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

Hello, and welcome to the bpost Third Quarter 2020 Analyst Call. [Operator Instructions] I will now hand over to your host, Jean-Paul Van Avermaet, Group CEO, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. I'm pleased to present you bpost Group's third quarter 2020 results. First of all, welcome to all of you, and thank you for joining us. With me, I have Leen Geirnaerdt, our CFO as well as Saskia Dheedene from our Investor Relations. I assume you already had the opportunity to read through the materials, which we posted on our website last night. We will walk you through the presentation, and we'll then take your questions. First of all, on Page 3, you see that we realized a very solid third quarter, driven by continued strong performance in Parcels & Logistics, and this -- both in Europe and Asia and the U.S. Our group operating income at EUR 972.9 million increased by 10.4% and versus last year, while group adjusted EBIT at EUR 69.5 million, nearly doubled. The third quarter was a further confirmation of temps already observed in the second quarter. We continue to benefit from driving e-commerce volumes in Belgium, Europe and the U.S. as well as positive operational leverage in Parcels and e-commerce logistics. In Belgium, this is fueled by stellar growth at 49% in Parcel volumes handled through the mail network. Underlying mail volume declined at minus 8.2% was better than our pre-COVID-19 guidance range, which was between minus 9% to minus 11%. For the second consecutive quarter, the combined adjusted EBIT contribution of our 2 Parcels & Logistics divisions at EUR 38.5 million exceeded the Mail & Retail adjusted EBIT of EUR 35.7 million. So we see the mix shift accelerating, thereby supporting our business transformation with sustainable earnings growth and value creation as endgame. In light of this continued positive earnings momentum, we can raise our full year 2020 group adjusted EBIT guidance to at least EUR 270 million. This outlook includes the estimated financial impact of a ransomware attack at Radial North America that occurred on October 15. Due to the second wave of the pandemic and lockdown measures taken, visibility for Q4 is, however, limited. Specifically now as to this ransomware attack, immediately following the attack, we voluntarily shutdown our systems to prevent financial and technical damage from happening and to enable bringing the systems back up gradually and safely. The shutdown, unfortunately, also stopped normal fulfillment services from taking place, whereas payment processing systems were not at all impact. Within a reasonable time frame following the attack, Radial managed to regain sufficient functionality to restart fulfillment operations at all of its locations. As the forensic investigation is still ongoing, we are, however, unable at this point to disclose an aggregate financial impact on our business. However, we can inform that we have a solid insurance in place that covers for loss of business resulting from cyber attack. To conclude on the highlights. Standard & Poor's have made their annual review of our financials and reconfirmed our A credit rating with a stable outlook. Before handing over to Leen, let me first give you an update on a couple of developments within bpost in this last quarter. First of all, I would like to congratulate Ilias Simpson on his nomination as Radial North America CEO and welcome him to our Group Executive Committee as Head of Parcels & Logistics North America. After successfully serving Radial for more than 3 years in operations and fulfillment services, he will be taking on these new responsibilities as of the 1st of December ahead of us. Thereby he succeeds Henri de Romrée who is leaving our group by year-end and this for family reasons. We continue to invest in capacity and develop further our e-commerce activities. In Belgium, the 2 new fully automated parcel sorting lanes installed over the summer are now 100% operation. In the Netherlands, at Active Ants, we have just last week, inaugurated -- limited inaugurated due to COVID, a new state-of-art e-fulfillment site in Roosendaal and are [indiscernible] to open the first Active Ants in Boom in Belgium over 2021. In the U.S., we are investing in new fulfillment site near Atlanta [indiscernible] for seen to officially open end of Q2 next year, but which is meanwhile, being used as a pop-up site to manage the end of year peak volumes over there. We are fully ready for the end of year peak to successfully meet our customers' expectations. We have added capacity in all of the regions where we operate and also take the necessary measures to ensure sufficient staffing at all times. Thereby, of course, respecting all health and safety measures in light of COVID-19. A month ago, we announced our new mail tariffs applicable as of January 2021. As you know, pricing is an important part of our strategy and essential to make the alternating distribution model a success. Our proposals for 2021 have been accepted by the regulators and represent a 6% increase on average, with a widening gap between prior and nonprior products. For the small user basket, we are still well below the price cap from the regulators. On another note, sustainability is also very high on our agenda. Over the third quarter, we announced that as a pioneer in the Belgian parcel sector, we will implement more than 320 double-deck trailers by 2030. This will lead to a 30% reduction in [indiscernible]. As of February 2021, we will also start LED lighting works so that all 5 sorting centers in Belgium are ecologically lit. This will save about half of our electricity bill and reduce CO2 emissions by 1,000 tons per year. Finally, bpost Group joined the new Belgian Alliance for Climate Action, where participating members share best practices in working towards very ambitious climate goals and science-based targets. Since my appointment earlier this year, I've been working with the executive management team on the future strategic directions for bpost Group and I also had discussions together with them with our Board. We'll be happy to present the outcome of this exercise to you on December 8, 2020. During that moment, we will also include a revised capital allocation framework and new dividend policy beyond 2020. Let me now hand over to Leen for more details on the financials. Leen?

