bpost NV/SA

Hello and welcome to the BPOST fourth quarter 2020 analyst call. My name is Rhian and I'll be your coordinator for today's event. Please note this call 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. If you require assistance at any point please press star 0 and you will be connected to an operator. For now, I'll hand you over to your host, Mr. Jean-Paul Van Avermaet, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. I'm pleased to present you BPOS Group's fourth quarter and four years 2020 results. First of all, welcome to all of you, and thank you for joining us this morning. With me, I have Leen Geernaert, our CFO, as well as our new manager of investor relations, Antoine Lebec. We did post the materials on our website last night. We will walk you through the presentation and afterwards, as planned, we will then take your questions. So if you go to page three, you see that our full year 2020 group adjusted EBIT came in at 280.6 million euro. And this is fully in line with our commitment to realize at least 270 million euro. As we have last revised during our third quarter results release. COVID-19 drove outperformance versus our initial group adjusted EBIT guidance of 240 to 270 million euro and this through strong development in parcels and logistics on both sides of the Atlantic. In addition, this growth and results were supported by solid last mile operations in Belgium. Mail and retail contributed for 171.2 million euro to the group adjusted EBIT and this with a margin of 8.7%. Year over year, the segment was impacted by accelerating mail volume decline of minus 12% due to continued resubstitution, rationalization, and also COVID-19 impacts mainly on advertising mail during the two lockdowns of non-essential retail in Belgium, meaning in spring and in November 2020. The segment also witnesses lower revenues from proximity and convenience retail network, equally due to COVID-19, related partial closure of the network, and reduced food flow and lower banking and finance revenues linked to that. Parcels and logistics ratios top-line growth was driven by strong e-commerce development, both domestically and abroad. As to parcels Belgium Netherlands, year-over-year growth was driven by parcels B2X, volume growth of plus 56.2%, and by Dynalogic. Volumes were fueled by the boost to online sales from COVID-19, as we know, and also to the two lockdowns of non-essential retail in Belgium. In parallel, growth in e-commerce logistics at active ends and Radio Europe together with growing cross-border activities mainly driven by Asian parcel volumes shipped by train since June 2020 also supported the revenue development of this business. Adjusted EBIT grew by 54.2% and amounts to 101.4 million euro with a margin percentage of 9.3. This EBIT margin grew solid versus 2019, where the margin stood at 7.9%. When we go to parcels and logistics North America, radio significant growth of existing customers driven by COVID-19, as well as new clients launched in 2019, of which sales have more than tripled, combined with increased operating leverage led to an adjusted EBIT uplift of €32.8 million, and this with a margin of 2.5%. This excludes the impact of the ransomware attack of €9.2 million in the last quarter of 2020. If we exclude that, it would mean that the adjusted EBIT would have been €41.9 million with a margin of 3.1%. CAPEX ended up at €147.7 million, and this in line with the revised guided cap of €150 million to preserve cash in an uncertain year, as 2020 was. Moving to page four with the highlights of the fourth quarter, we see that group-adjusted operating income at 194.4 million euro increased by 7.2% versus last year, while the group adjusted EBIT at 60.5 million euro was fully in line with our expectations and guidance. Business makeshift is further evidenced through combined adjusted EBIT contributions of the parcels and logistics business of 36.4 million euro, and this exceeds for the third consecutive quarter the mail and retail adjusted EBIT that amounts 34.3 million euro. We did continue to benefit from driving e-commerce volumes in Belgium, in Europe, and in the US, as well as from positive operational leverage in parcels and e-commerce logistics. In Belgium, this was fueled by a growth of 67.4% in parcels B2X volumes year over year, positively impacted, of course, by the November 2020 lockdowns and the end-of-year peak. On its peak, BPOST managed up to 670,000 parcels a day, exceeding the previous record of 550,000 parcels, which we reached during the due to first lockdown. The underlying mail volume decline at minus 11.8% was driven by less advertising campaigns due to non-essential retail lockdown in November, which resulted in an advertising mail volume decline at minus 20.4%. Remember that this minus 11.8 compared to a tough comparison base with Q4 in 2019, where the underlying mail volume decline was only minus 5.5%. Before I hand over to Lane, let me first give you an update on a couple of developments within BPOST in the last quarter, and also for the months to come. We go to page 5, and on December 8, 2020, we announced our updated strategy, Connect 2026, which aims to accelerate BPOS groups' transformation into a customer-centric and sustainable omnicommerce group close to society, and this while remaining an efficient mail provider in Belgium. A non-exhaustive list