Bpost Sa Unsp/Adr

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.

And before presenting you the outlook for 2022, I would like to introduce our new business unit setup, as well as walk you through our management priorities for 2022. As you know, we are bundling our parcel activities with our mail and retail activities into one Belgian business unit led by Jean Mules. This implies a new business unit structure with Belgian e-logistics Eurasia and e-logistics North America, now replacing mail and retail parcels and logistics Eurasia and parcels and logistics North America. This new structure will allow to recognize different strategic imperatives, namely transform Belgium, build e-logistics Eurasia, and grow eLogistics North America, as well as to allow full P&L accountability at business unit level. The objectives are to align accountability, speed of action, and transparency. As from the first quarter of 2022, the reporting format will be adapted accordingly. Changes are nevertheless limited. This consists in moving our parcels units, Belgian parcels, out of the sub-segment parcels B&A and to create a new sub-segment parcels Belgium next to the five sub-segments of the former mail and retail business units. And we will regroup DynaLogic and DynaSure previously in the sub-segment parcels B&A together with Radial Europe, ActiVans, Lee Mencken and DynaFix in the existing sub-segment e-commerce logistics. For your reference, we show on slide 17 the key financials of 2021 in this new reporting format. The quarterly figures of 2021 are also restated in our statement. What are our management priorities for 2022? Three at the EU level, one at corporate level, and two transversal ones. There is a general team within the group of cost, discipline, and predictability. There is a clear direction from the board of directors, and we have a strong new leadership team that is pragmatic and operates as a collegial team. The ambition of the new strong leadership team is to deliver strong, consistent, total shareholder return in evolving landscape and start developing a great stock trajectory over time. The focus of the new leadership team is for BPOS to become a great company with excellence in operations and profitable growth, a clear competitive advantage in all chosen areas, financial resilience, premium return, and a firm commitment to ESG and being an employer of choice. The strategic plan approved by the board of directors is clear. In Belgium, the focus of Jean Mules is to pursue an integrated value plan to deliver substantial movements across all businesses and shift to a customer-centric organization with focus on quality and NPS. It is about stability, predictability, and the transformation of the business. In e-logistics Eurasia, Kathleen van Beven has the ambition to realize the growth plans of Radial Europe, Activance, and other e-logistics Eurasia entities reaching scale in a fast-growing market. She has a clear focus on MPS with value creation and competitive advantage at the center of organic growth and M&A, but with clear corporate investment discipline. We have the opportunity to be a key European player in this segment we know well. In North America, having now realized the post-acquisition turnaround, Henri de Romeray is now embarking on an ambitious radial US accelerated growth plan with a clear focus on MPS and maximizing growth, which the US market is offering. The role of our new group CFO, Philippe Darcienne, will be to instill financial discipline and a consistent cost and cash control mindset across the group, starting from headquarters, drive the transformation while realizing effective cost efficiencies, and turn the tides on driving value creation for B-posts. The focus will also be on M&A and CAPEX discipline and efficient cash flow for the group, with a clear focus on investor and financial strategy. He will lead, together with Koen, the preparations of the Capital Markets Day, which we plan to hold at the end of this year. Nicolas Baez will drive transformation from a product delivery to a customer-centric organization and transform the post into an agile organization. The transformation touches on many aspects, including culture, Leadership Rewards and Workforce Organization, which will be designed by the new group CHRO Annette Beu. James Edge will be developing innovative growth opportunities by better use of data and improve digital capabilities, including artificial intelligence. We will drive this transformation through the development, pilot and execution of a roadmap for Agile at Scale at BPOST. We will, as mentioned in Q3 last year, continue to embed sustainability in our business strategy to strengthen our position as the leading sustainable and socially responsible organization committed to ESG. Investments to accelerate this transition are captured within the existing CAPEX and both. These management priorities bring me to our outlook for 2022. In 2022, B-PoS will continue to invest in its ongoing transformation and will mitigate headwinds from wage pressure and inflation by some cost reduction initiatives, productivity gains, and further growth in only commerce activities. Group total operating income is expected to grow by a mid to high single-digit percentage, while group adjusted EBIT is expected to range between 280 and 310 million euro, based on current assumptions for inflation and overall market conditions. This is our best estimate as of now, which could be impacted by macro and geopolitical risks materializing. For Beltran, we expect the total operating income to remain stable while excluding the deconsolidation of UBV retail. And therefore, we plan for an expected mail volume decline of 8% to 10% to be partly compensated by an approved mail pricing increase of 4.7% as announced in November last year, an expected flat parcels volume development reflecting Amazon insourcing and the post-COVID normalization, and some additional revenues at VAS and retail. Adjusted EBIT margin is expected to range between 8 and 10%, which reflects higher wage costs and inflationary pressure partially mitigated by our cost reduction initiatives and productivity gains. The unknowns within our guidance are inflation, especially in Belgium, but to some extent in North America, and parcels volume growth. We expect to grow at least in line with the Belgian market, but the overall balance is anticipated to lead to a flat volume development in 2022 due to Amazon insourcing. Depending on the consumer sentiments, market normalization and on how quickly Amazon will move forward with their insourcing, parcel volume growth may also develop differently this year. For e-logistics Eurasia, we anticipate a low to mid-teens percentage growth in total operating income relying on our growth plan for Radial Europe, ActiVans, and our cross-border commercial activities in Europe. Despite an expected limited recovery in Asian volumes, in 2022, we will continue to have scale-up costs in Radial Europe and ActiVans, as the adjusted EBIT margin is expected to range between 6% and 8%. For eLogistics North America, when excluding the deconsolidation of the mail crook. We expect the top line to grow by a low to mid-teens percentage thanks to Rachel's accelerated growth plan and to the contribution from new customer wins. The adjusted EBIT margin is expected to range between