Yes. Thank you, Jean-Paul. Good morning to all of you. So together, we're on Page 5, showing the EBIT bridge for the third quarter. Adjusted EBIT increased by EUR 21.2 million compared to the same period last year, driven by significant growth in our Parcels & Logistics businesses. In the Mail and the Retail, the adjusted EBIT decline was mitigated only minus EUR 2.7 million. This mainly as a result of higher reinvoicing of sorting and distribution expenses from the integrated Mail and Parcels network to PaLo Eurasia, driven by stellar Parcel growth. Parcels & Logistics Eurasia, they recorded an adjusted EBIT increase of EUR 19.4 to EUR 29.7 million, driven by a very nice e-commerce growth resulting in high Parcels volume handled through the integrated network. Parcels & Logistics North America adjusted EBIT also increased by EUR 14 million versus last year, driven by continued strong momentum in e-commerce logistics and also operating leverage. Corporate adjusted EBIT was EUR 0.5 million up versus last year. From this quarter onwards, the COVID-19 impact, we do not longer separately disclosing. Since providing a split between what is now COVID-19 on the one hand and observe business developments on the other hand, really has become increasingly artificial and therefore, also for all of us less meaningful. On Page 6, we have the key financials for the quarter. At group level, total operating income up by 10.4%, driven by e-commerce, and more details on the revenue and EBIT developments following the breakdowns per unit. As always, EBIT was adjusted for the noncash amortization charges on intangible assets. These charges are also positively impacted the reported income tax. That effect has also been adjusted here as well. No other adjustments were made. Net financial result is minus EUR 11.5 million. It improved slightly by almost EUR 1 million versus the third quarter of last year. This is mainly due to a lower financial charges related to IAS 19 employee benefits, partly offset by unfavorable foreign exchange results. Income tax expense, it increased by EUR 1.1 million compared to last year, mainly due to or thanks to higher profit before tax and, of course, offset by the lower statutory tax rate in Belgium, which is now at 25%. The effective tax rate for the quarter also amounted to that 25%. Normalized free cash flow at EUR 33 million, it increased, thanks to the higher EBITDA generation, an improvement in the working capital evolution, lower cash outflow from investing activities. I will come back on the cash flow elements later in the presentation. All in all, net debt decreased by EUR 182.3 million, supported by that free cash flow generation, absence of a dividend payment, of course, and lower corporate tax prepayments. The latter will phase towards the second half of 2020, since we use the possibility to postpone these payments as offered by the Belgian government. CapEx for this quarter, it amounted to EUR 41.4 million, which is a decrease of EUR 6.1 million compared to last year, and the spend [indiscernible] see them in a capacity expansion in e-commerce, at Radial, in Active Ants and Parcels B2X in Belgium. Okay. Then we can move to the different operating segments. On Page 7, you will find the results by segment in which you see the contribution per business unit for the third quarter. For the second quarter in a row, the combined contribution of our PaLo business units to the group adjusted EBIT is higher than Mail & Retail, like Jean-Paul already said, and which is important in our business shift or mix shift. Mail & Retail generated 51% of group adjusted EBIT of EUR 69.5 million. Parcels & Logistics Eurasia was the second contributor with 43%. And Parcels & Logistics North America, they contributed for 13%. We can now move to Page 8, which shows the extra revenue bridge of Mail & Retail. External revenues declined by EUR 30 million, and we land at EUR 414.3 million. The impact -- the main impact that we see is, on the one hand, EUR 20.7 million decline in the proximity and convenience retail network and then EUR 8.7 million revenue loss from the Domestic Mail. Domestic Mail recorded underlying Mail volume decline of minus 8.2% for the quarter, partly compensated by a positive price/mix effect. Transactional mail with an underlying volume decline of minus 8.3%, actually held up well with the volumes in this particular quarter no longer impacted by the first COVID-19 lockdown, neither negatively, but also not positively. The volumes remain impacted by the known structural trends, which is continued e-substitution by the big senders and SMEs, higher acceptance of e-documents at the receivers' side, digitization of the C2B communication through smartphone apps. Then in advertising mail volume, there was a decline stood at minus 9.4%. Unaddressed, saw a continued recovery in mail volumes since the lockdown that was in place from March today this year. Direct Mail, we call it a quite good quarter with a boost seen in July, but it was leveling off thereafter. We do see that given the