Bpost Sa Unsp/Adr

Hello, and welcome to the BPOST Third Quarter 2022 Analyst Call. My name is George, and I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your audience will be in a listen-only mode. However, you'll 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 answer your question. If you require assistance at any point, please press star 0, and you'll be connected to an operator. And I have a call over to your host today, Mr. Philippe Dartienne, CEO at Interim, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. Welcome. I'm pleased to present you our third quarter 2022 results as CEO at Interim of Bpost Group. Welcome to all of you and thank you for joining. With me, I have Kun Alterman, our CFO at Interim that you already know, as well as Antoine Lebec from Investors Relations that you also know. We posted the materials on our website last night. We walked you through the presentation and we'll take then questions. Two questions each will ensure everyone gets a chance to be addressed in the upcoming hour. As you know, BPOST has launched a compliance review relating to the current tender for the press concession in Belgium. The company's board and the CEO mutually agreed on October 24th that CEO temporarily step aside pending the review. And the board decided to temporarily entrust the powers of daily management to Henri de Romery, CEO of eLogistics North America. Yesterday, the board of directors of BPOST as received update of the compliance review, further to which the decision for the CO2 temporary step aside remains in place. Given the fact that the review is still ongoing and in view of the coming end of year peak, which is crucial for BPOS and especially in North America, the Board of Directors and Henri de Romery have agreed that Henri returns to his function of CEO of eLogistics North America. The board of directors has decided to appoint me as CEO ad interim. Kun Alterman, you will remember, will be our CFO ad interim. I do take this assignment together with the EXCO team very seriously, and I will pursue the implementation of the company strategy and maintain the social dialogue. Our main objective remains to ensure continuity of service. The operations team have prepared themselves and we are ready for the most crucial period of the year, i.e. the year-end peak. You are not in a position to comment these events any further. Now, let me go to the highlights of the results of the third quarter. We are very pleased to report that our quarterly results continue to track towards our guidance range in a seasonally softer quarter, and despite the ongoing and even stronger macro headwinds. Underlying parcel volume growth, coupled with pricing measures, made price increase offsetting the volume decline, and continuous effort on management action drove the performance of this quarter. Our group operating income for Q3 stands at €1,022,000,000, up 4.5% year-on-year, reflecting high revenue across all segments, also when combining the deconciliation impact of UB Rail Retail and the main group, deconciliation of IMX, and the favorable US ethics impacts. We see that our group adjusted EBIT stands at 26 million euro with a margin of 2.5%. Unsurprisingly, due to inflationary pressure on costs and worsening macroeconomic trends, EBIT is down minus 33.5% compared to last year. Let's go in the different business units. Belgium adjusted EBIT of 18.9 million euros reflects on one hand slightly higher operating income from retail and value added services, and most remarkably, stable mail and parcel revenue. And on the other end, higher OPEX due to the five recent salary indexation of plus 2% each and higher energy costs partially mitigated by continued FT reductions. At eLogistics Eurasia, adjusted EBIT at 4.4 million is a slight 0.8 million increase year over year due to the expansion momentum at Radial Europe and Activance and the integration of IMX since July this year. At eLogistics North America, operating income is, as expected, normalizing post the recent customer onboarding at Radial and FX provided a tailwind of around 17%. Adjusted EBIT was 10.5 million euro. This is almost 20% up year on year when we're basing last year third quarter with the 4 million euro EBIT up list related to the cyber insurance recovery. I would like now to hand over to Kun for more details on the financial of the third quarter.

