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

Hello and welcome to the bpost Third Quarter 2022 Analyst Call. My name is George and I'll be your coordinator for today's events. Please note this conference is being recorded. [Operator Instructions] I now hand the call over to your host today, Mr. Philippe Dartienne, CEO at Interim to begin today's conference. Thank you.

Good morning, ladies and gentlemen, welcome. I'm pleased to present you our third quarter 2022 results as CEO at Interim of bpost Group. Welcome to all of you and thank you for joining. With me, I have Koen Aelterman, our CFO at Interim that you already know as well as Antoine Lebecq from Investor Relations that you also know. We posted the materials on our website last night. We walk you through the presentation and we'll take then questions. 2 questions each which ensure everyone gets a chance to be addressed in the upcoming hour. As you know, bpost has launched a compliance review relating to the current tender for the press concession in Belgium. The company's Board and the CEO mutually agreed on October 24 that CEO temporarily steps aside pending the review and the Board decided to temporarily entrust the powers of daily management to Henri de Romree, CEO of e-Logistics North America. Yesterday, the Board of Directors of bpost has received update of the compliance review further to which the decision for the CEO to temporary step aside remains in place. Given the fact that the review is still ongoing and in view of the coming end of year peak, which is crucial for bpost and especially in North America, the Board of Directors and Henri de Romree have agreed that returns to its function of CEO of e-Logistics North America. The Board of Directors has decided to appoint me as CEO at Interim. Koen Aelterman, you will remember, will be our CFO at Interim. I do take these assignments together with the Exco team very seriously, and I will pursue the implementation of the company's strategy and maintain the social dialog. Our main objective remains to ensure continuity of service, the operations team has prepared themselves and we are ready for the most crucial period of the year, i.e., the yearend peak. We are not in a position to comment these events any further. Now let me go through the highlights of the results of the third quarter. We are very pleased to report that our quarterly results continue to track towards our guidance range in a seasonally softer quarter, and despite the ongoing and even stronger macro headwinds. Underlying parcels volume growth coupled with pricing measures, mail price increase offsetting the volume decline and continuous effort on management action drove the performance of this quarter. Our group operating income for Q3 stands at EUR 1.22 billion, up 4.5% year-on-year, reflecting high revenue across all segments also when combining the deconsolidation impact of Ubiway Retail and the Mail Group, the consolidation of IMX and the favorable U.S. FX impacts. We see that our group adjusted EBIT stands at EUR 26 million with a margin of 2.5%. Unsurprisingly, due to inflationary pressure on costs and worsening macroeconomic trends, EBIT is down minus 33.5% compared to last year. Let's go in the different business units. Belgium, adjusted EBIT of EUR 18.9 million reflects on the one hand slightly higher operating income from retail and value added services and most remarkably stable mail and parcels revenue and on the other end, higher OpEx due to the 5 recent salary indexation of plus 2% each, and higher energy costs partially mitigated by continued FTE reductions. At E-Logistics Eurasia, adjusted EBIT at EUR 4.4 million is a slight EUR 0.8 million increase year-over-year due to the expansion momentum at Radial Europe and Active Ants and the integration of IMX since July this year. At E-Logistics North America, operating income is as expected normalizing post the recent customer onboarding a Radial and FX provided a tailwind of around 17%. Adjusted EBIT was EUR 10.5 million, this is almost 20% up year-on-year when we rebasing last year third quarter with the EUR 4 million EBIT uplift related to the cyber insurance recovery. I would like now to hand over to Koen for more details on the financial of the third quarter.