of concrete initiatives on page 5 here. illustrates how Bebo's group implements and concretizes this strategy. As to Omnicommerce growth in Europe, Active ENCE will open two new highly automated fulfillment sites in 2021, one in Belgium and one in Germany. And Radial Europe is opening a third site in Germany in March. As we also want to be a reference sustainable and planet-friendly company, BPOS has initiated a new materiality assessment for the whole group. This new assessment is the next step in our evolution as a sustainable company. First phase consisted of reaching out to more than 2,500 of our stakeholders, inquiring which ESG topics are important to them. With over 50% of response rate, this exercise will help us to ensure our sustainable strategy is focused in the right areas and tackles every aspect of the evolving sustainability landscape important for our stakeholders. The methodology and the results of the new assessment will be published on our website in the course of 2021. In the same vein, we also entered a new phase test for our EcoZone in Mefren in Belgium. This way, the city center is evolving into a complete emission-free distribution network, and this by the end of this year, and into a complete emission-free distribution network shortly. And by the end of this year, 2021, we will have five to ten other Belgian city centers that also will be supplied emission-free. BPOST announced on December 23, 2020, that BPOST and BNP Paribas Fortis signed a non-binding agreement on the future long-term partnership of BPOST Bank. BPOST would sell its 50% stake to BNP Paribas Fortis, but will continue to provide banking services through its physical network of post offices, thus ensuring high-quality service. This bolsters the ambition of our strategy to be an important contributor to social cohesion in society, and this also fits with the active portfolio management approach of our capital allocation framework, which we announced together with the Connect 2026 strategy update. I would now like to hand over to Lane for more details on the financials of the last quarter and 2020. Lane?

Yeah, thank you, Jean-Paul. Hello, everybody. I hope I can make it a better morning when it started. So looking forward to your questions at the end of our presentation. I'm now on page six, showing the EBIT bridge for the fourth quarter. As you can see, EBIT showed a decline indeed of 8.7 million euros compared to the same period of last year. In mail and retail, we adjusted every decline by 17.2 million euros from COVID-19 impacts on advertising mail, like already explained by Jean-Paul, and also on proximity and convenience. This was visible through the domestic mail volume decline of minus 11.8%, which comprises a decline of 20.4% in advertising mail over the quarter, and a monthly volume decline of minus 24.3%, in advertising yield during the lockdown months of November in Belgium. Parcels and logistics Eurasia, they recorded an adjusted EBIT increase of 8.6 million euros, mainly driven by parcel B2X forums, up with 67.4% yearly yield, yield positively impacted by the November 2020 lockdown, and in addition to that, the other EURT. The general mix in our Belgian operations was, however, more innovative. That is driven by higher mail volumes in our integrated network compared to the second quarter 2020 reform. This does result in a higher use of SIP contractors for the parcel delivery. Fowler North America adjusted edits. It increased by 3.3 million euros last year, fully driven by the continued strong momentum in e-commerce logistics. Neuron peak volumes and also operating leverage. Excluding the EBIT impact of the ransomware attack and that amounted for 9.2 million euro in the first quarter, the adjusted EBIT would have more than doubled and increased by 12.4 million euro. The corporate EBIT was 3.4 million euro down versus last year, this coming from lower balances. So at group level, the reported figure was 69.1 million euros down versus last year, which includes also 62.1 million euros of impairment charges. On the one hand, on present retail within the business unit's main retail, with 49.1 million euros related to youth rate groups, and then on the international mill at Parler North America, with 13 million euros related to the birth rate. I will come back on that in a minute. Page 7 shows the key financials for the quarter. At group level, the total operating income was up to 7.2%, fully driven by continuous strong performance in parts of the United States, Europe and Asia, and North America. More details on revenue and AB developments follows in the breakdowns for this material. As always, the EBIT was adjusted for non-cash amortization charges on intangible assets that were recognized following purchase facilitation of the various acquired securities. Furthermore, as just mentioned, reported EBIT of this last quarter was also impacted by impairment charges on current retail and on international use. Driven by COVID-19 impacts of reduced food for intangible environments, and partial closure of fresh shops during the lockdowns, the impairments have led to impairment on goodwill and intangible assets of the UPV group. This represents 49.1 million euros of cost, not cash of course, in press and retail within MNR. The decline in business meal also results in an impairment of the goodwill of international