Thank you, Philippe, and good morning to you all. For your reference, you find on page four an overview of the key financials for the quarter, both reported and adjusted. Philippe already mentioned our group top line and EBIT. Our adjusted net profit amounts to 27.1 million euro. Similar to the previous quarter, it benefited from net financial result increasing by 6 million euro year over year, reflecting lower financial charges related to IAS 19 employee benefits. in line with higher discount rates and thus a non-cash impact. Allow me to move directly to the details of Belgium on page 5. At Belgium, at constant perimeter, we see that external revenues increased by €8 million to €495 million. Domestic mail recorded an underlying mail volume decline of 7.7% for the quarter, against 7.5% in Q3 2021. This impacted revenues by €19 million and was further compounded by a working day impact of €0.7 million, but was at the same time mitigated by a positive price and mix impact of €18 million. Altogether, domestic mail revenues remained nearly stable year over year. Note that in the context of the vaccination campaign for the second booster dose, admin mail volumes were again supported by some COVID-19 communication. We estimate a contribution of around €5 million to the top line in the third quarter, more or less in line with Q3 last year. Parcels Belgium recorded a slight increase of €1 million in revenue, or 0.9%. Excluding the impact of Amazon's insourcing, which we've discussed in previous quarters, parcel volumes were up 7.8% year over year. The volume trend is supported both by our successful hunting plan and our existing customers. This is an improvement on Q1 and Q2 when we recorded the volume decline of 8.1% and 2.9% respectively. When including the Amazon impact, parcel volumes were 3.8% below last year. At the same time, the price mix improved from 3% and 3.4% in Q1 and Q2 to 4.7% in Q3, mainly thanks to recent price increases, including our second price increase of 2.9% applied since the month of June to some of our contractual customers. To put things in perspective, parcel volumes remain 50% above the pre-pandemic third quarter of 2019. Similar to what we observed in the previous quarter, proximity and convenience retail network revenue increased organically by €6 million, resulting from the new management contract which came into force in 2022. In this sub-segment, the deconsolidation impact of UBWay Retail, as from the month of March this year, was 36.5 million in the quarter. The value-added services slightly increased by 2.5 million euro, mostly resulting from higher revenue from Find Solutions. Let's move to the P&L of Belgium on page six. On the cost side, excluding UBWay retail, the operating expenses increased by 17 million euro year over year, mainly reflecting the persistent inflationary pressure. We have indeed recorded higher payroll costs per FTE, reflecting the impact of each of the 2% salary indexations of November 2021, February, April, June, and September 2022, as well as the change in night shift regulation, and also higher energy and subcontractor costs. These are mitigated by the continued execution of the dedicated management actions announced earlier this year, which includes the FTE reduction of around 930 FTEs year-over-year, once again excluding the UVA impact. Moving on to e-logistics Eurasia, then, on page 7. External operating income was this time up €17 million, reflecting strong growth in e-commerce logistics and the integration of IMX at cross-border. Looking at the revenue development per subsegment, we see that in e-commerce logistics, Radial Europe and Activant sales growth accelerated to 22% year over year. This compares with the low to mid-teens percentage growth of the previous quarters and is driven by our existing customers' expansion, what we call the same-store sales, and by recent customer onboardings, as announced with our Q2 results. At Dyna, similar to the previous quarters, sales were down versus last year. This was due to the lower volumes in one- and two-man delivery network at DynaLogic, exclusively driven by the lower consumer spending in white goods, and also less devices to be repaired at DynaFix. The strong growth momentum at Radio Europe and Activant did offset Dyna's development with a combined increase of €4 million in revenue for the sub-segment. Cross-border stop-line development is mainly driven by the consolidation of IMX since July this year, while our other businesses, mainly in Europe, continue to grow. For Asia, we are now comparing against Q3 2021, which was the first post-VAT regulation quarter. We see that Asian sales are normalizing and even trending slightly above Q3 last year. Sales are, however, still affected by the supply chain disruptions in China. Cross-border revenue increased by €13 million or plus 19%. Moving to the P&L of Eurasia on slide 8, we see that operating expenses increased by €17 million or 13%, mainly explained by higher transport costs in line with higher fulfillment and cross-border activities as well as the IMX integration, higher payroll costs from inflation and recent site openings in line with our expansion and the strategic development initiatives for Radial Europe and Active Ends, and partly offset by lower material interim and transport costs at Dyna in line with lower volumes as just explained. Moving on to our North America e-logistics business on page nine. The operating income of e-commerce logistics increased by 63 million euros, up 3% at constant exchange rate. Besides the favorable ethics impact of around 17%, Landmark and Apple Express benefited from increased volumes from existing customers and new customers won in 2021, while as expected, radio sales have normalized as the new customers launched in 2021 are now fully implemented. Radial revenues amounted to 296 million US dollars in this quarter. This is plus 1% above the third quarter of 2021, yet plus 51% compared to 2019. It reflects our strong position in North America's e-commerce logistic market and our ability to capture growth and expand. For the last quarter this time, you can also see the 7 million euro impact of the deconsolidation of the mail group in early August 2021. Moving to the P&L on slide 10. Operating expenses increased by 2.3%, excluding a fixed impact. The variable OPEX, notably labor costs, evolved in line with revenue development, but were partially mitigated by some productivity gains. resulting in an improved variable margin. We also incurred higher fixed costs from new site openings, which support our commercial development, and higher SG&A costs for strategic projects. Year over year, eLogistics North America adjusted EBIT decreased by €2 million, but when excluding one-offs, our underlying EBIT continues to improve. Remind that last year we benefited from a 4 million euro EBIT uplift from the cyber insurance recovery following the ransomware attack in October 2020. And we booked this quarter a 7 million euro provision reflecting a dispute with a terminated customer. Moving on then to the corporate segment on page 11. External operating income slightly increased by 0.5 million euro year over year. while net operating expenses increased by 2.3 million. This reflects higher consultancy costs to support our transformation and the inflationary impact on payroll costs. But most importantly, you can see our continued efforts on overhead reduction continue to bear fruit, and we recorded a reduction of 5.8% in overhead and interim FTEs, which corresponds to 90 FTEs less and compares to minus 3.8% in the previous quarter. Then we move to the cash flow on slide 12. The main items to flag are the following. Cash flow from operating activities before changes in working capital remained stable year over year. Change in working capital and provisions decreased by 95 million. This is really about the compensation schedule related to the management contract. Last year, we received 80 million in Q3, and this year, 99 million in early Q4. This timing difference will therefore reverse in the coming quarter. Cash outflow from investing activities increased by 24 million to 47 million euros, with higher capex directed towards our e-logistics expansion in Europe and in the US, and the optimization of our domestic network in Belgium. Remember that our capex spend tends to be back-end loaded in the air. As to our active portfolio management and M&A activities, we had last year the disposal of the male group for 6.5 million, and we have in this quarter the acquisition of subsidiaries, net of cash acquired, for around 2 million, which reflects the acquisition of Aldi Press. I now hand over to Philippe to cover our outlook for the remainder of 2022.