Can you hear me? Hello, Courtney?

Hi, yes, we can now hear you. Please continue.

Okay, we are switching to the backup line. Please go ahead.

Well, thank you. We are now ready to take your questions. And operator, please open the lines.

Thank you. As a reminder, if you would like to ask a question on today's call, please press star 1 on your telephone keypad. Please ensure your line is unmuted locally and you will be advised when to ask your question. That was star 1 on your telephone keypad. And our first question comes in from the line of Ivar Bilfort-Kelly calling from UBS. Please go ahead.

Thank you very much. So within the Belgian division, what actions can you take to offset the impact of automatic salary indexation if inflation stays high? And how does your position compare to your peers? Are you at a significant disadvantage there? And maybe secondly, linked to energy costs, can you give us a rough idea of the sensitivity of your EBIT to higher oil and gas prices? And I'm going to have a very quick one as well, just a clarification. I think you might have mentioned it, but my line cut out. Within Belgian BTEX parcels, what proportion of your volumes are actually linked to Amazon? And I assume they actually have very favorable pricing owing to their scale. So is there a material difference on a revenue basis? Thank you.

Thank you, Ifar. I'm not sure I've fully got all the questions as the line was not entirely clear, but let me start by responding. If there's anything else, please repeat one of the questions. I think your first one was around how we offset the salary indexation within Belgium. So first, it's important to understand the indexation mechanism in Belgium. Contrary to many other European countries, in Belgium, indexation of salaries is mandatory and is automatic for people. So as soon as the consumer price index exceeds a certain threshold, the pivot index, it automatically triggers a 2% indexation of salaries within people. We've had that in October 2021, and we expect that to happen in February 2022, in April 2022, and in December 2022. So that is automatic, and as it's different in many other European countries, that will have a bigger impact for people. That said, we do have many measures in place to mitigate that, notably in terms of productivity gains, both in operations as well as on overheads, as was also explained in the third quarter call. So these will help us to offset that. On the pricing side, given the pricing cap formula, which looks at inflation but is backwards looking, There we will see a lag before we see the higher inflation inflected in the price gap formula. So that is not reflected in the outlook for next year. Your second question was around the impact of Amazon, I believe, where we see that Amazon represents, as was also in the press, a bit less than one in five parcels for BPOS. So we do expect a part of that volume to disappear. We expect around 8% volume impact from Amazon next year, which will be offset to some extent by the positive price mix impact of that. As you mentioned yourself, Amazon has a relatively low rate due to their high volumes, and so we will see a positive price mix effect. It's also important here to take into account that this effect only impacts our parcel revenues, which are only a share, a bit above 10% of our group result. So overall, the impact itself remains limited to that segment. And I'm not sure if I missed any of your other questions.

Yeah, sorry. I'll link to the cost base as well. Can you give us a sensitivity of your EBIT? to higher oil and gas prices if they stay at a little bit later or even increase from this point.

I have trouble understanding you. I'm sorry. Could you repeat that again, please? Sorry.

I'm sure it's my line. Do you expect a material impact on your EBIT guidance if oil and gas prices rise significantly from this point? And, of course, I'm taking into consideration macro factors outside of your controls here.