ongoing limited feasibility on how COVID-19 will further evolve, advertisers were already rather hesitant to invest in Direct Mail campaigns and there is general tendency of cost containment, also resulting in reduced budgets. As to Press volumes, they're at minus 5.4% for the full quarter. That show the continuation of the e-substitution and rationalization trends. Like I said, proximity and convenience retail network revenues, they declined firmly by EUR 20.7 million. This is due to impact of COVID-19 on the footfall in the Ubiway retail stores, especially in the travel locations. We also had a deconsolidation of Alvadis, which in the quarter still had an effect of 2 months, amounting to EUR 5.4 million. And then finally, we've also seen a decrease in the banking and finance revenues. Value-added services, they slightly decreased by EUR 0.7 million, mainly due to lower revenues from data and document management, but partly compensated by higher revenues from the European license plates. Then moving to the profit and loss of Mail & Retail on Slide 9. Adjusted EBIT amounted to EUR 35.7 million with a margin of 7.7%. This is a net decrease of only EUR 2.7 million compared to the third quarter last year. What does explain that? First of all, decrease in total revenues of EUR 21.7 million adjusted for the EUR 0.6 million on the disposal of Alvadis, and on the other hand, the EUR 19 million decrease in operating costs, including the adjusted D&A. Operating expenses. They declined as a result of a couple of things. So on the one hand, we have higher payroll and interim costs and specific COVID-19 expenses, but on the other hand, that is more than compensated by lower costs from Ubiway retail, we saw lower revenue, but the cost of goods sold are also lower, including also the Alvadis deconsolidation impact; increased sorting and distribution expenses that could be transferred to PaLo Eurasia,because we've seen the growth in Parcels volumes that are handled by the integrated network; lower project related costs; lower use of subcontracting. Then moving to PaLo Eurasia, Slide 10. We recorded an external revenue growth of EUR 64.5 million. This is driven by a positive revenue development across all subsegments, thanks to [indiscernible] e-commerce both domestically and abroad. Parcels BeNe, they recorded an increase of EUR 31.3 million or 33.1%. When excluding last year's EUR 1.7 million earnout reversal on Dyna, revenue growth is even at EUR 32.9 million, fully driven by Parcels B2X volume and revenue growth of -- respectively, 49% of volume, 45.3% in revenue, indicating that the price/mix is mitigated at minus 3.7%, which is fully mix driven. This is the consequence of very high-growth at our big customers, who benefit from lower prices than the smaller accounts because of the high volume. The remainder of Parcels BeNe revenues, which are not captured in B2X, they had a flattish year -- sorry, a flattish year-over-year revenue development, which is driven among others by last year's closure of nonprofitable businesses, as you might remember. E-commerce logistics revenues, they increased by EUR 8.5 million, mainly driven by: Active Ants growth from existing customers as well as the integration of MCS Fulfillment as from October 1 last year, that inorganic growth is EUR 2.7 million in this quarter; Radial Europe growth, mainly in the U.K., from existing and new clients and in Poland from the opening of a new fulfillment site. Cross-border revenues, they continue to grow exponentially, with revenues up EUR 24.6 million, driven by Parcels from Asia as a result of the trade solution that we had in place already last quarter. And this was partly offset by declining cross-border postal business, fully mail driven. On Slide 11, profit and loss of Palo Eurasia. EBIT increased by EUR 19.4 million to EUR 29.7 million, margin of 11.3%. This was driven by top line evolution I just talked about, partly offset by higher volume linked variable costs and higher intersegment operating expenses from Mail & Retail related to sorting and distribution of parcels within the integrated last mile mail and parcels network. The steep margin improvement is explained by the stellar growth in Parcels volumes handled through the mail network. Excluding last year's EUR 1.7 million earnout reversal Dyna Group, the adjusted EBIT would be up by EUR 21 million operationally. Then North America. Operating income of e-commerce logistics grew by EUR 55 million, up 25.2% or 31.6% when we exclude a EUR 10.7 million of foreign exchange development, which was negative. This growth was mainly driven by Radial, recording a 35% increase from existing customers as well as significant growth from new clients that we launched in 2019. This was only to a very small extent offset by churn. Our cross-border activities being Landmark, Apple Express and FDM also benefit from new clients wins and higher sales from existing customers, driven by increased e-commerce business overall. International mail saw external revenues flat year-over-year from a combination