bpost NV/SA

Hello and welcome to the BPOST second quarter 2021 analyst call. My name is Rosie and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad to register your question at any time. If you require assistance, please press star zero and you'll be connected to an operator. I will now hand you over to Mr. Dirk Thire, BPOS CEO, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. Welcome. I'm pleased to present you the second quarter 2021 results as CEO of BPOS Group. Welcome to all of you and thank you for joining us. With me, I have Lane Gernard, our CFO, as well as Antoine Leberg from Investor Relations. We posted the materials on our website last night. We will walk you through the presentation and we'll then take time for 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. Now let's get to the second quarter results. It's obviously another quarter for which year-on-year comparison are peculiar, given COVID circumstances and lockdown in Q2 of 2020 in Europe and especially in the US. We will do our best to shed some light not only on year-on-year dynamics, but also put things in perspective versus the first quarter of the year and 2019. As to the highlights of the second quarter, our group operating income for Q2 stands at 1 billion 38 million euro. This is a 1.4% decrease year over year, mostly driven by non-recurring COVID revenue in Palu, Eurasia, and North America, among others, lockdown surcharges. The group adjusted EBIT stands at 107 million euro. This is a 32 million euro increase versus last year, underpinned by a margin increase from 7.1% to 10.3%. This is, among others, due to cost and operational measures taken, including higher operational leverage in our Belgian operations. At mail and retail, mail volume actually grew year on year by 1.4%, both because of a particularly soft comparable base in 2020 and the support of one-off COVID-19 communication volumes this year. These mail volumes, combined with a positive price and mixed impact, led to a revenue increase in domestic mail. Compared to the second quarter of 2019, mail volumes are down due to the structural mail volume trend we know on the long term. The adjusted EBIT doubled versus second quarter of 2020 from 36 million to 72 million euro with a margin of 14.1%. At Palu Eurasia, the adjusted EBIT stands at 35 million euro, namely a 2.5 million euro increase versus last year. The 3.9% decline in top line is mainly threatened by an anticipated price mix impact of minus 6.9% at Parcel B2X, of which 2.8% is due to one-off COVID surcharges to customers in April and May last year. Parcel's B2X volumes grew by plus 2.9%. and Radial Europe and Activance continued to grow their top line. The EBIT margin increased from 11% to 12.2%, supported by benefits of operating leverage in the integrated network. This is also due to a restored dynamic of reorganizations of our distribution rounds, which will structurally benefit us in the second half of the year and in the year end peak periods. I will come back to this later. At Spalo, North America, the total operating income stands at €310 million, which represents a decline of 4.6%, excluding the exchange rate impacts. This is driven by radio's non-recurring volumes of last year's lockdown, including temporarily soaring sales of sanitizers. This was slightly offset by new customers' contribution that started to accelerate through June. As a result, the adjusted EBIT decreased by €7 million to €11 million, with a margin of 3.5%, including the impacts of the current wage rate pressure in the United States. Overall at group level, our adjusted EBIT stands at €107 million, meaning a 32 million increase compared to the same period last year. And this is mainly from our mail and retail business units as illustrated on the bridge on page four. To conclude on the highlights, on the back of these strong quarterly results and based on current assumptions of mail volume trends and normalization for COVID-19 e-commerce activities for the rest of the year, BPOS raises its updated guidance for 2021 and now expects the group-adjusted EBIT to be above €340 million versus €310 million previously. 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 very much, Dirk, and good morning to all of you. I'm with you on page five, showing, as always, an overview of the key financials for the quarter, both reported and adjusted. More details on the revenue and EBIT developments follow in the breakdowns for business units, but here we can point out that the net financial results of minus 4 million, it improved by 10 million versus the second quarter of 2020, mainly from lower non-cash financial charges related to IAS 19 employee benefits and last year's contingent liability for the remaining shares of active funds. Income tax expense increased by €11 million, mainly due to a higher profit before tax. Reported effective tax rate for the quarter amounted to 27.1%. As a result, adjusted net profit was up 27 million to 75 million euro. The adjusted free cash flow at minus 61 million decreased compared to the same period last year, as expected, mainly from the variance in change in working capital and also higher tax prepayments. I will come back on the cash flow elements later on this presentation. The net debt decreased by 50 million compared to June last year, supported by the free cash flow generation and the absence of a dividend payment in the fourth quarter 2020. We can move to page 6, and there we see the external revenue bridge of mail and retail. Mail and retail external revenue has increased by €41 million to €449 million. This is driven by domestic mail recorded an underlying mail volume growth of plus 1.4% for the quarter. This mail volume rebound versus the easy comps of last year, remember that BPOS then reported a mail volume decline of minus 17.7% in the second quarter, has impacted revenues by plus 3 million