Thank you, Philippe, and good morning to you all. For your reference, you find on page 4, an overview of the key financials for the quarter, both reported and adjusted. Philippe already mentioned, our group top line and EBIT, our adjusted net profit amounts to EUR 27.1 million. Similar to the previous quarter, it benefited from net financial result increasing by EUR 6 million year-over-year, reflecting lower financial charges related to IAS 19 employee benefits in line with higher discount rates and thus a non-cash impact. Allow me to move directly to the details of Belgium on Page 5. At Belgium, at constant perimeter, we see that external revenues increased by EUR 8 million to EUR 495 million. Domestic Mail recorded an underlying mail volume decline of 7.7% for the quarter against 7.5% in Q3 2021. This impacted revenues by EUR 19 million and was further compounded by working day impact of EUR 0.7 million. This was at the same time mitigated by a positive price and mix impact of EUR 18 million. Altogether, Domestic Mail revenues remained nearly stable year-over-year. Note that in the context of the vaccination campaign for the second booster dose admin mail volumes were again supported by some COVID-19 communication. We estimate the contribution of around EUR 5 million to the top line in the third quarter, more or less in line with Q3 last year. Parcels Belgium recorded a slight increase of EUR 1 million in revenue or 0.9%. Excluding the impact of Amazon's insourcing, which we discussed in previous quarters, parcel volumes were up 7.8% year-over-year. The volume trend is supported both by our successful hunting plan and our existing customers. This is an improvement on Q1 and Q2 when we recorded a volume decline of 8.1% and 2.9% respectively. When including the Amazon impact, parcel volumes were 3.8% below last year. At the same time the price mix improved from 3% and 3.4% in Q1 and Q2 to 4.7% in Q3, mainly thanks to recent price increases. Including our second price increase of 2.9% applied since the month of June to some of our contractual customers. To put things in perspective parcel volumes remain 50% above the pre-pandemic third quarter of 2019. Similar to what we observed in the previous quarter, proximity and convenience retail network revenue increased organically by EUR 6 million, resulting from the new management contract which came into force in 2022. In this sub-segment the deconsolidation impact of Ubiway Retail as from the month of March this year was EUR 36.5 million in the quarter. The value added services slightly increased by EUR 2.5 million mostly resulting from higher revenues from Fine Solutions. Let's move to the P&L of Belgium on Page 6. On the cost side excluding Ubiway Retail, the operating expenses increased by EUR 17 million year-over-year mainly reflecting the persistent inflationary pressure. We have indeed recorded higher payroll cost reflecting the impact of each of the 2% salary indexations of November 2021 February, April, June and September 2022 as well as the change in night shift regulation, and also higher energy and subcontractor costs. These were mitigated by the continued execution of dedicated management actions announced earlier this year, which includes the FTE reduction of around 930 FTEs, year-over-year, once again excluding Ubiway impact. Moving on to E-Logistics Eurasia then on Page 7. External operating income was this time up EUR 17 million reflecting strong growth in e-commerce logistics and the integration of higher mix at cross border. Looking at the revenue development per sub-segment, we see that in e-commerce logistics Radial Europe and Active Ants sales growth accelerated to 22% year-over-year. This compares with the low to mid-teens percentage growth of the previous quarters and is driven by our existing customers expansion, what we call the same-store sales and by recent customer onboardings as announced with our Q2 results. At Dyna, similar to the previous quarters, sales were down versus last year. This was due to the lower volumes in 1 and 2 man delivery network at DynaLogic exclusively driven by the lower consumer spending in white goods and also less devices to be repaired at DynaFix. The strong growth momentum at Radial Europe and Active Ants did offset Dyna's development with a combined increase of EUR 4 million revenue for the sub-segments. Cross-border's top line development is mainly driven by the consolidation of IMX since July this year, while our other businesses, mainly in Europe continue to grow. For Asia, we are now comparing against Q3, 2021 which was the first post VAT regulation quarter. We see that the Asian sales are normalizing and even trending slightly above Q3 last year. Sales are however still affected by the supply chain disruptions in China. Cross-border revenue increased by EUR 30 million or plus 19%. Moving to the P&L of Eurasia on Slide 8. We see that operating expenses increased by EUR 17 million or 13%, mainly explained by higher transport costs in line with higher fulfillment and Cross-border activities as well as the IMX integration, higher payroll costs from inflation and recent site openings in line with our expansion and the strategic development initiatives for Radial Europe and Active Ants, and partly offset by lower material interim and transport costs at Dyna in line with lower volumes as just explained. Moving on to our North America E-Logistics business on Page 9. The operating income of e-commerce logistics increased by EUR 63 million, up 3% at constant exchange rates. Besides the favorable FX impact of around 17% Landmark and Apple Express benefited from increased volumes from existing customers and new customers won in 2021 while as expected Radial sales have normalized as the new customers launched in 2021 are now fully implemented. Radial revenues amounted to $296 million in this quarter which is plus 1% above the third quarter of 2021 yet, plus 51% compared to 2019. It reflects our strong position in North America's e-commerce logistic market and our ability to capture growth and expand. For the last quarter this time you can also see the EUR 7 million impact of the deconsolidation of the Mail Group in early August, 2021. Moving to the P&L on Slide 10. Operating expenses increased by 2.3% excluding FX impact. The variable OpEx notably labor costs evolved in line with revenue development but were partially mitigated by some productivity gains resulting in an improved variable margins. We also incurred higher fixed costs from new site openings which support our commercial development and higher SG&A costs for strategic projects. Year-over-year, E-Logistics North America adjusted EBIT decreased by EUR 2 million but when excluding one-offs our underlying EBIT continues to improve. Remind that last year, we benefited from a EUR 4 million EBIT uplift from the cyber insurance recovery following the ransomware attack in October 2020 and we booked this quarter, a EUR 7 million provision reflecting a dispute with the terminated customer. Moving on then to the Corporate segment on Page 11. External operating income slightly increased by EUR 0.5 million year-over-year, while net operating expenses increased by EUR 2.3 million. This reflects higher consultancy costs to support our transformation and the inflationary impact on payroll costs. But most importantly, you can see our continued efforts on overhead reduction continue to bear fruits and we recorded a reduction of 5.8% in overhead and interim FTEs, which corresponds to 90 FTEs less and compares to minus 3.8% in the previous quarter. Now we move to the cash flow on Slide 12. The main items to flag are the following. Cash flow from operating activities before changes in working capital remained stable year-over-year. Change in working capital and provisions decreased by EUR 95 million. This is really about the compensation schedule related to the management contract, last year we received EUR 80 million in Q3 and this year, EUR 99 million in early Q4. This timing difference will therefore reverse in the coming quarter. Cash outflow from investing activities increased by EUR 24 million to EUR 47 million, with higher CapEx directed towards our E-Logistics Expansion in Europe and in the U.S. and the optimization of our domestic network in Belgium. Remember that our CapEx spend tends to be back-end loaded in the year. As to our active portfolio management and M&A activities we had last year the disposal of the Mail Group for EUR 6.5 million and we have in this quarter the acquisition of subsidiaries, net of cash acquired for around EUR 2 million, which reflects the acquisition of Aldipress. I now hand over to Philippe to cover our outlook for the remainder of 2022.