of underlying revenue growth, offset by negative exchange rate impact. Excluding the latter, higher domestic parcel revenues from new contract wins more than compensated lower revenues in the business mail segment. Overall, external revenues were up by EUR 55 million. On Slide 13, we have the profit and loss of PaLo North America in which you see an adjusted EBIT profit of EUR 8.7 million, an increase of EUR 14 million compared to prior year's loss, a margin of 2.9%. The weakening of the U.S. dollar versus the euro has an immaterial impact on EBIT since both the revenues and the costs are in U.S. dollar. So we benefit from a kind of natural hedge there. For the second quarter in a row, we have reached positive adjusted EBIT, driven by the strong top line performance and OpEx increasing at a slower pace, thanks to positive operating leverage, higher productivity and our cost-saving programs. Moving to the corporate segment on Page 14. The external operating income has increased by EUR 2 million, driven by higher gains on building sales. Net of the intersegment operating income, OpEx, including depreciation, amortization increased by EUR 1.6 million, mainly driven by higher provisions. This led to an adjusted EBIT increase within corporate of EUR 0.5 million. Then we move to the cash flow, Slide 15. You can see that the reported free cash flow, which stood at minus EUR 9.1 million, it's the quarter that we present here. It's an increase of EUR 6.6 million. The cash flow from operating activities stood at EUR 28.4 million, a decline year-over-year which can be split in 2 things: first of all, EUR 8 million improvement in the cash flow from operating activities, but before the change in working capital and provision at EUR 93.6 million, mainly thanks to, of course, higher EBITDA generation, partially offset by higher tax prepayments in the third quarter of 2020 because we shifted a bit like I indicated earlier. And then the second element is an EUR 11.4 million deterioration in working capital and provision evolution to minus EUR 65.2 million, which can be explained by higher cash outflow relating to the collected proceeds due to Radial [indiscernible], that's EUR 36.2 million. This is driven by the high level of merchandise sales during the COVID-19 period in the second quarter. And then that high due to outflow in this quarter was partly [indiscernible] by working capital evolution, excluding the Radial [indiscernible] due to being EUR 23.1 million better than last year. This is primarily driven by higher settlements of receivables of the increased sales in the second quarter 2020, partially offset by outflows related to social security deferred to the third quarter '20 and lower supplier balances. I think for cash flow, I also want to point out that when looking at year-to-date 2020, the change in working capital and provisions was positive at EUR 3.8 million versus a negative EUR 92.8 million in 2019, an improvement of EUR 96.6 million. It was explained by increased cross-border activities, leading to higher terminal dues outstanding; and secondly, positive impact of the extended payment terms in payables due to some temporary initiatives that were set up in the context of the pandemic. The latter is expected to unwind in the course of the fourth quarter and also in the first quarter next year. The cash flow from investing activities, it improved by EUR 10 million year-on-year, driven by lower CapEx, lower outflows for M&A, partly offset by last year's proceeds from the disposal of Alvadis. Very briefly on the balance sheet, Page 16. The main balance sheet movements versus last year relates to decrease in trade and other receivables. That is due to the usual settlement of the SGEI receivable in the first quarter, and then the decrease in trade and other payables was mainly explained by cost containment actions in 2020, partially offset by the positive impact of the extended payment terms in the second and the third quarter due to COVID-19. Then on Slide 17. Yes, on financing structure. Total available liquidity at the end of September consisted of EUR 856 million of cash and cash equivalents, of which EUR 685.6 million is readily available on bank current accounts and as short term deposits. bpost Group also have still the 2 underlying revolving credit facilities for a total amount of EUR 375 million. So as to external funding, no big changes occurred in the quarter, which still amounts to EUR 1 billion, out of which EUR 826.2 million is long-term debt. The outstanding commercial papers, they amounted EUR 165 million with a maturity between 1 and 6 months. The current portion of the European Investment Bank amortization loan of EUR 9.1 million will be repaid during the fourth quarter. We thereby conclude, again, to have sufficient short-term liquidity to serve our debt obligations, and we keep on managing this in a very cautious way, given the lack of visibility of the length and severity of the pandemic and the global crisis that comes with it. I will now hand over to Jean-Paul for the outlook.