Thank you, Koen. Very clear as usual. Q3 results were encouraging and reflect management focus throughout the group throughout the year. This leads us to revise output our guidance to Group AB 2022 between 265 and 300 million euro. You remember that after the initial guidance 280.310 in February 2022, we shared our assessments of downsized risk. They evolved in nature and amount throughout the year, starting from 40 million into one down to 25 at Q2, and leading us to this revised EBIT range for the year. For clarity, the range 265,300 includes any downsized risks. For the fourth quarter, this implies a range of 63 to 98 million EBIT. You know how sensitive our business are to fourth quarter, and strong headwinds and uncertainties persist. First, the uncertainty on volume trend and fading of volume for the end of year peak in Belgium and internationally. Belgium consumer confidence remains at a record low level, even if stabilized in October. Households say energy price increases as winter approaches and record high inflation. Belgium witnesses a record high inflation rate of 20.3% in October, versus 8.3 and 9.7 in March and June. This is the highest reading since 1975. Macroeconomic factors remain, and the magnitude of their impact on customer disposable income and retail spend capacity at year-end remain a source of uncertainty for the quarter. As a result, predictability of volumes and their phasing is rather limited. Additional volumes from existing and new customers, pricing measures, and optimal peak preparation are mitigating factors we have already been working on. Second uncertainty, external factors such as higher energy and payroll costs still continue a headwind. Energy prices in Q3 remain above last year, but have stabilized and remain broadly in line with our previous guidance update. Payroll costs in Belgium are now predictable for the remainder of the year, with one last additional salary indexation of plus 2% taking place in December. Should inflation continue to further accelerate, the anticipated future indexations could still occur earlier in 2023, but not in 2022 anymore. BPOST will also pay a premium to its employees in Belgium to alleviate the pressure on purchasing power. Of course, management continues to take actions at all levels in order to mitigate and face these adverse impacts. and we proactively act on what we can control from management and our colleagues. We are now ready to take your question. Operator, please open the lines.

Thank you very much, Mr. Deftian. Ladies and gentlemen, as a reminder, to ask a question, please press star 1 on your cell phone keypad. If your question has been answered, you can remove yourself from the queue by pressing star 2. And once again, just please limit yourself to two questions. Give everybody a chance to ask questions. This first question is coming from Ivar Binfaq Kelly, client from UBS. Please go ahead. Your line is open.

