Bpost Sa Unsp/Adr

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.

Let's indeed pause now on Radial specifically, and you can go, you see that on slide 12. As radial performance has been impacted by a number of one-offs in the previous years, notably since the ransomware attack on October 2020, we wanted to take this opportunity to look back and see the continued progress made at Radial. We see on the page the evolution of Radial's key performance metrics in local currency and excluding the one-offs we shared with you in the previous quarters and years. Radial annual revenues grew by 50% over the past four years, even when including the post-COVID normalization. And the EBIT margin progressively improved from minus 3.1% to plus 3.6% through operational efficiency and peak planning. Operationally, Radial is a top-tier e-commerce logistic operator in North America with a network of 26 fulfillment centers and offers 60% next day and 99% two-day delivery capabilities to U.S. consumers. Radial is now firmly established and well-positioned to face the challenges of the changing market conditions.

Thank you, Philippe. Moving on to the corporate segment then, on page 13. External operating income decreased by €3 million year-over-year from lower building sales. More importantly, operating expenses decreased by €8.2 million, reflecting continued cost management measures and efforts on overhead reduction. Regarding FTEs, a 4.5% decrease partially offsets the impact of the six salary indexations of plus 2%, as discussed earlier. OPEX development also includes 2.5 million of costs related to the press concession compliance review. Then we move to the cash flow on slide 14. The main items to flag here are the following. Cash flow from operating activities before changes in working capital remained stable year over year. Change in working capital and provisions increased by 135 million, as explained in the previous quarter, this is notably due to the compensation schedule of the management contracts. Whereas last year we received 80 million in Q3, this year we received 99 million in early Q4. We also received in this quarter 37 million, which we would have received under the previous management contract in the first quarter of 2023. Additionally, we have deferred into the first quarter of 2023 the Q4 payments of the payroll withholding tax for 31 million, making use of a measure granted by the Belgian government in the context of the energy crisis. Cash outflow from investing activities decreased by 37 million to 47 million euro, mainly from lower CAPEX. Down to 51.4 million, our CAPEX continue to be directed towards our e-logistics expansion in Europe and in the US, and the optimization of our domestic network in Belgium. Let's now have a look at 2023.

