Bpost / : Outlook FY24 – Transcription de la conférence…

Press Update and Outlook FY24

Conference call transcript

Brussels - July, 3rd 2024

Chris Peeters, Group CEO

Philippe Dartienne, Group CFO

Transcript of the conference call held on July, 3rd 2024 - 09:30 am CET

PRESENTATION

Operator: Hello and welcome to the Press Update and Outlook 2024. My name is Caroline 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 mode. However, you will have an opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you'll be connected to an operator.

I will now hand over the call to your host, Mr Chris Peeters, Group CEO, to begin today's conference. Thank you.

Chris Peeters, bpostgroup CEO: Thank you, and good morning, ladies and gentlemen. Welcome to all of you, and thank you for joining us. I'm pleased to host this call as CEO of bpostgroup. With me, I have Philippe Dartienne, our CFO, as well as Antoine Lebecq from Investor Relations.

Now that we have reached agreements with newspapers' editors, both in the north and south of the country, we would like to update you on the operational and financial implications, as well as our outlook for 2024. We will walk you through the short presentation, and we'll then take your questions. As always, two questions each would ensure everyone gets the chance to be addressed in the upcoming session.

Let me start with the status update on Press. During the presentation of first quarter results in early May, we had already shared with you the outcome of the negotiations with the Dutch- speaking newspaper editors, but the negotiations were still ongoing with the French-speaking editors. This agreement has now been reached, so let me provide you with an overview of the overall situation with press.

First, as a reminder, regarding the financial support from the government to publishers, at the end of 2023, following the cancellation of the future press concession, the government

announced that, going forward, the financial support would be limited to an annual envelope of 2

€50 million until the end of 2026, in the form of a tax credit in favour of the editors. Compared to 2023, when the annual support was approximately €165 million, this represents a substantial decrease of over €110 million between 2023 and 2025.

Second, regarding the commercial agreements reached with the press editors. As discussed last time, we reached, on 26th April, an agreement with the Dutch-speaking newspaper publishers in the north of the country, which, in terms of volumes, represents 80% of the total newspapers currently distributed by bpost in Belgium. We will gradually transfer volumes from bpost SA to our subsidiary AMP in 2025, 2026. AMP is a subsidiary wholly owned by bpostgroup and works with subcontractors employing their own workers.

As a reminder, AMP has been active since 1885 in the press distribution and is the leading press distributor in Belgium, leveraging its four distribution centres across the country to serve over 4,500 retail outlets in Belgium, such as press shops. This commercial agreement will enable bpost Group to secure 75% of our current volumes after the gradual volume transition is completed by 2026. Pilot programmes will begin in the third quarter of this year.

For the French-speaking newspaper publishers in the southern part of the country, which, in terms of volume, represent approximately 20% of our newspapers, the proposal for a gradual transfer to AMP did not receive support from our French-speaking unions, necessitating a different operational setup for press distribution in Wallonia. As announced on 19th June, we reached an agreement where bpost will continue to distribute all newspapers throughout Wallonia until the end of 2025. And from 2026 onwards, publishers may eventually and gradually transfer the distribution of their newspapers.

A meeting has already been scheduled with the publishers for mid-2025 to see if the potential transfer of newspaper distribution from 2026 is confirmed, or if the newspaper distribution will be entrusted to bpost for a longer period.

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The press concession has now officially ended, and the two new contracts took effect on 1st July.

Finally, regarding the Periodicals, as explained last time, the periodicals are USO products, so there is no commercial negotiation involved. We had presented our new commercial offer to the regulator on 15th April and have been presenting it to our customers since then. The majority of the large editors, which represent roughly 80% of our volumes, have confirmed their intent to continue entrusting their volumes to bpost. We are currently in contracting phase, and we also continue to engage with the smaller editors.

Before looking at the financial impacts in detail, it is important to note that bpost made every effort to secure volumes and protect jobs while reaching viable agreements, despite the significant reduction in government support to the press sector. With these two contracts, we have secured the majority of our volumes and safeguarded the jobs of our employees on fixed contracts. There will be no need for a social plan or any associated restructuring costs.

Now, regarding the financial impact related to these new contracts, we distinguish between direct impacts and indirect impacts. In terms of direct impacts arising from the less favourable financial conditions of the new contracts, the annual impact will vary from year to year following the gradual transition of volumes. For 2024, this is the first year of transition to the new contractual framework starting from 1st July, the year will be marked by less favourable conditions in the extension of the press concession in the first half of 2024, due to the lower state compensation cap and the less favourable conditions for the new press contracts coming into effect in the second half of 2024. We estimate a decrease of circa €50 million in Press revenues in 2024 compared to 2023, of which about €15 million is attributable to the structural volume impact we would have faced regardless of the contract in place, and about €35 million is attributable to the less favourable conditions of the extended press concession and the new contracts, which will directly impact EBIT due to the limited ability to align cost.