Thank you, Koen. Very clear as usual. Q3 results were encouraging and reflect management focus throughout the group, throughout the year. This leads us to revise upwards our guidance to group EBIT 2022 between EUR 265 million and EUR 300 million. You'll remember that, after the initial guidance to EUR 280 million to EUR 310 million in February 2022 we shared our assessments of downside risk. They evolved in nature and in amount throughout the year starting from EUR 40 million in Q1, down to EUR 25 million at Q2 and leading us to this revised EBIT range for the year. For clarity the range to EUR 265 million, EUR 300 million includes downside risk. For the first quarter -- for the fourth quarter sorry this implies a range of EUR 63 million to EUR 98 million EBIT, you know how sensitive our business, are to fourth quarter and strong headwinds and uncertainties persist. First, the uncertainty on volume trends and phasing of volume for the end of year peak in Belgium and internationally. Belgium consumer confidence remains at a record low level even if stabilized in October. Households save energy price increases as winter approaches and a record high inflation. Belgium witnesses a record high inflation rates of 12.3% in October, versus 8.3% and 9.7% in March and June. This is the highest reading since 1975. Macroeconomic factors remain and the magnitude of the impact on customer disposable income and retail spend capacity at year end, remain a source of uncertainty for the quarter. As a result predictability of volumes and they are phasing is rather limited. Additional volumes from existing and new customers, pricing measures and optimal peak preparations are mitigating factors we have already been working on. Second uncertainty is external factors, such as higher energy and payroll costs still continue headwinds. Energy prices in Q3 remain above last year, but has stabilized and remain broadly in line with our previous guidance update. Payroll cost in Belgium are now predictable for the remainder of the year with one last additional salary indexation of plus 2% taking place in December. Should inflation continue to further accelerate the anticipated future indexations could still mature earlier in 2023 but not in 2022 anymore. bpost will also pay a premium to its employee in Belgium to alleviate the pressure on purchasing power. Of course, management continues to take actions at all levels in order to mitigate and face these adverse impacts and we proactively act on what we can control from management and our colleagues. We are now ready to take your question. Operator, please open the lines.