Thank you, Kun. Before sharing our outlook for 2023, I would like to walk you through our management priorities for this year, which support the group ambition to be a global e-commerce and logistics service provider with a sustained anchor in Belgium and to be recognized as a sustainable reference. The focus of management operating as a collegial team is clear, and we continue to execute on our strategic plan. In Belgium, the focus of Jos Donville and his team is to develop the target operating model and the supporting organization based on client centricity and translating in higher quality and flexibility. Besides the business transformation, Jos and his team will also prepare the future of the press concessions. on which I will update you in a minute. And it will also increase the well-being of our employees, so as to improve current absenteeism levels. In e-logistic Eurasia, Kathleen van Beveren will continue to execute on the growth plan of Radial Europe and Activens. Kathleen will also grow our commercial cross-border activities and will launch the execution of a multi-year turnaround plan for Dyna. In North America, adjusting to change market conditions, Henri de Romeret and his team will develop and execute on the commercial pipelines across our entities, notably Radial and Landmark Global. Henri will also implement at Radial a network-wide lean operating model driving further margin improvements. The group will pursue its M&A ambitions for our e-commerce logistic activities in Europe and North America, but also for cross-border businesses. We have a strong balance sheet. We therefore do not exclude transformative acquisitions if such opportunities arise in the market, which allow us to further accelerate on our transformation and build scale. Across the group, We will also continue to execute on our sustainability strategy. In this regard, Bpost has been selected since last week as part of the new Euronext Bell ESG Stock Index, tracking business listed companies, demonstrating the best practices in this field. A great recognition of our global ESG strategy. Let me now update you on the press concessions and share with you the recent developments since we last talked mid-December. First, as a reminder, the Belgian government decided in November 2020 to extend the ongoing concession for the distribution of newspapers and periodicals in Belgium until December 31st, 2023, as the conditions that apply for 2022 as specified in the current concessions. The process of submission of the extension to European Commission for approval on the state aid rules has started. Secondly, and rightly so, there is a lot of question around the financial impacts notably from the fine and our ability to participate in ongoing and future tender procedures. As said previously, we want to be as transparent as possible in this matter and we are today in a position to share with you the following updates. Regarding the investigation of the Belgium Competition Authority, BPOS has fully cooperated with the ongoing investigation, but the risk of the imposition of a fine will depend on the findings made by the BCA. Subject to further findings of the BCA investigation, the risk is currently assessed as possible but not probable. Based on the information currently at our disposal, you will have seen that BPOS group has not taken a provision related to these matters. You probably also read in the press that on February 1st, 2023, the Bajram government announced its intention to conduct a governmental audit into the compensation for the current press concession. Here the question is, could BIPOS have to repay an OVO compensation? Well, while the costs associated to the service were reviewed and scrutinized on one end on an ex-ante basis in the context of the European Commission state aid review, and on the other end on an ex-post basis by the Collège des Commissaires as part of the annual approval of the accounts, BPOST is currently unable to assess the risk associated to this audit and its potential findings. Given that BPOST has not yet received any information regarding to the scope of the audit, any findings of overcompensation could lead to a claim for reimbursement of a part of the revenues charged for the service. As to our capacity to participate in tendering procedures, it's probable that considering the self-cleaning measures taken by the company, the contracting authorities will consider that BPOST has demonstrated its reliability and will therefore allow BPOST to participate in ongoing and future trend tendering procedures. And lastly, to conclude on the potential impact on the ongoing investigation, BPOS has also taken measures of cooperation with public prosecutor so as to reduce any risk of criminal enforcement. Third and last point, now what about 2024 and beyond? Recent press articles dated February 10th, 2023, refer to an agreement reached by the government on the new tender for the period 24-27. The government has announced its intention to reduce the budget attributed to the press concession and to adapt the tender's specification in function of this reduced budget. EPOS expects this new tender to be launched soon, and upon receipt of the RFP and its requirement, we will assess whether an offer can be submitted that is financially sound. BPOS judges itself well placed to win such a tender process, in which case operational and financial impact will depend on the tender specifications. This finally brings me onto our outlook for 2023. In 2023, while the transformation of the group of course continues, we will activate all levers on sales, pricing, cost, and productivity to face the ongoing market pressures and prepare for any rebound. The group total operating income is expected to grow by a mixed single digit percentage, while the group adjusted EBIT is expected to range between 240 and €260 million based on current macroeconomic assumptions. For Belgium, we expect total operating income to grow by 3-5% when excluding the deconsolidation of UBWay. We notably plan for a main volume decline of 8-10% offset by price increase and mixed impacts. Why? on our parcels revenues will be driven by a mid single digit percentage volume growth and a mid to high single digit percentage price mix. Adjusted EBIT margin is expected to range between 6.5 and 8.5%, which reflects higher payroll costs from the full year impact of the five salary indexation of 2% in 2022 and the ones of 2023, but also high energy costs, partially mitigated by efficiency gains in operation and continued cost reduction initiatives. For e-logistic Eurasia, we anticipate a low-digit percentage growth in total operating income, relying on our continued growth of Radial Europe and Activence, and the growing cross-border commercial activities, including the development of new lanes, and more than offsetting the structural decline in cross-border postal activities. In 2023, at Radial Europe and Accident, we expect to have a scale-up of our sales organization and some startup costs for new customers, as well as a negative mixed effect at cross-border. The adjusted EBIT margin is thus expected to range between 3% and 5%. For e-logistic North America, assuming a EURUSD rate at 1.08 for 2023, we expect top line to slightly decrease compared to 2022. This reflects, on one hand, a decline in top line at landmark global, due to Amazon insourcing and some general price pressures. And on the other end, a lower growth momentum at Radian in current market conditions and overcapacity, as explained by Kuhn, leading to price pressures. Similar to our guidance for 2022, adjusted EBIT margin is expected to range between 4% and 6% in 2023, with price pressure on top line and higher OPEX and DNA from new sites being mitigated by a tighter labor management, a favorable wage rate impact, and some continuous cost measures. For corporates, inflationary pressures will impact on our bedroom payroll costs. While our cost containment and overwrite reduction measures remain in place, Savings will be reinvested in the ongoing transformation of the group. Note that we also foresee some OPEX from the ongoing press concession investigation. The growth CAPEX envelope in 2023 is expected around $200 million, of which a part is a phasing of the 2022 understand. We're now ready to take your questions. Operators, please open the lines.

Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We'll now take our first question from Ivar at UBS. Your line is open. Please go ahead.

Thanks very much. Maybe if we start with press concessions because I think that's on top of everyone's mind. Can you please help us quantify the profit that you've earned in the press concession over the period that's under investigation to try and help us quantify anything excess earnings that you might have earned over the period? And secondly, while you say it's not probable, but it is possible, have you had any guidance from advisors in respect of what a potential fine might look like? And then secondly, in the North American business, given that we seem to be at the start of an inventory destocking phase in the U.S., and in past interns we've seen retail inventories drop by about 10%, if that were to materialize again, I mean, what incremental pressure would that pose on your revenues and earnings? And in that sort of scenario, would you be able to keep revenues flat versus last year? Thank you.

I suggest that, Koen, you take the questions of Ivar, mostly on the press conference. I think most of them. Sure.

I'm not sure I fully understood the third question. The line was not that great, so we might need to come back to that. But let me start with the press conference. Sure. So I think your first amount was, and what was the amount received in the past years? In the event that there would be any overcompensation, let me come back to that in a moment, but just on the amount to answer your question, we get somewhere between 165 and 170 million per year, which you can also find in our annual reports of the past years. In terms of sort of the overcompensation risk. I think it's important to stress again what Philippe said, that the amounts, in fact, they are already audited ex-ante by the European Commission whenever there is a notification process. and on an exposed basis by the Collège des Commissaires, which actually consists of the Court of Audit and our own auditors. At the moment, we have no visibility on what the new governmental audit will be about, so it's very difficult to pronounce ourselves on the risk. But I want to stress that, in fact, these figures are already audited. So take that for what it's worth. But given that we have not taken a provision here as well, it gives you some indication on how we assess this risk.

And also, sorry to be a bit heavy on that one. In that case, there would be an adjustment as a result of audit. It would not be for the full concession, for the amount deemed overcompensated, quote-unquote. So it's not the full... Would something emerge from that audit? It would certainly not be for the full amount.

Exactly. Then your second question was around a potential fine, and I think I've seen the figure of 430 million circulating a bit, both in the press and in the different analyst reports. First, let me stress that as of the start of this, BPOS has been collaborating with all the competent authorities in order to protect our best interests. So that's been the way we've been approaching this. Should at the end of the day there still be a fine, it's important to highlight that the 430 million which is circulating is in essence is a cap. It's maximum 10% of the group revenue worldwide. Although in general, competition authorities try to make sure that you cannot estimate reliably a fine, we do see from past practices that it is typically based on a number of factors, the concerned revenue, the duration of the offense, any aggravating or attenuating circumstances. And when we look at the potential fine with these factors in mind, we are in a very different ballpark than the $430 million. And then on the North America question, I don't know whether you understood it, Philippe, but if not, I thought it would be great if you could repeat it. The line was not great.

Sure. I'll follow up on the first one as well. I appreciate the revenues were in the region of 175 or so, but just in terms of the profits that were earned, because that would help us gauge whether there was any over-earning or not. But the second question in terms of North America was whether if we have a severe downturn, given that we're at the start of a an inventory destocking phase in the States. In the past, we've seen them fall by 10%. I mean, did you make any allowance for a scenario like that in the guidance that you provided?

So in terms of our macroeconomic assumptions for the US, but in fact, similarly for all the markets we're active in, we're starting off from a GDP growth which is flattish. But on top of that, we expect a lot of inflationary pressure, which obviously will impact purchasing power, and so way more heavily on the B post activities than on others. In terms of inventory destocking, that would not necessarily be a bad event for us because it would still generate activity in our fulfillment centers. So there's no specific downside case foreseen for that in our guidance to date.

And we are not unique so far, exactly.

I'm sorry, on the earnings for the press concession, can you quantify that, please?

So I cannot give an exact number. And additionally, again, it's relating to any overcompensation, which is something which will be assessed by the audit and thus unrelated, in essence, to the margin we have on this officially. I think I shared last time that the concession, it has a reasonable margin limit. of 7.5% and that B post was currently below that limit. So that's the only thing I can share at this stage.

That's very helpful. Thank you very much.

Thank you. We'll move on to our next question from Frank Clarson at DeGroove Petergham. Your line is open. Please go ahead.

