Postnl Nv

Good morning, ladies and gentlemen. Welcome to the PostNL Q3 2023 results call. At this moment, all participants are in a listen-only mode, and after the presentation, there will be an opportunity to ask questions. Now, I would like to hand over the conference call to Miss Inge Laude, Manager, Investor Relations. Please go ahead, Madame.

Thank you. Well, good morning, everyone, and thank you for joining us today in our Q323 analyst call. With me here in the room are Kim Berense, our CFO. As usual, we start with our presentation, which you can find on the website and on your screen when you're logged in to our webcast. After the presentation, we will open up for Q&A. Kim, over to you.

Thank you Inge and good morning to all. Thanks for joining us. Let's start by looking at the key takeaways of this third quarter on slide three. The results came in above those of last year, but below our own expectations. It was a tough quarter for us. Volumes at parcels did still grow, albeit at a lower rate than we anticipated. We saw growth of 1.6%, predominantly driven by strong growth from international customers, whilst domestic volumes were slightly below last year's levels. in line with slowdown in consumer spending. In other words, we do really see this as a market development. We have not seen any material changes in the competitive landscape or in our market share. Overall, this resulted, and that is the mix in international and domestic volumes in an unfavorable shifting mix of parcels that also had an impact on margin. At Mail in the Netherlands, as expected, performance was lower than last year as a result of continued volume decline, but also due to increase in organic costs. And next to those elements within Mail in the Netherlands, we also saw a less favorable product mix. In other words, more expensive products were substituted by cheaper products. Of course, we've continued our strong focus on yield and other measures to mitigate the impact of cost inflation and these unfavorable mixed effects. This contributed to our results also in this quarter, but could not fully offset the cost increases. We have worked hard to prepare ourselves for the peak season and are ready to operate at max capacity, both at parcels and meal. So we can serve the people that count on us at the best possible quality. But we also know that particularly this year, the ramp up will be very steep. I'll come back to that a little later. At the same time, we need to recognize that economic uncertainty and particularly the consumer spending remains in a volatile market environment. Taking all this into account, we now expect the full year normalized EBIT to come in at the low end of the guided range of 100 to 130 million. Next to the press release on the announcement of our Q3 numbers, you also have seen a press release announcing our intention to buy back 160 million of the 1% euro bond due 2024 that is outstanding. And obviously we do this to optimize our balance sheet and financial position. If we then move over to slide four for the financials, you see the revenue in the quarter at 722 million, which is 2% higher than last year. We see a normalized EBIT at minus 11, also an improvement in comparison to last year when we reported a loss of 20 million. Year-to-date, we reported positive normalized EBIT of 14 million, and this performance includes high organic cost increases of 38 million in the quarter, adding up to 130 million year-to-date. And obviously, this also includes the positive impact from the pension agreement, visible in our segment, PostNL, other of 19 million. Overall, better results than last year, but obviously with business performance lower than expected. Before going into Q3 a bit deeper, I would like to repeat our strategy and highlight some non-financial developments that are noteworthy in this quarter. Our aim is to continue to be your favorite deliverer. with an unchanged strategy to be the leading logistics and postal service provider into and from the Benelux. And you know that is built on the three pillars Parcels Mill and our Digital Next program. We have continued to make progress in the areas of digitalization and ESG. We now have 8.6 million consumers, an increase of almost a million compared to last year. We also have continued the rollout of our Automod automated parcel lockers and we currently have 900 APLs up and running. And finally, we also have made steady progress in our environmental goals, where we are delivering on our SBTI target and have further improved our carbon efficiency with an 11% improvement in efficiency year to date. Then let's look at the market environment in which we are operating. We continue to see long-term growth potential in e-commerce, driven obviously by the drivers that we discussed before, consumer spending on the back of GDP growth, as well as online penetration. However, in the shorter term, the macroeconomic developments continue to be volatile and uncertain. And on the slide, you see consumer spending of households on products not yet really showing the growth we were looking for. Consumers are cautious to spend money on goods and products. And we also see a shift from more expensive products to cheaper products, a shift from domestic clients to Asian clients, which obviously also relate to the mix effect that we talked about. Obviously, the uncertain environment results in an increasing volatile volume projection, both at our customers and at ourselves. Nevertheless, we truly believe that we're still very well positioned to capture that future growth. Let's look into the segments one by one, and let's start with parcels first. At parcels revenues came in at 535 million, an increase of roughly 6% compared to the same quarter last year. That is obviously as a result of the volume growth of 1.6% and price increases that we've put through. So we do see growth, but slower growth than expected, predominantly due to the development of domestic volumes. Those were slightly below last year, following the slowdown in consumer spending. The volumes from international customers continue to show very strong growth. And that means a shift in our customer and product mix becoming less favorable. The impact of the mix effect is fully offsetting the price increases of 12 million in the quarter, resulting in an overall flat price mix effect. And also keep in mind that the unfavorable mix development will continue to play a role going forward, at least for the remainder of this year. Our cross-border activities continue the positive trend we have been seeing for several quarters, with revenues at spring up, most strongly in Asia. Logistics solutions was 1 million lower than last year, and normalized EBIT for the segment came in at 1 million compared to minus 1 last year. Driven by volume growth, higher results at spring and operational efficiency measures. While on the other hand, organic costs continue to be significantly higher than last year. And we also incur additional costs to be ready for the steep ramp up towards our peak season. Relating or resulting into a largely fixed cost operating environment in the fourth quarter of this year. If we then look to the bridge of the parcel segment, you see basically the numbers that relate to the elements we just discussed. So a 10 