Good morning, everyone. Thank you for taking the questions. I won't ask you to comment on the ongoing state of the investigation, but just in the event that you were to lose the press concession, how much would you actually be able to go about offsetting the cost from that piece? From memory, it's worth about €175 million per year in terms of revenue, but my understanding is that the cost base isn't quite as flexible. So what would happen in that event, which would ultimately be a very big loss in revenues and potentially EBIT. And secondly, you've made some big cost savings on the back of FTE reductions. How will that play into the peak season? Your peers at PostNL have effectively said that they need to retain staff to deal with the year-end peak. They're clearly on very different paths. Any details here on how you would be able to manage the peak despite the reductions would be very helpful. Thank you.

So thank you for the question. So I'm going to take the one relating to the press concession, and I will put things into perspective and going a little bit back to explain where we are coming from and where we are. As a reminder, the ongoing concession for distribution of newspapers and periodicals in Belgium Two separate lots were awarded to be put in 2015 for the period 2016-2020, following a tender procedure organized by the bedroom state. In December 2019, the government decided to extend the ongoing service concession until the end of 2022. In March 2021, the bedroom state organized a public tender to award the concession for the period 2023-2027. BPOS last year confirmed its candidacy for its own succession, and the procedure is still ongoing. Like any other participant, BPOS does not know whether other participants are bidding to the contract. BPOS relies on its excellent track record on delivery, quality, and other SLS requirements, and therefore believes it's well-positioned. In terms of financials, in the context of the ongoing two years extension, BPOS receives a manual compensation of roughly 170 million. In Belgium, business unit, this revenue is booked on the press subsegment, 340 million in 2021, together with the revenue from press editors and INP. And represents circa 4% of the group's total operating income in 2021, and less than 8% of the segment operating income. In terms of FTE, thousands of FTEs work on the press concession. As volume decline over time, so does the number of people employed. Newspapers are distributed in dedicated rounds given SLEs. Some need to be delivered before 7.30 a.m. while periodicals are distributed in the regular mail rounds. While the tender for concession for the period 2023-2027 is officially still ongoing, we understand that following its budget conclave, the government would envisage to reduce the annual envelope to 125 million. We also understand from Minister's hearing in the Chamber that since BPOS did not bid for the tender based on these lower financial conditions, the government could either withdraw the ongoing tender and organize in early 2023 a new tender for 2024 onwards with a revised scope of service to match budget cuts. As read in the press, this would imply the ongoing concession would be extended for 2023. In this case, BPOS would carefully consider the SLA requirements of the new tender and try to find ways to cope with the budget cut in order to limit the impasse on EBIT. Any extension in 2023 would likely be under the same condition, operationally and financially, as the ongoing concession, so there would be limited change versus to 2022.

Coming down to your second question, Ivar, so in terms of staffing certainty for end of year peak, it's important to recognize that we have, first of all, a large base of people with fixed contracts working for BPOS. That is in place. There is no risk on that, which we will complement with temporary workers, which can be interims or even subcontractors. and which will also provide us the flexibility to scale up and down rapidly in function of the volumes, typically within a week. On top of that, to manage any peaks that might still arise, we have put into place a cap and buffer approach, as we already had back in 2021, which means that if volumes go above the agreements we have with our customers, we will buffer those and treat them as capacity becomes available. So we do not foresee any challenge on that aspect in terms of staffing. The labor market as well in Belgium, even though still tight, is not as tight as in the Netherlands. So the challenge in itself is also smaller for Belgium.

Thank you very much.

Thank you, Richard. We'll take questions now from Mr. Frank Klassen, calling from the DeGroove Petercam. Please go ahead.

Yes, good morning, gentlemen. Two questions, please. First of all, on the partial volumes, what is currently roughly baked into your guidance for Q4? Do you expect the, let's say, improving trend to continue? And maybe also related to that, what have you seen so far in the quarter until this week? So what kind of volume trends? And then secondly, could you also elaborate on the situation in the US? Do you already see more hesitant customer behavior? And also, is it more difficult to find people? What kind of wage inflation do you expect? That kind of questions. Thank you.

So let me take your first question. So on parcel volumes, our expectations for Q4 are actually that we will have volumes which are broadly in line with last year, which includes the Amazon impact. It's the result of all the progress we've made on our commercial hunting plan. And we will even, or we have launched last week, bold.com, which we signed the contract as well, which will further support our volumes in Q4. Looking at October, in fact, that is confirmed in the results of October, where we see volumes with a trend which is very similar to what we saw in Q3. But as mentioned, both started as of November, so we expect that to pick up, reaching that about flatfish volume developments. On the U.S., I'll pass the question to Philippe.

