bpost NV/SA (BPOST) Earnings Call Transcript & Summary

Hello, and welcome to the bpost analyst call first quarter results. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your hosts, CEO, Mr. Jean-Paul Van Avermaet; and CFO, Mr. Leen Geirnaerdt, to begin today's conference. Thank you.

Okay. Good morning, ladies and gentlemen. I'm pleased to be here to present you bpost Group's first quarter 2020 results. I want to welcome you and thank you for joining us. With me, I have Leen Geirnaerdt as the speaker, our CFO; as well as Saskia and Stephanie from our Investor Relations department. I assume you already had the opportunity to read through the materials, which we posted on our website last night. We will summarize the key messages so as to move on to the Q&A quite quickly. Throughout the presentation, you will have seen that our first quarter results were impacted by the spread of the COVID-19 virus and the linked governmental decisions taken to limit it. So allow me to first comment on what we currently observe on that front. Our priority throughout the crisis has been to guarantee and is to guarantee the health and safety of our workers while ensuring the continuity of our services to the citizens. This is clearly not a walk in the park and unavoidably has an impact on our operations and also our financials. Although clear visibility remains very low, I do can already shed some more light on what's currently happening. First of all, in all divisions, we spend more on health and safety measures to protect our employees and customers. In Mail & Retail, we see a significant impact on mail volumes from the withdrawal of many planned campaigns, and this, in particular, since the ban on promotions at the start of the crisis in Belgium, meanwhile, this has been withdrawn, but also the closure of nonessential stores that was effective here at the -- from the 18th of March and is still ongoing. Transactional mail is hurt to a lesser extent, we can say, but volume decline in smaller administrative volumes and registered letters is seen. The proximity and convenience retail network is impacted by a lower footfall in the retail points of sale, but that is also especially the case and heavy in travel environments. In the Parcels & Logistics Eurasia department or division, we observed that the confinement measures imposed on Belgian citizens really stimulate e-commerce and hence impact B2C parcels volumes. The impact on Parcels Belgium-Netherlands, volumes started modestly in March and is strongly trending upwards since. This also results in a higher use of subcontracts for parcels delivery. On the other hand, cross-border activities have been severely negatively impacted by reduced air freight capacity and also because of the closure of international borders. At the start of this crisis, the absenteeism rate at bpost Belgium doubled, implying additional costs. Also, we have launched a COVID-19 premium that has been granted to operational staff in duty applicable from March 1 till May 31. Finally, in Parcels & Logistics North America, we see that e-commerce logistics client volumes met so far the expectations. This, also supported by the closure of brick-and-mortar stores, which are shifting sales online. Radial North America witnessed limited operational disruptions through the first quarter of 2020. International Mail, however, sees additional volume loss from the various lockdowns as well as exceptional increases in airfreight rates as carrier capacity decreases. As you will see later in the presentation, this impact was still quite limited on the first quarter 2020 results. Coming back to our first quarter results on Slide 3, group adjusted EBIT stood at EUR 75.6 million. This includes an estimated negative impact of EUR 16.7 million related to the COVID-19 crisis. Excluding this, our first quarter 2020 results are above expectations, mainly driven by letters, mail volume that is better and decline -- lower decline than anticipated. This, again, of course, excluding COVID-19. Mail & Retail contributed for EUR 65.2 million to group adjusted EBIT. This, with a margin of 13%. Year-on-year, the segment was impacted by accelerating volume decline of minus 10%, with a significant impact from COVID-19 in March second half mainly. As mentioned before, in advertising mail, we witnessed a high number of advertising campaigns being canceled during this last month. This top line development is the main driver behind the adjusted EBIT decline of about 30%. The estimated negative COVID-19 impact on Mail & Retail EBIT stands at EUR 14.4 million. Parcels & Logistics Eurasia generated EUR 16.9 million adjusted EBIT, almost 8% margin. Top line was mainly driven by Parcels Belgium-Netherlands, volume growth of 20.5%, and by a strong volume performance in e-commerce logistics as well. It was, however, offset by the significant negative impact of the COVID-19 from the partial suspension of cross-border activities, as I mentioned earlier. Excluding the unfavorable evolution in VAT recovery and also terminal due settlements as well as the estimated net negative impact of COVID-19, adjusted EBIT for this business unit was up by EUR 4.5 million or 31% year-on-year driven by business and operational performance. Net COVID-19 impact on EBIT is, in this business unit, estimated at EUR 1.8 million. At Parcels & Logistics North America, new business and e-commerce logistics is gaining pace, and total operating income grew by 14.3% to EUR 261.3 million. The adjusted EBIT for the division increased by EUR 0.4 million to minus EUR 7.4 million. Positive EBIT evolution at Radial North America was, to a large extent, offset by continued margin pressure in the International Mail activity. Net COVID-19 impact on EBIT estimated at minus EUR 0.3 million and primary relates to additional health and safety measures cost. Our full year guidance, as issued on March 17, is overruled by the difficult and unstable market conditions resulting from the spread of the virus. An updated full year guidance will be issued as soon as the full quantitative impact of COVID-19 can be accurately and reliably estimated. Unfortunately, we are not in a position to do so to date. I will come back later on this in more details but will first hand over to Leen for more details on the financials. Leen?