Yes, sure. Sorry, I didn't quite catch that before. But indeed, yes, if the energy prices rise, we will see an impact on the EBIT, first because of the energy costs themselves, but also because energy is one of the components of the consumer price index, which drives salary indexation. And so if the energy prices go up, notably Gazdan, which correlates quite strongly to the consumer price index in Belgium, we will see an impact on our wage drift there as well.

But again, I think it can also be, particularly in Europe and North America, be mitigated because we have contractual mechanisms and price increases, in particular for transport, are passed on to customers.

That's great. Thank you very much.

The next question comes in from the line of David Kirstens, calling from Jefferies. Please go ahead.

Good morning, gentlemen. Thank you for taking my questions. I've got two, please. I'd like to follow up on the Belgian parcel market. What type of growth do you expect for the market overall post the COVID normalization? Is that around 10%, given your estimated Amazon impact of around 8%? And the one in five parcels that you mentioned in the as an answer in the previous question is that for all of belgium or is it just for for wallonia so it's the overall market share of amazon around 10 in belgium and 20 in wallonia the second question is about the risk of further salary in the indexation to your guidance is that if you would have another salary indexation is at around 20 million of ebit as a result And what are you seeing currently in the U.S., where I think inflation rates are even higher and still you are guiding for relatively stable profitability in 2022 versus 2021? Thank you very much.

Thank you. So first on the parcel market. So as mentioned, indeed, we expect an 8% volume decline. And as we guide overall on stable volume development, that gives you a good indication of what we expect in terms of market growth. We will also be actively hunting to acquire new volumes. So we aspire to have a market growth or growth which is above the market growth rate. As to the one in five parcels, it's slightly below that. That is for the full territory of Belgium, so not just Brussels and the Walloon region of the country.

They are much stronger in Wallonia, and I think they are hardly present in Flanders, right, because that's mainly bold.com and Coolblue.

There is indeed an unbalance between the two regions, yes. Yeah. As to the risk for salary indexation, so there it obviously depends on when exactly the CPI, so the consumer price index, would reach the threshold level again. What we can give as a guidance on that is for every month in which this would be the case, so that's a 2% indexation of the salaries, we would incur a cost impact of about 2 to 3 million. Note that here we do, as mentioned before, aim to offset by productivity. And then in terms of the U.S., so there as well, we do see some wage pressure, which is decreasing a bit if we look towards the first results of 2022. And here as well, we are aiming for efficiency gains, operational improvements to offset that, as well as, of course, the growth which we expect in the U.S. for next year.

But in the U.S. in particular, if I may add, is we have a lot of cost plus contracts. So it means that... costs are being passed on to customers and all the contracts are being reviewed on an annual basis and they're up for review and therefore we will include the inflation and index the contracts accordingly and therefore I think we continue to maintain in our outlook the acceleration and growth for North America.

Understood. Thank you very much gentlemen.

The next question comes in from the line of Frank Klaassen, calling from DeGroof, Peter Cram. Please go ahead.

Yes, good morning. Two questions. First of all, on the cost savings, you plan to reduce overhead in 2022. Could you elaborate what you would like to do and maybe quantify there? And also related to that, the project Omega. Could we already see benefits in this year or will it be more a 2023 thing? And then secondly, on your CapEx envelope of 250 million, what are the main growth projects? Are you gonna build new sorting centers for radio, Europe, US? Could you elaborate on that, please?

Well, thank you very much. And again, I think all excellent questions. Maybe I would like first to talk a bit about the CapEx strategy. What we basically are doing is responding to great commercial moments and following market growth, both in North America and Europe. And therefore, we continue to invest to follow the growth of our clients. That's why we have the accelerated growth plan in North America and building the e-logistic business in Europe. To give you a couple of examples, indeed, we're investing and opening two new sites in North America, Phoenix, Arizona, and Indianapolis, And also, I think in Europe, reopening and basically following client growth in the UK as the Brexit has created some opportunities for the BPOS group. So that's basically one element to it. The other element is phasing, as you have seen in 2021. And two elements combined I think explains the continuous investments responding to the great commercial momentum and the market growth we see on both sides of the Atlantic. On the question of cost discipline, yes, I've explained the role of the new CFO. We have not been waiting to onboard a new CFO. I think with Kuhn, we embarked on a project to reduce headwater costs which is significant to bring our cost in line with the benchmark in the market. We are really proceeding with getting serious on cost with a hiring freeze in BU Belgium and with reorganizations that will take place in 2022. And we will come back, of course, at a later stage, what it means for the years to come. So yes, I think what I said previously at the previous analyst call, I think cost discipline is at the center on how we look at our operations. And so it is both FTE cost, also OPEX cost, and I also would like to point out that we are very much disciplined in any capex spent. We're looking at internal rates of returns and financial discipline to invest particularly in the growth of our business.