So on the U.S., your question is more relating on how can we adjust The cost base with the volume and the availability of people on the U.S. market. I will tell you that we have revisited the staffing for the year-end peak side by side. and we have really challenged the forecast of our customers to avoid being in a situation whereby we would be having too many people waiting for parcels potentially not coming. So this reduces the risk of having unwanted costs. On the other side, unlike the situation we faced in last year where the labor market in the US was extremely tight, meaning that accessing to additional capacity resources was quite impossible and even when it was accessible or available at really high price, this is no more the situation. So I would say we are, the team has done an outstanding job being prepared to receive lower volume but to be able to upscale if and when and where necessary.

Okay, thank you very much.

Thank you, sir. We'll now move to Mark Schwarzenberg from ING. Please go ahead.

Yes, good morning. Thank you for taking my questions. First, coming back on the parcels, you mentioned this flat guidance a bit year-on-year for Q4. But if I look a bit on the underlying trend in Q3 and also the fact that Amazon will have less of an impact. Of course, it was scaling up only as of halfway November last year, but still should help a bit. But also September must have been way better than the average of the quarter. So can you give a bit of a feel for what kind of leeway you already have on the October volumes? Are you already at high single-digit growth excluding Amazon, say a mid-single digit including. And also the price mix effect was quite strong. Of course, you push through this early, facing a bit of these price increases, but can you give a bit of a feel for what we should see in Q4, but predominantly also what we can expect for price increases for next year? So that's my question on the parcels division. Then on the advertisement segment. There you see quite significant price mix, but on the other hand also weaker volumes, of course more sensitive maybe to consumer confidence. Can you give a bit of a feel for how we should be looking at the advertisement segment in the Q4 and maybe into next year in terms of volume and price mix? Those are my questions.

I suggest, Kun, you take parcels, I take price, and we'll come back on advertising.

Indeed. So volumes indeed. So as I said, we're expecting to end flat more or less in Q4. In terms of the Amazon impact, indeed last year Amazon started insourcing in November, but that only slowly ramped up. So in terms of comparable, it is not that the impact in Q4 last year of Amazon was already very significant. And we still expect for Amazon to be in the range of the minus 50% versus last year, which we've also seen over the past few quarters. It means that, indeed, we are expecting a growth in the mid to high single digits for the other customers outside of Amazon. Price increase, let me then pass that on to Philippe, and I'll come back to advertising after that.

Okay, so on volume, price increase volume on parcels. So we have two buckets, if I could say so. We have a first one, which is a prepaid product that are part of the scope of universal services. As such, this one, they are included in the price cap formula, which is controlled by the regulator, the BEPT. And the price increase for 2023 is being currently revised by the regulator. but we could and should be announcing in the coming days, but we expect an increase in the range between 12 to 13% in line with the inflation observed in Belgium. For the second bucket, which is the contract parcels, we have some more flexibility as the price increases are based on pricing clauses in our contract. The majority of the contract to close are indexation based on the sector specific, which is 80% of the value of the national index as published by ITBL, Institut Transport Routier Logistique Belge. For 2023, the fixing is already known, and the price increase in 2023 will be 10.7%. Remember, nevertheless, that given the soaring inflation, BPOS already applied an interim price increase of plus 2.9% in June, the incremental price that we therefore expect should be 7.8%. For the remainder of our products, per city price increase is fixed in the contract and is probably not covering fully the 12% rate inflation we are seeing in Belgium.

And if I may, what is the split between the USO related prepaid products and the contracted part?

The USO related part is the smaller part. I don't know exactly by heart, but range around 5% top of mind.

So 95 is the other part.

Looking then to advertising. So we see that the trend is more negative on the advertising part as it's impacted by higher paper prices and the overall inflation. We see paper prices have increased between 40% to 80%, which is negatively impacting the number of campaigns that our customers do as they work under fixed marketing budgets. And so they're forced to reduce or cut some paper campaigns. We see that trend continue for the moment into Q4, but we still think, based on what we see today, that we will end up within the initial guidance we gave back in February. of minus 8% to minus 10% for male overall, rather even towards the lower end of that, so more towards the minus 8%.

And price expectation for advertisement?

Philippe, do you want to take that one? That's a good one. I'm thinking I don't have an answer for that one, to be honest.

I'll follow up with Antoine.

You mean price expectations for Q4 or for next year?

Actually both because it was quite a bit higher I think in Q3. So maybe you push through price increases also in the advertisement or is it more mixed?

