bpost NV/SA

Hello and welcome to the BPOST fourth quarter 2022 analyst call. My name is Laura and I will be your coordinator for today's event. Please note this call 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 will now hand you over to your host, Mr. Philippe Tarchien, BPOS CEO, and Mr. Koen Altman, BPOS CFO, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. Welcome. I am pleased to present our fourth quarter and full year 2022 result as CEO Ad Interim of Bitbox Group. Welcome to all of you and thank you for joining us. With me, I have Kun Alderman, our CFO Ad Interim, as well as Antoine Lebec from Investors 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 will ensure everyone gets a chance to be addressed in the upcoming hour. Let's go to the highlights of the full year results. On page 3, you see that our group adjusted EBIT stood at €278.5 million, in line with our initial guidance communicated on February 24, 2022, before the world changed. I am pleased with this great achievement as, despite persisting macro headwinds and market disruptions, Faced throughout the year, BPOST managed to absorb close to 40 million of the downside risk pressures with the successful implementation of our mitigating actions. This included increased sales efforts, price increase, and cost reduction, which remain key for 2023. Beyond the P&L, our strict financial discipline is also reflected in our CAPEX. I will come back to that in a second. Let me share with you the key highlights of 2022 for each of our business units, and we will get then into more details for the fourth quarter results. Our Belgian segment contributed for €198.3 million to the group adjusted EBIT with a margin of 9%, well within the guided range of 8% to 10%. Belgium was faced with the effect of six consecutive automatic salary indexation and the change in night shift regulation, corresponding in total to 80 million of additional costs versus 2021, but also with higher energy prices, the Amazon insourcing, and a post-COVID password volume normalization. Mitigation measures were taken to offset these headwinds, targeting both top line and cost. On top line, mid-year price increases were implemented, and an enormous commercial effort allowed us to replace, on a four-year basis, the volume loss from Amazon in 2022. On cost, the focus on productivity and aligning resources to the reduced demand has allowed for an FTE reduction of roughly 800 FTEs, or 3.2%. These mitigation measures have allowed us to remain within the guided range ensure the resilience of our Belgian business. At E-logistic Eurasia, adjusted EBIT stood at 27.4 million with a margin of 4.5% below the initial guidance. As discussed during Q3, this reflects the inflationary pressures on costs and the margin dilution from the from lower top line indeed asian cross-border activities were still heavily impacted by the new vetting regulation in the first half of the year and did not recover as anticipated and dinah's performance is still lagging on the positive side the expansion momentum continued at radial europe and active ends and we enjoyed a healthy top line growth plus 17% in 2022. At eLogistics North America, adjusted EBIT stood at 86.9 million with a margin of 5.2% in line with initial guidance. At constant perimeter and excluding deferrable ethics impact of 12%, the 5% increase in revenues reflects radial top-line growth which was driven by the customer launch in 2021 and continues of our other North American businesses. Specifically to Radial, even in a worsening market condition in second half, expected to persist in 2023, 2022 has been another year in which we saw an improvement in the underlying habit of the business. I will also come back to that. Finally, CAPEX ended up at €164.4 million below the guided envelope of €250 million. Some has been pushed into 2023, but this underspend also reflects our financial discipline in the disruptive market environment, in line with our set of mitigation actions implemented in 2022. In terms of dividends, our results allow us to propose a dividend per share of 40 euros sent gross to the general shareholders meeting. This corresponds to a payout of 33% of the IFRS net profits within the 30 to 50 range forcing in our dividend policy as we adjusted for the significant non-cash impact in 2022, notably linked with IF90. Moving now to page 4 with our quarterly results. We are pleased to report that thanks to the operational planning and a good execution of the peak, we delivered a strong quarter despite the ongoing and even stronger inflation headwinds and record low consumer confidence. Our group operating income for Q4 at 1,302,000,000 euros increased by 3% or 39 million when excluding the consolidation of OUB way, reflecting higher revenue across all our segments. Our group adjusted EBIT stood at 77 million euro with a margin of 5.9%. Unsurprisingly, due to the last beneficiary pressures on cost and macroeconomic trend, EBIT was down minus 12.7% on last year. But the preparation of the peak and the optimum alignment of our resources to customers' needs has borne fruit, especially in Belgium and in North America. Again, when excluding UBWay impacts, Belgium's adjusted EBIT of €41.6 million reflects a constant perimeter, on one hand, higher operating income from retail and value-added services, slightly lower mail revenue, and most remarkably, higher parcels revenue. And on the other end, higher OPEX due to the sick salary indexation of plus 2% each, partially mitigated by continued FT reductions and the elimination of the second distribution rounds during peak and higher energy costs. At e-logistic Eurasia, adjusted EBIT remained roughly stable year over year, at 5.4 million, reflecting on the top line the expansion momentum at Radial Europe and Activen, higher Asian cross-border sales, and the integration of IMX since July this year. And on cost, higher payroll and volume driven transportation costs. At eLogistics North America, operating income was up plus 2.9%, but while FX provided a tailwind sales in US dollars decreased by minus 7.1%, reflecting the impact of lower peak volumes with a mixed performance across our customers and the impact of some terminated contracts. At the same time, in reaction to this exogenous factor and in line with the commitment taken in third quarter, we successfully adjusted our cost base to top line and we strengthened our variable labor management during PEAT. Adjusted EBIT was 43.1 million euro with a margin of 7.7%. This is almost 13% up year on year when rebasing last year fourth quarter with the non-repeating one-offs relating to the cyber insurance recovery and the one-time concession from a vendor. I would like now to hand over to Koen for more details on the financials of the fourth quarter.

