bpost NV/SA

will be on listen only. However, there will be the opportunity to ask questions. It can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero on your telephone keypad and you will be connected to an operator. I will now hand over to your host, Dirk Tire, CEO, to begin today's call. Thank you.

Good morning, ladies and gentlemen. Welcome. I am pleased to present you the third quarter 2021 results as CEO of the BPOS group. Welcome to all of you and thank you for joining us. With me, I have Lynn 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 will then take your questions. Two questions each would ensure everyone gets a chance to be addressed in the upcoming hour. Now, let's get to the highlights of the third quarter. As anticipated, BPOS delivers a lower third quarter explained by the return of the pre-COVID seasonal pattern, the impacts of the abolishment of the low value consignment relief and expected costs. Our group adjusted operating income for Q3 stands at 976 million euro, almost flat year over year. This mainly results from the stable male revenues with our pricing lever and mixed mitigating volume decline, the decline in Asian cross-border revenues due to the introduction of European regulation on VAT and the accelerated contribution of Rachel's new customers. The group adjusted EBIT stands at 39 million euro with a margin of 4%. This is a 30 million euro decrease versus last year, but in line with pre-pandemic seasonal pattern in which the third quarter is always the softer. At mail and retail, the underlying mail volume declined year on year by minus 7.5%. As expected, we saw the mail volumes reconverging towards the structural mail volume trends we know on the long term and the support of one of COVID-19 communication volumes faded out. Nevertheless, these mail volumes, combined with a positive price and mixed impact, led to a slight revenue increase in domestic mail. The adjusted EBIT declined by 43% versus the third quarter of 2022 due to anticipated fleet and energy costs plans, salary index, and CLA impacts, and to the capacity kept in the network during the summer months for parcel volume growth. At parallel Eurasia, the 9.5% decline in top line is fully explained by the anticipated but higher than expected decline in Asian cross-border volumes against the peak of Q3 last year, and from the abolishment of the low-value consignment relief as of July this year. For part of BUX, thanks to sustained online sales, volumes grew by 8.9%. The price mix stood at minus 5.8%, which has resulted in a positive top-line development of plus 3.1%. Radial Europe and Activance continue to grow their revenues. We saw an increase of 13.3%, also thanks to the opening of our new sites, including for Radial Germany and Radial Netherlands earlier this year, and for Activance Belgium more recently. The adjusted EBIT stands at 12 million euro namely an €80 million decrease versus last year, mainly due to the decline in cross-border revenues and OPEX for the e-commerce logistics expansion in line with our full-year guidance. At Sparrow North America, excluding international mail which was disposed of at the beginning of August, The total operating income stands at €313 million, which represents a growth of 14.9%, excluding the exchange rate impacts. This reflects new customers' contribution that started to accelerate since June at Radial. This revenue development has been offset by the current wage rate pressure in the U.S., and costs from new sites. In the quarter, we had a positive 4 million euro impact from the cyber insurance recovery from last year's ransomware attack. As a result, the adjusted EBIT of 12.8 million euro was flat operationally when excluding this insurance recovery. Overall, at group level, our adjusted EBIT stands at 39 million, a 30 million decrease compared to the same period last year, and this mainly from our mail and retail and polyurethane business units as illustrated on the bridge on page four. To conclude on the highlights, we can summarize that the third quarter was in line with our previous announcement and expectations meaning the full year is entirely on track, with the guidance for an EBIT above €340 million. Pre-COVID, the third quarter is seemingly the weakest quarter for BPOST, and this was already taken into account in our last revised guidance. I will come back on it more in detail later in the presentation, but I will now give some background on the management priorities I have set for BPOST, which give us the confidence to maintain our guidance for Q4. First, on the preparation of the end-of-year peak. In Belgium, we have secured distribution and sorting capacity to capture growth in comparison with the 2020 peak including through temporary parcel sorting machines in two sites. We also optimized the second distribution wave compared to Q4 2020, reducing it in time by two weeks and reducing it in size by approximately 50%. We intensified predictive analysis and operations, planning with our top customers representing over 80% of our expected parcel volumes to ensure that we use the latest data for more reliable and granular volume forecasts. We also organized a buffer capacity nationwide at low switch-on costs for additional parcel volumes that can go up to 10% to 15% of our forecasts. we will be able to handle these extra volumes on the best effort basis as agreed upon with our customers injecting volumes above their forecasts. This is to prevent the use of subcontractors at the last minute with unfavorable economics. Engaging our temporary workforce is on track given the earlier engagement of recruiting agencies and by adopting a faster recruitment process. For also our peak preparations in the US, hiring and training of our temporary workforce is on track through the use of additional temporary recruiting agencies with access to a larger labor pool and an earlier initiation of marketing campaigns. Moreover, despite U.S. carriers' capacity limitations, capacity for radial clients has been secured, taking advantage of our scale as a large provider of parts. Second, we are anticipating on adverse macroeconomic trends. We all know the supply chain disruption is a market trend. While currently our customers expect limited exposure to e-commerce supply chain disruptions based on current stocking up, we are managing the volume risks by a meticulous preparation, planning, and execution of the end of year peak. We also have mitigated exposure to inflation thanks to the inclusion of standard indexing provisions in our e-commerce agreements and through the stamp price increase mechanism. Third, on operational efficiency in Belgium. We initiated this year an increased focus on the reorganization of the 247 distribution offices until 2024. In 2021, year to date, We have already reorganized 108 distribution offices compared with 77 offices throughout full year 2020, leading to productivity improvements. Fourth, we are planning reduction in Belgian overhead and headquarter costs. We have stabilized overhead FTEs in 2020 while continuously investing in our transformation. In view of these elements, we maintain our guidance for Q4 and for the full year 2021. I would now like to hand over to Leen for more details on the financials.