Thank you, Leen. As mentioned in my introduction, driven by the continued positive earnings momentum, we can raise our full year 2020 group adjusted EBIT guidance to at least EUR 270 million. This outlook includes the estimated financial impact of the ransomware attack at Radial North America last month. Due to the second wave of the pandemic, and lock down measures taken. The visibility for Q4 is, however, still limited. We continue to strive for capital expenditures for the year 2020 at the maximum of EUR 150 million. The Board will decide on a new dividend policy early December, and we will communicate the new capital allocation framework, including dividend policy together with our strategic update to the financial markets and this on December 8. We are now ready to take your questions. Operator, please open the lines.

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

Frank Claassen from Degroof Petercam. Two questions, please. First of all, on the advertising mail, did you see a shift from volumes from Q2 going into Q3 because of the lockdown -- the first lockdown in Q2? And what is your view on Q4 given the new lockdown in Belgium? Do you expect postponement of advertising campaigns? And yes, what is the current situation? Have you maybe already seen signals of that? So that's the first one on advertising mail. And then secondly, on Radial, what is the current situation on signing up new customers for next year? The situation was rather subdued due to COVID. Has that already improved? So do you see momentum for new customers gaining? What is the situation there?

Okay. Maybe on the advertising mail, it's clear that we have seen continued recovery during Q3, which you know that during Q2, because of the knockdown, we had a big impact on the advertising mail. So it continued to recover during Q3. As far as Q4 is concerned, yes, as you know, the lockdown just started on Monday of this week, the real lockdown also for the -- with the retail, I would say. However, there's more retail open in Belgium than in the first lockdown. There's also no ban on advertising mail, which was clearly a decision that was taken in March by the Ministry of Economy. So yes, will that be a big impact in Q4, it's difficult to judge. We are only 2 days in the lockdown. So will there be cancellations of advertising mail in the coming weeks? Probably, yes. But it's very difficult to predict. On the other hand, we will probably also have a positive effect on the Parcels in Q4 because of the current lockdown. On the Radial, new customers for next year. We are still in line with our expectations, and we still have signed agreements for starting up new customers as we had during -- by the end of Q2. So there's no big change during Q3. We are in the same line of expectations.