[Operator Instructions] Today's first question is coming from Ivar Billfalk-Kelly coming from UBS.

I won't ask you to comment on the ongoing state of the investigation but just in the event that you were to lose the press concession how which action be able to go that offsetting the cost from that, please. From memory, it's worth about EUR 175 million per year in terms of revenue, but my understanding is that the cost base isn't quite as flexible. So what would happen in that event, which would opening very big loss -- attention in EBIT? And secondly, you've made some big cost saving on back of SKU reductions, but how will that play into the peak season? Your peers have posting now -- have effectively said that they need to retain staff have to deal with the year-end peak. So clearly very different paths. Any details here on how you will be able to manage the peak despite the reductions, would be very helpful?

So, thank you for the question. So I going to take the one relating to press concession and I will put thing into perspective and going a little bit back to explain where we are coming from and where we are. As a remainder the ongoing concession for distribution of newspapers and periodicals in Belgium, 2 separate clause were awarded to bpost in 2015 for the period 2016, 2020 following a tender procedure organized in Belgium state. In December 2019, the Government decided to extend the ongoing service concessions until the end of 2022. In March 2021, the Belgium State organized a public tender to award the concession for the period 2023-2027. bpost last year confirm its candidacy for its own succession and the procedure is still ongoing. Like any other participant, bpost does not know whether other participants are bidding to the contract. bpost relies on its excellent track record on delivery, quality and other SLS requirement and therefore believe its position. In terms of financials in the context of the 2 on the ongoing 2 years extension bpost receives an annual compensation of roughly EUR 170 million. In Belgium business unit this revenue is booked on the press sub-segment, EUR 340 million in 2021 together with the revenue from press editors and IMP and represent circa 4% of the Group's total operating income in 2021 and less than 8% of the segment operating income. In terms of FTE, thousands of FTEs work on the press concession. As volume decline over time, so there's a number of people employed, newspapers are distributed in dedicated terms given SLAs. Some need to be delivered before 7:30 AM while periodicals are distributed in the regular mail rounds, while time for concession for a period 2023 and 2027 is officially still ongoing we understand that following its budget control, the government would envisage to reduce the annual envelope to EUR 125 million. We also understand from -- hearing in the chamber that seems bpost did not beat for the tender based on these lower financial conditions. The government could either withdraw the ongoing tender and organize in early 2023 a new tender for 2024 onwards with the revised scope of service to match budget cuts. As read it in the press this would imply the ongoing concession would be extended for 2023. In this case bpost was carefully consider the SLA requirements of the new tender and try to find ways to cope with the budget cuts in order to limit the impacts on EBIT. Any extension in 2023 would likely be under the same condition operationally and financially as the ongoing concession, so there would be limited change versus 2022.

Coming then to your second question, IFR. So in terms of staffing certainty for end of year peak it's important to recognize that we have, first of all, a large base of people with fixed contracts working for vehicles. That is in place. There is no risk on that, which we will complement with temporary workers, which can be interims or even subcontractors and which will also provide us the flexibility to scale up and down rapidly in the function of the volumes typically within a week. On top of that to manage any peak that might still arise, we have put into place a cap and buffer approach as we already had back in 2021 which means that if volumes go above the agreements we have with our customers, we will buffer those and treat them as capacity becomes available. So we do not foresee any challenge on that aspect from the -- in terms of staffing the labor market as well in Belgium, even though still tight is not as tightest in the Netherlands. So the challenge in itself is also smaller for Belgium.