Okay, that's helpful. And Project Omega, could you elaborate on that?

Well, that's the project on the a new design of the distribution of the rounds and we will start implementing and we have negotiated and discussed this with the labor unions reorganizations and that is indeed included as part of the mitigating actions for example We are focusing on productivity improvements in the network, and that has already taken place in 2022 and will be further rolled out, I would say, in the years to come.

Okay. Thank you very much.

The next question comes in from the line of Hank Slotboom, calling from the IDEA. Please go ahead.

Good morning all. Thanks for taking my questions. I've got two as well. Sorry, a quarter within the lines to put it in those phrases. First of all, on the labor laws in Belgium, there have been some changes or proposals to change the rules. First of all, on evening work, I've also read something about rules affecting the deliverers, the workers. of this world whether someone is self-employed or has to work on the basis of a labor contract have into what extent is it influencing be post and do expect more of these things because we've seen some remarks by the Minister of Post at the end of last year as well that she would favor some change in creating a more level playing field for the post second question relates to the competitive environment. You refer to Amazon as an increasing competitor in Belgium, but quite recently there has been an announcement by CMA-CGM. They took over Ingram Micro's European e-logistics activities in December, and they now intend to take over Colis Privé, which has made an entry into Belgium as well. How do you look at this combination? Is that a potential rival for you and how serious should we take that?

Thank you for your questions and I think on the Belgian labor law and the regulations of the last mile delivery market, yes, we see new decisions by the Belgian government that have recently been taken, and I think we expect that the further regulation may be forthcoming, but it's not up to me to comment on, let's say, the decisions of Parliament. On the question of competition in the markets, I would suggest Koen, and I will add

Yeah, sure. Perhaps let me maybe just circle back to the previous question, because you also asked about the changes in the labor there, in the legislation. So any impact that has is included in our outlook. So there is nothing to expect there. Then looking at the competition. So yes, we are like you witnessing that global logistics players with significant firepower look for consolidation and scale. And so we see these acquisitions taking place. Notwithstanding that, we remain confident that we will also be able to successfully expand our e-commerce activities. And we also have some firepower available to continue to invest in the sector.

Okay, so it's not a showstopper to put it in those phrases.

No, no, no. I think the ambition in Belgium is to grow with the market and keep the leading position. The ambition in e-commerce logistics is in essence to grow respond to the great commercial momentum and following market growth and in particular the growth of our clients and the onboarding of new clients.

But perhaps I may add a question on top of that, Dirk. In a recent interview, you said that you were proud of BePost because unlike PostNL, you do not only depend on the Benelux market, But you have a growing presence outside of the Benelux and that e-commerce logistics was the big driver of what should be the future growth. Being an international player, CMA, CGM is predominantly active outside of the Benelux area. Do you see any problems there?

Well, the answer, I think it's an excellent question, and it just confirms that the strategy of BPOS a couple of years ago to move in e-commerce logistics was the right strategy. What we see, because I'm every quarter in the U.S. and traveling and visiting sites in Europe on a regular basis, I think we see still a great commercial momentum. When I talk to clients and potential new clients, I think e-commerce, it's an international market. It's not a B&A market. The opportunities in North America and across Europe, I think we opened 12 and we have 12 fulfillment sites in Poland, in Germany. We are very active in the Netherlands, as you know. In the UK, we have also opened a new site. So we see still that there's a great potential, in particular in the sectors we have chosen, and in particular in the countries we're active. And the big advantage is, yes, indeed, Belgium is a small market. And that's why we have an international growth strategy and transformation in Belgium, building in Europe, and accelerating in the U.S. Of course, newcomers are moving in, and I think we will, of course, keep the leadership position we have in the area we're active in.

Okay.

Thank you very much.

The next question comes in from the line of Sean Goodyear, calling from Bank of America. Please go ahead.

Hi, thank you. Three questions from me, please. Firstly, just on Amazon insourcing. So you assume an 8% volume impact from insourcing this year. Where do you expect it to eventually normalize? And secondly, on e-logistics, why are margins for e-logistics in Eurasia higher than North America? And when do you expect North American margins to potentially converge? And then finally on cash flow, how should we think about cash flow this year? Will operating cash conversion increase from around the 70% mark in 21? Thank you.