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For 2025 and 2026, these years are years of gradual volume transition, with a full-year, top- line impact corresponding to the conditions of new contracts - see the circa €30 million lower revenues from the second half of 2024, but for full years - and a progressive adjustment of costs in terms of FTEs and fixed costs, allowing to offset the impact on EBIT in the course of 2026.

For 2027 and beyond, post the volume transition, of which 75% in the north of Belgium to AMP and cost alignment, the impact on the revenues due to the less favourable conditions of new contracts will be offset by cost alignment. And we will return to similar margin levels as allowed under the previous concession agreement, but on a significantly lower revenue base.

In addition to these direct impacts, we will also incur some indirect impacts tied to the negotiation period of these new contracts. We have quantified an indirect impact of circa €12.5 million related to the four-day strike in April, impacting our sorting and distribution operations for Press, Mail and Parcels, as discussed last time, and delays in the reorganisations in the first half of 2024, which could only resume last week.

With that, we now have gained the required visibility on the operational and financial impacts around the press distribution, which allows us to introduce our Group EBIT guidance for 2024.

Philippe, the floor is yours.

Philippe Dartienne, bpostgroup CFO: Thank you, Chris, and good morning, everyone. Now that we have clarity on the financial impact for the Press sector, as Chris explained to you, we are ready to provide you guidance on the Group's EBIT target for 2024. With five months passed, I will also take this opportunity to update you on the underlying operational and financial parameters we discussed at segment level in the context of the initial parametric guidance earlier this year.

For Belgium, we anticipate a slight decrease in total operating income for 2024, which now

includes reduced revenues from Press. This contrasts with our initial guidance, where we 5

anticipated slightly higher total operating income for 2024, excluding Press revenue on which we had no certainty yet. We now notably plan for a Mail volume decline of 4 to 6% for transactional and advertising, offset by the price/mix impact. This marks an upward revision from our initial guidance, where we anticipated a volume decline of 6 to 8%, partially mitigated by a price/mix effect of 4 to 5%.

For Press, as just explained by Chris, we expect a decline of €50 million in revenue, while our Parcels revenue are now expected to be driven by a mid-single digit percentage volume growth and a low single-digit percentage price/mix. This is a downward revision from our initial forecast of a high single-digit percentage volume growth, which is attributed to lower-than-expected growth in first quarter 2024 and the strike's impact in April.

Prior to any Press impact, we initially projected for an adjusted EBIT margin ranging from 6 to 8%. Today, we are revisiting this range downward by 1%, meaning from 5 to 7%, considering the lower margins on the new press contracts and indirect negative one-off impact of €12.5 million, as explained by Chris right before.

The margin outlook for 2024 also reflects increased payroll costs due to salary indexation and cost inflation, partially offset by our ongoing efforts to enhance productivity and reduce costs, despite challenges encountered during the first half of the year in the context of the press negotiations.

For E-Logistics Eurasia, we initially anticipated a low double-digit percentage growth in total operating income, with an adjusted EBIT margin ranging between 5 and 7%. Our overall EBIT ambition remains intact, but we are slightly adjusting, by a few percentage points our revenue target to a high single-digit percentage growth. Concurrently, we are revising upwards our EBIT margin target to 6 to 8%, representing a significant improvement from last year, ranging from 3 to 5%.

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For E-Logistics North America, based on year-to-date performance and our current view for the remainder of the year, we are adjusting our top-line target to a low double-digit percentage decrease. This compares with our previous expectation of a high single-digit percentage decline and reflects, at Radial, a net volume loss from lagging new customers' contribution in the in- year revenue and some negative and lower-than-anticipatedsame-store sales, the client churn that materialised in 2023 and the commercial concession granted amid challenging market conditions. While at Landmark, the increased insourcing by Amazon exerts pressure on the top-line growth, impacting the progress from new customer wins and the expansion of new cross-border lanes.

In terms of profitability, we were initially guiding from an adjusted EBIT margin ranging between 4 and 6%, in line with 2023. However, as explained in our previous calls, persistent pressure on our top line constrains our ability to absorb fixed costs and lead to margin dilution. Mechanically with the revision of our top-line target, the margin is now adjusted downwards by 1.5% to a range of 2.5 to 4.5%. To counter these challenges, as already shared with you and as observed in the performance of the previous quarters, we are working on continued Variable Contribution Margent - VCM - margin rate improvement. The margin is currently at its highest level ever, but we have also decided to reinforce the substantial effort to further reduce the SG&A and other costs.

At Group level now, including Press revenue, we anticipate a low single-digit decrease in the top line for 2024. We now project the Group's adjusted EBIT to range between €165 million and €185 million. This guidance currently excludes any EBIT contribution from Staci, which we expect to begin materialising from August onwards. And finally, regarding CAPEX, note that we are reducing the annual envelope from €180 million to €150 million.

We are now ready to take your question. Again, two questions each please, so everyone can get the chance to be addressed in the coming sessions. Operator, please open the lines.