Yes. Thank you, Jean-Paul. Welcome to you all for a very special quarter. Of course, I empathy the work you have to do as analysts because it's a quarter in which you have to scratch a bit to understand what's happening underneath it. And as Jean-Paul said, we're not in the position having not all information yet to come with a new outlook. What we do try is to deliver as much information as possible so that you can find out for yourself a bit what the direction underlying exactly is. So together, we are on Page 4, showing the EBIT bridge for the first quarter. So as you can see, EBIT showed a decline of EUR 20.2 million compared to the first quarter of 2019. As Jean-Paul mentioned, this includes a net estimated COVID-19 impact in total of minus EUR 16.7 million on EBIT level. In Mail & Retail, adjusted EBIT declined by EUR 27.4 million and was mainly impacted by COVID-19 visible to the domestic mail volume decline at minus 9.9% in the quarter and additional costs to guarantee the continuity of our service to the citizens. And that means costs for health, safety measures and additional staff to cope with a higher absenteeism that we have observed during the last weeks of March. Parcels & Logistics Eurasia recorded an adjusted EBIT decline of minus EUR 1.2 million. The adjusted EBIT figure of EUR 16.9 million includes a couple of negative elements. We have a net EUR 1.8 million impact of COVID-19; we have a EUR 1.4 million negative evolution in the settlements of terminal dues, so just different than it was last year, where we see more positive; and thirdly, there's a year-over-year decline in VAT recovery of EUR 2.4 million. When we would exclude those elements, the adjusted EBIT would indeed increase by EUR 4.5 million, which is an increase of 31% year-on-year operationally. Then PaLo North America, their adjusted EBIT increased slightly with EUR 400,000 versus last year. The positive EBIT development from e-commerce logistics, Radial, in particular, was largely offset by margin pressure in International Mail, and I will explain that in more detail going forward. In Corporate, adjusted EBIT uplift of EUR 8 million is mainly explained by higher revenue from building sales, which was also expected in this quarter. Moving to Page 5. That shows the key financials for the quarter. At group level, total operating income was up by 3.1%, positively impacted by strong growth in Parcels BeNe and in e-commerce logistics. More details on revenue and EBIT developments following the breakdowns per business units. As usual, we have, on the one hand, reported numbers and adjusted numbers. And the adjustment is also this quarter only for the noncash amortization charges on intangible assets that were recognized following the purchase price allocation. These charges also positively impacted the reported income tax. Net financial results of minus EUR 4.3 million. It increased with EUR 3.2 million better versus last year mainly due to lower noncash financial charges relating to IAS 19 employee benefits and also improved exchange results. Adjusted income tax, it decreased by EUR 8 million compared to first quarter last year, and that's, of course, a result of lower profit before tax, while the effective tax rate of 33% also decreased mainly as a result of the lower Belgium corporate tax rate from almost 30% last year to 25% as from 2020. Normalized free cash flow, it increased, thanks to an improvement in the working capital evolution. Primarily, we see that driven by the payables, also a positive year-on-year variance in tax assessments and higher proceeds from building sales, partly offset, of course, by the lower operating results and higher CapEx. I will come back on those cash flow elements also later in the presentation. All in all, the net debt marginally increased compared to the end of 2019. The CapEx for the quarter amounted to EUR 20.5 million, which is about EUR 5 million higher than last year, and it primarily relates to the further build-out of the new fulfillment centers in North America as well as the second active end sites, among others. Moving to Page 6, where we see the different operating segments, always a nice view. Mail & Retail generates 86.2% of the group adjusted EBIT, and Parcels & Logistics Eurasia was the second contributor at 22.4%. Parcels & Logistics North America, this quarter still contributing negatively. Then we move to the business units, starting with Mail & Retail. External revenue at Mail & Retail declined by EUR 28.7 million to EUR 457.8 million, mainly impacted by a negative EUR 17.6 million revenue loss from Domestic Mail. This was driven in the quarter by a mail volume decline of minus 9.9%, partly compensated by the positive price/mix effect. Mail volume decline for advertising and transactional mail shows very different patterns between year-to-date February and the month of March, of course, impacted by corona in the last 2 weeks. What do we see in transactional mail? Mail volume decline in the quarter, minus 8.8%, of which 8.1% in the first 2 months of the year and minus 10.2% in March. COVID-19 impacted transactional mail, as Jean-Paul already said, to reduce small administrative volumes from big senders and SMEs as well as less registered letters. The underlying trend here is a continuation of what we experienced in the previous quarters. We did benefit from an opportunity in the banking sectors as banks are removing their self-service printers. We print and send bank statements at home. Just to tell one opportunity that we could see in transaction mail. Then the advertising mail. Volume decline is strong, minus 16.5%, of which minus 3.9% only in the first 2 months supported by the dedicated marketing and sale projects that we launched last year. And in March, it was minus 39.4%. This was fully driven by canceled advertising campaigns resulting from the ban on promotions imposed by Belgian government at the beginning of the COVID-19 crisis. Meanwhile, that one has been lifted. We also, of course, have seen the impact of the enforced closure of nonessential stores, which is still current to date. Press volumes, they are at minus 5.2%. They showed a continuation of the trend towards e-substitution and rationalization. Proximity and convenience retail network revenues, they declined by EUR 13.2 million, partly due to deconsolidation of Alvadis, explaining about EUR 7.6 million. And then at Ubiway Retail revenues, we've seen the impact of COVID-19 confinement measures, which led to a significant decrease in footfall, primarily in travel locations. Banking and finance revenues also declined due to the low interest rate environment. Value-added services, they increased by EUR 2.2 million, higher revenue from fines and document management. Moving then to the EBIT of Mail & Retail on Slide 8. Adjusted EBIT is EUR 65.2 million, margin of 13%. This is a net decrease of EUR 27.4 million compared to the first quarter last year explained almost in full by the decrease in the revenues of EUR 27.5 million. Whereas the OpEx or costs, they remained broadly stable. As to that operating expenses, on the one hand, there were higher payroll and interim costs, reflecting higher absenteeism and also the COVID-19 premium that we granted to all operational workers in duty, which was applicable for the full month. So we paid it as from the 1st of March retroactively. There were also additional costs for the health and safety of our employees and customers. So that was extra. On the other hand, these additional costs were compensated by the favorable evolution of the FTE mix, again, deconsolidation of Alvadis. And also, we profit here from a higher amount of recoverable VAT. To recap on the impact of COVID-19 for this business unit, a net impact on the EBIT of EUR 14.4 million explained by both top line developments at Domestic Mail and Ubiway Retail as well as the additional costs. On Slide 9, Parcels & Logistics Eurasia. We record external revenue growth of EUR 18.7 million. This is mainly driven by EUR 17.3 million or 19.8% of Parcels BeNe. Organic volume growth was solid, 20.5% for the quarter. While we split that to year-to-date February, there, we had a growth of 17.9%, and in the month of March, it went up to 26%. This, by increased online sales since the start of the lockdown. We also noted actually a