bpost NV/SA

Hello and welcome to the BPOS first quarter 2021 analyst call. My name is Judy and I'll be your 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 stall one on your telephone keypad to register your questions. 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, Mr. Dirk Thiers, BPOS CEO, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. I'm pleased to present you the first quarter 2021 results as CEO at Interim of the BPOS Group. Welcome to all of you. and thank you for joining us. With me, I have Leen Gernard, our CFO, as well as Antoine Lebec from Investor Relations. We posted the materials on our website last night. We will walk you through the presentation and we'll then take your questions. Practically, we propose to limit the questions per person to two questions to assure everyone in the call gets the chance to be addressed in the upcoming hour. As to the highlights of the first quarter, we realized a strong start to the year, driven by continued growth in parcels and e-commerce logistics on both sides of the Atlantic, and a lower-than-expected mail volume decline in Belgium. Our group operating income at 1 billion 19.9 increased by 9.1 percent compared to last year's pre-COVID-19 first quarter, while the group adjusted EBIT at 115.5 million euro increased by 39.9 million euro with a margin of 11.3 percent. During this first quarter, as mail and retail The underlying mail volume decline at minus 7.8% has benefited from a softer comparable base in March 2020, mainly in advertising mail. These mail volumes combined with a positive price and mixed impact led to a better than expected mail profitability in the first quarter. In addition, high parcel volumes could be handled through the mail network for Palo, Eurasia. And as a result, the adjusted EBIT increased by 5.5 million to 70.6 million euro, with a margin of 13.9%. At the same time, we continue to benefit from thriving e-commerce volumes in Belgium, in Europe, and in the US, as well as from positive operational leverage in parcels and e-commerce logistics. At SPALO Eurasia, adjusted EBIT at 37.3 million euro has more than doubled, and the margin of 13% was driven by the elevated proportion of parcel volumes that could be handled through the mail network. In Belgium, BPOST has seen a growth of 54.1% in parcels B2X volumes year over year. At SPALO North America, The adjusted EBIT was positive for the fourth quarter in a row at €8.2 million, with a margin of 2.9% EBIT increase by €15.7 million versus last year, fully driven by growth in operating income and operating leverage at the radial. Above expectations, the group adjusted EBIT, therefore, showed an increase of 39.9 million euro compared to the same period last year. And this thanks to our three business units, which have contributed positively to the group adjusted EBIT as illustrated on the bridge on page four. Also note that effective as of March 27, the Belgian government imposed a national lockdown to attempt to curb a spike in coronavirus cases. This included the closure of non-essential stores available by appointment only and stores reopened on April 26th. To conclude on the highlights, on the back of these strong first quarter results and based on current assumptions of normalization for COVID-19 volumes for the rest of the year, BPOST raises its initial guidance for 2021 and now expects the Group Adjusted EBIT to be above €310 million. I will come back on this later in the presentation, together with our management priorities. I would now like to hand over to Leen for more details on the financials.

Thank you, Dirk. I'm now on page five, showing an overview of the key financials for the quarter, both reported and adjusted. As usual, more details on revenue and EBIT developments following the breakdown per business unit. And here on this slide, I just highlight some finance technical explanations. So as always, the EBIT was adjusted for non-cash amortization charges on intangible assets, that were recognized following the purchase price allocation of various acquired subsidiaries. These charges also positively impact the reported income tax, and that effect has been adjusted here as well. This quarter, no other adjustments. Net financial results of minus 2.5 million euro improved by 1.8 versus the first quarter of 2020, and it is mainly due to a favorable impact of foreign exchange results. Income tax expense increased by €6.1 million, mainly due to the higher profit before tax. The reported effective tax rate for the quarter amounted to 26.6%. As a result, adjusted net profit was up by €30.8 million to €83 million. Adjusted free cash flow at €160 million decreased compared to the same period last year as expected, mainly from the variance in change in working capital, and I will come back on the cash flow elements later in this presentation. Net debt, it decreased by €231.6 million compared to March last year, supported by the free cash flow generation of the quarter, and of course also the absence of dividend payments in Q2 and Q4 of last year. The capex for this quarter stood at €19.6 million, and was mainly spent on increased capacity for e-commerce and parcels activities. Let's now have a look at the contribution of the different operating segments into the group results. Mail and retail generated 61% of the group-adjusted EBIT. Paolo Eurasia was a second contributor at 32%, and Parcels and Logistics North America contributed for 7%. The PALOs together representing this 39% compared to the first quarter last year where it still stood at 12% of the group adjusted EBIT. These figures continue to prove that our business transformation is on the right track