Yes. And meeting budget. So I understand what you say as it was difficult to launch new customers, we did gain new customers, which will be launched during the first quarter next year and also in the second quarter of next year. So there, we're still meeting plans on the contract signing.

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

Three questions, please. First of all, on the -- a follow-up on the impact of the second lockdown. I appreciate the comments you made on advertising mail, that there is no ban this time around. But do you think consumer behavior will be similar as during the first lockdown with regards to e-commerce? Or does everybody already have a second laptop and a home office installed? And whilst there are one-off effect that you had during the first lockdown that will not repeat during the second lockdown. I think PostNL had also quantified the one-off element in the parcel volume that would not come back. Then secondly, on Radial, do you still expect Radial to be profitable in the fourth quarter after the ransomware attack? And since we all have to position ahead of the U.S. election outcome, would the Biden or Trump's victory make any difference on Radial going forward? And then finally, is there any further clarity on the investigations around you, Jean-Paul, with regards to your role at G4S that have potentially affected the performance of the group during the -- so far this year?

Our performance? Okay. You -- yes.

I will start with the last one and then go to the first one. On the last one, if there would be news, you would have read it in the newspapers, I suppose, because they are very much -- very well informed. So there's no news. The effect on bpost Group profitability or management or so on, I think that's not existing. On your first question, impact, lockdown and consumer behavior. I think we are -- we've seen that we have had a partial volume growth of 49%. So we are, as I said also after the second quarter, we are at a higher curve. So I do not expect the same jump again, as in March, April, May, we will not have another big jump. But I feel that your question is more about, yes, will it not be lower than what -- than the curve you are on, that I do not expect needed because otherwise, I [indiscernible] would have seen it probably during Q2, Q3. There has not been a real lowering curve, I would say, okay. If you take averages, not every day or every week, but if you take the averages, we had a peak, let's say, during May, and then it went a little bit down, but it stayed at a very high level. So I do not expect that. Of course, shops are -- there are more shops open in Belgium for the moment. Let's say, for example, the do-it-yourself shops was a big one in our parcel increase, but also a difficult one because of the pieces you buy there, it's not small parcels. So there are more shops opened. On the other hand, the government has also decided on -- a little bit strange, I must say, on goods that are not very important, that cannot be sold in supermarkets or in shops that are open. So it's a real strange feeling. However, I've seen myself that, yes, shops are very, how I would say, creative with that part of the rulings. So I believe that we are prepared for much more because of the end of year peak, of course. But I believe that the curve we are on will be [indiscernible]. So it's -- we are still -- we are ahead of end of year. We also have Santa Claus or Sinterklaas, I would say, in Belgium coming on the 6th of December. Already, this will have a big effect on parcels with toys for the kids. So that's our expectation, more or less.

Then to Radial question, will it again or still be profitable in the fourth quarter? Normally, yes. I think the impact -- normally, yes, because e-commerce is also in North America. It's driving forward. There we see it in the third quarter. We don't see reason why that would slim down in the fourth quarter, and it's a volume business, as we have seen in the second and the third quarter. So the answer is yes. What's a bit more complicated to respond on your question is the impact on the ransom attack. There will be some financial impact. It's difficult to assess it in full. And like Jean-Paul said in his voiceover, we have a solid insurance in place that covers the loss from businesses that would occur. A lot of the business could continue or was recovered if we still can notify the business was lost. We do have the insurers in place. Of course, also the reinstallment came with a cost. So the thing will also be when comes the cost, and that's probably more certain than one comes -- or when are we allowed to account for the income of the insurance. And then Biden versus Trump, who's taking that question?

Yes. I think not on short term, there will be no effect in my opinion.

And our customers are both they're both Trump and both Biden. So we continue to deliver, that's for sure. So not a clear answer that we can give for the moment.

Looking forward to the summer date.