Yes, good morning. My two questions, please. First of all, on the payroll cost, you've indicated that you had a headwind of 80 million in 22. What would be roughly the number for 23 given, say, the full year effect of the 2%, the six steps of 2% and the upcoming steps? And then secondly, also on radial, previously you talked about customer contract values you won. Can you elaborate on that? And also maybe on the churn, did you see many customers leave and what kind of impact does that have? Thank you.

Thank you, Franck, for the question. I'll take the one on the payroll, and we will jointly answer the one on the payroll. So, yes, we mentioned an amount of 80 million in 2022. In 2023, we expect something around that, the same amount. In fact, these two effects, the full impact of what we have, the 6 and the 5, 2% increase in 2022 that translates again into additional costs in 2023, plus the expected increase as a result of the evolution of the general index in 2023. So roughly, it's around 18 million also in 2023.

So it does mean that from a cost pressure perspective, it will be very similar in 2023 as it was in 2022. Then on the radial question, she asked around ACV. We signed in 2022 for $94 million of new ACV, which is below what we signed in 2021 and 2020. But there's a big difference there in 2020 and 2021. A lot of the ACV was also coming from cross-sell or big expansions at existing customers. In 2022, the amount we signed was almost exclusively new customers, fully new customers. So those customers we do expect to onboard over the course of 2023, together actually with some of those we still signed in 2021, which were delayed also into 2023. In terms of the churn, so we have seen a significant number of client churn linked to the general market context. There are some contracts which come up for renewal at certain points in the year. And given that the market has shifted, as we mentioned, from that undercapacity to overcapacity. Sorry, the other round. Sorry, yes, from undercapacity to overcapacity, indeed. It means that there is a much bigger driver to tender at this stage to take advantage of any cost savings that might be gained. And we are seeing that to some extent. We're also seeing that customers who have a combination of in-house and outsourced fulfillment, that obviously they tend to pull volumes back in-house in order to leverage as much as they can their own fixed cost base. So we mostly see those effects at play which reflect the market circumstances and not necessarily anything radial specific.

Okay, thank you very much.

Thank you. We'll take our next question from Marco at Barclays. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking my questions. I've got a few questions on the parcel volumes in Belgium. First question is on your outlook of mid-single-digit volume growth. Given that clearly all the, let's say, new customer growth from 2022 will analyze in 2023, I'm just wondering what's your assumption for underlying volume growth for 2023, as to me it seems that the mid-single-digit volume growth is mainly driven from analyzation of new customer acquisition. Second question is on pricing for the parcel volumes. In the latter business, you are increasing prices by double digit. You are now guiding for parcels price mix, mid single digit, high single digit. So just wondering what's your assumption on pricing growth for parcel and why repricing in parcel is below male repricing. Third question, very quickly, what's the exit rate on parcel volume growth in January? And the very fourth question is if you can guide us on what's your assumption about corporate center EBIT loss, including your guidance.

Thank you very much. Okay. Let me start perhaps with partial volumes in our outlook. There were multiple sub questions. Let me maybe start with the annualization of what you mentioned on the new customers on board. It's important when we look at the year over year comparison to realize that in Q1, Amazon was still ramping up its outsourcing. So that will still year over year be a negative impact in the first quarter. while for the new customers on board many of them or it was a progressive onboarding throughout the year i should say where even as of q2 we had some of those new customers on board so that a part of that impact was already again in our numbers already of this year but obviously there will still be a positive impact from that next year in fact and that that links your underlying volume question in terms of the volume growth we foresee it's uh it's still mostly from those let's say a bit more than half of that is actually expected to come from the hunting plan, while the remaining part is from the underlying parcel growth we foresee. Then, let me just check, because I wrote down your questions, I think there was the price mix effect on parcels you were wondering about. So I think here I'll refer also back to what we communicated already in the Q3 results on this, because it does not change First for parcels, we need to distinguish between prepaid parcels and contractual parcels. For prepaid parcels, the formula is controlled by the price cap. It's approved by the regulator and it's a price increase of 13% in line with the inflation rate we see in Belgium. For contract parcels, there is some more flexibility. But generally speaking, most of our contracts foresee a price increase, which is 80% of a transport sector-specific index. That price increase would be 10.7%, but we already passed on part of that with the mid-year price increase in 2022. So the remaining price effect would be close to 8% in 2022. And then finally, for our biggest contractual customers, there are typically some other clauses in the contracts with fixed price increases over time, which will not fully cover the inflation levels. So that leads to the overall price mix effect we're guiding on.

um then uh i think you asked around partial volumes in january let's not take this one uh so parcels volume on january uh grow by a low to mid single digit percentage in line with our expectation but also we need to keep in mind that January 22 constitutes some high cons, and was still preceding the start of the war in Ukraine, and Amazon was still progressively ramping up its insourcing until March 2022.