good performance at DynaLogic. As to price/mix, we recorded still a slightly negative mix effect, which was fully mix-driven. E-commerce logistics revenues, they also increased nicely by EUR 8.5 million, thanks to the client wins at Radial Europe, thanks to Active Ants' organic business development and also the acquisition of MCS Fulfilment, which is now a part of Active Ants acquired in October 2019. Cross-border revenues. Not surprising, of course, that revenues decreased there firmly, EUR 7 million in total, impacted by COVID-19 for about EUR 5.7 million. Operations had to be partially suspended given the lack of airfreight capacity. Terminal due settlement has showed a negative year-on-year evolution of minus EUR 1 million on the top line. On Slide 10, the EBIT for Parcels & Logistics Eurasia. We already explained it because it's quite important to understand, so I'll probably repeat the message. So you see indeed an EBIT, which is lower, which is surprising if you look at the top line. And of course, the top line drives it positively, but we did have additional operating expenses, too. These additional expenses were driven by EUR 0.5 million unfavorable evolution of terminal due settlements in the transport costs and by a negative year-on-year impact of EUR 2.4 million relating to VAT recovery. Excluding those 2 impacts, operating expenses increased by EUR 14.9 million, mainly from higher payroll, interim and transport costs relating to parcels and e-commerce logistics volume growth, as well, also here, the COVID-19 premium, increased costs due to absenteeism and, in addition to that, a negative channel mix as we had to use more subcontractors. Like said, excluding the impact of VAT recovery, the terminal due settlements and the COVID-19, the adjusted EBIT would be up by EUR 4.5 million. That represents operationally an increase of 31%. So on the full business unit impact that we've seen in March on the EBIT of COVID-19 is minus EUR 1.8 million. Then going to North America. EUR 33.5 million growth in external operating income of e-commerce logistics driven by Radial North America. They recorded growth from existing customers as well as new clients that were launched in 2019, and there was also a positive foreign currency evolution. This was fully -- partly offset by some churn. International Mail was a bit more complicated. They saw their external revenues declining by EUR 700,000 or minus 3.2% despite a positive foreign currency evolution. COVID-19 did not yet have a material impact in March. Overall, external revenues were up by EUR 32.8 million for this business unit and reached EUR 260 million. What does it mean to the EBIT? Adjusted EBIT increased by EUR 400,000 to EUR 7.4 million loss, including a negative EUR 300,000 impact from COVID-19 essentially related to health and safety costs. This was driven by the positive top line evolution in e-commerce logistics, in particular, at Radial, like said, partly offset by higher variable costs related to that growth and, of course, not surprisingly, increased depreciation from the 3 new fulfillment centers that we opened last year. All in all, EBIT at region North America showed a positive evolution, and you can see that in the KPIs at the bottom of the table in U.S. dollars. This is a materialization of the positive commercial trend seen for several quarters now. So we see $27.9 million revenue growth, and that translated in an improvement in the EBIT of EUR 2.3 million. That's about 8%. The positive evolution at Radial was unfortunately largely offset by continued margin pressure in International Mail. We see there higher competition, lower volumes and higher transport costs. Like said, we did not see yet a big impact of COVID-19 over the first quarter 2020. Moving to the Corporate segment on Page 13. You will see that the external operating income increased by EUR 4.9 million, primarily driven by higher building sales, which was expected since some of the disposals initially foreseen in 2019 were postponed to 2020 and partially realized this quarter. Net of the intersegment's operating income, OpEx decreased by EUR 3.1 million, leading to an increase of EBIT of Corporate of EUR 8 million. Then the cash flow in the first quarter. Operating cash flow stood at EUR 203.6 million. It's EUR 1.4 million higher than it was last year. This is due to improvement in working capital evolution of EUR 35.2 million, primarily driven by a favorable evolution of payables. We see that mainly at Radial due to phasing differences in end-of-year peak invoices of 2019 versus what we've seen in 2018. We also record favorable evolution of trade receivables at bpost, partly driven by the lower invoicing to clients from the COVID-19 drop in advertising campaigns. I call that unwinding of working capital. There was also a positive year-over-year of tax assessment on previous years, generating a positive delta of EUR 21.3 million. These positive effects, they were offset by lower operating results, more cash payments related to the "due to" Radial clients, which is mainly a calendar phasing effect. Remember also that on the initial slide, Slide 5, I think, that the "due to" effect is excluded from the adjusted free cash flow like we presented there. Then the cash flow from investing activities, it increases by EUR 6.7 million. This was driven by EUR 11 million higher proceeds from building sales compared to the first quarter last year, partly offset by higher CapEx of about EUR 5 million. I already indicated that the CapEx is mainly relating to e-commerce logistics, Radial U.S. and the second site at Active Ants. As a consequence, the free cash flow increased by EUR 8.1 million to EUR 194.2 million. Cash flow from financing activities is minus EUR 26.6 million in the quarter. It increased by EUR 17.5 million versus the same period last year, and it has mainly to do with the issuance of commercial paper. Regarding the balance sheet, on Page 15. I just want to present it here. We mentioned the net debt at EUR 620 million, which remain broadly stable. The main balance sheet movements that we see is as to the decrease in trade and other receivables due to the peak sales of year-end 2019 on the one hand and also the settlement of the SGEI receivable we typically always have, and that results in an increase in cash and cash equivalents. Trade and other payables, they decreased due to the phasing of year-end peak 2019, which was partially compensated by increase in other payables due to also an advanced payment of the SGEI compensation. Then on Slide 16, it's a slide that we added because we thought it might be useful to have an insight in our financing structure and also some insight in the liquidity of the group. Total available liquidity at the end of March consisted of EUR 844.4 million of cash and cash equivalents. We mentioned here that EUR 653 million is readily available on the bank and current accounts and also on the short-term deposits. EUR 156 million is in the network, that means -- and bpost bank. We also have, in addition to that, 2 undrawn revolving credit facilities for a total amount of EUR 375 million. External funding, at the right-hand side, it amounts to roughly EUR 1 billion, out of which EUR 837 million is long-term debt and the EUR 165.2 million will be repaid or will be rolled over between the second and the fourth quarter of this year. That's mainly relating to short-term commercial paper. They vary between 1 month and 3 months, and I refer to the undrawn facilities that we have. They're in part also a guarantee for those commercial papers. So if we will not be able to roll it over, then we have the undrawn facilities. But I can notify you that last week, this rollover of commercial paper was successful and, apparently, enough liquidity to roll those over. The current portion of the European Investment Bank amortizing loan of EUR 9.1 million needs to be repaid. That's in the fourth quarter. So we have sufficient short-term liquidity to serve our debt obligations, and it is in a very cautious way, given the lack of feasibility on the length and the severity of the crisis. I will now hand over to Jean-Paul. Yes, we call it the outlook, but indeed, giving some more explanation on the fact that we overrule the outlook and the effects that we have seen in the month of March.

