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

Hello, and welcome to the bpost Fourth Quarter 2021 Analyst Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this call is being recorded. [Operator Instructions] And I will now hand you over to your host, Dirk Tirez, Chief Executive Officer, to begin today's conference. Thank you.

Well, thank you, and good morning, ladies and gentlemen. Welcome. I'm pleased to present to you the fourth quarter and full year 2021 results as CEO of the bpost Group. Welcome to all of you, and thank you for joining us. With me, I have Koen Aelterman, our CFO at Interim, as well as Antoine Lebecq from Investor Relations. Koen heads the costing and financial advisory teams within our finance department. As our CFO at Interim, he currently coordinates with insurers, the continuity of our finance organization since November last year. We posted the materials on our website last night. We will walk you through the presentation, and we'll then take your questions. Two questions each would ensure everyone gets the chance to be addressed in the upcoming hour. Now let's go to the highlights of the full year results. On Page 3, you see that bpost delivered on its promises. The full year results in line with twice increased guidance. Group adjusted EBIT stood at EUR 349.3 million, which compares with our guidance of above EUR 340 million. Mail & Retail contributed for EUR 193.9 million to group adjusted EBIT with a margin of 9.7%, well within the guided range of 9% to 10%. Year-on-year, the segment has benefited from higher mail revenues resulting from a limited volume decline of 5.9% against the soft comps of 2020 and the offset from the price/mix impacts. In Admin Mail, we estimate a top line contribution of around EUR 26 million from COVID-19 communications in 2021. Parcels & Logistics Eurasia's top line was mainly driven by parcel's volume growth of 10.3% against the high comps of plus 56.2% in 2020, a 15% growth in Radial Europe and Active Ants top line and the negative impacts from the new VAT regulation on cross-border volumes in July 2021. Adjusted EBIT stood at EUR 106.2 million with a margin of 9.7%, in line with the guidance. At Parcels & Logistics North America, top line development was mainly driven by Radial's revenues growth of 11.6%, notably, thanks to the contribution of new customers launched this year. Adjusted EBIT of the business unit doubled from EUR 32.8 million to EUR 77.7 million with a margin of 5.3% above the guidance of 4% to 5% and despite the ongoing wage pressure in North America. Annual contract value signed at Radial reached $211 million well above the ACV of EUR 186 million signed in 2020. CapEx ended up at EUR 172 million, also within the guided range. These results allow us to propose a dividend per share of EUR 0.49 to the General Shareholders' Meeting. And there was no significant noncash impact in 2021, we can propose this payout ratio of 40% of IFRS net profit fully in line with our dividend policy. Underlying the strong financials are the 2021 management priorities. For these priorities, both financially and operationally, we have fully delivered on our promises. Starting with the mother of all priorities, the end of year peak. First, in Belgium, where we had a very successful end of year peak. We had a steep margin improvement and almost doubled the EBIT at Parcels B2X despite market volatility, a considerable improvement versus last year results. On top of the increased financials, we also had significant operational results. We had a nearly double-digit improvement on successful D+1 delivery quality with the volume of relics on all parcels not delivered the next day on average at a third or even lower below the average relic of the 2021 peak. We were able to reduce the second wave by 80%, which also enabled us to reduce the use of subcontractors during key peak weeks with 40%, all this despite the increased COVID absenteeism. Thanks to the effective use of buffer sites and proactive regional deviations, we were able to avoid truck refusal also on high-volume days. Finally, the peak was also available cultural communication and learning experience for our central staff with more than 650 central staff joining our colleagues in field operations. And I would like to thank all of our 36,000 colleagues for demonstrating through caring and servant leadership, which was very much appreciated. Second, also in the U.S. we had a strong peak, and this is despite the complex market conditions given COVID and a difficult global supply chain. The Radial U.S. adjusted EBIT for the fourth quarter stood at $39 million, $11 million of additional performance compared to Q4 2020 with numbers being adjusted for net effect of the cyber attack and onetime concessions from a vendor in last quarter. Besides purely financially, this was also commercially a successful peak. The single maximum shipping day, the new client revenues and the new client unit shipped all increased by more than 20% year-over-year. The time in transit for customers' parcels was 20% faster with backlog or relics down almost 10% year-over-year. Despite the tough labor market conditions, we recruited and trained 24,000 temporary workers during peak season to successfully meet our clients' peak volumes. In such a tense labor markets, the overall financial and operational performance was negatively impacted in a limited set of sites where volumes did not materialize as planned. And also for our other North American activities, we had a record peak at Landmark Global and Apple Express, both in terms of volume, revenue and EBIT. Finally, I briefly want to touch on 3 other key management priorities. On active portfolio management, we were successful in divesting The Mail Group, bpost Bank and before the end of this month, Ubiway Retail. This frees up cash for investments in our transformation as well as management time for core growth activities. On overhead, we were able to stabilize the overhead in Belgium by capitalizing on natural attrition more on this later in the management priorities for 2022. And finally, we were able to complete the top executive leadership team at bpost. We have welcomed the new CEO for Belgium, and we welcome back our CEO for North America. We have also now a Chief Technology Officer and a new Chief Strategic and Transformation Officer and soon, a new group CFO and group CSTO. Jean Muls, will bring us operational excellence in Belgium from his international experience at GE, Bombardier, IMDC and FedEx. We welcome back Henri de Romrée in North America, who knows the bpost Group extremely well and was previously a partner at McKinsey, with focus on parcels and e-commerce logistics. Nicolas Baise is now the Chief Strategy and Transformation Officer and was previously Managing Director and Partner at Boston Consulting Group with focus on transport logistics and large-scale transformation. James Edge combined business and technology as CTO and was previously CEO of Landmark Global with extensive experience as CIO in Parcels & Logistics. Kathleen Van Beveren, continues to operate as CEO E-logistics Eurasia. We also welcome Philippe Dartienne, a seasoned CFO, who will turn the tide on value creation relying on more than 30 years of financial and operational experience, including in the tractable Suez Group. Koen will remain our CFO at interim until bpost -- Philippe joins bpost. Mark Michiels, who will retire reaching the age of 65 at the end of this year, will onboard Anette Böhm currently CHRO of the KBC Group. Anette will be instrumental in the human capital development of the bpost Group to accelerate the transformation. I will later on talk more on our 2022 objectives but will first present you the highlights of the fourth quarter. Moving to Page 6. As promised, bpost levers a strong end of the year, driven by successful end-of-year peak execution in Belgium and in North America. We see that group adjusted EBIT stands at EUR 88 million, with a margin of 6.8%, fully in line with expectations. This is a EUR 28 million or 46% plus increase versus last year. Our group operating income for Q4 stands at EUR 1.3 billion up 80.8% year-over-year. This mainly results from the contribution of Radial's new customers the stable mail revenues with our pricing lever and mix mitigating the volume decline and the decline in Asian cross-border revenues due to the new European regulation on VAT together with global revenues from lower parcel volumes. And now I would like to hand over to Koen for more details on the financials.