euros. In addition, a positive price and mix impact, mainly driven by mail price increases, has impacted revenues by another 24 million. Together with a working days impact of plus 2 million euros, This has resulted in a net revenue increase of 29 million. Transactional mail noted an underlying volume decline of minus 1.3% compared to minus 16.7% in the second quarter 2020 from negative impact of lockdown on all product categories. Admin mail volumes were also supported by some COVID-19 communication that had already started in March this year. This refers in particular to the invitation sent by the government for the vaccination, and we estimate a contribution of about €8 million to the top line in this quarter. Overall, the volume trend remained impacted by the known structural trends of e-substitution and digitization. In advertising mail, there was an underlying volume growth of plus 15.6% for the quarter, against the soft comparable base of minus 26.6% last year. The quarter can be broken down in two distinct phases. First of all, quarter to date May, the underlying volume growth amounted to plus 22.3% against the soft comparable base of minus 37% from the lockdown of non-essential retail shops last year. And then we have June. where the underlying volume growth slowed down at plus 4.2% compared to a tougher comparable base of minus 4.2% in June last year, where we saw already then a volume recovery post the first lockdown. Press volumes decreased on an underlying basis by minus 1.1% versus minus 8% in the second quarter last year, benefiting from a good performance from periodicals. Given the volatility implied by last year's lockdown on volumes quarter over quarter, it is also interesting to put the domestic mail volumes in perspective and excluding the mail pricing impacts. In units, domestic mail volumes of the second quarter seem to be in line with the previous quarter. They are above last year's second quarter lockdown, as just explained. But nevertheless, as you can see, still below the second quarter of 2019, which illustrates the known structure meal volume decline. In proximity and convenience retail network, the revenues increased by 7 million, resulting from a combination of higher revenues from UBWay retail, since we recorded lower sales in the second quarter last year due to reduced footfall, especially in the travel locations, And second, lower banking and finance revenues from the low-interest rate environment, despite it was slightly compensated by more ATM transactions. Also profiting from soft comps of last year's lockdown, the value-added services increased by €5 million, driven by higher revenues from fines and license plates, which were negatively impacted during the lockdown of last year. Looking then at the EBIT of meal and retail on slide 7, adjusted EBIT almost doubled to $72 million with a margin of 14.1%. This net increase of $36 million is explained by an increase of $40 million in total revenues and a limited increase of $4 million in the operating expenses, including adjusted T&A. The operating expenses only slightly increased year over year as a result of On the one hand, higher payroll and interim costs, driven by headcount and merit increases. Higher material costs at UPWay, driven by the sales. But this increase was compensated by the non-repeating COVID-19 specific OPEX last year, including the premium health and safety measures and also bad debt. Also by the positive evolution of the FTE wage mix. and increased sorting costs that could be cross-charged to parlor Eurasia, driven by sustained parcel volumes handled through the mail operations. Moving then to parcels and logistics Eurasia. First of all, in the second quarter in a post-COVID-19 environment, e-commerce and cross-border volumes surpassed last year's spike. Due to an anticipated negative price mix effect at parcels B2E, we did record an external revenue decline of €30 million. Let's have a look at the revenue development per subsegment. Parcels Bene recorded a decrease of €9 million or minus 5.8%. First, the sales at Dyna are down versus last year. This is where we are not yet at the level of COVID-19 uplift. Second, S2B2X. Despite the tough comparable base of the second quarter last year, where our parcels B2X volumes increased, as you will remember, by 79.3%, we witnessed sustained online sales in the second quarter this year, and our parcels B2X volumes continued to grow by plus 2.9%. Nevertheless, the revenues decreased by minus 4% due to an anticipated negative price mix of minus 6.9%. In this quarter, we see a price impact of minus 2.8%, explained by the one-off COVID-19 surcharges to customers in April and May last year. And second, a mixed impact of minus 4.1%. This comes mainly from lower volumes in the prepaid products, consumer-to-consumer parcels that peaked in the lockdown last year. Also, we see our contractual top customers growing their volume shares. It is also here interesting to look at the parcels B2X volumes retrospectively. The parcels B2X volumes in the second quarter were in line with the volumes of the first quarter. They are, like said, above last year's COVID peak with plus 2.9% and 84.4% above the second quarter of 2019. This shows that in these first months of post-COVID-19 environment, we continue to structurally benefit from the volume growth of last year. In e-commerce logistics, also against the hard comparable base of last year, Radio Europe and Active Ant sales continued to grow year over year, thanks to continued organic growth at Active Ants from our existing customers, and Radio Europe growth, mainly driven by the new fulfillment site in Poland, which opened in the third quarter of 2020, and the third site opened in Germany in February this year. Combined revenues of Active Ants and Radio Europe They grew about 5.7% year-over-year. At the same time, year-over-year revenue development