Thank you, Leen. I would like to say as a preamble that the current exceptional crisis has unprecedented consequences across the globe. As Leen also said, visibility of the length of the crisis and its economic impact is currently extremely low. Yet, it had already a visible impact in the first quarter on the operations and financials of our view. Therefore, the full year guidance we issued on March 17 is overruled by the difficult and unstable market conditions. And as mentioned already, an updated full year guidance will be issued as soon as we are able to have the full quantitative impact of the COVID-19 crisis and that we can estimate it accurately. Today, we are not in a position to do so. What we can do, however, is summarizing some impacts that we have seen so far since the start of the lockdown, thus, meaning in the second part of March. In Mail & Retail, as already mentioned, we saw a severe volume impact in advertising mail, with declines above 60%. Transactional mail was also impacted, but to a lesser extent. Additional costs related to health and safety measures and also the COVID-19 premium to the staff amount approximately to EUR 5 million on a monthly basis. Absenteeism doubled at bpost Belgium at the start of the crisis in March. When we look to Parcels & Logistics Eurasia and Parcels BeNe, the year-on-year volume growth is above 20% there. The impact was limited in the last 2 weeks of March, but it is strongly trending upwards. And we are currently on a daily basis around levels that are usually the levels at the year-end peak. Cross-border, however, as we already highlighted also, is impacted significantly by the reduced airfreight capacity and by the closure of the international borders. Additional costs for safety, the COVID-19 premium, absenteeism and transports would represent approximately EUR 1.5 million on a monthly basis. Within Parcels & Logistics North America, so far, client volumes met expectations, and we experienced very limited operational disruptions in the first quarter. Additional costs for health and safety measures are currently below EUR 1 million on a monthly basis. When we look to the group as a whole, we will limit CapEx to urgent and strategic needs only, and we will strive to reduce it by at least EUR 50 million to a maximum of EUR 150 million CapEx spend. With regards to the dividends, we can say that the current dividend policy of paying out at least 85% of BGAAP net result for the mother company is suspended. Exceptional circumstances require exceptional measures. Therefore, the Board will only decide on a new dividend policy when the longer-term impact of the COVID-19 crisis becomes more clear. And with this, we are happy now to answer your questions. Operator, please open the lines.