Thank you, Dirk, and good morning to you all. For your reference, you find on Page 7, an overview of the key financials for the quarter, both reported and adjusted. You will note the positive impact of EUR 19.5 million on net profit as bpost Bank was reassessed at a value of EUR 119.5 million ahead of the closing of the transaction, which took place in early January. Allow me to move directly to the details of Mail & Retail. At Mail & Retail, external revenues increased by EUR 9 million to EUR 466 million. Domestic Mail recorded an underlying mail volume decline of minus 8.9% for the quarter against softer comps of minus 11.8% last year. The volume decline has impacted revenues by EUR 25 million and was almost fully offset by a positive price and mix impact of EUR 24 million, mainly driven by the mail price increases. Admin mail volumes were supported by a rebound in COVID-19 communication while it was fading out in the previous quarter. We estimate the contribution of about EUR 8 million to the top line in the fourth quarter. Proximity and convenience retail network revenues increased by EUR 8 million, resulting from higher revenues at Ubiway Retail, since last year, we had lower sales due to reduced footfall, especially in travel locations and during the full lockdown in November. The value-added services increased by EUR 2 million, driven by higher revenues from fines solution. This EUR 9 million increase in external operating income was more than offset by a decline of EUR 14 million in intersegment operating income, which results in a total operating income, EUR 5 million below last year. The lower intersegment income is explained by the higher end of year peak operational leverage, resulting in a lower unit cost and by the lower parcels and cross-border volumes. On the cost side, the operating expenses slightly decreased year-over-year, mainly as a result of lower fleet interim and subcontractor costs, thanks to strong operational performance during the peak but higher payroll costs, reflecting the impact of the new collective labor agreement and the recent 2% salary indexation in Belgium as well as higher material costs in line with the revenue recovery at Ubiway Retail. Moving on to Parcels & Logistics Eurasia on Page 10. We see that external operating income declined as anticipated by EUR 30 million. Looking at the revenue development per subsegment, we see that Parcels BeNe recorded a decrease of EUR 17 million or minus 10%. First, similar to the previous quarter, the sales at Dyna were down 23.6% versus last year due to lower sales in insurance and the lower demand in 2XL delivery compared to the lockdown momentum of last year. Second, as to Parcels B2X, our volumes were 7.5% below last year. This volume trend reflects the tough comps of last year but also to a lesser extent, Amazon's recent insourcing. As you will remember, we had a volume growth of 67.4% in the fourth quarter of 2020, notably, thanks to the full lockdown during the month of November. And compared to the pre-pandemic fourth quarter of 2019, Parcels volumes have grown by 55%. In contrast with the negative price/mix of the previous quarters, which was around minus 6%, minus 7%, the price/mix improved to minus 0.2% this quarter, thanks to peak surcharges and favorable customer mix. In e-commerce logistics, Radial Europe and Active Ants sales continued to grow by 12.3% year-over-year. The progress made was fully offset by the decline in revenue at DynaFix. Hence, we only reported a slight increase of EUR 1 million in revenues. We saw a continued organic growth and Active Ants from existing customers and Radial Europe growth, mainly driven by the third site opened in Germany in February 2021. Note that the 2 new sites opened by Active Ants in Belgium and Germany in the second half of the year are still in a ramp-up and thus contributed little to top line in this quarter. On the other hand, year-over-year revenue development at DynaFix specialist in repairs in the Netherlands for electronic devices almost fully offset the revenue growth of the subsegment. This is due to the ongoing shortage of electronic spare parts and less devices to be repaired. Cross-border, as expected, recorded a weak quarter against high comps last year. Revenues decreased by EUR 15 million or minus 15%. Similar to the previous quarter, we saw the ongoing pressure on Asian parcel volumes. The minus 51% decline in Asian sales is a consequence of the high comps of last year when we still had the benefit of the temporary rail transport alternatives set up late in the second quarter of 2020, and the termination of the VAT exemption on low-value consignment since July 2021. We continue to expect in the future a progressive recovery from the low-value consignment impact but the timing remains uncertain. Asian