bpost NV/SA

Hello and welcome to the BPOST fourth quarter 2021 analyst call. My name is Courtney and I'll be your coordinator for today's event. Please note that 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 and this can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any time, please press star zero and you will be connected to an operator. And I will now hand you over to your host, Dirk Thiere, Chief Executive Officer, to begin today's conference. Thank you.

Well, thank you and good morning, ladies and gentlemen. Welcome. I'm pleased to present you the fourth quarter and full year 2021 results as CEO of the BPOS Group. Welcome to all of you. and thank you for joining us. With me, I have Koen Aaltermann, our CFO at Interim, as well as Antoine Lebec from Investor Relations. Koen heads the costing and financial advisory teams within our finance department. As our CFO at Interim, he currently coordinates and ensures the continuity of our finance organization since November last year. We posted the materials on our website last night. We will walk you through the presentation and we'll then take your questions. Two questions each would ensure everyone gets the chance to be addressed in the upcoming hour. Now, let's go to the highlights of the full year results. On page three, you see that BPOS delivered on its promises. The full year results in line with twice increased guidance. Group of Justice EBIT stood at €349.3 million, which compares with our guidance of above €340 million. Mail and retail contributed €493.9 million to group adjusted EBIT, with a margin of 9.7%, well within the guided range of 9% to 10%. Year on year, the segment has benefited from higher mail revenues resulting from a limited volume decline of 5.9% against the softcoms of 2020 and the offset from the price and mix impacts. In admin mail, we estimate a top line contribution of around 26 million from COVID-19 communications in 2021. Parcels and logistic erasures top line was mainly driven by a parcels volume growth of 10.3% against the high comps of plus 56.2% in 2020, a 15% growth in radial Europe and active end stop line, and the negative impact from the new VAT regulation on cross border volumes since July 2021. Adjusted EBIT stood at 106.2 million with a margin of 9.7% in line with the guidance. At Parcels in Logistics North America, top-line development was mainly driven by Regal's revenues growth of 11.6%, notably thanks to the contribution of new customers launched this year. Adjusted EBITs of the business units doubled, from 32.8 to 77.7 million, with a margin of 5.3% above the guidance of 4 to 5%, and despite the ongoing wage rate pressure in North America. Annual contract values signed at radial reached $211 million, well above the ACV of 186 million signed in 2020. CAPEX ended up at 172 million euro also within the guided envelope. These results allow us to propose a dividend per share of 49 euro cents to the general shareholders meeting. Since there was no significant non-cash impact in 2021, we can propose this payout ratio of 40% of IFRS net profit fully in line with our dividend policy. Underlying these strong financials are the 2021 management priorities. For these priorities, both financially and operationally, we have fully delivered on our promises, starting with the mother of all priorities, the end of year peak. First, in Belgium, where we had a very successful end-of-year peak. We had a steep margin improvement and almost doubled the EBIT at parcels B2X despite market volatility, a considerable improvement versus last year results. On top of the increased financials, we also had significant operational results. We had a nearly double-digit improvement on successful D1 delivery quality with the volume of relics or parcels not delivered the next day on average at a third or even lower below the average relics of the 2021 peak. We were able to reduce the second wave by 80%, which also enabled us to reduce the use of subcontractors during key peak weeks with 40%, all this despite the increased COVID absentees. Thanks to the effective use of buffer sites and proactive regional deviations, we were able to avoid truck refusal also on high volume days. Finally, the peak was also available cultural communication and learning experience for our central staff with more than 650 central staff joining our colleagues in field operations. And I would like to thank all of our 36,000 colleagues for demonstrating true caring and servant leadership, which was very much appreciated. Second, also in the US, we had a strong peak, and this despite the complex market conditions given COVID and the difficult global supply chain. The radial US adjusted EBIT for the fourth quarter stood at $39 million, $11 million of additional performance compared to Q4 2020, with numbers being adjusted for net effect of the cyber attack and one-time concessions from a vendor in last quarter. Besides purely financially, this was also commercially a successful peak. The single maximum shipping day, the new client revenues, and the new client units shipped all increased by more than 20% year over year. The time in transit for customer's parcels was 20% faster, with backlog or relics down almost 10% year over year. Despite the tough labor market conditions, we recruited and trained 24 000 temporary workers during peak season to successfully meet our clients peak volumes in such a tense labor market the overall financial and operational performance was negatively impacted in a limited set of sites where volumes did not materialize as planned and also for other north american activities we had a record peak at landmark global and apple express both in terms of volume, revenue, and EBIT. Finally, I briefly want to touch on three other key management priorities. On active portfolio management, we were successful in divesting the Mail Group, Begos Bank, and before the end of this month, UBWay Retail. This raised up cash for investments in our transformation as well as management time for core growth