A general comment. This is a very specific segment and you know how it works for this kind of business. Companies have a fixed budget for advertising. And when prices of the components of the marketing campaign are going up, typically we're seeing that the price of the paper went to the roof. Our costs are also bigger. What do they do? They still have the same budget, but they distribute or they send lower volume. So for me, it's more like the adjustment is maybe more made based on their budget available than anything else.

And to pick up on the price mix effect you have seen, so there's two components there under advertising mail. One part is unaddressed mail, which is outside of the scope of the USO, and indeed for which we have implemented the price increase. I think we communicated on that back in Q2. For the remainder, so the address advertising, that is part of the scope of the USO. And as such, the prices do not change throughout the year. So that's the explanation for the price mix effect. It also means that for next year, any price increases will be part of the file presented to the BIPT subject to the different regulations applying to that segment, and those will be communicated as soon as the file is cleared with their regulator.

Okay. Well, thank you for the call. Those are my questions for now.

Thank you. We'll now go to Sumit Mehrotra calling from Societe Generale. Please go ahead.

Thank you. It's a fairly clear presentation, but I just want to know the implied range that you have for the fourth quarter EBIT quite wide, 25 million wire wide decline implied to a modest 10 million increase. So what is the strategy here to avoid the lower end of the performance for the fourth quarter? Any specific steps that you have undertaken to limit the downside? That's the first one. Secondly, what is now Your broad strategy for the Eurasia operations, especially the persistent underperformance of China Group's businesses. What do we expect in terms of margin evolution next year onwards? Yes, this year being a bad one because of the VAT and supply chain issues in China. but what should we now think about margin potential for the Eurasia business now? Thank you.

So I'm going to take the first one and Kun will take the second one. So why such a range? We are extremely dependent on the peak throughout our segment. It's true in Belgium, it's true in Eurasia, and it's true in the U.S., sorry excuse me of course the in fact element that could lead to two different results so there is a volume of the peak itself which is important and one might say the higher the volume the higher the edit but on the other end a lower volume peak would also yield more or less the same result let me explain why What is very important when you have a peak is not only the amount of the peak, but the timing of the peak. So it means how do we deal with it? What we have decided to implement in Belgium is the following. We are using the cap and buffer approach that was already implemented in 2021, meaning that when a customer comes and delivers us parcels above the pre-agreed quantity, we part this quantity and we will deliver them when available capacity, when capacity would be available again, which is a way of dealing with the peak. Another one that we have, another decision that we have taken, we have eliminated the second distribution routes, which are extremely expensive. In other words, involving high cost with negative . So, a lot of uncertainty on the volume of the peak, but also the timing. Would the volume come in one week, or would the volume come in two or three weeks? It's not the same approach, and we need to be extremely flexible. So, the reason why we're keeping that range broad, because we don't know first how deep or big will the peak be, and what's going to be the spread over the different periods. But one thing I can tell you is that both in Belgium and in the U.S., we have prepared to be as lean and mean as possible and to be flexible to be able to react to potential upsides.

Moving then to Eurasia, you asked a specific question on Dyna. So indeed, Dyna is facing difficult market conditions for quite a while now. It's important to say that there is no client churn at Dyna, but the underperformance is really driven by volume pressure from a lower market overall. So lower consumer spending in white goods and in home furniture in the current macroeconomic environment is impacting the Dyna results. Obviously, we've taken measures on cost control, but lower density in the distribution network does not allow to fully offset the fixed costs, as well as some higher variable costs from the tight labor market in the Netherlands. Dyna is working in parallel on productivity gains, but also on targeting new markets to diversify its exposure and to gain back volume. Having said that, BPOS Group is committed towards active portfolio management, where non-core and or non-profitable assets could be identified and considered for disposal. We will continue to rigorously and meticulously look at our subsidiaries, our businesses, and activities, and assess whether or not they fit our strategy, whether they deliver EBIT and cash, and how much capex they require, as well as the return on those investments. Perhaps a bit more broadly, Broadly speaking, for e-logistics Eurasia, we do expect the fourth quarter EBIT to be better than last year, where it was at 6 million, if I recall well. And we see that now that things have normalized, we start to see a different trend than we've seen throughout the first half of the year. We also see very promising growth at radial and active vents, which as I said is at plus 22% now, and we expect to see similar growth there as well in Q4. So we see things are looking up on e-logistics Eurasia. To be fair though, I do want to call out that the initial guidance we gave back in February which foresaw a low to mid-teens growth. We will not reach that anymore. I think you will have seen year-to-date we are at minus 8%. Even with a better Q4, we will not fully catch up. From an EBIT margin perspective, where our original target was 6% to 8%, given the inflationary pressure and some margin dilution from the lower top line, we expect to end up slightly below that 6% to 8% range.