towards sustainable EBIT growth. Then we move to page 7 and we dive in meal and retail with the revenue, external revenue to start with. The Excel revenues declined by €10.8 million to €446.9 million, impacted by a €3.4 million revenue loss from domestic mail, of which €3.1 million relates to transactional mail. In addition, a decline of €8.2 million in proximity and convenience retail networks. Starting with domestic mail, it recorded an underlying mail volume decline of minus 7.8% for the quarter, which has impacted revenues by 21.5 million euro and was almost offset by the net improvement in price and in mix amounting to 19 million euro. Thereof, transactional mail noted an underlying volume decline of minus 9.6% compared to minus 8.8% in the first quarter of 2020. slightly supported by some COVID-19 communication in March 2021. Nevertheless, the volume decline remained impacted by the known structural trends of e-substitution and digitization. In advertising mail, a bit more particular, there was an underlying volume decrease of minus 5.4% for the quarter. That quarter can be broken down in two distinct phases. Year-to-date February 2021, underlying volume decline amounted to minus 22.4% against the tough comparable base of minus 3.9% from pre-COVID-19 months in 2020. And in the month of March, the underlying volume increased to 41.1% compared to minus 39.4% in March last year. Since last year was impacted by the ban on promotions and non-essential retail closure during the lockdown that was imposed in March 2020. Then the press volumes, they decreased on an underlying basis by minus 1%, and there we benefit from a good performance from the periodicals. Proximity and convenience retail network revenues, they declined by 8.2 million euro, and there we see still the impact of COVID-19 on the footfall in UBWay retail stores, especially in the travel location, and from lower banking and finance revenues from the low interest rate environment, as well as less ATM transactions. Then last but not least, value-added services, up slightly by €0.7 million, driven by higher revenues from fine solutions, which were negatively impacted during the lockdown of March last year. Looking then at the EBIT of mail and retail on slide 8, adjusted EBIT amounted to €70.6 million with a margin of 13.9%. This is a net increase of €5.5 million compared to the first quarter of 2020, explained by, first, high parcel volumes handled through the mail network, for which intersegment operating income is cross-charged to Pali Eurasia. Second, the impact of domestic mail we just talked about. It has contributed to the increase in total revenues of €6.8 million. And thirdly, operating costs, including the adjusted DNA, which remain nearly stable. Indeed, the operating expense is only slightly increased by €1.3 million as a result of a couple of factors. We do see higher payroll and interim costs, which are driven by the headcount from higher parcel volume And also we see price impact amongst others, salary indexation of April 2020. In this quarter, we still see that difference. So merit increases and the phasing of holidays together with higher costs for fleets and a lower recoverable amount in VAT. But on the other hand, these increases was compensated by the favorable FTE wage mix, a decrease of material costs from UBV retail and increased sorting activities of which the costs are cross-charged to Parler Eurasia, driven by growth in parcel volume handled through the mail operation. Let's have a look at parcels and logistics Eurasia. In the external revenue, we recorded a growth of €73.4 million. The positive revenue development across all the sub-segments was mainly driven by driving e-commerce both domestically and abroad. Parcels Bene, they recorded an increase of 41 million euro or 39.2%. This was driven by growth in our parcels B2X activities and the strong quarter at Dynalogic. Parcels B2X volumes and revenues respectively increased by 54% and 51%, indicating a negative price mix effect of minus 3%, which was fully driven by mix effect. E-commerce logistics revenues, they increased by 3.8 million euro, which represents an increase of 9.6%. That comes from a strong organic growth at active end from existing customers and a positive impact of the lockdown and closure of non-essential retail shops in the Netherlands since December last year. And also Radio Europe growth, driven by the UK. The new fulfillment site in Poland, which opened in the third quarter of 2020, and a third site opened in Germany in February 2021. The combined revenues of Active Hands and Radio Europe, they grew about 34% year over year. At the same time, the year over year revenue development, sorry, at Lane Mencken and Dynafix, they did dilute the revenue growth percentage of the sub-segments. Notably, due to lower repairs of electronic devices and mobiles, since simply people are less moving around in this COVID-19 environment. Then the cross-border revenues, they increased by 28.6 million euro, 43% up. This revenue development was driven by Asian parcel volumes, while in the first quarter 2020, the COVID-19, it reduced the air freight capacity, and we had a closure of international borders that had a negative impact In addition, we have continued growth in UK businesses, driven by new customers and higher custom services in light of the crisis. This revenue development was partly offset by the declining cross-border postal business, where growth in inbound parcels could not compensate the decline in both inbound and outbound meal volumes. On the next slide, we see what that gives us to adjusted ABA. It increased for power Eurasia by 20.4 million Euro more than