with the CAPEX already invested up to now exceeded our expectations. I think we have experienced that we could do it smarter and handle more volume than we would have initially thought. So based on lessons learned there, I think we have to revise future capital expenditure plans, but of course, being sure that we do not miss any volume opportunities for the future. So we have to revisit that and We will come with a new outlook when we discuss on 2021. Okay.

Thank you very much.

Thank you, David, for your question. And the next question is coming from the line of Najat El-Kassar from Bank of America. Najat, you're unmuted and may now go ahead. Thank you.

Good morning, everyone. Just a question, please, for me. Just in terms of the benefit of growth in volume, it seems like it has been an exceptional level. What should we expect for the second half of the year? Should we expect that trend to continue? And what are you seeing in July? And secondly, on mail and retail, domestic volume went down only 6.6% in June. What trend are you seeing in July and how we should think about it for the second half of the year? And my last question is related to the fee cash flow, which benefited a lot of one-offs and postponement payment, how we should think about it for the second half of the year as well. Thank you very much.

Okay. I will answer your first two questions. Well, indeed, it was an exceptional level of volume growth in the B&A parcels, that's for sure. What we see in the latest week's figures is that, of course, the same increase as during the COVID period is not there anymore. It continued to the end of June, let's say, and as from July, it's on a lower level. It's too early to say that this lower level is now the remaining level for the rest of the year. What we do see is that the current level is higher than what we expected before or what we had estimated to be a normal growth level for 2020 versus 2019. So I would say that everybody talks about a new normal. I also think that in the parcels business, we are into a new normal, meaning that the curve we are on, the growth curve we are on, made a little jump upwards. But of course, the figures we had in the second quarter on parcels volumes was extremely extraordinary. But I think the positive feeling we have is that we are on a higher curve now, on a higher growth curve for the parcels business, because much more consumers found a way to the e-commerce consumption, I would say. With respect to mail volume decline in June, which was relatively low, I would say, if you compare it to the COVID and also compare it to our prediction between 9% and 11%, there we see that July is more into the direction of our our prediction for the year. But also there, of course, it's very difficult to say, is this now the fixed figure for the coming months? I would say that June definitely, and maybe also a little bit in July, we had some catch-up of mail that has not been done during the three months of COVID lockdown.

Okay, and then your question on the free cash flow. So a couple of things that you have to take into account for the second half of the year. So to start with, of course, that we say we can reiterate the initial group elite guidance. That might be helpful. Like I indicated, the effective tax rate that is expected to decline. It was 36.7 last year. And now we have indeed a new Belgian statutory rate. So we do think it will be above the 30%, a bit depending on recognizing or not deferred tax assets. But of course, that's a non-cash item. Then we have the pre-COVID-19 estimates of working capital requirements. Remember, and that's also why I stress it so much when talking about the presentation, what we said about radio. We see that the product mix It is planned to move away from the payment business. I think we say that already a couple of quarters. I think the fact is still there, but also that was disrupted, as to say, by COVID-19. So we feel that customers want to move away from that payment business so that we would have less cash in the due too. But when that will happen, it's very hard to predict. So that might give a swing in working – DSO has to speak in the payment terms, but still to be seen. We have indicated in the past that it would be about 15 million negative. COVID-19 change in working capital, indeed, that you observe in the first half of the year, we worked on extended payment terms. We indeed discussed with also because we were in renegotiation of some big Contracts, we indeed agreed that during this COVID-19, we could profit from extended payment terms, but they are limited in time. So they will go back to normal payment terms by the end of the year. Then next to that is the CAPEX revision. So we will spend 50 million less than initially set. And also where we expected initially that we would have to fund in the post bank, For now, that would also not be the case. But you're absolutely right. So if you look at what is in due to, what is in extended payment terms, and as to the payment, so we did take a big chunk of extra liquidity because of working capital management, just because we wanted to be prudent. We said that as of the beginning of COVID-19, liquidity will be our focus. And it's clearly also to be seen in the balance sheet at 13th of June. And some things will unwind going forward, but based on what we see and based on the reiteration of the outlook, that's also not an issue. Thank you very much.

Thank you, Najat, for your question. And the next question is coming from the line of Frank Klassen from the Grof Petercam. Frank, you're unmuted, and we now go ahead.