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

Henk Slotboom. Well, on the results, I can be very brief, they are broadly impressive. But I would like to drill down a little bit further on the Radial situation. First of all, you said in your introduction, Jean-Paul, that the fulfillment services had started again. But did I understand it correctly that the payment services are still not working properly. Second question is -- sorry, shall I ask them one by one? Or shall I ask them all...

No, no, no. Go ahead.

No.

Okay. Then the second question is you were mentioning an insurance policy that you have in place that basically reinforces all the missed revenues that are in place. That's one side of the metal, of course. And I'm happy to hear that you're insured for it. But how about your clients? How many have you been offline? And what has been the reaction from your clients? Because this is happening in what normally should be your top -- your peak quarter. Have there been any claims? Have there been any clients that are so unhappy that they're threatening to walk out, perhaps you can elaborate about that? So is there any structural damage you expect? And certainly -- and that's more a, yes, a question -- yes, I would like to ask it anyhow. Why didn't you share the news earlier because this happened 3 weeks ago. And when I read the text of your presentation, then, yes, it has something like enough functionality has been restored. It still raises the impression that the situation is still not in a business as usual situation. Why haven't you informed the markets before? What withheld you from doing that?

Okay. First of all, on the first question, I think you must have misunderstood or I must have been wrong in what I said, but it's -- the payment services have never been down. So they have been -- always been up. It's on the customer care and the fulfillment services that we had to shut down. We decided that on our own. And the customer care services have been up after a few days. The fulfillment services have been gradually brought back online, I would say. And as far as -- or some small minor stuff, we are already back in business as usual. So we are ready for the end of year peak and take extra measures. As far as customers is concerned, we have informed our customers, of course, within 24 hours. We have been working [indiscernible] with the customers, making sure that they understand what happened for them. How we attack the problem, I would say, if I could use the word attack, how we handled the problem. And we've been working very cooperatively and I think to minimize maximally the impact on their customers and on themselves. So I think it has been going very well with the customers. And there's nothing more to say, in fact, on that side. So we really had a good cooperation with the customers.

As to communication time?

Yes.

Yes. So indeed, it happened on October 15. Like Jean-Paul indicated, first priority was limiting the harm the tech could cause. And that has multiple things. That's, of course, how shutting down the system, informing your customers immediately, but also, how do you go forward with the attackers. So forensic investigation going on. And then, of course, it's not always helping you if you communicate externally, also not knowing the extent so we could communicate that and not giving any other answers there on. So we think we made the call, indeed, that would only cause panic. And as from day 2, we knew that we could control it.

Yes. Can I ask -- one more add-on there, please. With regard to the insurance policy, does it also cover claims from clients?

Actually, in view of forensic investigation, I'd rather not answer that one.

The next question in the queue comes from the line from of Lotte Timmermans from ABN AMRO.

2 Two questions, please. First on the guidance. You got solid earnings settling at EUR 69 million to EUR 75 million EBIT per quarter. I would expect Q4 to be at least at the top end of the range, and that would end up a guidance of at least EUR 295 million. Could I assume there was some conservative built to the guidance? Or is this the damage? And the second question is on your balance sheet. I would consider the balance sheet is relatively healthy. What will be an ideal net debt to EBITDA you have in mind? And would you link a target to the dividend payments?

What was the last question, sorry?

The last question was if you would -- about the net debt to EBITDA. So if you would link the target of net debt EBITDA to the dividend payments?

Okay. First, last one perhaps on the balance sheet. Yes, you see it's relatively healthy. I think that's true, especially looking at it from a net debt point of view, bearing in mind that this year, a very big step was taken. I think that's a very big move compared to last year. Do we have ourselves at this point in time? Perhaps for your information, Lotte, we do not have particular banking covenants or something like that. So no, at bpost, we do not have really covenants that we have to follow. We do keep very close eye on how Standard & Poor's looks at it. So their metrics are also ours. And that is also indeed one of the messages that we will bring in the end of the year with December. If we talk about capital allocation, what indeed do we think as a sound balance sheet and with that goes, indeed, how you allocate your capital and in the end, the dividend policy. But allow me to come back on that December 8. And then for your first question on guidance, Jean-Paul?