activities. On overhead, we were able to stabilize the overhead in Belgium by capitalizing on natural attrition. More on this later in the management priorities for 2022. And finally, we were able to complete the top executive leadership team at BPOST. We have welcomed a new CEO for Belgium, and we welcome back our CEO for North America. We have also now a Chief Technology Officer and a new Chief Strategic and Transformation Officer and soon a new Group CFO and Group CHFO. Jean Mules will bring us operational excellence in Belgium from his international experience at GE Bombardier, IMDC, and FedEx. We welcome back Henri de Rombray in North America, who knows the BPOS group extremely well and was previously a partner at McKinsey with focus on parcels and e-commerce logistics. Nicolas Baize is now the Chief Strategy and Transformation Officer and was previously Managing Director and partner at Boston Consulting Group with focus on transport logistics and large-scale transformation. James Edge combines business and technology as CTO and was previously CEO of Landmark Global with extensive experience as CIO in parcels and logistics. Kathleen Van Deven continues to operate as CEO eLogistics Eurasia. We also welcome Philippe Darcien, a seasoned CFO who will turn the tide on value creation, relying on more than 30 years of financial and operational experience, including in the tractable Suez Group. Kun will remain our CFO at Interim until Bepost's Philippe joins Bepost. Marc Michiels, who will retire reaching the age of 65 at the end of this year, will onboard Annette Boehm, currently CHRO of the KBC Group. Annette will be instrumental in the human capital development of the BPOS group to accelerate the transformation. I will later on talk more on our 2022 objectives, but will first present you the highlights of the fourth quarter. Moving to page six, as promised, BPOS delivers a strong end of the year driven by successful end of year peak execution in Belgium and in North America. We see that group adjusted EBIT stands at 88 million euro with a margin of 6.8% fully in line with expectations. This is a 28 million euro or 46 plus increase versus last year. Our group operating income for Q4 stands at €1.3 billion, up 80.8% year over year. This mainly results from the contribution of Radio's new customers, the stable mail revenues with our pricing lever and mix mitigating the volume decline, and the decline in Asian cross-border revenues due to the new European regulation on VAT together with global revenues from lower parcel volumes. And now I would like to hand over to Koen for more details on the financials.

Thank you, Dirk, and good morning to you all. For your reference, you find on page 7 an overview of the key financials for the quarter, both reported and adjusted. You will note the positive impact of 19.5 million on net profit as BPOS Bank was reassessed at a value of 119.5 million euro ahead of the closing of the transaction which took place in early January. Allow me to move directly to the details of Mail and Retail. At Mail and Retail, external revenues increased by 9 million to 466 million euro. Domestic mail recorded an underlying mail volume decline of minus 8.9% for the quarter, against softer comps of minus 11.8% last year. The volume decline has impacted revenues by €25 million and was almost fully offset by a positive price and mix impact of €24 million, mainly driven by the mail price increase. Admin mail volumes were supported by a rebound in COVID-19 communication while it was fading out in the previous quarter. We estimate the contribution of about €8 million to the top line in the fourth quarter. Proximity and convenience retail network revenues increased by €8 million, resulting from higher revenues at UBWay Retail. Since last year, we had lower sales due to reduced footfall, especially in travel locations and during the full lockdown in November. The value-added services increased by €2 million, driven by higher revenues from fine solutions. This €9 million increase in external operating income was more than offset by a decline of €14 million in intersegment operating income, which results in a total operating income €5 million below last year. The lower intersegment income is explained by the higher end-of-year peak operational leverage, resulting in a lower unit cost, and by the lower parcels and cross-border volumes. On the cost side, the operating expenses slightly decreased year over year, mainly as a result of lower fleet, interim, and subcontractor costs, thanks to strong operational performance during the peak, but higher payroll costs reflecting the impacts of the new collective labor agreement and the recent 2% salary indexation in Belgium, as well as higher material costs in line with the revenue recovery at UBWary. Moving on to parcels and logistics Eurasia, on page 10, we see that external operating income declined as anticipated by €30 million. Looking at the revenue development per subsegment, we see that parcels Bene recorded a decrease of €17 million, or minus 10%. First, similar to the previous quarter, the sales at Dyna were down 23.6% versus last year, due to lower sales in insurance and the lower demand in 2XL delivery compared to the lockdown momentum of last year. Second, as to Parcels B2X, our volumes were 7.5% below last year. This volume trend reflects the tough comps of last year, but also to a lesser extent, Amazon's recent insourcing. As you will remember, we had a volume growth of 67.4% in the fourth quarter of 2020, notably thanks to the full lockdown during the month of November. And compared to the pre-pandemic fourth quarter of 2019, parcels volumes have grown by 55%. In contrast with the negative price mix of the previous quarters, which was around minus 6, minus 7%, the price mix improved to minus 0.2% this quarter, thanks to peak surcharges and favorable customers. In e-commerce logistics, Radio Europe and Activant sales continued to grow by 12.3% year-over-year. The progress made was fully offset by the