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Questions and Answers

Operator: Sure. Thank you. As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take the first question from line Michiel Declerq from KBC Securities. The line is open now. Please go ahead.

Michiel Declercq (KBC Securities): Yes. Hi. Thanks for taking my questions. I had two questions related to the press more specifically. So you mentioned these €35 million direct impact on the EBIT from those new contracts, so that's only half year. So I assume that it's fair to assume that you will have another incremental €35 million next year. I was just wondering, will there be some kind of additional transformation costs coming in on top of this? And maybe also, how do you see the gradual improvement towards the 2023 margins by 2027?

And then maybe a second question related to this, a part, of course, of the impact that you see is the ongoing volume declines for Press. I was just wondering with the first - what's the first impression that you have? Because the press distributors will also have less subsidies than what was previously the case. How do you think that this will impact the underlying volumes of your distributors? Because they also pay more, as to say. So those would be my questions. Chris Peeters: Okay. Thank you. I will take the second question, and then Philippe will answer on the first one. On the volume decline, indeed, what we have seen in the discussion of the negotiation, it's clear that this change of regime has been a wakeup call for several of those editors to look at their speed of mainly digitalisation or potentially some alternative kind of distribution models. What we see, however, is that if we look at the north of the country, most of that, according to themselves, has already been done. So they basically look at it and say, 'Look, the way how we want to do this transition is at the speed of the readers.' And most of the readers that could be easily digitalised are already digitalised today. And so the paper version that they keep, they stick to that for different reasons. Like you see this weekend edition that you have for some parts of the country where people say, 'We have the habits of a

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paper version. I want to do it until the end of days. And I'm also willing to pay that difference in price.' And so they see more a potential there to transfer, in the longer term, the distribution cost towards those readers, because those readers, they feel that they would lose them if they would force them to go there. They think they are more likely to be able to absorb the additional cost of distribution.

In the south, it's a little bit different. There, you see that digitalisation has not progressed that fast. And there we could have a potential, somewhat acceleration in the system as well, as we've said before, there is much higher uncertainty given the fact that we, there, have a solution until the end of 2026. And there's still a lot of discussion upcoming there, how that we solve the period after 2026. While, if you look at the north, actually there is a visibility for everybody for a substantial period of time, where they want to continue to work with us and where we see that we actually have a good plan to make that transition.

So, net net, I would say in the north, we don't think there is a substantial impact on the further speed of decline. It will continue at the decline we've seen over the last couple of years. In the south, there could be somewhat an acceleration because, obviously, if you look in terms of volumes, it's 80% north, 20% south. It should not be that much impacting compared to the trend that we already have seen over the last couple of years.

Philippe Dartienne: On the translation of all that into numbers, as you rightly pointed out, we have a direct impact of €35 million in 2024, which is mainly relating to H2, where the new framework, which is the commercial agreement, will be in place. Also, be reminded, there is also this indirect impact of €12.5 million, as Chris mentioned it.

So if we try to project ourselves for 2025/26, what can we see right now? You might say on one hand, as a proxy, because €35 million is for H2 2024, you might say on a full-year basis, it would be a two times €35 million. I think this proxy is not totally correct in the sense that right now, we are in a situation where we are receiving, in fact, less top line, and we have not 9

been able to adjust yet, because the transition has not started, the cost base. But starting from 2025, we will gradually adjust the cost base. So that should mitigate this impact. It does not mean that it will negate the impact. There will be an impact, there will be a significant impact, but I would not take €35 million times two as a proxy for the impact in 2025, 2026 and 2027.

And then I come to your point of 2027, as you rightly pointed out, in fact, it would be the end of the transition period. And at that time, beginning 2027, we should be in a situation which is very similar to the one we have experienced until June 2024, and we should go back to a profitability in the range of what we are currently enjoying today, because we will have, despite our volume, the time to adjust our cost base structure.

Michiel Declercq: Okay. That's very clear. Thank you very much.

Operator: Thank you. We will take the next question from line Frank Claassen from DEGROOF PETERCAM. The line is open now. Please go ahead.

Frank Claassen (DEGROOF PETERCAM): Yes. Good morning all. Two questions. First of all, on the acquisition costs related to Staci, you've flagged €15-20 million, if I remember correctly. Is that still the case? And is that included in the guidance and in the corporate costs increase? That's my first question.

And then secondly, you indicate for North America, one of the reasons for the relative weakness is the Amazon insourcing at Landmark. But I thought that was already going on. Has that situation changed, has that deteriorated for you? Can you elaborate on that? Thank you.

Philippe Dartienne: So Frank, thank you for your question. When it comes to the acquisition cost, I think the amount you were referring to are still valid, and they are not included in the guidance, nor is the contribution of Staci included in the guidance. So that one is excluding the transaction costs, but also excluding the additional EBIT, EBITDA that we will be enjoying,

normally starting August.

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