sales are currently back to the pre-pandemic levels of the fourth quarter of 2019. On the next slide, despite the decline of EUR 30 million in total operating income, adjusted EBIT for Parcels & Logistics Eurasia remained stable at EUR 22 million. On the back of a strong end of year peak execution, the EBIT at Parcels B2X almost doubled despite lower volumes and allowed to offset the EBIT decline at cross-border and e-commerce logistics. Operating expenses decreased by EUR 30 million, mainly driven by lower intersegment OpEx charged by Mail & Retail from lower parcel volumes, but also thanks to the successful end-of-year peak execution, resulting in a favorable mix in distribution, thanks to a higher share of parcels distributed in the regular mail rounds. Lower transport costs, mainly due to lower Asian cross-border activities, partially offset by higher costs, including staff costs from the expansion of e-commerce logistics and the new site openings in line with the full year guidance and our commitment to invest in the long term as well as projects related to the low-value consignment release. Now on Slide 12, our North American Parcels & Logistics. The operating income of e-commerce logistics increased by EUR 141 million, up 28.6% at constant exchange rate. This is driven by Radial, mainly thanks to the contribution of new customers launched in 2021 and accelerating since June. At the same time, our activities at Landmark and Apple Express continued to record strong volumes from existing clients and new customers. When putting Radial revenues in perspective, we see how this quarter compares with the previous year end. Radial revenues amounted to EUR 528 million in the fourth quarter of 2021, which is, respectively, 30% and 50% above the fourth quarter in 2020 and 2019, reflecting the structural e-commerce logistics growth and the Radial's expansion plan. Finally, international mail decreased by EUR 18.5 million following the deconsolidation of the Mail Group in early August. On Slide 13, you see that operating expenses increased by 22%, excluding FX impact. Variable OpEx evolved in line with the revenue development and includes labor cost headwinds due to the current wage rate pressure in the U.S., which were partially compensated by the COVID employer payroll tax credit program. We also had higher fixed costs from new sites and start-up costs in line with our expansion and our commitment to invest in the long term. Year-over-year, PaLo North America adjusted EBIT increased by EUR 32 million to EUR 46 million. You will remember that last year, following the ransomware attack in October, we reported a negative EBIT impact of minus EUR 9.2 million in the fourth quarter. In the fourth quarter this year, we recorded a positive EBIT impact of EUR 2.6 million from the cyber insurance recovery. And additionally, we benefited from a EUR 5.2 million one-off concession from event. When excluding the one-off concession and the ransomware impact, the adjusted EBIT grew by EUR 15 million or 65%. This sharp operational EBIT increase was driven by the contribution of new customer wins and by the strong execution during the peak. Moving to the corporate segment on Page 14. The external operating income increased by EUR 3.5 million year-over-year from higher building sales. This was offset by higher consultancy costs to accelerate our transformation and the adjusted EBIT, therefore, slightly decreased by EUR 1 million year-over-year. Then we move to the cash flow on Slide 15. The strong operational result is impacted by phasing, resulting in a net cash flow of plus EUR 27 million, a decrease compared to the same period last year by EUR 78 million. The main items to flag are the following: In the cash flow from operating activities, there is the higher EBITDA generation compared with the lower tax prepayments in this fourth quarter. Corporate tax prepayments were back to normal in 2021, whereas in 2020, these have been postponed to the end of the year out of prudency reasons in the context of the pandemic. In the change in working capital and provisions, we incurred a negative movement of EUR 96 million, mainly driven by a different payment schedule of social security and lower trade payables compared to 2020. End of year social security charges over 2021 occurred in December 2021, whereas those over 2020 occurred in January 2020. As to cash flow from investing activities, capital expenditures stood at EUR 93 million in the fourth quarter versus EUR 61 million last year, mainly invested in continued e-commerce logistics expansion of Active Ants, Radial Europe and Radial U.S. as well as in Parcels & Sustainability initiatives in Belgium. We also saw higher building sales for EUR 4 million. I now hand over to Dirk for the management priorities and the outlook of 2022.