Yes, good morning. Two questions, please. First of all, can you elaborate on the situation of radial for new clients? I can imagine that it's more difficult and what do you expect there? And did you also save some onboarding costs because of lower new clients? And secondly, what can we expect from the sale of buildings for 2020? I can also imagine that that is more difficult. Can we expect still some to come? Some words on that, please.

Okay, thanks for your questions. On the first one, I would say the situation as we see it now, you're right, and I think we discussed it also with the last quarter, that the COVID pandemic did push a little bit clients not to change during that period from supplier or stay. So the The volume increase is mainly with existing customers, existing clients. But what we see and what we can say is that we have a very, very healthy pipeline and an interesting TCV ahead of us, which will have positive impact, in our opinion, for 2021. I mean, no new clients means, of course, less onboarding costs or less onboarding inefficiencies. But, okay, the sales or the revenue from new clients is also not there. The main revenue increase we had at Radial has been done from existing clients.

And as to the building sales, you're correct that within the current context, property disposals are a bit on hold, and it is to be seen when we get back to normal activity. Talking here internally, we're not too pessimistic, but a bit difficult to already see the final outcome. But so far, we're on track, and we keep on working on it.

Okay. Thank you very much.

You're welcome. Thank you, Frank, for your question. The next question is coming from the line of Mark Swensenberg from ING. Mark, you're unmuted, and now go ahead.

Thank you. Yeah, good morning. A couple of questions left. Lane, can you perhaps give a bit more feeling for what your liquidity position is currently and what you also expect to see By year end, obviously you're canceling the interim dividends, so that will save a lot of cash. So can you give me an indication? I know based on your outlook, what you currently have, what your liquidity position will roughly look like at year end. That's my first question. Then I would like to come back on the partial volume growth, the 70, 80% of growth, and then moderating a bit in July. But moderating, it's a huge number. So is there anything, a range that you can provide where you say, okay, this is the current trend in volumes that we at least have some proxy to work with going into the second half? And then lastly, you're expanding into new regions with radio. Can you give me a bit of a feeling what your plans are there and how – What kind of investment does that need? How do you work with clients? Just a bit of the business model behind the expansion of radio. Those were my questions, thank you.

Okay, let's start with, you really talk about liquidity as such or free cash flow?

Yeah, well, it's a combination obviously, but indeed how much credit lines would you have available? How much liquidity do you have to finance the business? And in the end, then also to pay maybe next year the dividend.

Ah, okay. That's a question I want to ask.

Yeah, it's a bit early.

Okay. Okay. So looking at, yeah. So in the presentation, slide 16, we gave an insight on liquidity. And I think there you can tell, and also perhaps better on the balance sheet, that we're quite good in June on the liquidity. Like I explained to Najat, we have some things that will be unwinding, but you're absolutely right. We also try to work on it structurally. One thing is that we use the CapEx, so it's not only externally that we say we do not pay a dividend, we also take in our own measures internally and decided not to spend the other 50 million. We would have splendid thoughts, but we said we will wait for... I'll not say next year, but we'll wait for the right moment to come to look into how can we spend more wisely any CARB-X, and decided this year we will reduce already with 50 million. That's structural. In addition to that, we have already the final dividend of last year, which is structural, and next to that, indeed, the fact that we now indicate there will not be indicate that we now say we decided not to grant a dividend on the result of 2020. Those things are structural. What does it say for dividend on the longer term? I cannot say that. As you know, Jean-Paul with his entire management team, we are working on strategy updates. With that, we'll make our financial plans and look into capital allocation. And then we will come out indeed with an updated dividend policy. So it's too early to tell what we will come back with but we will come back in due course to plan for the end of the year, in which we will indeed explain strategy updates, capital allocation, and with that goes updated dividend policy.

Okay, fair enough.

Jean-Paul, you take the growth fund. You were talking, Mark, you were talking parcels, right?

Yes. Yeah, partial volumes indeed. Yeah, a bit of feel for the second half trends. I know we've asked a bit before, but yeah, moderating from 80%, that's still a very broad range. So if it's 30 or 40 or 50, I don't know.