We'll take questions now from Mr. Frank Claassen calling from the Degroof Petercam.

Two questions please. First of all, on your Parcel volumes, what is currently roughly baked into your guidance for Q4? Do you expect, let's say, improving trend to continue? And maybe also related to that, what have you seen so far in the quarter until this week? So what kind of volume trends? And then secondly, could you also elaborate on the situation in U.S. Do you already see more hesitant customer behavior? And also is it more difficult to find people? What kind of wage inflation do you expect there kind of questions?

So let me take your first question. So on parcel volumes our expectations for Q4, are actually that we will have volumes which are broadly in line with last year, which includes the Amazon impact. It's the result of all the progress we've made on our commercial hunting plan and we will even or we have launched last week bol.com which we signed the contract as well, which will further support our volumes in Q4. Looking at October, in fact, that is confirmed in the results of October, where we see volumes with the trend, which is very similar to what we saw in Q3, but as mentioned both started as of November. So we expect that to pick up, reaching that about the flattish volume. On the U.S., I'll pass the question to Philippe.

So on the U.S., your question is more on how can we adjust the cost base with the volume and the availability of people on the U.S. market. I would tell you that we have revisited the staffing for the year end peak side-by-side and we have really changed the forecast of our customers to avoid being in a situation whereby we would be, I think too many people waiting for parcels potentially not coming. So this reduces the risk of having unwanted costs. On the other side, unlike the situation we faced in last year where the market was -- the labor market in the U.S. was extremely tight meaning that accessing 2 additional capacity resources was quite impossible, and even one was accessible or available at really high price. This is no more the situation. So I would say we are the team has done an outstanding job being prepared to receive lower volume, but to be able to upscale if and when and where necessary.

We'll now move to Marc Zwartsenburg from ING.

First coming back on the parcels, you mentioned and this flat guidance a bit year-on-year on for Q4, but if I look a bit on the underlying trend in Q3 and also the fact that Amazon will have less of an impact, of course, it was scaling up only as of halfway in November last year, but still should help a bit. But also September must have been way better than the average of the quarter. So can you give a bit of a feel for what kind of leeway you already have on the October volumes? Are you already at high single-digit growth excluding Amazon's mid-single digit including? And also the price mix effect was quite strong. Of course, you pushed through this early facing a bit of these price increases, but can you give a bit of a feel for what we should see in Q4, but predominantly also what we can expect for price increases for next year? So that's my question on the Parcels division. Then on the Advertisement segment, there you see quite significant price mix. But on the other hand also weaker volumes, of course, more sensitive maybe to consumer confidence. Can you give a bit of a feel for how we should be looking at the Advertisement segment into Q4 and maybe into next year in general volume and price mix? Those are my questions.

Philippe, can you take Parcels, I take price and will come back on advertising indeed. Yes, so volumes indeed, so as I said, we're expecting to run flat more or less in Q4. In terms of the Amazon impact, indeed last year Amazon started insourcing in November, but that only slowly ramped up. So in terms of comparable, it is not that impact in Q4 last year, Amazon was already very significant. And we still expect for Amazon to be in the range of the minus 50% versus last year, which we've also seen over the past few quarters. It means that indeed we are expecting a growth in the mid to high single digit for the other customers outside of MSC. Price increase, let me then pass it on to Philippe and I'll come back to Advertising after that.