Well, thank you, Koen. And before presenting you the outlook for 2022, I would like to introduce our new business unit set up as well, I'll walk you through our management priorities for 2022. As you know, we are bundling our parcel activities with our Mail & Retail activities into one Belgium business unit led by Jean Muls. This implies a new business unit structure with Belgium in E-Logistics Eurasia and E-Logistics North America, now replacing Mail & Retail, Parcels & Logistics Eurasia and Parcels & Logistics North America. This new structure will allow to recognize different strategic imperatives, namely transform Belgium, build E-Logistics Eurasia and grow E-Logistics North America as well as to allow full P&L accountability and business unit level. The objectives are to align accountability, speed of action and transparency. As from the first quarter of 2022, the reporting format will be adapted accordingly. Changes are nevertheless limited. This consists in moving our parcels use -- Belgium parcels out of the subsegment Parcels BeNe and to create a new subsegment Parcels Belgium next to the 5 subsegments of the former Mail & Retail business units. And we will regroup DynaLogic and Dynasure, previously in the subsegment in Parcels BeNe together with Radial Europe, Active Ants, Leen Menken and DynaFix in the existing subsegment e-commerce logistics. For your reference, we show on Slide 17, the key financials of 2021 in this new reporting format. The quarterly figures of 2021 are also restated in our segment. What are our management priorities for 2022? Well, there are 6 management priorities, 3 at the EU level, 1 at corporate level and 2 transversal ones. There is a general team within the group of cost discipline and predictability. There is a clear direction from the Board of Directors, and we have a strong new leadership team that is pragmatic and operates as a collegial team. The ambition of the new strong leadership team is to deliver strong, consistent total shareholder return in an evolving landscape and start developing a great stock trajectory over time. The focus of the new leadership team is for bpost to become a great company with excellence in operations and profitable growth, a clear competitive advantage in all chosen areas, financial resilience, premium return and a firm commitment to ESG and being an employer of choice. The strategic plan approved by the Board of Directors is clear. In Belgium, the focus of Jean Muls is to pursue an integrated value plan to deliver substantial market improvements across all businesses and shift to a customer-centric organization will focus on quality and NPS. This is about stability, predictability and the transformation of the business. In E-Logistics Eurasia, Kathleen Van Beveren has the ambition to realize the growth plans of Radial Europe, Active Ants and other E-Logistic Eurasia entities reaching scale in a fast-growing market. She has a clear focus on NPS with value creation and competitive advantage at center of organic growth and M&A but with clear corporate investment discipline. We have the opportunity to be a key European player in this segment, we know well. In North America, having now realized the post-acquisition turnaround, Henri de Romrée is now embarking on an ambitious Radial U.S. accelerated growth plan with a clear focus on NPS and maximizing growth which the U.S. market is offering. The role of our new Group CFO, Philippe Dartienne will be to instill financial discipline and a consistent cost and cash control mindset across the group, starting from headquarters drive the transformation while realizing effective cost efficiencies and turn the tide on driving value creation for bpost. The focus will also be on M&A and CapEx discipline and efficient cash flow for the group with a clear focus on investor and financial strategy. He will lead together with Koen, the preparations of the Capital Markets Day, which we plan to hold at the end of this year. Nicolas Baise joins [Technical Difficulty] from a product delivery to a customer-centric organization and transform bpost into an agile organization. The transformation touches on many aspects, including culture, leadership, reward and workforce organization, which will be designed by the new group, CHRO, Anette Böhm. James Edge will be developing innovative growth opportunities by better use of data and improved digital capabilities, including artificial intelligence. We will drive this transformation through the development, pilots and execution of a road map for agile at scale at bpost. We will, as mentioned in Q3 last year, continue to embed sustainability in our business strategy to strengthen our position as the leading sustainable and socially responsible organization committed to ESG. Investments to accelerate this transition are captured within the existing CapEx and growth. These management priorities bring me to our outlook for 2022. In 2022, bpost will continue to invest in its ongoing transformation and will mitigate headwinds from wage pressure and inflation by some cost reduction initiatives, productivity gains, and further growth in -- on e-commerce activities. Group total operating income is expected to grow by a mid- to high single-digit percentage while group adjusted EBIT is expected to range between EUR 280 million and EUR 310 million based on current assumptions for inflation and overall market conditions. This is our best estimate as of now, which could be impacted by macro and geopolitical risks materializing. For Belgium, we expect a total operating income to remain stable, while excluding the deconsolidation of Ubiway Retail. And therefore, we plan for an expected mail volume decline of 8% to 10% to be partly compensated by an improved mail pricing increase of 4.7% as announced in November last year, an expected flat parcels volume development, reflecting Amazon insourcing and the post-COVID normalization and saw additional revenues at VAS and Retail. Adjusted EBIT margin is expected to range between 8% and 10%, which reflects higher wage costs and inflationary pressure, partially mitigated by our cost reduction initiatives and productivity gains. The allowance within our guidance are inflation, especially in Belgium, but to some extent in North America and Parcels volume growth. We expect to grow at least in line with the Belgian markets, but the overall balance is anticipated to lead to a flat volume development in 2022 due to Amazon insourcing. Depending on the consumer sentiment, market normalization and on how quickly Amazon will move forward with their insourcing parcel volume growth may also develop differently this year. For E-Logistics Eurasia, we anticipate a low to mid-teens percentage growth in total operating income relying on our growth plan for Radial Europe, Active Ants and our cross-border commercial activities in Europe. Despite an expected limited recovery in Asian volumes, in 2022, we will continue to have scale-up costs in Radial Europe and Active Ants, since the adjusted EBIT margin is expected to range between 6% and 8%. For E-Logistics North America, when excluding the deconsolidation of the Mail Group, we expect the top line to grow by low to mid-teens percentage, thanks to Radial's accelerated growth plan and to the contribution from new customer wins. The adjusted EBIT margin is expected to range between [Audio Gap] Can you hear me? Hello, Courtney?

