bpost NV/SA

Hello and welcome to the BPOST first quarter 2023 analyst call. My name is George. I'll be a coordinator for today's event. Please note, this conference is being recorded and for the duration of the call, your lines will be in listen only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to answer your question. If you require assistance at any point, please press star zero and you will be connected to an operator. And now it's time to call over to your host, Mr. Philippe Dantien, CEO at Interim, to begin today's conference. Please go ahead, sir.

Thank you very much, George. Good morning, ladies and gentlemen. Welcome. I am pleased to present our first quarter 2023 result as CEO at Interim of BePost Group. Welcome to all of you, and thank you for joining us. With me, I have Kun Alterman, our CFO at 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 will then take your questions. Two questions each will ensure everyone gets a chance to be addressed in the upcoming hour. Before getting to our first cultural result, I would like to take the time to update you on the events of last week, as well as on the press concession. First, on the preliminary results of the compliance review of the service provided to the Belgian state and the withdrawal last week of our financial guidance for 2023. Following the internal compliance review relating to the ongoing and future first concession, BCOS requested its head of compliance and data protection and head of corporate audit to conduct further internal compliance reviews relating to other tenders and public contracts with federal government. The Board of Directors was informed on the preliminary results of these compliance reviews, which remain ongoing, and which revealed that BPOS groups' margin on certain services provided to the federal states may not be acceptable under applicable laws, and that certain of those services may not have been awarded in accordance with applicable laws. As a result, we saw last week that it led our company to withdraw its full year 2023 financial guidance and pending further legal and financial analysis, preliminary estimates indicate a negative adjusted EBIT impact between 25 to 50 million euros on our guidance in relation to the performance of these services in 2020. We can today indicate that the relevant services in scope will relate to three distinct contracts or concessions, namely, number one, the traffic fines, which consists in handling the financial and administrative processing of the fines for the Federal Public Services of Justice. Second, the cashier function of the Belgian Federal Authority, or the contract with the Federal Public Service of Finance for the so-called 679 bank accounts consisting in the provision and the management of the payment account system and the provision of the payment service to more than 200 public institutions to date. And the contract, the concession of public service for the manufacturing and the delivery of European license plate and associated documents for the Federal Public Service of Mobility and Transport. As you can see on slide three, the total annual value of these services amounted to 104 million in 2022. And while the services relating to the 679 bank account has been provided since 1912, Other contracts are more recent. Each of these contracts or concessions varies by its own characteristics, and again, pending further legal and financial analysis, BPOS is at this stage not able to provide more information on the financial impacts in relation to past revenues. Depending on each contract, these financial impacts would depend on many factors, including, on one hand, if and to which extent there is or was an overcompensation, taking into account the applicable regulatory framework, including notably stated rules, standard processes, costs related to the service, the amount of the margin acceptable under applicable laws, the revenue charge for the relevant services, and the duration of the relevant services. And on the other end, whether or not and which action the competent authorities would take and the outcome thereof. Noting that the Belgian government has indicated that it would audit the compensation paid for the services provided by BPOST. This is today all we could share with you on these matters. And we have done so far, and what we have done so far, we will provide more detailed information as soon as possible. For the sake of clarity, the impact of these preliminary findings of the compliance review are already reflected in our Q1 results as we recognize a bedroom level a revenue impact of minus 6.2 million, which corresponds to one fourth of the low end of the 25 to 50 million impact for 2023. Let me now update you on the press concession and the latest developments since our Q4 presentation two months ago, which you could find on page four. First, as shared with you last time, the Belgian government decided to extend the ongoing concession until the end of 2023. And the submission of this extension to the European Commission for approval on the state aid rules is progressing following the standard process. Second, some of you are wondering whether or not the recent event of last week could have an impact on the ongoing investigation of the Belgian Competition Authority. The ongoing internal compliance review of the services provided to the Belgian state, which are discussed, is a separate process relating to different contracts and different causes. There is no link with the external investigation of the BCA, and we can reaffirm today that subject to further findings on the ongoing BCA investigation, the risk of imposition of a fine is still assessed as possible but not probable. Our view on the probability or the amount of such a potential fine remains unchanged and BPOS has not taken a provision related to these matters. The Belgian government announced on