Thank you very much. That's your question, sir. Thank you, sir. We'll now go to Marco Limite calling for Barclays. Please go ahead.

Hi, morning. Thanks for taking my questions. So you have mentioned expected price increase for parcels in 2023. What about for price increase for letters? Clearly, there is a formula you apply. What would be the price increase based on the formula if we plug in current expectations? My second question is just going back quickly to the concession of newspaper and magazines. So you have mentioned that the annual compensation was 170 million, but what has been historically the EBIT contribution from that concession should you not be able to win the tender? And third quick question, if I may. In the past, you have mentioned that you were targeting to replace about 40% of the loss from Amazon. But you also have mentioned that you have gained now big customers starting from November. So just wondering if you're still aiming at replacing 40% of the Amazon volume loss or if that number is now higher. Thank you.

Thank you for the question. I'll take the first one and the last one. And I'll start with the last one. Are we still targeting to replace the 40% that we have lost with Amazon? The answer is definitely yes, and we are moving in that direction. The last big customer that we have signed, which is ball.com, that has been mentioned already, is a good sign of that. We had started at the beginning of the year what we call the hunting plan. It has already delivered good results so far, and we do not intend to stop. Coming to your question on mail price increases, what I could say is that for our regulated mail products, the annual price increases is subject to a price cap formula, which is controlled by our regulator, the EPT. The price increase for 2023 is being reviewed by the regulator and will be announced in the coming days. As the formula allows to compensate for inflation and volume decline, One could expect the price increase between 10% and 15% for the regulated domestic-made products, excluding the scope of the press concession.

For the question on the concession, Marc, could I just ask you to repeat it? Because you sound quite far from the speaker, and I didn't quite get you.

Sorry. I was just wondering. What's the net EBIT from that concession? So compensation was 175 million, but what was the EBIT?

Thank you. So as is the case in these type of state contracts, the margin on those is also regulated. BPOS is allowed to make a reasonable margin on that. That reasonable margin is capped by the European Commission at 7.5%. We are below that for the moment, so the EBIT impact would be in a range below 7.5%. That's the maximum I can tell you at this stage.

Thank you very much.

Thank you, sir. Now we'll take questions from Henk Stotboom, calling from the IDEA. Please go ahead.

Good morning, and thanks for taking my questions. Perhaps a clarification question, and perhaps I misunderstood it, but earlier on in the call, you said that the current contract on the distribution of newspapers and magazine accounts for around 4% of group operating income. Was that correct? And if so, the... Suppose, a what-if question, suppose you do lose the contract, the thousand people you mentioned, are they exclusively active in the distribution of newspapers and magazines, or are they doing other work for big posts as well? Because then it would mean that the profit contribution uh changes a little bit because of the fish cost coverage perhaps you can clarify that and my second question i respect that you can't comment on the internal investigation which is currently taking place but if am i right to assume that given the fact that you have been appointed as ceo of interim that is going to take longer than originally foreseen and Maybe you could lift the tip of the wheel by saying what your expectations is, how long this uncertainty might drag on. Those were my questions. Thank you.

So let me take the second one. We will stick to what we have said. I will not comment any further. OK.

So on the concession then, so the people working on that concession, they are not 100% dedicated to it. So as Philippe explained, we have separate rounds for the newspaper delivery. We have integrated the periodicals delivery into our regular mail rounds. So there is a combination with our existing activities. That said, should we not have the concession, we will obviously reorganize the way we set up our rounds and take out the workload related to that. It should also be noted that the compensation we get for the concession is based on what is called a net avoided cost approach, which means that it does take into account the difference between BPOS doing the concession and the hypothetical situation in which BPOS would not do the concession. And so that does take into account what you mentioned around variability of costs, that some of them are fixed and so on. So at least from that perspective, taking a sufficiently long-term view, we would be able to take out the costs related to the concession.

Okay, Pierre. Thank you.

Thank you, Mr. Ladies and gentlemen, once again, if you have any questions or follow-up questions, please do press star 1. Thank you. The next question is coming from Nicholas Mauder calling from Kepler Chevrolet. Please go ahead.