Yes, we can now hear you. Please continue.

Okay. Well, we are switching to the backup line. Please go ahead, Dirk.

From where?

From the Q&A part.

So thank you. We are now ready to take your questions, and operator, please open the lines.

[Operator Instructions] And our first question comes in from the line of Ivar Billfalk-Kelly calling from UBS.

So within the Belgium division, what actions can you take to offset the impact of automatic salary indexation is in stays high? And how does your position compared to your peers, are you at a significant disadvantage there? And maybe secondly, linked to energy costs, can you give us a rough idea of the sensitivity of your EBIT to higher oil and gas prices? And I'm going to have a very quick 1 as well, just a clarification. I think you said -- and I might have mentioned it, but when your line cut out. Within Belgium B2X parcels, what proportion of your volumes are actually linked to Amazon? And I assume they actually have very favorable pricing on to scale. So is there a material difference on a revenue basis?

Okay. Thank you, Ivar. I'm not sure I fully caught all the questions as the line was not entirely clear, but let me start by responding if there's anything else, please repeat one of the questions. I think your first one was around how we offset the salary indexation within Belgium. So first, it's important to understand the indexation mechanism in Belgium. Contrary to many other European countries in Belgium indexation of salaries is mandatory and is automatic for depots. So as soon as the consumer price index exceeds a certain threshold, the pivot index, it automatically triggers a 2% indexation of salaries within bpost. We've had that in October 2021, and we expect that to happen in February 2022, in April 2022 and in December 2022, so that is automatic. And as it's different in many of the European countries that will have a bigger impact for bpost. That said, we do have many measures in place to mitigate that, notably in terms of productivity gains, both in operations as well as on overheads, as was also explained in the third quarter call. So these will help us to offset that. On the pricing side, given the pricing cap formula, which looks at inflation that is backwards looking, there, we will see a lag before we see the higher inflation inflected in the price cap formula. So that is not reflected in the outlook for next year. Your second question was around the impact of Amazon, I believe, where we see that Amazon represents as was also in the press, a bit less than 1 in 5 parcels for bpost. So we do expect a part of that volume to disappear around -- we expect around 8% volume impact from Amazon next year, which will be offset to some extent by the positive price mix impact of that. As you mentioned yourself, that Amazon has a relatively low rate due to their high volumes. And so we will see a positive price/mix effect. It's also important here to take into account that this effect only impacts our parcel revenues, which are only a share, a bit above 10% of our group result. So overall, the impact itself remains limited to that effect. And I'm not sure if I missed any of your other questions.