decline in revenue at Dynafig, hence we only recorded a slight increase of €1 million in revenues. We saw a continued organic growth at Activant from existing customers and a Radio Europe growth mainly driven by the third site opened in Germany in February 2021. Note that the two new sites opened by ActiVans in Belgium and Germany in the second half of the year are still in a ramp-up and thus contributed little to top line in this quarter. On the other hand, year-over-year revenue development at Dynafix, specialist in repairs in the Netherlands for electronic devices, almost fully offset the revenue growth of the subsegment. This is due to the ongoing shortage of electronic spare parts and less devices to be repaired. Cross-border, as expected, recorded a weak quarter against high comps last year. Revenues decreased by 15 million euro, or minus 15%. Similar to the previous quarter, we saw the ongoing pressure on Asian parcel volumes. The minus 51% decline in Asian sales is a consequence of the high comps of last year, when we still had the benefit of the temporary rail transport alternative set up late in the second quarter of 2020. and the termination of the VAT exemption on low-value consignment since July 2021. We continue to expect in the future a progressive recovery from the low-value consignment impact, but the timing remains uncertain. Asian sales are currently back to the pre-pandemic levels of the fourth quarter of 2019. On the next slide, despite a decline of 30 million in total operating income, adjusted EBIT for parcels and logistics Eurasia remained stable at 22 million. On the back of a strong end-of-year peak execution, the EBIT at parcels B2X almost doubled despite lower volumes and allowed to offset the EBIT decline at cross-border and e-commerce logistics. Operating expenses decreased by 30 million, mainly driven by lower intersegment OPEX charged by mail and retail, from lower parcel volumes, but also thanks to the successful end-of-year peak execution, resulting in a favorable mix in distribution, thanks to a higher share of parcels distributed in the regular mail rounds. Lower transport costs, mainly due to lower Asian cross-border activities, partially offset by higher costs, including staff costs from the expansion of e-commerce logistics and the new site openings in line with the full-year guidance and our commitment to invest in the long term, as well as projects related to the low-value consignment relief. Now, on slide 12 are North American parcels and logistics. The operating income of e-commerce logistics increased by €141 million, up 28.6% at constant exchange rate. 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 continue to record strong volumes from existing clients and new customers. When putting radial revenues in perspective, we see how this quarter compares with the previous year-end peaks. Radial revenues amounted to $528 million in the fourth quarter of 2021, which is respectively 30% and 50% above the fourth quarter in 2020 and 2019, reflecting the structural e-commerce logistics growth and the radials expansion. Finally, international mail decreased by €18.5 million following the deconsolidation of the mail group in early August. On slide 13, you see that operating expenses increased by 22%, excluding a fixed impact. Variable OPEX evolved in line with the revenue development and includes labor cost headwinds due to the current wage rate pressure in the U.S., which were partially compensated by the COVID employer payroll tax credit program. We also had higher fixed costs from new sites and startup costs in line with our expansion and our commitment to invest in the long term. Year over year, Palo North America adjusted EBIT increased by 32 million to 46 million euros. You will remember that last year, following the ransomware attack in October, we reported a negative EBIT impact of minus 9.2 million in the fourth quarter. In the fourth quarter this year, we recorded a positive EBIT impact of 2.6 million euro from the cyber insurance recovery. And additionally, we benefited from a 5.2 million euro one-off concession from a vet. When excluding the one-off concession and the ransomware impacts, the adjusted EBIT grew by €15 million or 65%. This sharp operational EBIT increase was driven by the contribution of new customer wins and by the strong execution during the peak. Moving to the corporate segment on page 14, the external operating income increased by €3.5 million year-over-year from higher building sales. This was offset by higher consultancy costs to accelerate our transformation, and the adjusted EBIT therefore slightly decreased by 1 million year over year. Then we move to the cash flow on slide 15. The strong operational result is impacted by phasing, resulting in a net cash flow of plus 27 million euros, a decrease compared to the same period last year by 78 million euros. The main items to flag are the following. In the cash flow from operating activities, there is the higher EBITDA generation compared with the lower tax prepayments in this fourth quarter. Corporate tax prepayments were back to normal in 2021, whereas in 2020, these had been postponed to the end of the year out of prudency reasons in the context of the pandemic. In the change in working capital and provisions, we incurred a negative movement of 96 million euro, mainly driven by a different payment schedule of Social Security and lower trade payables compared to 2020. End-of-year Social Security charges over 2021 occurred in December 2021, whereas those over 2020 occurred in January 2020. As to cash flow from investing activities, Capital expenditures stood at €93 million in the fourth quarter versus €61 million last year. Mainly invested in continued e-commerce logistics expansion of Activant, Radial Europe and Radial US, as well as in parcels and sustainability initiatives in Belgium. We also saw higher building sales for €4 million. I now hand over to Dirk for the management priorities and the outlook of 2021. Well, thank you, Quinn.