bpost NV/SA

Good day and welcome to today's BPOS second quarter 2023 analyst conference call. This conference is being recorded. At this time, I'd like to hand the call over to Philippe Dartien, BPOS CEO. Please go ahead, sir.

Thank you very much, Sergei. Good morning, ladies and gentlemen. Welcome. I am pleased to present you our second quarter 2022 result as CEO and interim of BPOS Group. Welcome to all of you and thank you for joining us. With me, I have, as usual, Koun Alterman, our CFO at Interim, as well as Antoine Lebec from Investors Relations. We posted the materials on the website last night. We will walk you through the presentation and then take your questions. Two questions each will ensure everyone gets a chance to be addressed in the upcoming hour. I will get to the highlights of our second quarter results, which will provide you with more details on the financial. I will then take some time to update you on the compliance review, on the progress made on our management priorities and on our operational output. I am pleased to report a good set of results demonstrating our resilience and strength amid challenging conditions. Our performance is again exceeding our plan, and this despite the current turmoil and the impacts of the compliance issues. In this regard, and for the sake of clarity, As in the first quarter, our second quarter results include a negative revenue and EBIT impact of 6.25 million euros at Belgium level. As a reminder, this quarterly impact corresponds to one-fourth of the low end of the 25 to 50 million EBIT range we have identified in the context of the ongoing compliance review as a preliminary estimate for the performance of some services to the Belgian state for the year 2023. Our group operating income for the second quarter stood at €1,028,000,000 and remained roughly stable year over year. Our strong parcel volume in Belgium and cross-border and some resilient made revenue offsetting the revenue pressure in North America. Our Group Adjusted EBIT stood at €69 million with a margin of 6.7% or €75 million and a margin of €7.2 before the revenue recognition. This compares to an EBIT of €83 million and a margin of 8% last year. Unsurprisingly, due to the inflationary pressures on costs and macroeconomic trends, Group EBIT is down year over year. but our continued focus on productivity and cost control continue to bear fruit, and the decline in operational EBIT remains limited. Before handing over to Koun, I would also like to share with you that on May 17th, S&P reaffirmed the single A issuer credit rating of People's ESSA with a stable outlook. Their report is available on our ESSA's website. In a nutshell, S&P acknowledges the resilient earnings of last year and our strict cash protection measures resulting in an increase in ample financial leeway under our credit matrix. Kun, the floor is yours for more details on the financial of this second quarter.