meals, which is a part of Southern North America for an amount of 12 million euros. Looking at the line of the net financial results of minus 17.9 million euro, these improved by 8.9 million versus the fourth quarter last year. This is mainly due to lower financial charges related to IS employee benefits and last year's fair value adjustment of the purchase price of the remaining shares of ANSI. Income tax expense decreased by 20.7 million euro compared to the fourth quarter of 2019. mainly due to lower profit before tax, combined with lower statutory tax rate in Belgium at 25%, and the recognition of the different tax assets for U.S. tax losses carried forward. Below the EBIT, related to our participation in the B-Polibank, an impairment of 141.6 million euro has been negative. As Jean-Paul already reminded in his introduction, In December 2020, we announced the intention to sell our 50% stake in B4Bank to B&D Paribas. The purchase price will be calculated based on the IFRS net value at time of the closing, and it is expected to range between 100 and 170 million euros. Based on the lower range of 100 million euros, the carrying value was therefore reduced to the fair value less cost. These impairments, they totaled 203.7 million euros. They led to a group net loss of 155.1 million euros in the quarter, whereas the adjusted group net profit increased by 19.7 million euros to 52.1. Adjusted free cash flow, then. It is at 117.2 million euros, and it increased nicely. I will come back on that later. This decreased by €284.7 million compared to end 2019, supported by this free cash flow generation and the absence of dividend payments in the second quarter and in the fourth quarter of the past year. CapEx for this quarter amounted to €60.9 million, which is a decrease of €12.3 million compared to the same quarter last year. with the spend primarily related to capacity expansion in e-commerce logistics at the Radio North America Enec event, as well, of course, in parcels between in Belgium. Let's have a quick look at the contribution of the different operating segments in our results, which you see on page eight. You see the contribution per business unit in the fourth quarter. It is actually for the third consecutive quarter that the combined contribution of our power business units to the group adjusted EBIT is higher than the one of meal and retail. In these we see that meal and retail generated 57% group adjusted EBIT of 60.5 million euros. Power Eurasia was the second contributor at 37%. And Parsons and Logistics North America contributed 23% to the group adjusted EBIT. So these figures prove that our business transformation is on the right track towards sustainable epic growth. We can move to page nine, and there we have the external revenue bridge for mail and retail. Mail and retail external revenues, they divide by 30.2 million euros to 456.6 million. That's impacted by €15.5 million revenue loss from domestic mail, of which 12.7 is relating to advertising mail, and by €14.3 million decline in the proximity and convenience retail network. Domestic mail recorded an underlying mail volume decline of minus 11.8% for the quarter, partly compensated by a positive price-make effect. The mail volume declined for the full year at minus 12%, whereas the last quarter we thought that perhaps we could catch up to minus 11% with the additional lockdown that proved to be possible. Transactional mail noted an underlying volume decline of minus 10.8% for the quarter against a tough comparable base of minus 7.2% last year. Although the Christmas cards supported the volume trend and they contributed positively to the price mix The volume decline remains impacted by no structural trend. Advertising yield volume declines to that minus 20.4% in the fourth quarter. Also here, very tough comparable base of plus 0.5% in the fourth quarter last year. The decrease was driven by the non-essential retail closure during the full month of November, impacting volumes, like I said, minus 24.3% during that particular month. and a continuous COVID-19 context with limited feasibility ahead what fuels advertisers' hesitance to engage into advertising campaigns. The press volumes were down with minus 2.7% for the full corporate. That shows the continuation of the e-substitution and the rationalization trend. Proximity and convenience retail network revenue may decline by 40.3 million euros due to the impact of COVID-19 on the footfall in our UV-ray retail stores, especially in the travel location. Value-added services, they increased slightly. We see that especially in the Delta and the Burkina Faso. Then moving to the P&L of solar retail, the adjusted EBIT amounted to 34.3 million euro with a margin of 6.5. It is an immense decrease of 17.2 million euro compared last year. The decrease in filter revenues is up of €10.7 million and €6.5 million increase in operating costs, including PHS, PMU. Operating expenses, why did they increase? We see higher operational costs in the mail network during the non-essential retail lockdown in November 2020. end of year peak driven by elevated parcels funding and therefore also to a large extent compensated by higher cost charged by Eurasia. The operating expenses they related to significantly higher payroll and income costs through increased headcounts. We have the regular salary indexation and we also had a