And then the final question was on corporate, so we don't guide specifically on the number for corporate, although I'm sure you can, by difference, get a very good estimate. The big effects there are obviously that just like all our other Belgian activities, that will be impacted by the cost pressure. So the 80 million mentioned by Philippe just before is also partly impacting corporate. On top of that, we expect lower building sales because we have, in the past, we've done a number of sale and leaseback transactions because we typically had buildings which we were going to exit on relatively short timeframes. Looking at our portfolio today, we don't have many of those left, so we're putting a stop to that sale and leaseback program. So that will impact the revenues there. Then finally, there's the costs linked to the ongoing press concession investigation and some related measures we're taking in terms of reinforcing compliance and so on. which will weigh on that result. We will continue to work on overhead reduction as we've always communicated, but in light of the things I've just mentioned, you will understand that that will not offset at the EBIT level fully the negative impact. So I hope that answers the question.

Yes, thank you very much.

Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. Well, I'll take our next question from Hank at The Idea. Your line is open. Please go ahead.

Good morning, gentlemen. Thanks for taking my questions. First of all, the CapEx, the 200 million, I believe you said it's partly catching up with the shortfall in 2022. But if we look at the economic climate in general, then basically in the US there is already some overcapacity. What is triggering you to upgrade the CapEx budget again to the 200 million and where do you expect to spend it? My second question relates to the North American business. The name of Amazon pops up again, this time in relation with the landmark operations. How sensitive or how dependent is the U.S. operation on Amazon? I wasn't aware that Amazon was a client of you there as well, so perhaps you can shed some light on that. Those were my questions. Thank you.

We complement each other. So Hank, on the capex, as it has been mentioned earlier, we have some rollover from 2022 to 2023 because you know we have a strict financial policy and we do not want to build in advance capacity that could remain unfilled waiting for potential customers. and especially, as you rightly pointed out, if we have overcapacity in the US, we will not build in advance capacity. This being said, we still have some new customers coming in, and if anyone of these customers are coming in, some capex are needed, and then we will invest. So in other words, if I would use an analogy with other businesses, we will not build merchant warehouse, but we will make the investment when the contracts are there. We also have existing installation that requires some maintenance capex and of course we need to continue investing in them to protect the efficiency and also the assets themselves. So the portfolio, in fact, the portfolio of activity requires different profiles of capex. Sometimes we have to build it beforehand. Typically in active events like we did in the UK, we have to build in advance, but it's not the majority of our business. The majority of the capex requirements of our business are triggered when we sign a contract before onboarding customers.

And to add to that, within the 200 million, there is, I would say, sort of an exceptional capex, I would almost say. We have an opportunity in the U.S. to put our balance sheet at work. There were two sites over there where we've been for a very long time and we expect to remain for a very long time, which came on the market. And where we are doing, we are purchasing those sites outright instead of keeping the ongoing lease agreements. And that is an investment of around 35 million euros. So that explains most of the difference between what you see in 2022 and 2023. So this is really putting our cash to work to improve our returns.

And it's maybe a different way of working compared to the past. uh because we not uh prevent ourselves from opportunistic investments of course it needs to be related to our core activities we would not do so for administrative buildings but where we believe we you know This kind of business is based on logistics, is based on location. When we are at a private location with good numbers of existing or potential customers, and as Kun mentioned it, we believe we're going to stay in the long run. We consider we are creating more value by investing ourselves rather than paying it to a third party. Because also, when you are renting this kind of stuff, at the end of the contract, you're exposed to a price increase of renewal of the lease. But also, you have to continue paying while you are the owner. You could enjoy for nearly endless period this kind of asset because basically, they require very limited maintenance investment as well. Exactly.