Thank you, Philippe. Good morning, everyone. On page four, you can find an overview of the key financials for the quarter, both reported and adjusted. Filip already mentioned our group topline and EBIT. Our adjusted net profit amounts to 45.6 million euro or 50.2 million before the revenue correction. This includes higher non-cash financial charges related to IAS 19 employee benefits compared to last year when we had a very favorable impact due to the steep increase in discount rates. Let's move then to Belgium on page 5. At Belgium, we see that revenues increased by 27 million to 547 million euros. Domestic mail recorded an underlying mail volume decline of minus 8.3% for the quarter, against minus 7.5% in the second quarter of 2022. This impacted revenues by minus 25 million euro, yet was mitigated by a positive price and mix impact of plus 28 million euro, as well as 4.5 million of additional revenues from Albi Press, which was acquired on September 30th, 2022. Altogether, domestic mail revenues increased by 7 million year-over-year. Note that in advertising mail, market pressures continue as we observed in Q1, including the impact of a customer bankruptcy. Parcels Belgium recorded in Q2 an increase of €14 million in revenue, or plus 13.2%. Volumes increased by 7.8% year-over-year, reflecting our successful commercial hunting plan of 2022 and the absence of further Amazon insourcing impacts. It should be noted that this volume growth continued to occur under persisting unfavorable market conditions. In Belgium, online retail sales adjusted for inflation declined by 11%, 9% and 7% year over year in April, May and June respectively. Consumer confidence remains negative and only slightly increased versus Q2 last year when it took a big hit following the start of the war in Ukraine. Price mix stood at plus 5.3% in Q2, mainly driven by pricing. Proximity and convenience retail network revenues increased by €3 million following the indexation of the management contract, and value-added services increased by €4 million, mostly resulting from higher revenue from find solutions. Let's move then to the P&L of Belgium on page 6. As just explained by Philippe, our intersegment and other revenue comprise the negative number of minus 6.25 million, reflecting the preliminary estimates relating to the ongoing compliance review. We also see on the same line the higher intersegment revenues from inbound cross-border volumes handled in the domestic network for e-logistics Eurasia. On the cost side, operating expenses increased by 32 million euro year over year, mainly due to persisting inflationary pressures, but also to a certain extent from lower recoverable VAT this year. Our payroll costs per FTE increased by 7.5% year over year, following the impact of the five salary indexations of plus 2% each that occurred since April 2022. But our continuous focus on productivity helped us keep our FTE stable despite significantly higher parcel volumes. Bottom line, excluding the impact of the compliance review, our EBIT remains stable as inflationary pressures are successfully mitigated by our top-line development and continued efforts on productivity. Moving then to e-logistics Eurasia on page 7. Revenues were up 20 million euros, reflecting strong growth across subsegments. In e-commerce logistics, revenues increased by 5 million euros. Radial Europe and ActiveVans sales were up 18% year-over-year. This continued high growth is driven by our existing customers' expansion and by new customers' onboarding. At Dyna, lower volumes in DynaLogic's delivery network were mitigated by price indexations across all Dyna lines. Most notably, cross-border revenues increased by €15 million or plus 21%. This top line development is driven by both the consolidation of IMX since July last year and the plus 35% growth of our Asian sales where we continue to see the benefit of some recent customer wins. Let's move then to the P&L. Operating expenses increased by 21 million or 15%, mainly explained by higher transport costs in line with growth in e-fulfillment and cross-border activities. including the integration of IMX and the intersegment OPEX charged by our Belgium segment as just discussed, and higher payroll costs from inflation and e-commerce logistics growth. From a profitability standpoint, high revenues continue to support our EBIT margin recovery with 5.5% in Q2, a sequential improvement compared to our margins of around 3% in the third and fourth quarters of 2022, and just below 5% in the previous quarter. Moving on to eLogistics North America. As discussed in Q1 already, our top line in North America continues to be impacted by the economic softness, the market overcapacity leading to a high degree of competition and pricing pressures, as well as the insourcing of Amazon, which impacts land markets. The operating income of e-commerce logistics decreased by 13% or 49 million euro. At constant exchange rate, this corresponds to a decrease of minus 11%. At radial, top line decreased by 10% year over year, reflecting on the one hand the contribution of some new customer launches, but on the other hand, slightly lower sales from existing customers and the impact of some terminated contracts as discussed in the fourth quarter of last year already. You may want to put our 10% drop in US dollar revenues in context of a US parcel market which has been in decline over the last few quarters, as illustrated here with the volumes of UPS, FedEx and USPS. Keep in mind the correlation is not perfect for radio because we may benefit from outsourcing contract wins which can be lumpy. We would nonetheless expect the U.S. consumers to be the first to resume their online ordering, and in the meantime, as we will see in a minute, we continue to focus on productivity gains and margin enhancement, ensuring we are well prepared to seize the rebound when it comes. At Landmark, this is a different story, as besides general price pressures in the market, we continued in this quarter to record lower volumes due to Amazon's insourcing. Moving then to the P&L on slide 10. Alongside our total operating income, OPEX and DNA decreased by 9% at constant exchange rate. This also includes, by the way, higher depreciations from new site openings in the second half of last year. Variable OPEX evolved in line with revenue development, and we benefit from the continuous strong variable labor management and other productivity gains at radio, where the variable contribution margin, or VCM, continues to improve. Our margin has consistently improved and is currently at its highest level. Compared to last year, our VCM has increased by approximately 3%, delivering an impact of $8 million. These productivity gains are part of our management priority set for the year, and we are making significant progress, positioning us well when U.S. consumers resume their online offerings. In challenging market conditions, EBIT decline and margin dilution at segment level mainly reflect the revenue pressure at landmark and the lower fixed cost coverage, partly mitigated by productivity gains at radio. Moving then to the corporate segment on page 11. External operating income decreased by 1 million euro year over year from lower building sales. More importantly, OPEX and DNA increased by 15 million, or 15%, reflecting inflationary pressure, notably on payroll costs with more than 7.5% of salary indexation, as just discussed also for Belgium, partially offset by a reduction of 6.5% in overhead FTEs as part of our mitigating actions, but also additional costs related to the ongoing compliance reviews. In terms of payroll, this is now six quarters in a row that we are able to report a reduction in overhead FTEs. Then we move to the cash flow on slide 12, where the main items to flag are the following. Cash flow from operating activities before changes in working capital stood at 121.5 million and increased year over year. with lower prepayment of corporate income taxes offsetting the lower operating results. Change in working capital and provisions stood at minus 149 million, in line with typical seasonality of our second quarter. The positive variation of 53 million year-over-year is explained by higher supplier balances this year, due to cut-off effects impacting the payables, as well as different payment schedules of terminal dues advanced. The cash outflow from investing activities amounted to 23 million, 19 million less than last year. Besides the absence of M&A this year, this mainly reflects our lower capex. We spent this quarter 24 million mainly to support our e-commerce logistics expansion in the US and in the Netherlands, but also our domestic network with some additional parcel capacity and the development of our e-fleet. I now hand back over to Philip.