February 1, 2023 its intention to conduct or governmental audit into the compensation for the current price concession in order to determine if there was any potential overcompensation. This audit has not started yet and we did not receive any information regarding the scope of this audit. Any findings and overcompensation could lead among others to a claim for reimbursement of a part of the revenue chart for the services, but we are still at this stage unable to assess the risk associated to these audits. As said earlier, the costs associated to distribution services were reviewed and scrutinized on an ex-ante basis in the context of the European Commission State Aid Review and on an export basis by the Collège des Commissaires as part of the annual approval of our accounts. Regarding our capacity to participate in tendering procedures, we are still of the advice that contracting authorities would consider that BPOST has demonstrated its reliability in the context of this investigation and reviews, and would therefore allow BPOST participate in ongoing and future tendering procedures. Third and last point, what about the future press concessions? The government launched recently a new tender for the period 2024-2028. In line with its initial intention to reduce the annual budget attributed to the concession, the government reduced the envelope down to 125 million and has adapted the tender specification in function of this lower budget. The deadline to submit our offer is early June and an award decision is to be expected before the end of this year. People's is currently assessing the RFP and its requirements and whether an offer can be submitted that is financially sound. BPOS still judges itself when placed to win such a tender process. To conclude on this topic, BPOS has been caught up by some elements of the past and we are taking all necessary measures to get to the bottom of these matters. We will continue to work tirelessly to earn and maintain the trust in BPOST and its employees. I am confident that by continuing to prioritize compliance, we will emerge from this situation stronger and more resilient than ever. In the meantime, and as per our first quarter, we continue to execute on our strategy and to progress on our growth and transformation plan. On page five, I am indeed pleased to report that despite challenging macroeconomic conditions, BIPO's group performed well this quarter, achieving good operational execution and top-line development, with the performance even slightly exceeding the plan. Supported by strong parcels volume and price increases, our group operating income for Q1 stood at 1 billion 49 million euros, an increase by 1% or 10 million, including the negative 6.3 million revenue impact I just mentioned. Excluding this impact, this would have been an increase of plus 1.6% or 17 million. Our group adjusted EBIT stood at 78 million euro with a margin of 7.4% or 84 million before the revenue correction. Unsurprisingly, due to inflationary pressures on cost and macroeconomic trends, EBIT was down year over year. But our continued focus on productivity and cost control has borne fruit, and the decline in operating EBIT remains limited. I would like to hand over to Koun for more details on the financial of this first quarter. Koun, the floor is yours.

Thank you, Philip, and good morning, everyone. On page six, as always, you can find an overview of the key financials for the quarter, both reported and adjusted. Philip already mentioned our group top line in EBIT. Our adjusted net profit amounts to 48.3 million euro, or 53 million before the revenue correction, including some higher financial costs related to IAS 19 employee benefits, and ethics changes and thus non-cash impacts allow me to move directly to the details of belgium on page 7. at belgium when excluding the impact of ubway we see that revenues increased by 20 million to 577 million euros Domestic mail recorded an underlying mail volume decline of 8.8% for the quarter against 5.4% in the first quarter of 2022. This impacted revenues by minus 28 million euro, yet mitigated by positive price and mix impact of plus 25 million euro, as well as 4 million of additional revenues from Albitress, which was acquired on September 30th of last year. Altogether, domestic mail revenues remained nearly stable year over year. Note that the transactional mail revenues were in the first quarter of 2022, still supported by the COVID-19 communications, with an impact of around 5 million euros. This was no longer the case in 2023. In advertising mail, continued market pressures, among others from high paper prices, were in this quarter further reinforced by a customer bankruptcy. Parcel Belgium then recorded an increase of 15 million euro in revenue or plus 13.9%. Parcel volumes increased by 9.1% year over year with a higher growth in March as March last year was marked by the start of the war in Ukraine and Amazon's insourcing was reaching its steady state. The volume trend in this quarter was mainly supported by a successful commercial hunting plan of 2022. It should be noted that this volume growth occurred under persisting unfavorable macro market conditions. In Belgium, online retail sales adjusted for inflation declined by 12 and 16% year over year in January and February respectively. While the consumer confidence index was still positive last year, Before the start of the war in Ukraine, the consumer confidence in Q1 of 2023 remained negative despite a slight improvement since the end of last year. Price mix stood at 4.9% in Q1, mainly driven by price increases. Proximity and convenience retail network revenues increased organically by 3.4 million euros following the indexation of the management contract. In this subsegment, the deconsolidation impact of UBW, as from the month of March, was minus 21.6 million in the quarter. Value-added services