Yes, so I'll link to the cost base as well. Can you give us a sensitivity of your EBIT to higher oil and gas prices, if they stay at a little bit later even increase from this point?

I could not understand you. I'm sorry, could you repeat that again, please?

Sorry, it's with my line. Do you expect a material impact on your EBIT guidance if oil and gas prices rise significantly from this point? And of course, I'm taking into consideration macro factors outside of your control here.

Yes, sure. Sorry, I didn't quite catch that before. But indeed, yes, if the energy prices rise, we will see an impact on the EBIT, first because of the energy prices themselves. But also because energy is 1 of the components of the consumer price index, which drives salary indexation. And so if the energy prices go up, notably gather them, which correlates quite strongly to the consumer price index in Belgium, we will see an impact on our wage drift there as well.

But again, I think it can also be particularly in Europe and North America being mitigated because we have contractual mechanism and price increases, in particular, for transports are passed on to customers.

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

I've got 2, please. I'd like to follow up on the Belgium Parcel market. What type of growth do you expect for the market overall post the COVID normalization? Is that around 10%, given your estimated Amazon impacts of around 8%? And the 1 in 5 parcels that you mentioned as an answer in the previous question, is that for all of Belgium? Or is it just for Wallonia. So it's the overall market share of Amazon around 10% in Belgium and 20% in Wallonia? The second question is about the risk of further salary indexation to your guidance? Is that if you would have another salary indexation, is at around EUR 20 million of EBIT as a result? And what are you seeing currently in the U.S. where I think inflation rates are even higher and still you are guiding for relatively stable profitability in 2022 versus '21?

Thank you. So first on the parcel market. So as mentioned, indeed, we expect an 8% volume decline. And as we guide overall on stable volume development, that gives you a good indication of what we expect in terms of market growth. We will also be actively hunting to acquire new volumes. And so we aspire to have a market growth or growth, which is above the market growth rate. As to the 1 in 5 parcels, it's slightly below that. That is for the full territory of Belgium. So not just Brussels and the volume breaching of the country. In terms of the...

They are much stronger in Wallonia, and I think are hardly present in Flanders right, because it's mainly bouldered in blue?

There is indeed an imbalance between the 2 regions. As to the risk for salary indexation, so there, it obviously depends on when exactly new -- the CPI, the consumer price index would reach the threshold level again. What we can give as a guidance on that is for every month in which this would be the case, so that's a 2% indexation of the salaries, we would incur a cost impact of about EUR 2 million to EUR 3 million. Note that here, we do, as mentioned before, aim to offset by productivity gains. And then in terms of the U.S., so there as well, we do see some wage pressure, which is decreasing a bit if we look towards the first results of 2022 and here as well, we are aiming for efficiency gains, operational improvements to offset that as well as, of course, the growth which we expect in the U.S. for next year.

But in U.S., in particular, if I may add, is we have a lot of cost-plus contracts. So it means that costs are being passed on to customers and all the contracts are being reviewed on an annual basis and they are up for review. And therefore, we will include the inflation and index the contracts accordingly. And therefore, I think we continue to maintain in our outlook, the acceleration and growth for North America.

The next question comes in from the line of Frank Claassen calling from Degroof Petercam.

Yes, two questions. First of all, on the cost savings, you plan to reduce overhead in '22. Could you elaborate what you would like to do and maybe quantify there? And also related to that, the project Omega, could we already see benefits in this year? Or will it be more a '23 thing? And then secondly, on your CapEx envelope of EUR 250 million. What are the main growth projects? Is it -- are you going to build new sorting centers for Radial, Europe, U.S.? Could you elaborate on that, please?

Well, thank you very much. And again, I think all excellent questions. Maybe I would like first to talk a bit about the CapEx strategy, but we basically are doing is responding to a great commercial moments and following market growth, both in North America and Europe. And therefore, we continue to invest to follow the growth of our clients. That's why we have the accelerated growth plan in North America and building e-logistics business in Europe. To give you a couple of examples. Indeed, we're investing and opening 2 new sites in North America, Phoenix, Arizona and Indianapolis. And also, I think in Europe, we're opening and basically following client growth in the U.K. as the Brexit has created some opportunities for the bpost group. So that's basically 1 element to it. The other element is a phasing, as you have seen in 2021. And 2 elements combined, I think, explains the continuous investments responding to the great commercial momentum and the market growth we see on both sides of the Atlantic. On the question of cost discipline. Yes, I've explained the role of the new CFO. We have not been waiting to onboard a new CFO. I think with Koen, we embarked on a project to reduce headquarter costs, which is significant. To bring our cost in line with the benchmark in the market. We are really proceeding with getting serious on cost with a hiring freeze in BU Belgium and with reorganizations that will take place in 2022, and we will come back, of course, at a later stage, what it means for the years to come. So yes, I think what I said previously at the previous analyst call, I think cost discipline is at the center on how we look at our operations. And so it is both FTE costs also OpEx cost. And I also would like to point out that we are very much disciplined in any CapEx spend. We're looking at internal rate of returns and financial discipline to invest particularly in the growth of our business.