daily COVID-19 premium for the operational staffing duty from November 30th to December 24th. In addition to the paywall and income costs, we have higher transport costs from a high use of subcontractors and also higher rental costs for the fee. The operating expenses increased also driven by higher re-invoicing from corporate linked to IT projects and some costs such as holidays and training have phased from the first half of the year to the fourth quarter of 2020. like we said earlier. Lastly, lower material cost of UV ray retail and general cost containment on discretionary strength allow to partially compensate with higher peak effects. Reported EBITs. The reported EBITs is minus $15.5 million, and that was impacted, like I said, by the impairment charges of present retail for $49.1 million. Then part of Eurasia. We recorded an external revenue growth of 81.9 million euros. The positive revenue development across all the sub-segments was mainly driven by thriving domestic e-commerce during the November lockdown and the end of year two. Parcel daily recorded an increase of 60.3 million euros or plus 55.9%. It is fully driven by parcel need to expand and revenue growth of respectively 67.4% and 69.9%, which indicates a positive price mix effect of plus 2.5%. As mentioned earlier, the volume growth was fueled by non-consensual retail closure in November 2020 and also a strong year-end peak. The price mix was supported by peak surcharges and favorable products and customers. Parcel B2X falling growth was at 66.2% for the full year 2020. Besides the strong volume and the revenue development that's dynamic, the remainder of parcel's daily revenues, which are not captured in B2X, show the year-over-year revenue decline, resulting mainly, I should remember, from last year's closure of some non-profitable businesses. Moving into e-commerce logistics, the revenues increased by 5.5 million euro or even by 7 million euro when we exclude last year's positive effect of the continuing consideration reversal on the amounting. This increase was mainly driven by strong organic growth at active ends from existing customers and new customers acquired through the MCS fulfillment integration as of October 2019 and also regular growth mainly in the UK from existing and also new customers, and a bonus from the opening of a new fulfillment site in the third quarter of 2020. Close border revenues increased by 16.2 million euros. This revenue development was driven by a continued strong growth of alien parcels linked to rail transport as an alternative to air freight, but at a slower pace than we have seen in the second and third We also saw growth in UK business driven by new customers and surcharges. This revenue development was, however, partly offset by the declining cross-border postal business, where growth in inbound parcels would not compensate the decline in both inbound and outbound deals. On the next slide, we see that the adjusted EBIT for part of Eurasia increased by €8.6 million to 2020.4. That is an increase of 61.8%, and the margin is 7.8%. This was driven by top-line evolution I just talked about, partly upset by higher volume-linked variable costs and higher intersegment operating expenses charged by the operation network for minimum retail, as mentioned on the 3D slide, relating to sorting and distribution costs. The channel mix in the fourth quarter was more negative, driven by a higher meal value in the integrated network compared to the second quarter lockdown, and therefore resulting in a higher use of subcontractors. Excluding last year 1.5 million euro earn-out leaders, Suomi and Mencken, the adjusted EBIT would be up by 10.1 million operationally. On a full year base, for the full year 2020, the EBITDA value ratio was up by 54.2% to 101.4%, and the EBITDA percentage increased from 7.9% in 2019 to 9.3% in 2020. Then let's have a look at North America. In spite of the ransomware impact, the operating income of e-commerce logistics grew by 34.5 million euros, up 9.3%, or, even important, with 17.9% when excluding the negative foreign currency development. This growth was mainly driven by Radio North America, recording an 18.5% increase from existing customers, as well as significant growth from new clients launched in 2019. This was only to a small extent offset by change. Our cross-border activities via Landmark, Apple Express, and IBM also recorded strong volumes from existing clients and new customers, fueled by continued e-commerce developments. It will not surprise you that international mail saw a decline in external revenues year-over-year, driven by the infertile impact of COVID-19 on the mail business. External revenues were up by €13 million for the business unit. Looking at the profit and loss account, you see that Pala North America adjusted EBIT was up €3.3 million at €13.9 million. The margin is 3.3%. For the third consecutive quarter, we have reached a positive adjusted EBIT at Pala North America, and this quarter despite the ransomware backing back. In 2020, the net estimated impact amounted to 9.2 million euros. As the ratio has a cyber insurance coverage, the foregoing constitutes also a continued asset towards the insurance company. While we exclude the ransomware impact of 9.2, we adjusted that it would have more than doubled to amount to 23.1 million euros with a margin of 5.4% driven