It's above what we expected, and I think on this moment, what we see the last weeks, but also there, As I said before, it's difficult to say that that would be a number which we can agree upon or which we can make public. But, of course, it's not anymore in the range of above 50, I would say. It's quite lower, and our expectation was – I don't know if that's public, but the expectation was between 15 and 20 that we would – increase. So we are quite... So it's still above, but is July, I would say, the sign of the rest of the year? Difficult to say. First of all, I mean, in Belgium, if you talk about BNI, we had the sales, which were postponed till August, from July till August. Has this an effect? This could have an effect. Secondly, we've seen various changes also in sales from big e-commerce players that also postponed their sales or changed the way of doing seasonal sales. So it's all a little bit difficult to say. I'm pretty sure that we will be above our expectations initially. And as I said before, that we will be on a higher growth curve than what we initially had. And your last question is about, I think, the Europe radial expansion on these new sites. Well, I think there it's clear that CAPEX has been used for that and we have been able to attract new customers because of these new sites. We increased more or less with small 50% the capacity And, of course, yeah, we do everything to start to fill it up. That's more or less what I can say on that side.

And then you're growing with clients. Is that how it works, that you have a sort of joint training with them or contracts to do the fulfillment and that kind of stuff?

Yeah, we attract new customers also in Europe, yeah.

But not the GV, like I think you point out that the GV. Yeah, maybe not the GV. We don't have that kind of thing.

Yeah, correct. I was referring to that one, yeah. Okay. Okay. Very clear. No, that was good details on the partial phones. Thanks for that.

Okay. Thank you. Thank you, Mark, for your question. And the next question is coming from the line of Marco Limite from Barclays. Marco, you're unmuted, and we now go ahead.

Hi, morning all. I've got three questions all in the partial division. So in the partial Europe, you recorded about 75, 80% volume growth, but revenues were up about 60%. So I was wondering if you had there some kind of price mix effect, so if you can give a little bit of color on that. Second is on margin. Your margins were slightly down year-on-year, but, you know, adding back the VAT, you were broadly flat, if not slightly up. And I was wondering if you expect for the second half material improvement in margin, given that, you know, now you have better expectations on what you can expect on the volumes. And thirdly, I know that you have kind of given really a little bit of color on that, but if you think What's your view for 2021 for volumes if you think that volumes will be broadly flat or still growing or maybe slightly down compared to the very high base of 2020?

Thank you.

Okay. The reconciliation has to speak between a partial revenue and partial volume growing. Probably, remember, we don't have the ability to give the volume growth of the total parcels B&A because some things can simply not be measured. We have the two-man delivery. We have some things within domestic parcels like Eurosprinters, like, indeed, DynaSure, Dynalink, which are not translated in volume. So, indeed, the number that we give, the 78.4%, is not the total scope. It is parcels Belgium, and it is Dynat volumes. So the formal domestic parcels, as to speak, and then Dynat, that is included in the 78.4%. Having said that, when we look ourselves internally at the same scope, then we do see that it comes pretty much closer, but you are correct, Aretha, I think you insinuated, how is the price mix impact? and it proves still to be a bit negative on disregarding the fact that we impact also on pricing. Why is that? I think everybody knows on the positive side, we discussed with the customers that there would be a partial surcharge that was in place from April 13 to end of May. That's a positive thing. We also have, of course, the fact that smaller customers also started more being geared into e-commerce, and typically they're lower volume, so we have higher prices and higher margins on that one. But looking again at our bigger customers, they also, like you have read, they made outrageous growth of which we profited. So the mix is still a bit negative in that sense, that they are still the bigger customers that are growing faster than the smaller customers. and the surcharge indeed was also limited in time. So there is a slight negative price-mix impact, but the major explanation of what you see in the numbers is a difference in scope of what we present in the parcels growth, so being the daily parcels growth for plastic and dyna, and not everything can be translated in a parcel. Then moving to the question on, and I think our, I skipped it a bit when David asked the question too. So you state, looking at the result of the third quarter, it's slightly lower. Yes, at first sight, still on the slide, we tried to explain when we exclude the, where am I? On slide 10 of the back, when we exclude the impact of the terminal due settlements. And actually the EBIT was up 30 million or 67% operationally. I think that is an important indicator to give. Next to that, looking also a bit at the second half of the year, also David did that. So yes, we have more visibility, but also the volumes give us also a certain kind of operating leverage, of course. So I do think that profitability corrected indeed also for what I said on terminal dues is not necessary to increase into the second half of the year. More importantly, like we said, we did everything we could do to contain the cost. And I think that's also an important one. Looking into the second half of the year, the amounts are not enormous. but bit by bit some of the projects will be restarted. We had a very severe hiring volume growth also that we will be a bit lighter on. So stating that knowing the more visibility that would come deliberately with an increase of EBIT, I would not tell that. But again, I think first of all, you have to look into the underlying EBIT percentage growth excluding the term.