Thank you, Philippe, 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. Philippe already mentioned our group top line and EBIT. Our adjusted net profit amounts to 83 million euros. Similar to the previous quarters, the net profit benefited from net financial results increasing by €22 million year-over-year, mainly 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 6. At Belgium, When excluding the impact of UBWay, we see that external revenues increased by 12 million to 570 million euros. Looking by subsegment, domestic mail recorded an underlying mail volume decline of 7.5% for the quarter against 8.9% in the fourth quarter of 2021. This impacted revenues by minus €21 million, further compounded by a working day impact of minus €0.9 million, yet mitigated by a positive price mix impact of plus €13 million, as well as €5 million of additional revenue from Aldi Press, which was acquired on September 30, 2022. Altogether, domestic mail revenues remained nearly stable year over year. Note that the transactional mail revenues were in the fourth quarter of 2021 supported by the COVID-19 communications with an impact of around 8 million euro. This was no longer the case in 2022. Parcels Belgium recorded an increase of 6 million euro in revenue or 4.7%. Excluding the impact of Amazon's insourcing, parcel volumes were up plus 7.5% year over year. The volume trend is supported by our existing customers and our successful hunting plan, notably with the launch of bow.com in November. It should be noted that this volume growth occurred under unfavorable market conditions that have continued to deteriorate since the beginning of the year, reaching their peak in the fourth quarter. In Belgium, inflation reached its highest level at 12.3% in October, while consumer confidence reached its lowest level of the year at minus 27, well below the level of minus 16 observed in March after the start of the war in Ukraine. Online retail sales adjusted for inflation declined by 11% year-over-year in the fourth quarter. When including the Amazon impact, parcel volumes were still 1.5% above last year, meaning that on a full year basis, the lost Amazon volumes are now fully compensated. To put things in perspective, parcel volumes remain 54% above the pre-pandemic fourth quarter of 2019. The price mix stood at 3.3% in Q4, in line with the previous quarter. Similar to what we observed in the previous quarter, proximity and convenience retail network revenue increased organically by €4 million due to the new management contract, which came into force in 2022. In this sub-segment, the deconsolidation impact of UPWay as from the month of March was minus €36.6 million in the quarter. Value-added services increased by €5 million, mostly resulting from higher revenues from fine solutions. Let's move to the P&L of Belgium on page 7. On the cost side, again excluding UPY, operating expenses increased by €21 million year-over-year, mainly due to the persisting inflationary pressures. We have indeed recorded higher payroll costs per FTE, reflecting the impact of each of the 2% salary indexations of November 21, February, April, June, September, and December 2022, as well as the change in night shift regulation and a premium pay to our employees to alleviate the pressure on purchasing power, as well as higher energy costs. These impacts were mainly mitigated by the elimination of the second distribution rounds, which come with lower density and thus higher costs, and the FTE reduction of around 810 FTEs year over year, again excluding the UB way impact. Moving now to eLogistics Eurasia on page B. External operating income was up 40 million euro, reflecting the continued strong growth in e-commerce logistics and the integration of IMX at cross-border. Looking at the revenue development per set segment, we see that in e-commerce logistics, Radial Europe and Activant sales were up 19.5% year over year. driven by our existing customers' expansion and by recent customer onboardings, as announced with our Q2 and Q3 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 networks at Dynalogic, driven by the lower consumer spending in white goods, and less devices to be repaired at Dynafig. The strong growth momentum at Radial Europe and Activant did offset Dyna's development with a combined increase of €5.5 million in revenue for the subsegment. Cross-border revenue increased by €8 million or plus 9.7%. This top-line development is driven by both the consolidation of INX since July 2020 this year and the growth of our Asian sales, where despite the lasting supply chain disruptions in China, we saw the benefits of some recent customer rates. Let's move to the P&L of Eurasia on slide 9. Operating expenses increased by 14 million, or 9%, 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 Retail Europe and ActiveM, and partly offset by lower material, interims, and transport costs at Dyna, in line with lower volumes as just explained. Moving on to our North America e-logistics business on page 10. The operating income of e-commerce logistics increased by €16 million, but was down minus 7% at constant exchange rate. At Landmark, we recorded a continued volume growth from existing customers and new customers won in 2021, while at the same time, we started to see the first impact of Amazon's insourcing of part of its volumes. At Radial, top line decreased by 9% year over year, as the consequence of different factors. In line with North American market pressure, Radial recorded lower peak volumes with a mixed performance across customers, notably in clothing and cosmetics. Besides that, on the supply side, the U.S. e-commerce logistics market has shifted from an undercapacity to an overcapacity, which puts some additional pressure on our volume development. Finally, we also had the impact of some terminated contracts, including the one we discussed already in Q3. Radial revenues amounted to $480 million in the quarter. This is 9% below the fourth quarter of 2022, yet even after this year's post-COVID normalization, still plus 36% on the pre-pandemic 2019. Moving to the P&L on slide 11. Focusing on the performance at constant exchange rate, we see that while the top line decreased by 7.1%, our operating expenses decreased by 6.6%. However, it should be noted that last year, Radial US benefited from two one-offs positively impacting OPEX, notably the cyber insurance recovery and the one-time concession from a vendor. When rebasing last year with the aforementioned one-offs for a total of 7.8 million euros, eLogistics North America adjusted EBIT increased by 5 million to 43 million euro. At constant exchange rate, it means that despite 43 million euro lower top line, EBIT actually still increased by 1 million euro, reflecting the strong improvement in operational performance. Our labor costs were favorably impacted by wage rate impact and a stronger variable labor management. Thanks to strong preparation and execution during the peak, we managed to align capacity to demand and realize productivity gains. Philipp, I know you wanted to take the opportunity of the 22 results to put Radial's performance over the past years in perspective. Indeed, Koen, thank you.