bpost NV/SA

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.