So on Amazon insourcing, the normalization of it, it obviously depends on Amazon's insourcing strategy. So any questions on that should, of course, be asked to them. What we've reflected in our outlook for this year is the 8% volume decline, which seems to be in line with what we've observed in other markets so far.

And also, I think if I may add, I think we also look at the price mix And the positive effect it will have on the price mix. And I think we also have, of course, hunting plans to maintain the leadership position in the market to complete the kind of situation. And maybe on e-commerce logistics and the further investments we make.

So on e-commerce logistics. The reason for the margin difference is that the composition of the operating segment is somewhat different. For Eurasia, there is still cross-border in there for a very significant contribution, and so that results in a difference in the margin target. Could you just repeat the last question, which I didn't capture entirely?

Yes, so how should we think about cash flow this year, and will operating cash conversion improve?

Yes. So first of all, on the cash flow, you of course have the EBIT guidance we've provided. And then we can expect that some of the non-cash items, and specifically the depreciation and amortization, will increase in line with our investments. Just give me one second. Yes, so other than that, there will be some impacts, of course, from the higher capex envelope, which we've communicated at 250 million. And then there are some impacts from the divestments. So the BPOS bank deal will close, or has closed, in fact, early January, which will generate a cash inflow of 119.5 million. there is also working kept or a loan we had of 25 million which is repaid and we as people's repay the working capital amount we have of 12 million so all those combined will have an impact of course on our on our cash flow and then finally there's as our business grows obviously there will also be some impact on working capital which will grow together with this thank you

The next question comes in from the line of Sumit Mehrotra, calling from Societe Generale. Please go ahead.

Thank you. First, I just have two questions. Could you walk us through the logic which went behind the stable parcels outlook for 2022. I noticed the 8% impact from Amazon this year. And what should be the mid-term target beyond this? How should we look at growth beyond 2022 for parcels? Secondly, Dirk, what's your future vision for your proximity and retail operations after stepping away from, like, their UBV operations now? So which opportunities offer more relevant synergies for the group? Perhaps now you have a better vision on that. Yeah, these are my two. Thank you.

Well, I think we have been... relatively clear on the outlook in the parcels market we see across Europe and in Belgium and I would say we look at it that we will indeed as the market leader and the ambition is to grow with the market but you know we have since World War two a new circumstance. And so I think everything will depend on future consumer confidence, I would say. So what we currently see and based upon the current information, even in line with Amazon insourcing, I think the outlook is carefully thought through and that is the growth we see. On the question of UBWay retail, it comes back to what I would call very much the discipline we have on what is core, what is non-core, what is strategic and non-strategic. And if there are assets, subsidiaries that are either non-strategic like retail or non-performing, I would say, like UBV Retail, I think we divest and we will continue to be very much focused on discipline, either in the way we look at CapEx and in the way we look at M&A and divesting activities, assets or subsidiaries that do not contribute to the profitability of the company. And therefore, we will continue to focus on the opportunities in the e-commerce logistics market, but always in a very disciplined way in order to look at return on investments.

Thank you.

The next question comes in from the line of Andre Mulder, calling from Kepler Shiro. Please go ahead.

Yeah, good morning. First question, what kind of cost do you take into account for transformation at the corporate level? Secondly, with the switch to the new setup, we have seen, of course, the sales and EBIT transfer to Belgium. However, the DNA line is almost unchanged. What's the reason behind that? That's only 1 million. I would have expected that to be much larger, looking at the size of the parcel operations.

So starting with the cost for the transformation, at the corporate level we will be investing to transform into an agile group to put into place a shared service center and so on. You can expect that for the corporate level EBIT we will be at a similar amount to this year before those investments and so we are adding some costs on top for that. For the DNA line in the new structure, it's important to note that already in the past, the operational part of the parcel distribution and sorting was already part of mail and retail. And so all those costs also related to the assets and the depreciation were re-invoiced via some internal invoicing. So we're part of the OPEX costs of the parcels segment. That is why you see such a small impact on the DNA line. The assets were already within mail and retail and now within Belgium.

Thank you.

We currently have no further questions in the queue. So as a final reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad now. Well. OK, and I will now hand you over to your speaker for any concluding remarks.

Well, I would like to thank everybody in the call for having taken the time to be with us and also for your interesting questions. We will hear from you at the conferences we're going to attend in the coming weeks and months. And please note that we will release our annual report 2021 on the 17th of March 2022.