I think the guidance is, of course, prudent, but it's taking into account various elements. It takes into account second lockdown we have here, which is, again, very difficult to predict. We do know that second lockdown in Belgium -- and we see also the figures of absentees, sickness. It is -- we are reaching or going over the figures of March beginning of this year. So we also have extra costs that will be implemented to continue to serve. We have, as I said before, on the mailing or the advertising mail, but also on the other mail, it's very difficult to predict, will we have the same effect as in the first lockdown? There will be effects for sure. So and as you -- as I said before, yes, the parcel volume growth will probably remain as it is, and there will be another -- second jump, another jump. And it's very difficult, very unpredictable how the end of year peak will be increasing the volume, if it's going to be an increase as we had in 2019 versus 2018, yes or no. So yes, it is cautious. But we also say it's at least EUR 270 million, but it's very difficult to predict. And we see the second lockdown here in Belgium. It's not only sickness, we also have a big impact of people being obliged to go in quarantine. And so it's -- there's a lot of effects that are very difficult to predict.

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

Can we take them one by one, please. And I'll start with Mail & Retail. If I look to the number of FTEs and interims there, it's up 4.4% year-on-year. And actually, there's some -- quite significant decline in the top line. And now it's also...

Marc, the line is very bad. So first of all, we'd like to have all your questions, like everyone. And secondly, talk a bit slow because your line is not very clear. Thanks.

Okay. Well, my line is very clear. I'll talk slowly, and I'll give you all my questions then. Here we go. On Mail & Retail, the number of FTEs and interims is up 4.4% in the quarter, year-on-year, but also year-to-date. And I'm trying to stand a bit why the FTEs are going up, while the topline is declining? And I think there was a target to at least strip out 750 people for Mail on an annual basis. That's my first question. My second question is, can you maybe explain how the cost allocation works between a PaLo Europe and Asia versus Mail & Retail, that if parcels are delivered by mail, how does that exactly work? Is it then when mail volumes come down, that the margin of Mail & Retail will come down as well? Could you explain a bit of dynamics there? And then lastly on the Parcels business BeNe with the new lockdowns and what -- I know that Q4 is normally not your most efficient quarter with the peak season, which was the case in Q2. But would it be safe to assume that the Parcel Eurasia would have a higher EBITDA than in Q2 because of the higher revenues that normally are even despite profit. Impact in Q2, that Q4 will still be a better quarter than Q2? Those are my questions.

Okay. FTE evolution. So -- and it goes together with your second question. So I rest my case on having all questions in one because within Mail & Retail, in that business unit, we run the mail operations. Which Jean-Paul -- we tend to call it more mail and parcels operations so that it has to be clear to everyone, also those who are running the operations, that it's for both products that are -- have the right of existence. So the FTEs that you see within Mail & Retail do include also the people that we have in the operations. So in the last-mile distribution part. And it's correct that on the one hand, we have natural attrition. So we always have people who leave 1,200 a year approximately. On the other hand, yes, with the alternative distribution model, which was geared towards mail, remember, also there, bit by bit, we will be able to work more productively, but then came COVID. So with parcels coming in -- and if you compare the product mail with parcels, there's a big distinction that time. A mail, you drop very quickly in the box. A parcel in the COVID lockdown, it was a bit easier. You could bring when everybody was at home. But even then, it takes you most time. So as to productivity, they're different. So what we always do in mail operations, we look what is the impact of mail volume decline, what FTEs should be reducing. But on the other hand, we also have an increase, thanks to or due to parcels. And that's what you see in the FTEs. Then your second question is, yes, out of mail operations, an invoice is sent to PaLo Eurasia based on the parcels volume. So it's invoiced at cost. Then you said something -- so is it -- does it mean when your parcels go down, but let me say one thing parcels are not really likely to go down.

Well, the growth, I mean, it comes a bit more normalized, for us?