Good morning. Thank you for taking my questions. The first one is on any details you can provide on the terminated customer in North America. What is the headwind on sales and EBIT for that segment going forward and also why have you chosen not to adjust the provision? Second question is whether the recent and current management shake-up that we've seen has postponed the implementation of a project Omega where pilots were scheduled for the second half of 2022. Thank you very much.

So let me take the one on GUS. I'm not sure I fully understand what you mean by adjustment on the provision. What we did, in fact, we had a customer that has decided that it has been terminated, so we mutually agreed to stop the contract. and there is a dispute about some money that he owes us and we are entering into a litigation but we are considering, we might have a risk of losing some amounts there. So we don't want to disclose any further because we don't want to jeopardize the arbitration that is about to happen.

On Project Omega, no. I think your question was, does the shake-up affect that? The answer is no. There are a number of operational changes foreseen to happen in the next year, which we will indeed be rolling out. So there is no impact from that.

Thank you very much. The question on the adjustment was whether the adjusted EBIT for the third quarter that you printed in the presentation reflects an adjustment for the provision or not, and I think it doesn't.

The provision we took is in the adjusted EBIT. If you would correct for that, the EBIT would be higher.

Thank you.

Keep in mind, you have the positive plus four that you had same quarter last year, and now we have a negative seven for this quarter. The reason why we disclose it is because you know Radial US has a limited portfolio customer. Would we have 2,000 customers, we would not end up isolating one dispute with a customer. But given the limited size of the portfolio, it's significant, and hence we made the disclosure.

Thank you very much, sir. We now have a follow-up question from Mr. Mark Swartzenberg, calling from ING. Please go ahead, sir.

A couple of follow-ups. It was asked, I think, but what is the impact, indeed, of the lost revenues from this client? Because you have quite an concentrated client base in the U.S. So what is the impact on 2023 revenues from the loss of this client? That's my first follow-up. And the other one is still on the concession. So you mentioned that the margin is below the 7.5 cap, $170 million mentioned as revenues. So let's say only 7% is $12 million. But is there also a part of the cost? Because like you say, we will need to manage down the cost base. But in the first year of losing it, you might have some costs that are sticky. So would then be the impact on 2023 be more in the line of 20 to 30 million? Because if you have 1,000 FTEs and part of them work for that, that's quite a size of the number.

Yeah, go ahead. So... I can only restate what I've said. The intention of the government is to extend the concession for one year, meaning up to 2023, and retain the remaining years. So let's see how it goes and then we will come back. So there is no reason to believe that we would have a complete stop either at the end of 2022 or the end of 2023. Would the situation arise, we would come back, but it's not the best case.

No, I fully understand that, but we need to know a bit the downside risk from this because the share price doesn't work when we announce. So maybe then looking forward to 2024.

I'm sorry, I cannot add anything more. We are not providing a decision or guidance for 2023, neither 2024. When is the time? When will we set up a guidance for 2023 and potentially forward? Then we will disclose the assumption that we have taken relating to this topic.

Okay. Okay. Fair enough. Maybe then on the US, on the impact from the decline on revenues.

Hello? I don't have a figure like that. It is not one of our major clients, to be clear. The 7 million also is not just a revenue of the third quarter. No. It covers more than one quarter, so that should give you an idea of the range. It's not one of our biggest clients, to be clear.

Okay. Maybe on the subject of Mr. T. Ray, there's been a lot of talks in the newspaper. I know you want to cancel this question, but it's quite important, I think. Can you maybe say if he is just sidelined because of there's an investigation not on to him but on someone else in the company or can you not even comment on that? Because that is also maybe an important statement.

I will speak to the statement I made at the beginning and I will not add anything nor resolve anything.

And is it possible to get a fine on the back of, if you find guilty, is that legally a normal thing or is that not possible? Is it just a personal thing?

Same answer.

Okay. I needed to try. Thanks anyway.

We don't blame you on that one.

Thank you very much, sir. As we have no further questions at this time, I will turn the call over to Mr. Zatian for any additional or closure remarks. Thank you.

Thank you. I would like to thank everyone in the call for having the time to be with us this morning and for the interesting questions. We will hear from you at the conference we are going to attend in November. We look forward to staying in touch on our four quarters results. that will be released in February next year. I also want to thank my colleagues being present with me, Kun and Antoine, to help setting up the presentation and taking your interesting question. Thank you very much.

Thank you very much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day and goodbye.