Thank you very much, Dirk, and good morning to you all. Thanks for joining. On page 7, you find an overview for your reference of the key financials for the quarter, both reported and adjusted, and allow me to move directly to the details of meal and retail. In meal and retail, the external revenues are slightly increased by €7 million to €294 million. Domestic meal recorded an underlying meal volume decline of minus 7.5% for the quarter. This mail volume decline compares to the more regular comps of last year. Remember that BPOS reported a mail volume decline of minus 8.2% in that quarter. This has impacted current revenues by minus 18 million euro. That impact was offset by a positive price and mix impact of 20 million euro. This mainly driven by mail price increases. In admin mail volumes, they were still supported by some fading out COVID-19 communication that had already started in March this year. We estimate a contribution of about 4.5 million euro to the top line in this quarter. In units, when you look at the graph and excluding the mail pricing impacts, we see that domestic mail volumes now reconverges towards the underlying trend. with a structural volume decline in nail volume compared to the third quarter of 2019 and the third quarter of 2020. Proximity and convenience retail network revenues increased by €3 million, resulting from a combination of higher revenues from UBWay retail, since last year we had lower sales due to reduced footfall, especially in travel locations, and also lower banking revenues from the low interest rate environment. Also profiting from the soft comps of last year, the value-added services increased by 2 million euro, driven by higher revenues from fine solutions. Looking then at the EBIT of mail and retail on slide 9, adjusted EBIT declined by 15 million to 20 million euro with a margin of 4.3%. This decline, of course, explained in part by an increase of 6 million in total revenue, and on the other hand, an increase of 21 million in the operating expenses. The operating expenses, they increase year over year, mainly as a result of expected higher costs, including staff costs and including costs for our larger fleets in line with partial volume development and increased energy prices. More specifically on the staff costs, we had the impacts of the new collective labor agreement, 2020-2021, and the recent plus 2% salary indexation in Belgium. We had a different holiday phasing. With less postmen on summer holiday in the third quarter of last year due to the pandemic, we then also had less need for replacements. This was phased to the fourth quarter 2020. This year, our postmen, they went on holiday following the regular seasonality, and we had to replace them to cover the fixed distribution rounds. This was combined with the impact of the capacity kept in the network during the summer to cope with our customers' demand for capacity in view of their forecasted parcel volume growth, which did not in full materialize. Moving to slide 10 with Paolo Eurasia. In this quarter, we did record an external revenue decline of 25 million euro, fully due to an anticipated but higher than expected decline in ASEAN cross-border volumes. For Parcels Bene and e-commerce logistics, we had a flat top-line development despite a good performance in Parcels B2X and at radial and active paths. Let's look at this revenue development per SIP segment. Parcels Bene recorded a decrease of €2 million or minus 1.3%. First, the sales at Dyna, they were down 18.7% versus last year due to lower sales in insurance and also a lower demand in the 2XL delivery compared to the lockdown momentum of the last year. This has more than offset the positive development of our parcels B2X. As to parcels B2X, we witnessed sustained online sales in the third quarter 2021. and volumes continued to grow by 8.9%. Parcels B2X revenues increased by 3.1%, also due to an anticipated negative price mix of minus 5.8%, fully mix driven. Since we continue to see in our mix this entire year, lower volumes in prepaid products, consumer to consumer parcels, they peaked during the pandemic last year. In addition to that, higher contractual products, with our top customers growing their volume shares. It is also interesting here to look at Basel's B2X volumes retrospectively. The volumes in the third quarter 2021, they were, of course, below the second quarter, in line with the normal seasonality, but respectively, they were up 62.4% and 8.9%, above the third quarter of 2019 and the third quarter 2020, thanks to structural volume growth post-COVID. In e-commerce logistics, Radio Europe and active ant sales, like Dirk already said, they continue to grow year over year, but the progress made was fully upset by the decline in the revenue at Dynafix, so we only recorded a slight increase of 1 million in revenues. So on the one hand, we did see continued organic growth at Active Ants from the existing customers, and also Radio Europe growth, mainly driven by the third site opened in Germany in February this year. The combined revenues of Active Ants and Radio Europe, they grew about 13.3% year over year. Note