bpost NV/SA

Hello and welcome to the BPOST first quarter 2022 analyst call. My name is Josh and I will be your coordinator for today's event. Please note that this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I now hand you over to your host, Mr. Dirk Therese, CEO, and Mr. Colin Altman, CFO, to begin. Thank you.

Thank you. Good morning, ladies and gentlemen. Welcome. I'm pleased to present you the first quarter 2022 results as CEO of Vipos Group. Welcome to all of you, and thank you for joining us. With me, I have Kul Alterman, our CFO at Interim, as well as Antoine Lebec from Investor Relations. We posted the materials on our website last night. We will walk you through the presentation and we'll then take your questions. Two questions each, which ensure everyone gets the chance to be addressed in the upcoming hour. I'm pleased with our Q1 results and the management initiatives supporting them. I will update you on the six priorities we shared with you at the full year results and where we intensify further. Our priorities are even more important, as since our last results, there have been a war in Ukraine. I would like to thank our BPOS colleagues who have been driving from Belgium to the border, assembled donations from thousands of Belgian citizens, and worked with our colleagues in the Ukraine post. this event reveals the strong culture and beboast. Yet, this environment comes with heightened microeconomic uncertainty. How is it impacting our environment? In Belgium, inflation climbed to 8.3% in March, the highest reading since 1983, mainly driven by higher energy prices as electricity and gas respectively rose by 50% and 31% year over year. Together with the war in Ukraine, this surge in price caused a significant drop in consumer confidence, and in Belgium, we witnessed the largest decline since the indicator was introduced in 1985. We also currently observe a decline in online retail sales at minus 17% in March, while we also see a shift from online sales to physical shops as the pandemic restrictions end. In the U.S., a similar trend in online sales is visible as March was the first month since the pandemic hit during which e-commerce sales declined year over year while in-store sales rose. I will later on talk more on the actions taken by management to face and mitigate such impacts. Now, let's get to the highlights of the first quarter results. Our results have been supported by some strong male revenues and a nice growth at Radial North America, both partly mitigating the unfavorable macroeconomic environment we just discussed. We see that our group EBIT adjusted stands at 93 million euro with a margin of 9% fully in line with our guidance. Our group operating income for Q1 stands at 1 billion 38 million euro up 1.8% year over year. This mainly results from the contribution of Radial's new customers and some strong mail revenues offsetting together the anticipated decline in Asian cross-border revenues due to the new European regulation VAT, lower revenues from lower parcel volumes, and the deconsolidation impact of UBV retail as from March this year and the mail group since August last year. At Belgium, Adjusted EBIT declined by €60 million to €75.1 million, mainly due to higher OPEX from the two recent salary indexations of plus 2% and higher energy costs. At East Logistics Eurasia, the adjusted EBIT stands at €10.5 million, a €6 million decrease year over year due to lower cross-border activities and higher OPEX from our e-commerce logistics growth and expansion costs. This 6 million decline in EBIT has been compensated at eLogistics North America, where EBIT improved by 7 million and almost doubled to 15.2 million euro with improved margin of 4.4%, mainly thanks to Rachel's contribution. I would now 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 5 an overview of the key financials for the quarter, both reported and adjusted. Allow me to move directly to the details of Belgium on page 6. At Belgium, external revenues decreased by 11 million to 557 million euros. Domestic mail recorded an underlying mail volume decline of minus 5.4% for the quarter, against minus 7.8% last year. The volume decline has impacted revenues by minus 15 million euros, and was fully offset by a positive price and mix impact of plus €18 million, mainly driven by mail price increases. We also had a plus €1 million working days impact in the quarter. Altogether, domestic mail revenues grew by €4.5 million year-over-year. Admin mail volumes were still supported by some COVID-19 communications. We estimate a contribution of about €5 million to the top line in the first quarter, in line with the first quarter of last year. Barsoz Belgium recorded a decrease of €14 million, or minus 12%. Our volumes were 14.8% below last year. This volume trend reflects the tough comps of last year. but also the recent drop in consumer confidence and the inflation impacts on consumer spending, as explained by Dirk in his introduction. This volume decline also reflects Amazon's recent insourcing, which started late last year, as Amazon's volumes decreased by 46% year over year. When excluding Amazon, the underlying parcels volume decline stands at 8.1%, which implies Amazon's insourcing accounts for 6.7% in our total volume trend. At the same time, the price mix improved to plus 3% this quarter, thanks to recent annual price increases and the favorable testimonies. This contrasts with the negative price mix of the previous quarters. Note that given the further inflationary pressure on costs, BPOS has just announced a second price increase of 2.9% for its contractual products, which will be applicable as from June this year. Against the high comps of the first quarter of 2021, with a volume growth of 54%, volumes are this year 15% lower, but they still remain respectively 60% and 32% above the pre-pandemic first quarter in 2019 and 2020. Excluding the deconsolidation of UPV retail as from the month of March this year, with a negative impact of minus 9 million, proximity and convenience retail network revenues increased by 5 million euros, resulting from the new management contract. The value-added services increased by 3 million, driven by higher revenues from finance solutions. Moving to page 7. This $11 million decrease in external operating income was compounded by a decline of $5 million in intersegment