by operating leverage and cost containment in general. Reported EBIT is negative, minus 1.7 million. This is, of course, due to the impairment of the meal group, with an amount of 13 million euros. The corporate segment on page 15, external operating income decreased by 1.1 million euros, driven by lower building sales, The operating expenses, including the depreciation, increased by 9.8 million euros, mainly related by higher services to the operational business units, especially, like I said, for IT-related projects. So this lateral majesty of a decrease will incorporate up to 3.4 million euros. Then moving to the cash flow, it's the cash flow of the quarter. The report is free cash flows to that 145.4 million euros, an increase of €18.2 million versus the fourth quarter of 2019. Cash flow from operating activities stood at €201 million, which is €16.6 million lower than last year. If we split that, we have a couple of elements. €41.2 million decrease in the cash flow from what we call operating activities before changing working capital and provision. at 64.7 million euros. This is driven, of course, by a lower EBITDA generation, higher taxpayer payments in the fourth quarter because we made use of the postponement that we could make allowed by government due to COVID-19, and then the absence of receiving a dividend from people's banks. The second element is an improvement of 24.6 million euros in working capital to €136.3 million. This is mainly explained by €15.1 billion higher cash outflow relating to collected proceeds due to wages customers driven by the high level of merchandise sales during the COVID-19 period in the tourist business. Remember that the due to effect is excluded from the adjusted fee cash flow presented in the key financials on slide 7. This due dues outflow was more than compensated by working capital evolution excluding those, being $36.3 million better than last year at $109.5 million. This is primarily driven by increased terminal dues, extended payment terms due to setup of temporary initiatives during the pandemic. This is partially counterbalanced by some lower supplier balances due to timing of expenses in late 2019. and an increased ESO as a consequence of the mixed impact on our receivers. Note that in the full year 2020, the changing working capital was positive at €140.1 million versus €18.9 million in 2019, so an improvement of €121 million. As just mentioned, for the fourth quarter, this was explained by increased cross-border activities leading to higher thermal juice, and the positive impact of extended payment terms in tables due to some temporary initiatives that were set up in the context of the pandemic. As expected, these temporary initiatives start to unwind in the course of the fourth quarter of 2020, and it will also continue to unwind during this quarter in 2021. Cash flow from investing activities is increased by 34.8 million euros year-on-year, The resolution was explained by the Superordinated Loan Grant to People's Bank in the fourth quarter of 2019 and combined with the loan of CapEx. As a reminder, in the second quarter in 2020, we announced that we would be prudent that CapEx investments would be limited from $200 to $150 million for cash preservation. The cash flow from financing activities at minus €40.5 million in the quarter, it increased by €121.9 million versus the same period of 2019, mainly resulting from the absence of an income dividend payment in the short quarter this year. The actions taken to preserve cash may be posed at the start of 2021 with a stronger position for the future and thus for execution of its strategy, and that we also can see on the balance sheet. As a result, some main movements, perhaps, that I want to explain. As a result of the announcement made by BPOD to sell its stake in BPOD Bank, the investment in BPOD Bank, which was previously booked in investments in Associates and Joint Ventures, has been classified as assets held for sale. The decrease of the value of assets was mainly explained by the impairment charges of the and also saw foreign exchange impact on the portfolio. The increase of cash-in-cash equivalents we explained in the cash flow statement, the net debt consequently increased by 284.7 million in 2020 to 495 million euros. In 2020, we could preserve the strength of LiPo's balance sheet, the cash reserves, and capacity to invest on the long term to continue accelerating BPO's business transformation. I'm now also on slide 18, so complete with total available liquidity at the end of December, consisting of 948 million euros of cash and cash equivalents, of which 779 million euros is readily available on bank current accounts and at short-term deposits. BPO's group also has two ongoing revolving credit facilities for a total amount of €275 million. As to the external earnings, no big changes occurred in the quarter. The amount is €984.1 million, out of which €809.9 is loan-to-invest. Note that in December 2020, there was a big annual installment of €9.1 million on the European Investment Bank. The outstanding commercial paper in the amount is to €165.1 million, so stable, with a maturity between one and three months. The current portion of the EIP advertising loan of €9.1 million will be repaid next year in the full term. I will now hand over to Jean-Paul for the outlook and come back to you with the key