that for Active Ants, we opened a new site in Belgium in this quarter, late this quarter, And another site has just been launched in Germany a few weeks ago. And then on the other hand, I talked about Dynafix with a negative revenue development. It is expected to pay repairs in the Netherlands for electronic devices. This is due to the current shortage of electronic spare parts and less devices to be repaired. Then moving to cross-border. Indeed, recorded a weak quarter against last year's high comps. Revenue decreased by 24 million, that's minus 25.7%. We saw the decline, especially in the Asian parcel volumes, or only in the Asian parcel volumes. The decline in Asian sales is a consequence of the high comps of last year when we set up the temporary trail transport alternative. And second, the abolishment of the VAT exemption on low value consignment since July this year. In the future, we expect to see a progressive recovery from this low value consignment impact. The timing, however, remains a bit uncertain, as the consumer behavior is still impacted by some confusing information circulating about VAT impacts for the final receiver. While we see that most of the ASEAN platforms are actually already full compliant with the new VAT clearance. Note that the volumes of Asian cross-border are still 40% ahead of the third quarter 2019 pre-COVID. On the next slide, adjusted EBIT for parcel and logistics Eurasia, a decrease by 18 million, or minus 59%, to reach a margin of 5%. This was driven by the top-line evolution that I just talked about, and on the cost side, lower volume-linked transportation costs from the Asian cross-border activities partially offset by higher costs, including staff costs, from the expansion of e-commerce logistics and the new site's openings, in line with the four-year guidance, and also our commitment to invest in the long term, and also some higher costs as to the low-value consignment project. Moving to North America. Operating income of e-commerce logistics increased by €39 million, up 14.9% when excluding before an exchange development year over year. This is driven by radio, mainly thanks to the contribution of new customers launched in 2021 and accelerating since June. At the same time, our activities at Landmark and Apple Express continued to record strong volumes from existing clients and new customers. When also putting radio revenues in perspective, as you see on the slide, And we see how this quarter compares with the previous one. We see regular revenues are 8% above the revenues of the second quarter, 12% above third quarter 2020, as just discussed, and 50% above the third quarter 2019, which reflects the structural e-commerce logistics growth and the regular expansion plan. International mail, a decrease by 14 million, following the deconsolidation of the mill group in early August. On slide 13, you see that the operating expenses, they increased by 6.7%. Variable OPEX evolved in line with the revenue development, and they include labor costs headwinds due to the current wage rate pressure in the U.S. We also had higher fixed costs from the new sites and the startup costs in line with our expansion and commitment to invest. Note that in the third quarter, we recorded a positive impact of €4 million from the cyber insurance recovery following last year's ransomware attack. Palo Norte America's adjusted EBITs thus remained flat operationally when excluding this impact. The top-line development did not yet turn into operating leverage due to costs from the new site openings and the ongoing wage rate pressure in the US. Corporate segments. The net operating expenses, they remained globally stable. The adjusted EBIT evolved in line with the building sales and stood at minus 5.9 million euro. Then we can move to the cash flow. Net cash flow increased compared to the same period last year by 110 million euro to plus 53 million euro. The main items that I want to flag are the following. Of course, lower EBITDA generation in this third quarter. In addition to that, lower tax prepayments done in this quarter, while last year we postponed the tax payments to the third quarter out of prudency and cash preservation in the context of the pandemic. So that's timing. And a positive variance of 78 million euro in the changing working capital, mainly driven by the deferred payment schedule of the SGAI compensation that last year we received in January and this year in July. So the latter has no impact on the full year cash flow. As to the cash flow from investing activities, capital expenditures stood at €31 million in the third quarter versus €41 million last year, mainly invested in continued e-commerce logistics expansion of radial and active assets. We also saw a positive impact of 6 million following the disposal of the meal group and some lower building sales for 2 million euro. So all in all, the net debt decreased again by 114 million compared to September last year to an amount of 458 supported by the free cash flow generation and the absence of dividend payments in the fourth quarter of 2020. I will now hand over back to Dirk for the outlook update.