operating income, which results in a total operating income $16 million below last year. The lower intersegment income is explained by lower cross-border volumes handled in the domestic networks. On the cost side, the operating expenses remained nearly stable year over year, despite inflationary pressures, mainly as a result of lower fleet and subcontractor costs, endless FTEs due to the lower parcel volumes, lower material costs in line with the reconsolidation of UBV retail, but higher energy costs as well as higher payroll costs per FTEs, reflecting the impact of the plus-two salary indexations of November 2021 and February 2022, as well as the change in night shift regulation. Moving on to e-logistics Eurasia on page 8. External operating income declined as anticipated by €25 million. Looking at the revenue development per subsegment, we saw two very different evolutions. In e-commerce logistics, Radio Europe and Activant sales continued to grow by 11.7% year-over-year, mainly from new customer onboardings. At Dyna, sales were down around 20% versus last year, similar as to the previous quarters. And due to the volumes in one- and two-man delivery at DynaLogic, driven by the lower consumer spending in white goods, and the shortage of electronic spare parts and less devices to be repaired at Dynafix and DynaShare. Dyna's development did offset the strong growth momentum at Radio Europe and Activant, with a combined decrease of €3 million in revenues. Cross-border, as expected, recorded a weak quarter against high comps last year. Revenues decreased by €22 million, or minus 23%. Similar to the previous quarters, we continue to see the ongoing pressure on Asian parcel volumes. The minus 50% decline in Asian sales is the consequence of the termination of the VAT exemption on low-value consignment since July 2021, but also reflects to some extent the recent COVID-related lockdowns in China. We continue to expect in the future a progressive recovery from the low-value consignment impact, but the timing remains uncertain, especially with the current lockdowns in China. On the next slide, operating expenses decreased by 20 million. Across subsegments, we had four cross-border lower transport costs and lower intersegment OPECs charged by Belgium, in line with the lower Asian volumes. For e-commerce logistics, lower material costs, lower interims and transport costs in line with the lower volumes at DynaLogic and DynaFix and Shure. And higher payroll costs from inflation and recent site openings in line with our expansion and the strategic development initiatives for Radio Europe and ActiveM. Now on to slide 10, our North American e-logistics business. The operating income of e-commerce logistics increased by 79 million euros, up 21% at constant exchange rate. This is driven by radio, mainly thanks to the contribution of new customers launched in 2021 and accelerating as from June onwards. At the same time, our activities at Landmark and Apple Express continue to record strong volumes from existing clients and new customers won in 2021. When putting radial revenues in perspective, we see how this quarter compares with the previous years. Radial revenues amounted to $307 million in this quarter, which is respectively 64% and 24% above the first quarters in 2019 and 2021, which reflects the structural e-commerce logistic growth and the radials expansion flow. Finally, international mail decreased by 17.7 million euros following the deconsolidation of the mail group in early August 2021. On slide 11, you see that operating expenses increased by 12% excluding FX impact. Variable OPEX evolved in line with the revenue development and includes labor cost headwinds due to the continued wage rate pressure in fulfillment, which were mitigated by a productivity gain. We also had higher fees costs from new site opening. Year over year, eLogistics North America adjusted EBIT increased by €7 million, almost doubling to €15.2 million, with an improved margin of 4.4%, reflecting the continuous progress at radio. Moving to the corporate segment, on page 12, the external operating income decreased by €7 million year over year from lower building sales. The adjusted EBIT evolved in line with the building sales and stood at minus 7.7 million euros. Note that our corporate operating expenses decreased by 3%. This improvement was driven by lower overhead payroll costs, thanks to 3.7% lower FTEs and interest, which was partially offset by salary indexations, as well as IT and consultancy costs to accelerate the transformation of Bebo's group. Then we move to the cash flow on slide 13. Cash flow from operating activities remains stable year over year, and the free cash flow improved by €130 million to €290 million following the disposal of BPOS Bank and UBWay Retail in the context of our active portfolio management. The main items to flag are the following. The cash flow from operating activities before changes in working capital slightly improved by $13 million, mainly from a favorable settlement of corporate income taxes in the quarter, more than offsetting the lower EBITDA generation. The change in working capital and provisions remained nearly stable, resulting from two main drivers. On the one hand, we had a negative impact this year from lower supplier balances and from the payment of the bonuses to our employees in order to alleviate the pressure on their purchasing power. These bonuses are usually paid in the second quarter, so this is a saving impact of 28 million, and the opposite movement will be visible in the next quarter. Following the sale of our stake in Bepo's Bank, we also have the repayment of the 12 million working capital advance to Bepo's Bank. On the other hand, we had last year in the first quarter the impact of minus 59 million from the unwinding of the extended payment terms with some suppliers that initiated at the beginning of the pandemic in 2020. The cash flow from investing activities improved by 126 million to 117 million euro, resulting from the sale of People's Bank and UBWay Retail for 142 million, lower building sales for 9 million and higher capex for 7 million. The net inflow of 170 million in the quarter includes the repayment by BPOS Bank of the 25 million euro shareholder loan granted by BPOS in 2019. I now hand over to Dirk for some words on the outlook for the remainder of 2022.