Okay. That's helpful. And the project Omega, could you elaborate on that?

Well, that's the project on the new design of the distribution of the rounds. And we will start implementing and we have negotiated and discussed this with the labor unions reorganizations. And that is indeed included as part of the mitigating actions. For example, we are focusing on productivity improvements in the network, and that is already taken place in 2022 and will be further rolled out, I would say, in the years to come.

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

I've got 2 as well. Sorry, call it within the lines to put it in those phrases. First of all, on the labor laws in Belgium. There have been some changes or proposals to change the rules. First of all, on evening work, I've also read something about rules affecting the deliveries of this world, whether someone is self-employed or has to work on the basis of a labor contract. And to what extent is it influencing bpost? And do you expect more of these things? Because we've seen some remarks by the Minister of Post at the end of last year as well that you would favor some change creating a more level playing field for bpost. Second question relates to the competitive environment. You referred to Amazon as a -- yes, an increasing, yes, competitor in Belgium. But quite recently, there has been an announcement by CMA CGM. They took over Ingram Micro's European E-Logistics activities in December and they now intend to take over Colis Privé which has made an entry into Belgium as well. How do you look at this combination? Is that a potential rival for you? And how serious should we take that?

Yes. Thank you for your questions. And I think on the Belgium labor law and the regulations of the last mile delivery market, yes, we see new decisions by the Belgium government that have recently been taken. And I think we expect that the further regulation may be forthcoming, but it's not up to me to comment on, let's say, the decisions of parliament. On the question of competition in the market, I would suggest Koen, and I will add.

Yes, sure. Perhaps let me maybe just circle back to the previous question because you also asked about the night changes in the labor there in the legislation. So any impact that has is included in our outlook. So there is nothing to expect that. Then looking at the competition. So yes, we are like you witnessing that global logistics players with significant firepower look for consolidation and scale. And so we see these acquisitions taking place. Notwithstanding that, we remain confident that we will also be able to successfully expand our e-commerce activities. And we also have some firepower available to continue to invest in this segment.

Okay. So it's not a showstopper to put it in those phrases?

No, no. I think the ambition in Belgium is to grow with the market and keep the leading position. The ambition e-commerce logistics is in essence to respond to the great commercial momentum and following market growth and in particular, the growth of our clients and the onboarding of new clients.

Yes. But perhaps I may add a question on top of that, Dirk. In a recent interview, you said that you were proud of bpost because unlike PostNL, you do not only depend on the Benelux market, but you have a growing presence outside of the Benelux and that e-commerce logistics was the big -- how do you call it, the big driver of that. What should be the future growth? Being an international player, CMA CGM is predominantly active outside of the Benelux area. Do you see any problems there?

Well, the answer, I think it's an excellent question. And it just confirms that the strategy of bpost a couple of years ago to move in e-commerce logistics was the right strategy. What we see -- because I'm every quarter in the U.S. and traveling and visiting sites in Europe on a regular basis, I think we see still a great commercial momentum. When I talk to clients and potential new clients, I think e-commerce, it's an international market. It's not a BeNe market. The opportunities in North America and across Europe, I think we opened 12 -- and we have 12 fulfillment sites in Poland, in Germany. We are very active in the Netherlands, as you know. In U.K., we have also opened a new site. So we see still that there's a great potential in particular, in the sectors we have chosen and in particular, in the countries we're active. And the big advantage is, yes, indeed, Belgium is a small market, and that's why we have an international growth strategy and effectively 3 engines of growth transformation in Belgium, building in Europe and accelerating in the U.S. Of course, newcomers are moving in, and I think we will, of course, keep the leadership position we have in the area we're active in.

The next question comes in from the line of Sean Goodier calling from Bank of America.

Three questions from me, please. Firstly, just on Amazon insourcing. So you assume an 8% volume impacts from insourcing this year. Where do you expect it to eventually normalize? And secondly, on e-logistics, why are margins for E-Logistics in Eurasia, higher than North America? And when do you expect North America margins to potentially converge? And then finally, on cash flow, how should we think about cash flow this year? And will operating cash conversion increase from around the 70% mark in '21?