doubling to reach 37.3 million Euro with a margin of 13%. This was driven, of course, by the top line evolution that I just talked about, partly upset by higher volume linked variable costs across all the business lines. And then the higher intersegment operating expenses that were charged by meal and retail. that is driven by strong parcels volumes that could be handled through the integrated meal network with benefits of scale. Just to give you an idea, during the first quarter, on its peak, BPOST handled up to 493,000 parcels a day, which compares to the daily peak volume of 670,000 parcels of the fourth quarter 2020. Volumes of this first quarter were within our current optimal capacity range and could be covered to a higher extent in our existing rounds. Whereas with volumes exceeding that optimal capacity range, like we've seen in the fourth quarter last year, second waves, extra rounds have to be organized and subcontractors have to be hired. This explains the steep EBIT margin development of Palo Eurasia in this first quarter. I'm now on slide 11, with our North American parcels and logistics business. The operating income of e-commerce logistics grew by 25.5 million euro, up 10.7%, but actually that represents a growth of 20.4% if we consider a constant exchange rate. This growth was fully driven by robust and profitable e-commerce fulfillment growth, with Radial North America recording a continued high growth of 25.6% from existing customers, as well as growth from new clients that we launched in 2020. This was only to a small extent offset by churn. Our activities at Landmark, Apple Express, and FDM also recorded strong volumes from existing clients and new customers, fueled by e-commerce development year over year. International mail, same story here, it saw a decline of minus 4.3 million euro in external revenues year over year, driven by lower volumes in the business mail segment, partially compensated by higher domestic parcel revenues. Overall, external revenues were up by 21.2 million euro for the business unit to reach 281 million euro. On slide 12, you can see that Power North America adjusted EBIT was up by 15.7 million euro and came in positive at 8.2 million with a margin of 2.9%. As mentioned earlier, this is the fourth consecutive quarter since Q2 last year that we have reached a positive adjusted EBIT at Power North America. The sharp EBIT upper lift in the first quarter was driven by strong top-line performance in e-commerce logistics and by operating leverage at Radio US. Moving to the corporate segment on page 13, very short, external operating income increased by €1.6 million, driven by higher building sales. Net operating expenses, they increased by €3.2 million, mainly driven by a phasing impact related to long-term employee benefits. This led to an adjusted EBIT decrease of €1.7 million year over year to minus €0.6 million for the quarter. Then let's have a look at the cash flow. We are discussing here the reported free cash flow in the quarter. It was €147.4 million, which is a decrease of €46.8 million versus the first quarter of 2020. The cash flow from operating activities, it stood at €157 million. This is a €46.6 million decline year over year, which can mainly be split between, first, an increase of €27.4 million in the cash flow from operating activities, so before the change in working capital and provisions, at €165 million. That is mainly driven by higher EBITDA generation, and that's despite our choice to make a higher tax prepayment in the first quarter. The second element is a negative variance of 73.9 million euro in the change in working capital and provisions evolution to minus 8 million euro. This can be explained on the one hand, of course, by 39.3 million euro lower cash outflow relating to the collected proceeds due to radio customers, Remember that that due-to effect we excluded from the adjusted free cash flow like I presented at the beginning of the presentation. This outflow was more than offset by working capital evolution excluding those due-tos being 109.6 million lower than last year. This is primarily and mainly explained by what we told you about last year, the expected unwinding of extended payment terms as set up with some suppliers at the beginning of the pandemic for about 59 million euro. Secondly, this year we have a different payment schedule of SDI and for an amount of 80.5 million euro that last year we did receive also in January and that this year we will receive in July. So the latter has no impact on the full year cash flow. This was partially offset by increased collections in line with high sales peak in the fourth quarter of 2020. Then the cash flow from investing activities at minus 9.7 million euro remained broadly in line year on year. The capital expenditures there stood at 19.6 million euro. A great majority of first quarter 2021 CAPEX is directly invested in e-commerce and parcels activities. and was mainly spent on an increased capacity for e-commerce on customer implementations at Radio US, additional sites for active events, parcels B2X sorting equipment, and sustainable initiatives for e-fleet infrastructure for the last mile delivery in Belgium. The cash flow from financing activities, it's negative with a big amount, 193.5 million euros, and it was €166 million lower than the first quarter 2020, as it was decided not to roll over the maturing commercial paper in 2021. All in all, the net cash flow decreased compared to the same period last year by €213.7 million. The net debt decreased by €106.9 million compared to year-end 2020, and now amounts €399 million. I will now hand over to Dirk for the outlook of the year.