[Operator Instructions] The first question comes from the line of Frank Claassen from Degroof Petercam.

Yes. Frank Claassen, Degroof Petercam. Two questions, please. First of all, what is your experience so far with your new distribution model in Mail? And do you expect impact of COVID-19 on the rollout of this distribution model? And then, secondly, what can we expect on the sale of buildings in 2020? And do you also expect to see their impact of COVID-19?

Okay. On your first question, I will answer, sir. We have launched the new distribution model officially since mid-March. And we are -- as we told you before, we are evaluating the findings on a permanent basis. So it has not been postponed. It has really been launched mid-March, and we see that it functions for the moment as we have expected. So we are -- our sorting activities are now able to treat and deliver today clearly separated streams of products to the distribution offices, and this, with a clear distinction between prior and nonprior mail. So technical aspects and changes made to the processes to establish and to launch this new distribution model are under control. For the buildings, Leen?

Yes. For the buildings indeed, yes, we had a plan, indeed, on the building sales. We continue to execute on that plan. But your question is the right question within the current context. Property disposals might be a bit on hold, and it is to be seen when the normal activity will resume. But also there -- sorry, I have to say the same. It's too early to make a judgment call on that, and we will take it up in the new outlook as soon as we have a better sight on the length of this crisis.

The next question comes from the line of Ruben Devos from KBC Securities.

Yes. I had one on the exit plan that has started in Belgium since yesterday, started with a softening of lockdown measures. I was wondering where that changes much for bpost in terms of running the business. And related to that, with more people being at work and no longer at home, could that actually make things more difficult with potentially a less efficient delivery process? That's question one. The second one relates to the announcement of one of your peers with an opening of a new depot in Belgium. Yes, so basically, they've been increasing their footprint in Flanders. And in the past, you've done the same in the Netherlands, mainly through acquisitions. I was wondering whether you could give an update on your strategy in the Netherlands and whether at this stage you feel that capacity is sufficient to serve that market, or are you potentially looking as well to increase your physical presence in the Netherlands?

Perhaps briefly on the deconfinements, that's indeed the reason why it's so difficult to give a full year prediction. Because the deconfinements, how successful it will be, and lets all hope it is very successful, will impact our business in one way or another. So it will impact Mail again, it will impact Parcels again. On the other hand, indeed, we also gained new customers on Parcels, how faithful will they remain with this, it's indeed, like you said, delivery of parcels at home. But as long as kids are still not going to school, that might also have an impact. So it can go a bit either way that makes it overly complicated. And I think as to that point, we really hope that deconfinement measures are respected by everybody, and that we all, not only bpost, we can go back to the new normal in which, indeed, we believe it will probably be a new normal. But let's hope we don't need a second confinement. New depot, will you take that, Jean-Paul?

Yes. Well, we also read the press release, I think, yesterday from our colleague, PostNL. It's clear that the e-commerce market is moving around, I would say, is very busy. Everybody is looking for its place. Until now, if I'm not wrong, there was no sorting -- real sorting center from them in our country. But we focus on the strategy we have chosen in the past, continuing our growth strategy with innovative solutions for our customers, like we have this where they can apply in the app for the location where their parcel has to be delivered. We can also say that our NPS score has been the highest ever in the last week. So I think we are doing a good job. We have also, of course, a big spreaded network of touch points and points where customers can get their parcels, and we will continue to invest in that also in the future in our delivery points that are open 24/7. And last but not least, we have invested in the past, I would say, in a big center in Brussels, as you know, with a capacity of around 300,000 parcels a day. And also, we have 2 other parcel distribution centers in the north, in Antwerp, and in the south, in Charleroi, which are running heavily and running well at this moment and give us the possibility to live up with the demands from our customers, meaning that we have the volumes going on the last days, as you probably have read in the press as well, of around 500,000 parcels a day, which is in the same level or even a little bit above the level of the end year peak.

Okay. I just had a small additional question on the CapEx guidance, which is reduced by EUR 15 million. Just curious whether you could give a bit of a color on the CapEx envelope for this year, which investments were prioritized at this stage. And does that imply we should see EUR 50 million plus next year?