On to your last question, I would be very happy if I would have a crystal ball to look in and to predict what would be 2021. I think the growth figure of 19, which we will probably see at the end of the year, 19 till 20 on parcels volumes, will probably not be repeated in 2021. On the other hand, I believe that We will see, and I'm taking out any possible economic crisis or I would say recession in consumption also for retail. There is still room for important growth in e-commerce. And I also think that on the retail side, and it's what I read in the press, and which we hear also from some customers, is that the brick-and-mortar network and investments will probably go down. They will shift more of their business towards e-commerce. So I'm pretty sure that 2021 will still be a year with growth. Of course, not with growth as we have seen between 2019 and 2020.

Thank you very much.

Thank you, Marco. And the final question is coming from the line of Andre Mulder from Kepler. Andre, you're unmuted, and now go ahead.

Thank you. Two questions. First question on the impact of COVID. I've seen it for follow Eurasia, follow North America, but I could not find it for mail and retail, what the sales impact is of COVID. There is this EBIT impact of 37 million, but the impact of sales, I could not find it. That's correct.

It's not in there. Do we do give the percentages?

Can you tell us the number?

No, we don't. I have it, but we don't disclose.

Why not?

Oh, we want to avoid. That's also why we say it's our best estimate. We want to be very transparent on what we've seen. Of course, you'll understand this is not accounting. So we want to avoid to be too precise and detailed on every line item. It won't help you.

You did give us for the other decisions, but that's okay.

Well, for North America, we thought it was important because, well, we onboarded new customers, right? So we wanted to show indeed that we did onboard them and that they are also delivering growth. That's why for North America we did feel like the number was important to make your judgment.

Okay, so for mail and parcels you gave a bit of an insight of what we should expect or where the momentum is heading. Can you also spend a few words on what's happening with radio? What do you see happening there?

It's coming in.

What is the question exactly?

For real estate, we gave a bit of color, how we think the second half is evolving. We did the same for parcels. Can we give some color on where we think radio will be heading in the second quarter? And the reason why it's silent is because it's more complicated. Let's be fair with each other. It's the first quarter that we live this, right? Seeing COVID-19 impact on the longer term in the U.S., is a bit more complicated. I think we have seen very naive curves of a lot of consultants who say that e-commerce is there to stay and will be very persistent. And we're confident of that too, but what will COVID-19 do with consumer behavior? What will, will there be an impact on the economy? And given, yeah, the history of we tend to be a bit more prudent to give color. Of course, into July, and we still see volume growth, so it's not falling off a cliff. They also did have different kind of lockdowns, so when we have calls with teams there, everybody is still working from home, just to give you that color, so it's very different than the evolution that we have seen here. So as such, it might be positive, but we are prudent given history on the radio, and given indeed that it's not very sure what it will do with the American economy.

I think shortly said, during the first quarter we have been looking at various actions and various measurements to address the radial US business and to make it better, I would say, which are being rolled out currently and being implemented. Secondly, we have profited, of course, as you have seen from the high increase in volume. Now saying, okay, what will be in the second half year? For us, I believe that the actions we have taken will probably deliver something in the second half year. And then the question is, of course, but it's very difficult to see what will happen with the volumes and the positive effect we had in the second quarter, how much will be left for the second half year. We are relatively positive, but as Leen also said, and as I said before, for 2021, we feel that customers probably will shift more to e-commerce than from their brick-and-mortar sales. But on the other hand, the main risk is what will happen with the consumption in the U.S. for the second half year and definitely also for the last quarter. And of course, retailers are also, if I may say, you read it everywhere, are also on the cliff. And some retailers have it very difficultly to survive. there's also risk for the second half here. So let's say that we are positive, but prudent in really predicting what it will be.

That's a nice wording. Positive.

Okay. Thank you.

Thank you, André. And that was the final question in the queue. So I'll now hand it back over to your host to conclude today's conference.

Well, I would like to thank everybody for participating. And, of course, we are happy that we could show the results we have shown. Thanks for all the questions as well. And I hope we were able to answer them in a proper way as you would have expected. And hope to see you soon again or to hear you soon again at least.

Yeah.

And wishing you a nice day.

Bye-bye. Thank you everyone for joining today's conference. You may now disconnect your handsets.