And then adding just one more point, you also asked on where is the capex being spent. Philip already referred to the maintenance part of it. Within our e-commerce logistics businesses, automation is also highly important in order for us to reach the productivity improvement. So that's where another part of the capex is going. Moving to your second question on North America and the importance of Amazon in that. Amazon is a customer of Landmark Global. Which you can probably estimate more or less in terms of size by looking at the specific number we disclose from radio and the total for North America as the bulk of what remains is in essence land more global. And within that Amazon represents in the normal time, somewhere between 25 to 30% of the revenue. So it's a very significant amount. In our outlook, our expectation is for Q1 and Q2 to be at a similar level as Q4 was, meaning an about 50% decline. Whereas as of Q3 and Q4, we are even expecting those volumes to drop down to zero. So that would be a very significant top line hit. Now, there as well, we see that over the past years, we've had strong commercial efforts where we are getting new clients on board. So there as well, we will be able to compensate. And part of it at the North American level is also compensated by radio. If you look at the quarter per quarter, it means that for the North American results, we will see for LGI the negative impact increasing throughout the year. Well, for radio, it will be exactly the opposite as customers are onboarded, where we expect more negative results in Q1, which will then gradually improve throughout the year.

Okay. That's very clear. Thank you very much.

Thank you. We'll now take our next question from Joe Kimaske at DEFA Endeavor AF. Your line is open. Please go ahead.

Hi there. I got two questions. So prior to the concession you ended up in, you planned on having a capital A presentation during the second half of this year. Could you talk a bit about your Omega project and how do you see your ability to bring out efficiency of your business in the next two to three years in potential scope? And the second one is, What is the impact during 2022 from the low utilization of newly opened centers, especially Radio Europe and ACTIVANCE? And what would the impact have been if those have been at the average utilization level?

I'm not sure I fully captured the first question. Would you mind repeating that one? Same on my part.

Sure. so you have an omega project with kind of revamping the belgium mail and parcel business and i'm curious on the what potential you see in ringing out efficiencies here and the potential scope of that over the next two to three years um so in terms of longer term guidance than 2023 um i'll once again need to refer of you to a capital market today

which, as I'm sure you'll understand, in the current circumstances and with the uncertainty surrounding the macroeconomic situation, the press concession, and in absence of a new CEO, we are pushing back to the moment where we have a new CEO on board. So I won't comment on that, maybe just on the Omega model specifically. In fact, the Omega model was envisaged back in 2021 when I would say the sky was the limit in terms of parcel volume growth.

What do you mean by that? It's just compensating, more than compensating the decrease of the mail activity.

Exactly. We see today that that parcel growth is likely going to be somewhat slower. So it means that the plan we had with Omega, it will also be implemented at a much slower pace. However, this is why as part of the priorities for next year, Jos and his teams will be looking at how to optimize within the current market circumstances. So, with a much bigger share of mails still as compared to parcels and with that focus on flexibility, quality that we need to have throughout the network. You can see though that from Omega, the elements which were relevant in the current context, we are implementing them. We spoke about the 800 FTE reduction we had in 2022. We will continue along those lines with operational improvements in 2023. But the overall timeline for the implementation is something to be adapted and with new measures to be implemented. Then on the newly open center, so I will not give a specific impact on that, but just in general, I think it's important to, and here I can refer back to something we shared in the past. Our overall margin target for these e-commerce logistics businesses is in the 5% to 7% range. If you look at where our numbers are today, you will see that we still have a ways to go towards that, which illustrates the impact of those ramping up costs. which are, by the way, not only linked to those new centers which are not yet fully occupied, but also to the front-loading we are doing in terms of sales capacity to be able to sustain the growth trajectory we have in mind for the next couple of years.

I have a follow-up on that one. So if you take your existing centers, is the performance there matching that margin goal?

That depends very much on a center-by-center basis, depending on to what extent their capacity is indeed utilized. All right. Thank you.

Thank you. There are no further questions in queue. I will now hand it back to the CEO, Philippe D'Artagnan, for closing remarks. Thank you.

I would like to thank everybody in the call for having the time, taking the time to be with us this morning and your very interesting question. We will hear from you at the conference we're going to attend in London beginning of March. Please note that we will release our annual report 2022 on March 16. We look forward to staying in touch with you and the first quarter results will be released in May. Thank you very much. Have a great day.

Thank you. Ladies and gentlemen this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.