Well, I think it's a very normal and good question. But it's too early to clearly give details on where the spend will be focused on. I could imagine, but -- okay, I could imagine that we will look if we need to spend more or faster than in the plans we might have had for -- in the Parcels business, of course, in the sorting business, to make sure that higher volumes that will probably come up in the coming years, that they will -- the volume increase will go a bit faster than what we expected earlier. So -- but it's too early to really say where will we spend the EUR 150 million maximum. We have installed, as we told you last call, more severe procedures to follow up on CapEx spend, and we will continue to do that, but we have to review where the need is the most and for our strategy and also for -- linked with the current crisis, where we will need the CapEx maximally to continue to serve our customers and to support our growth strategy.

The next question comes from the line of Mr. David Kerstens from Jefferies.

A couple of questions from my side, please. First of all, you mentioned that parcel volume is strongly trending upwards in April. To what extent are you able to absorb the additional volume currently in your network? I understand for the Christmas peak period, you're planning almost a whole year in advance. To what extent are these additional volumes that you're currently seeing as profitable as the peak volumes in December? And should we calculate with the EUR 1.5 million additional cost on a monthly basis? Or does that number also move up in April with the additional volume? Then secondly, with regards to the 60% decline in advertising mail that you saw at the end of March, is that now improving now that the ban on advertising has been lifted? Do you see an improving run rate in April? And then the next question, with regards to Radial, you said there was only still a limited impact in the first quarter. The lockdown, of course, started later in the U.S. I was wondering if you could please comment on how the performance has been in April. Does -- is Radial benefiting from growing e-commerce as well as strongly as your Parcel business in Belgium?

On the parcel volumes, your question is can we handle the additional volumes? I can inform you that, as from the first day or even a bit before of the lockdown, we had daily executive corona calls, I would call it, or COVID-19 calls to manage everything that has to be done. Our first priority was and is still all what has to be done for the health of our employees, but also of our customers. So that was first priority. Second priority, when we saw volumes in Parcels going up, was to work on how can we produce them, how can we service them. We have had a few hiccups, but only 1 week. And currently, we are fully operational, fully going in the right direction. We have not any more asked customers to deliver less parcels. We -- the operations are doing very well, and all parcels are being delivered when we get them from the customers. Because also there, we see sometimes slowdowns because also they have their peaks of orders from customers, and we see that sometimes, delivery problem from their side to us. But what we get is being delivered now fully to the end consumer, and everything goes well. Of course, we have taken various measures, as we do at the end year peak. All has been done now in an agile way and in a very fast and, I would say, very effective speed. With respect to your question on advertising mail, well, I think it's too early to see that it improves. I think it's very difficult to predict what will happen there. Questions come from retailers to look at it. But as you will know, that between a question and an advertising mail that can be sent out, there's also a few weeks. And of course, also they are probably wondering if the dates that have been given from the government will be kept and how the consumer will react on the first opening of the stores. So there's a lot of uncertainty, in my opinion, on their side, which gives us, of course, also a lot of uncertainty and unpredictability on the advertising mail. We see questions coming in, but it is still in the question phase of would we be able to do a mailing in 1 or 2 or 3 weeks.

And then the question -- sorry.

No, sorry. Please go ahead. Yes, please.

Yes. So for Radial exactly. So these shops being closed happened a bit later. So what we will see probably going forward, and I give a couple of insights, I think, increase in revenue from our existing clients. So what we call the same-store sales, that's indeed something that we might expect. And April month-to-date, what we also have lift a bit depending, of course, what type of customer it is, is it in luxury goods, or is it in things that people really need? And I think a mixture there is pretty good. So in things that people really need, we have a big customer, for instance, that also delivers soap, hand gels and things like that. So there, we're expecting an increase in revenue. For the new client launches, happily, last year, in the last quarter, we launched 22 new customers because you can also expect new customers going up, that they will be a bit more reluctant to move from one fulfillment center to another, or one provider to another. So that's something else. So that Radial is anticipating a potential slowdown in those launches. Like said, we launched most of them last year. And then on the opposite, we also talk about churn. Churn will also improve. So customers that said that they would leave us, they will be slower in leaving us because it's not the right moment to do so. So that's a bit the ingredients for the second quarter to come up and which will, indeed, yes, be in there when we present to you in August.

The next question comes from the line of Marc Zwartsenburg from ING.

Yes. First, on the COVID-19 impact that you mentioned that has hit you in Q1, the EUR 16.7 million. What is exactly in there? Because when I read it, it seems that it only includes the OpEx increases from absenteeism and health and safety measures. Is that correct? And is it related to only those last 2 weeks of March?

To answer your question, it's mostly related to the last 2 weeks of March, of course, but it includes everything we could pinpoint towards COVID-19. So it's loss of revenue, costs, absenteeism costs, et cetera. So it's really all included as far as, yes, we could, of course, say this is really linked to the COVID-19 crisis. So it really includes everything and not only what you mentioned in your question.

Okay. So if I then read your statements on March, the higher OpEx, is that something that will be added on top? So in the EUR 7.5 million on a monthly basis, is that on top of, say, if you make this a monthly number -- is it the next one?