increased by 5 million euros, mostly resulting from higher revenue from fine solutions. Let's move to the P&L of Belgium on page 8. In our intersegment and other operating income, you will see the minus 6.25 million impact reflecting the preliminary findings of the ongoing compliance review, as just explained by Philippe. On the cost side, again excluding UBWay, operating expenses increased by 30 million euro year over year, mainly due to persisting inflationary pressures. We have indeed recorded higher payroll costs, with on the one hand more than 11% of salary indexation impact year-over-year, but on the other hand a 2% reduction in FTEs. This reduction of around 480 FTEs year-over-year reflects our continued focus on productivity, but also the higher parts of volumes this year. Besides our payroll costs, OPEX development was also driven by some other inflation-driven cost increases, such as rents and energy costs. Bottom line, excluding the impact of the compliance review, our EBIT decline remains limited as inflationary pressures are successfully mitigated by our top-line development and our efforts on productivity. Moving on to eLogistics Eurasia on page nine. Revenues were up €21 million, reflecting strong growth across the different sub-segments. In e-commerce logistics, revenues increased by €6.7 million. Radial Europe and Activant sales were up plus 19.6% year-over-year. This continued high growth is driven by our existing customers' expansion and by new customers on board. At Dyna, the revenue development reflects lower volumes in DynaLogic's delivery network, offset by price indexations across all Dyna lines, as well as more services or more devices to be repaired at Dynafix. Cross-border revenues increased by €14 million of plus 18.9%. This top-line development is driven by both the consolidation of IMX since July last year and the growth of our Asian sales, where despite softer underlying trends, we continue to see the benefits of some recent customer waves. Let's move to the P&L of Eurasia. Operating expenses increased by 25 million, or 18.5%, mainly explained by higher transport costs in line with growth in fulfillment and cross-border activities, and the integration of IMX. Higher payroll costs from inflation and e-commerce logistics growth, as well as some expansion and strategy-related expenses in this quarter. Looking at our EBIT margin development, with 4.7% in Q1, we see sequential improvement compared to our margins of around 3% in the third and fourth quarters of 2022. Moving on to our North America e-logistics business on page 11. In line with expectations, Our top-line development in North America is currently impacted by the economic softness, the market overcapacity leading to high degree of competition and pricing pressures, as well as Amazon's insourcing impacting landmarks. The operating income of e-commerce logistics slightly decreased by 1.7% or 6 million euro. At constant exchange rate, this would correspond to a decrease of minus 5.8%. At Radial, top line decreased by 4.1% year over year, reflecting two dynamics. On the one hand, we see the contribution of some new customer launches as well as some slightly higher sales from existing customers. But on the other hand, we also have the impact of some terminated contracts as discussed last year already. At Landmark, as anticipated, we recorded lower revenues due to Amazon's insourcing and general price pressures in the market. Moving to the P&L on slide 12. Alongside our total operating income, OPEX and DNA decreased by 5.4%, excluding a fixed impact. Variable OPEX evolved in line with revenue development and were notably supported by continued strong variable labor management and productivity gains, as well as a favorable wage rate impact. In overhead, we reduced FTEs by 2.3% compared to last year. Here as well, thanks to a strong focus on productivity and cost management, we've been able to maintain our EBIT and to protect our margins in challenging market conditions marked by overcapacity and economic softness. Radial continues to improve profits and contributes to the stable EBIT in North America. Moving then to the corporate segment on page 13. External operating income increased by 2 million euro year over year from higher building sales. More importantly though, OPEX and DNA increased by 9.9 million or 9.1% reflecting inflationary pressures, notably on payroll costs with more than 11% of salary indexation, as just discussed also for the Belgium segment. partially offset by a reduction of 5.9% in overhead FTEs as part of our mitigating actions. 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 decreased year over year in line with our result development. Change in working capital and provisions increased by 125 million. As explained in the previous quarter, this is notably due to the compensation schedule of the management contract for a net positive impact of 78 million. This includes the final settlement of the 2021 compensation, which was received in Q1 of last year, versus in Q4 of 2022 for the 2022 compensation. But more importantly, the advance payment for the 2023 compensation, which was received in Q1 of this year versus Q4 of last year. Compared to previous year, lower capex and lower peak expenses of the fourth quarter of 2022 also contributed positively to the change in working capital in Q1. And altogether, these impacts were partially offset by the deferral into this quarter of the Q4 2022 payment of the payroll withholding tax for 31 million. As explained already when we discussed the Q4 results, we made use of a measure granted by the Belgian government in the context of the energy crisis. The cash outflow from investing activities amounted to 54 million, mainly driven by our CapEx and including the purchase of two logistics sites for Radial US in line with the CapEx guidance. I now hand back over to Filip.