So on Amazon insourcing, when the normalization of it, it obviously depends on Amazon's insourcing strategy. So any questions on that should, of course, be off to them. We've reflected in our outlook for this year is the 8% volume decline, which seems to be in line with what we've observed in other markets so far.

And also, I think if I may at, I think we also look at the price/mix and the positive effect it will have on the price/mix. And I think we also have, of course, something plans to maintain the leadership position in the market is to complete a kind of situation. And maybe on e-commerce logistics and the further investments we make.

So on e-commerce logistics, and the reason for the margin difference is that the composition of the operating segment is somewhat different. For Eurasia, there is still cross-bordering there for a very significant contribution. And so that results in a difference in the margin target. Could you just repeat the last question, which I didn't capture entirely?

Yes. So how should we think about cash flow this year? And will operating cash conversion improve?

Yes. So first of all, on the cash flow, you of course have the EBIT guidance we've provided. And then we can expect that some of the noncash items and specifically the depreciation and amortization will increase in line with our investments. Sorry, just give me one second. Yes. So other than that, there will be some impacts, of course, from the higher CapEx outlook, which we've communicated at EUR 250 million. And then there are some impacts from the divestments. So the bpost Bank deal will close or has closed, in fact, early January, which should generate a cash inflow of EUR 119.5 million. There is also working cap -- or a loan we had of EUR 25 million, which is repaid and we, as bpost, repaid the working capital amount we have of EUR 12 million. So all those combined will have an impact, of course, on our cash flow. And then finally, there's -- as our business grows, obviously, there will also be some impact on working capital, which will grow together with the business.

The next question comes in from the line of Sumit Mehrotra calling from Societe Generale.

First, I just have 2 questions. Could you walk us through the logic, which went behind the stable parcels outlook for '22? I noticed the 8% impact from Amazon this year. And what should be the midterm target beyond this? How should we look at growth beyond '22 for Parcels? Secondly, Dirk, what's your future vision for your proximity in retail operations after stepping away from like the Ubiway operations now. So which opportunities offer more relevant synergies for the group, perhaps now you have a better vision on that? Yes, these are my 2.

Well, I think we have been relatively clear on the outlook in the Parcels market, we see across Europe and in Belgium. And then I would say we look at it that we will indeed as the market leader and the ambition is to grow with the market. But we have since World War II, a new circumstance, and so I think everything will depend on future consumer confidence, I would say. So what we currently see and based upon the current information even in line with Amazon insourcing, I think the outlook is carefully thought through and that is the growth we see. On the question of Ubiway Retail, it comes back to what I would call very much the discipline we have on what is core, what is noncore, what is strategic and nonstrategic. And if there are assets, subsidiaries that are either nonstrategic like retail, or nonperforming, I would say, like Ubiway Retail, I think we divest. And we will continue to be very much focused on discipline either in the way we look at CapEx and in the way we look at M&A and divesting activities, assets or subsidiaries that do not contribute to the profitability of the company. And therefore, we will continue to focus on the opportunities in the e-commerce logistics market with always in a very disciplined way in order to look at return on investments.

The next question comes in from the line of Andre Mulder calling from Kepler Cheuvreux.

First question, what kind of cost do you take into account for transformation at the corporate level? Secondly, with the switch to the new setup, we have seen, of course, the sales and EBIT transferred to Belgium. However, the BeNe line is almost unchanged. What's the reason behind that? That's only EUR 1 million. I would expect that to be much larger, looking at the size of the parcel operations.

So starting with the cost for the transformation at the corporate level, we will be investing to transform into an agile group to put into place a shared service center and so on. You can expect that for the corporate level EBIT, we will be at a similar amount to this year before those investments, and so we are adding some costs on top for them. For the BeNe line in the new structure, it's important to note that already in the past, the operational part of the parcel distribution and sorting was already part of Mail & Retail. And so all those costs also related to the assets and the depreciation were reinvoiced via some internal enforcing, so we're part of the OpEx costs of the Parcels BeNe segment. That is why you see such a small impact on the BeNe line. The assets were already within Mail & Retail and now within Belgium.

We currently have no further questions in the queue. [Operator Instructions] Okay. And I will now hand you over to your speaker for any concluding remarks.

Well, I would like to thank everybody in the call for having taken the time to be with us and also for your interesting questions. We will hear from you at the conferences we are going to attempt in the coming weeks and months. And please note that we will release our annual report 2021 on the 17th of March 2022. We look forward to staying in touch and our first quarter results will be released in May. Thank you very much.

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