It's included. So you refer what we state on the March year impact? Is that correct?

Yes. Because that's the monthly run rate as from there or...

That's included. Sorry, the line is very bad.

Yes. I have the same issue.

Could you repeat your question?

Yes. So the EUR 7.5 million of sort of OpEx run rate that you mentioned in that March figure, and that's included in the EUR 16.7 million already, or will it increase slightly?

We gave there a monthly estimate based on what we've seen in March. The difference between the EUR 16.7 million is that it's EBIT, right? Also revenue impact, EUR 7.5 million that you calculated towards the different business units is costs only and indeed based on March for a full month basis. Okay?

If you would -- if you could divide it by 2, it's 3.7 more.

True enough. Yes.

Yes. Okay. I think I got it. The line is very bad. Then another one. Is there any state aid that you might have in terms of labor cost compensation or anything? Because your business obviously is running, and you need every body you can get. But is there any aid support packages that you see in April, for instance?

So there is state aid available since we are in business, for instance, technical unemployment. We consider it's not applicable for people. We did look into our different businesses and have seen where is it applicable, for instance, in the retail part. So where possible and where feasible, I have to say, indeed, we can apply it. But actually, because we're in business, we're not really looking into it. As to liquidity, also the government and the tax authorities, they give some extra breathing room. There, of course, we will profit from that where we think it's feasible, right?

Yes. Maybe as a follow-up, is that decision not to use? Is that linked to the -- still the keeping open the possibility to pay some dividends?

Sorry?

With the fact that you're not using the state aid while you might qualify for it, is that because you want to keep all options open in terms of still paying the dividend?

I think that the state aid, where I don't exactly understand which state aid you are referring to because there is no state aid for companies that continue to work, as far as I know, except for postponing possible payments. And even that is more linked to companies that have been obliged to stop their activities and thus have a complete lack of income. We have not any state aid requested as some other companies because we continue to work, of course. But the only thing we have used, but very limited, in the retail network, where we had to close certain activities there, we have used, of course, the unemployment aid, but that's not -- I would not call it a real state aid. It's a normal system, I would say. And for the rest, what Leen also said, we will look if we can use any of the payment postponements that are possible. But also there, there are a lot of rules linked to it, and we will see what is possible.

So there's no condition set to paying a dividend linked to any of those schemes you're currently using?

In our decisions, that link was not taken into consideration.

Sorry, could you repeat that?

In our decision, whether or not to ask for state aid, the link with dividend was not taken into consideration. So like said, we come back on dividend policy when we have more visibility.

Yes. Is there a scenario -- talking about the dividend, is there a scenario possible where you might postpone it completely because, yes, simply because to be in line with all the other companies that may postpone it or just don't pay it...

Yes. We cannot -- Marc, we cannot comment on that. We stick to the state. Yes.

Okay. Fair enough. And then the last one from my side. Yesterday, obviously, you heard PostNL talking about multi vendor ship impacting volumes. Do you see any trends of that also in Belgium or early trends?

And on what did they -- sorry, the beginning of the question was not clear.

Yesterday, PostNL mentioned the multi vendor ship, that clients opt for multi vendors, that it has impacted the parcel volumes. Do you see any of these developments also happening in Belgium at the moment?

It's a good question, but I think the ones that were multi vendor probably stay multi vendor. But it's not something, in my opinion, specifically to the COVID crisis or whatever, it's a normal way when customers -- so senders have increased volumes, it seems not so unusual that they would possibly go to multi vendor. I think for the moment, we must say that, yes, the customers, as Leen also said, what we feel in the U.S. is also here a little bit. It's not the right time or the right moment to change from your partner, I would say, or to do heavy changes. We do got questions from customers of our colleagues if we could take more volumes. So maybe that's something which is referred to. And since we are now fully operational and able to do 500,000 or even more volumes, we have not said no. But there's no big movement or big new change in their policies.

The next question comes from the line of Matija Gergolet from Goldman Sachs.

Yes. Two questions on my side, both related to parcels and both related to April. So you mentioned that no cross-border was down in March. What kind of a level of decline are you still seeing in April? And are you starting to see any easing, any improvement in the cross-border trade? Because I saw that generally, cross-border trade was still -- well, governments are trying to keep it as open as possible. And then secondly, going back to David's question about the surge in parcels volumes. I mean, as far as I know, you have an integrated delivery, Mail and Parcels. But now are we going to see a very -- no, I'm just going to say, are you seeing effectively like a positive operating leverage kicking in, in Parcel? Now with a 50% or so increase in parcels volumes, we should have a very significant improvement in margins in the division because the surge in volume should be more -- should more than offset the EUR 1.5 million increase in costs, in my view. But any color there, I think, we're just trying to understand whether basically which parts we actually see. And this is, I think, one of the key themes in the sector, a big -- or a material surge in profitability and thus effectively offsetting, to a good extent, the decline in Mail.

Okay. The cross-border question. Yes. Like I said, we use freight capacity. And if there is limited airfreight capacity, it's very limited to do business. So there, it will be the pace of the deconfinement that will show its impact on the cross-border activity. As to the surcharge on parcel...