at Lean Mencken, active in food service logistics in the Netherlands, it offset the revenue growth of the sub-segment. This is due to a loss of contract in July 2020, which was compensated at that time by the COVID-19 growth. Cross-border also recorded a strong quarter against last year's high comps. revenues only decreased by 1 million euro, or hardly 1%. There is a continued growth of commercial sales throughout the quarter in the UK and the rest of Europe, driven by new customers and higher customs services revenues in light of the Brexit. And we saw robust Asian parcel volumes, with an exception during the month of June, since volumes grew exponentially in June last year with the rail transport alternatives. This revenue development was partly offset in cross-border by the declining cross-border postal business. On the next slide, adjusted EBIT for parcels and logistics Eurasia increased by 2 million or 7.1% to reach 35 million euro with a margin of 12.2% compared to 11% last year. This was driven by top-line evolution I just talked about and on the cost side, Lower operating expenses, mainly thanks to lower volume-linked transport costs from Asian cross-border activities, non-repeating COVID-19-specific bad debt risk of the second quarter last year, and overall lower variable labour costs at lean banking. This is partly offset by higher costs from growing activities and e-commerce logistics expansion plans. Also, higher operating expenses charged by mail and retail. We again profit from the favorable channel mix in distribution activities through the integrated last mile meal and parcels network. Then the North American parcel and logistics business. Operating income of e-commerce logistics decreased by 40 million euro, down 12%. Excluding the unfavorable EVIX development year over year, this corresponds to a decline of minus 4.3%. This is driven by ratio due to lower sales from existing customers, reflecting the non-repeating growth of last year's COVID-19 shutdown, where closures of physical stores and the temporary serving sales of sanitizers and related products increased the volumes. We also see client churn from terminated contracts, partially upset by a gradual ramp-up of the new customers launched in 2021, and accelerating through the month of June. At the same time, our activities at Landmark and Apple Express, they continued to record strong volumes from existing clients and new customers fueled by e-commerce development. Putting then radio revenues in perspective, we can see how this quarter compares with the previous ones. In million dollars, radio revenues amounted to 272 million in the second quarter this year, And this is 10% above the revenues of the first quarter, minus 14% below last year's COVID-19 spike, as just discussed, and 36% above the second quarter of 2019, which reflects the structural and continued growth at radio. International mail saw a decline of minus 4 million in external revenues year on year, driven by lower volumes in the business mail segment, partially compensated by higher domestic PAS revenues, and we'll come back on that. Overall, external revenues were down by €44 million for the business unit to reach €308 million. On slide 11, you see that the operating expenses, including just the T&A, decreased by 11% or by 3%, excluding the foreign exchange impact. Variable OPEX evolved in line with the revenue development, except for the labor costs due to the current wage rate pressure in the U.S. Lower bed debt expenses and cost containment in general contributed favorably to the OPEX development. As a result, mainly due to high comps of COVID-19 spike in the second quarter and the wage pressure, part of North America just a bit decreased by 7 million euros and came in at 11 million, with a margin of 3.5%, which is still growing quarter on quarter. Moving quickly to the corporate segment, external operating income remained flat year over year, and as net operating expenses also remained globally stable, the adjusted EBIT remained in line with last year. Then we move to the cash flow. Cash flow from operating activities stood at minus 32 million euros. This is a 101 million euro decline year over year, which breaks down as follows. First, higher EBITDA generation. Second, tax prepayments done in the second quarter, while last year we postponed these out of prudency and cash preservation in the context of the pandemic. And third, negative valuations of 74 million euro in the change in working capital and provisions, primarily driven by what we told you about last quarter, the temporary extension of payment terms as initiated during the pandemic and resulting in a positive impact in the second quarter last year, of which we no longer profit this quarter. Besides that, we recorded 69.3 million euro lower cash flow relating to collective proceeds due to radius customers, due to high level of merchandise sales during the COVID-19 peak last year. Cash flow from investing activities at minus 28 million euro remained broadly in line year on year. Capital expenditure of 29 million was mainly spent on increased capacity for e-commerce on customer implementations at Radio-US, the additional size for active ends, the greater Euro scale-up, parcels B2X sorting capacity, and also the sustainable initiatives for E-Fleet infrastructure. This reported free cash flow in the quarter stood at minus €61 million. Then the cash flow from financing activities at minus €29 million in the quarter was €4 million lower than in the second quarter last year, mainly due to higher lease liability payments. As a result, net cash flow decreased compared to the same period last year by €178 million to minus €90 million. The net debt decreased by €6 million when we compared to the year-end 2020 and now amounts to €489.4 million. After those financial details, I will now hand over to Dirk for the outlook update.