million improvement on revenue driven by volume, a zero price mix in which 12 million of price increases are fully offset by less favorable product mix, then a 18 million higher organic costs, and volume-dependent costs and other costs that are impacted by operational efficiencies. And then other results, an improvement from spring, an improvement in Belgium, and slightly lower results at logistics. Then let's move over to the meal in the Netherlands segment. Their revenue came in at close to 300 million, 299 million to be precise, a decline compared with the 3 to 8 million last year, obviously driven by the volume decline of 8.7% in the quarter. If we exclude the COVID-19 impact of last year, volumes were down 6.9%. The price mix effect was positive, reflecting our moderate price policy, but it was partly offset by the changed composition of the volume due to, for example, shifts from 24-hour mill towards lower service levels. Normalized EBIT came in at minus 14 compared to minus 1 million last year. Next to volume decline, we had significantly higher organic costs and higher costs related to sick leave and staff shortages, resulting in a challenging operating environment that does impact our quality and cost levels, as just discussed. Additional cost savings, however, partly offset the impact on these cost increases, and by now we've already saved more costs than in the entire year of 2022. the detailed segment bridge on slide 10 formula indicates the 17 million volume effect in revenues a positive price mix of which 13 million is price increases and 4 million is negative mix effects a 12 million additional organic cost increase than the volume dependent cost and other costs that do relate to the cost but also there are the additional costs related to higher sick leave rates and staff shortages. And other results are small elements including international meal performance. Then on slide 11, you'll find the cash flow for the quarter. Free cash flow was minus 26 million in the quarter compared to minus 49 in the same quarter last year. So roughly 23 million improvement there, driven by better normalized EBIT and higher depreciation and amortization. And with 26 million we spent less cash on capex than in the third quarter of last year. For the full year we pencil in roughly 125 to 130 million of capex. Year to date is roughly 90 million. A less negative change in working capital, which throughout the year includes phasing effects. Year-to-date we're at minus 47, whilst we would expect that to improve towards Q4 towards, I would say, roughly the minus 25, 20 to 25 million for the full year. This brings us to the next slide where you'll find our balance sheet and the development of the adjusted net debt position. Before looking at those, I would like to say that we've announced our intention to buy back 160 million of the 1% euro bond due in November 2024. That has an outstanding amount of 400. What we'll do is basically use the cash position of the balance sheet to buy back the bonds that are on the long-term debt side of the balance sheet. That will have a slightly positive effect because you'll buy back the bonds below nominal. Of course, you lose the interest income on the cash that you would have had, but also don't have to pay the interest expense of the bond anymore. So that in combination will lead to a slightly positive transaction. Financially, it will reduce our capital employed and as such will then improve our return on invested capital. Likewise, we would expect it to be positive from a credit rating point of view. And we still have and remain to have the flexibility to determine throughout 2024 how we want to handle the remaining part of the bonds that indeed are expiring at November 24. Back to the numbers as per the end of Q3, our adjusted net debt position was 604 million, which is an increase of roughly 130 million compared to the end of last year, and that's obviously largely driven by dividends paid in May and August on top of the development of the free cash flow that we just discussed. Obviously, we continue to manage our cash flow balance sheet and net debt position carefully with the aim and the expectation to end up in 2023 at an adjusted net debt over EBITDA below 2. Then to the outlook, taking into account our Q3 performance, we expect the fully normalized EBIT to come in at the low end of the guided range that we've communicated on August 7. And the same goes for the other financial metrics. We continue to operate in challenging environment with ongoing uncertainties around macroeconomic developments. Market volatility limits clear visibility on the short-term development of the e-commerce market, probably the consumer spending part of that, impacting the accuracy of volume projections both for our customers and for ourselves. On the slide, you see the underlying assumptions for 2023. And as you know, organic cost increases at 185 million for the year are extremely high. Historically, organic cost increases were roughly around about the 40 to 60 million per year mark. Going forward, we expect further wage inflation in the Netherlands and combined with scarcity in the labor market, this will bring additional pressure on labor. This together with a continued unfavorable shift in mix, both at parcels and meal in the Netherlands is expecting to weigh on our results. While we continue our strong focus on yield and tight cost control. But it clearly becomes more challenging to mitigate the full impact of these developments I just mentioned. And as usual, we provide you with a full outlook for 24 at our full year 2023 publication in February. As you know, our fourth quarter results are crucial for our full year business performance. We are looking forward to a very busy peak season, particularly between Black Friday, Sinterklaas, but also towards Christmas. To make this all happen and to be able to deliver the best possible quality, we are prepared for and already in execution of a very steep ramp-up plan from Q3 to Q4. This really does ask a lot from us operationally. Already in Q3, we have taken all possible measures to be ready to operate at max capacity, both at mill and parcel site. which resulted in some additional cost made in Q3, but also means that we are limited in balancing volumes and capacity in fourth quarter. Capacity and thus related costs are fixed, so to say, obviously not on the longer run, but they are relatively fixed in fourth quarter. Then the final sheet with our closing remarks. All in all, we are looking at results that are better than Q3 2022. And also our outlook for the remaining of the year is still better than the outlook that was in place at the beginning of the year. But those figures are also below our expectations. Taking this into account, we expect now a normalized EBIT that will come in at the low end of the guided range of 100 to 130 million. We remain to operate in a highly volatile e-commerce market with limited visibility on the short term. At the same time, we are fully prepared for a steep ramp up towards peak season. And all in all, we continue to have full confidence in our strategy, underpinning the long-term growth potential of the e-commerce market. For now, thank you for your attention and welcome any questions during the Q&A that is next.