I think, yes, the question was not on the surcharge. I think it's a...

Operating leverage.

Yes. I understand the question. I think what we've done, what we've been looking at is maximally be able to service this increased volumes. For the moment, it's early to see and to judge what it will bring financially. But our first priority was to make sure that all parcels that are requested to be delivered from customers, existing customers also, but also from new customers, that we could operationally produce them and service them. I think that was our main priority, not to have to say as colleagues did to new customers, you cannot come with parcels. We do not let you come. We have said no to nobody. The only thing we did, and which is normal in the sector, is that we have tried to spread the delivery of parcels for sorting and also for distribution. So -- but the question, if this is now going to have a positive financial impact, this is a very difficult one for the month of April because, of course, everything has been done to get the operations do it, let's say. And as we also mentioned also in March, we needed to use extra staff, also extra subcontractors next to all the measures linked to the COVID-19 crisis.

The next question comes from the line of Henk Slotboom from The Idea.

I had 3, 2 easy ones and 1 perhaps that requires a little bit more time. The easy ones, with regard to Parcels Eurasia, you're labeling a couple of items as, yes, sort of one-off. With COVID-19, I can understand. But there's also an issue of the VAT recovery in the terminal dues. And what I remember, but I can look that up, last year, you had a pretty strong year in terminal dues. Can you perhaps indicate how much of that will affect the next quarter, the current quarter, for example? Then the second question...

That was the difficult question?

No, that was the easy question.

Okay. Go ahead. Sorry.

Then the second question is another easy question. Last time, Jean-Paul, you mentioned that the Press contract was being reviewed by the European Commission, that you were in that -- that government was in the phase of getting approval for the renewal of the Press contract. Have there been any developments since? And then, yes, the more difficult one, I'm still a bit -- I'm positively surprised about the performance of Radial, and I think congratulations are in place there. You said that the impact of COVID-19 kicked in later in the U.S. That's something I understand. But if I look at the retail sales, for example, in fashion in March in the U.S., they were down 50%. And what I always understood is that the focus of Radial lies on 3 segments: apparel, luxury and sports. Now how much of the sales of Radial depends on these 3 segments? And yes, what is really triggering the positive surprise there if I look at the revenues? Is it mainly the fact that you added 22 clients? Or is it -- yes, well, perhaps you can elaborate about that.

Okay. So your first question on the -- yes, indeed, the VAT and terminal dues, you cannot really flag them as one-off as such because they're normal to our business. So it's more where the phasing is. And in the full year 2019, we were indeed profiting from a positive terminal dues settlement, especially in the second quarter 2019. And you can look it up, we had then a positive impact on EBIT of EUR 4.1 million in the second quarter, but in the full year at the balance on terminal dues was overly more positive. And now in this quarter, we see indeed that is a negative phasing, predicting that is a difficult thing to do. Press concessions, there -- yes, so the notification is ongoing. It's not concluded yet, but it's ongoing and we are on track. I cannot flag anything more particular as to that point. And then moving to Radial, yes, cosmetics and sporting goods. In the cosmetics, we also have a lot as to, how shall I call it, yes, as soaps and gels, so bath and body, I'll call it that way. So that's quite a basic product, and that's also -- the customers that actually are doing well. Also, cosmetics, we also have some pet food, for instance. All those things are things which, throughout the crisis, are actually rather stable. And don't forget, because you're now comparing perhaps a crisis situation, an economic crisis situation. But in this case, the fact is that business, that stores are closed and our customers, a lot of them, even in apparel, we deliver both to their stores as we deliver online. If they don't have the stores, don't have the bricks and mortar, the only sales channel is the online. And that's also a bit what we see in the Parcels, of course. If it's the only channel, by definition, the sales will go via that channel. So very much different from, is it now in apparel or in cosmetics or in luxury goods? And I think looking at the full businesses that we do, they're not all in luxury. And even for luxury good or for sport good, for instance, that's something that we're very strong at. Also there, if the only sales channel is online, they will buy via online.

The last question for today comes from the line of Andre Mulder from Kepler Cheuvreux.

Yes. I can imagine in a way that you don't want to give a range for the full year outlook, but the dividend payout ratio stretches out to the long term. What are the parts why you cannot give an update on the dividend payout ratio?

Yes. I think because we -- prudency. I think we have to call it like that. I think, as management, we have a plan. We have a plan also based on what we see now, how future can evolve. But through this, do we really know what will deconfinement mean? Will there be a second lockdown? How soon will the vaccine be there? Will we live in confinement, deconfinement all the time? It would be rather unprudent to now make a statement on the longer term if we cannot even predict the short term and have to say to you, look, we're not in the possibility to give an outlook, but we do make a bold statement on the dividend policy.

There are no further questions in the queue. So I'll hand the call back to our speakers to conclude today's conference.

Okay. I would like to thank you all for attending this conference. I think -- also, I like to thank you for all the interesting questions. I hope we have been able to give you the answers for most of them. I would say, we are looking positively to the future, and we hope that we can be at speed, full speed, again in all the businesses after the COVID crisis and that we can all stay in good health. And I wish the same for you all, and thank you for your attention.

Thank you.

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