Okay. So on volume price increase volume on parcels. So, we have key 2 buckets if I could say, we have our first one, which is a prepaid product that are part of the scope of universal services. As such, this one they are included in a price cap formula which is controlled by the greater the BTG and the price increase for 2023 is being currently revised by the regulator, but we could and should be announced in the coming days, but we expect an increase in the range between 12% to 13% in line with the inflation observed in Belgium. For the second bucket, which is the Contract Parcels, we have some more flexibility as the price increases are based on pricing clauses in our contract. The majority of the contract, the close are indexation based on the sector specific which is 80% of the value of the National Index as published by ITBL, Institute of Transport, Hotel and Logistics Bench. For 2023, the fixing is already known and the price increase in 2023 will be 10.7%. Remember, nevertheless, that given the strong inflation, bpost already applied an interim price increase of plus 2.9% in June. The incremental price that we therefore expect should be 7.8%. For the remainder of our products, positive price increase is fixing the contract and it's probably not covering fully the 12% rate inflation we are seeing in Belgium.

And if I may, what is the split between the USO related prepaid products and the contracted part?

The USO related part is the smaller part and I still don't know exactly by heart, but range around 5% top of mind.

So 95 is the other part?

Indeed. Looking then to advertising, so we see that the trend is more negative on the advertising part, as it's impacted by higher paper prices and the overall inflation. We see paper prices have increased between 40% to 80% which is negatively impacting the number of campaigns that our customers do as they work under fixed marketing budgets. And so they are forced to reduce or cut some paper campaigns. We see that trend continue for the moment into Q4, but we still think based on what we see today that we will end up within the initial guidance we gave back in February of minus 8% to minus 10% for mail overall, rather even towards the lower end of that, so more towards the minus 8%.

And price expectation for advertisement?

Philippe, you want to take that one?

That's a good one. I'm thinking, I don't have answer for that one to be honest.

[indiscernible]

So you mean price expectations for Q4 or further for next year?

Actually both because it was quite a bit higher I think in Q3. So, maybe push through price increases also on the advertisement or is it more mix?

I would say, a general comment. This is a very specific segment and you know how it works for this kind of business. Companies has a fixed budget for advertising and when prices of the components of the marketing campaign are going up, typically, we're seeing that the price of the paper went to the roof. Our costs are also bigger. What do they do? They still have the same budget, but they distribute or they send lower volume. So for me, it's more like the adjustment is maybe more made based on their budget available than anything else. Don't know if I'm clear?

And to pick up on the price mix effect you have seen, so there's 2 components, they're under advertising mail. One part is unaddressed mail which is outside of the scope of USO and indeed for which we have implemented the price increase. I think we communicated on that back in Q2. For the remainder -- so the advertising mail, that is part of the scope of the USO and as such the prices do not change throughout the year. So that's the explanation for the price mix effect. It also means that for next year, any price increases will be part of the file presented to the BIPT subject to the different regulations applying to that segment and those will be communicated as soon as the file is clear to with reg needs.

We'll now go to Sumit Mehrotra coming from Societe Generale.

So fairly clear presentation, but I just want to know that the implied range that you have for the fourth quarter EBIT quite wide EUR 25 million Y-o-Y decline imply to a modest EUR 10 million increase. So what is the strategy here to avoid lower end of the performance for the fourth quarter? Any specific steps that you have undertaken to limit the downside? That's the first one. Secondly, what is now your broad strategy for the Eurasia operations, especially the persistent underperformance of Dyna Group's businesses? What do we expect in terms of margin evolution next year onwards, yes, this year being a bad one because of the VAT and supply chain issues in China, but what should we now think about margin potential for the Eurasia business now? Thank you.

So I'm going to take the first one and Koen will take the second one. So why such a range? We are extremely dependent on the peak throughout our segments, it's true in Belgium, it's true in Eurasia and it's true in US -- sorry, excuse me. Of course, Dyna element that could lead to different results. So there is a volume of the peak itself, which is important and one might say the higher volume, the higher the EBIT, but on the other end lower volume peak would also yield more or less the same result, let me explain why. What is very important when you're having a peak is that not only the amount of the peak, but the timing of the pick. So it means how do we deal with it. What we have decided to implement in Belgium is the following. We are using the cap and buffer approach that was already implemented in 2021 meaning that when a customer comes and there is parcels above the pre-agreed quantity, we part this quantity and we will deliver them when available capacity -- when capacity would be available again, which is a way of dealing with the peak. Another one that we have -- another decision that we have taken, we have eliminated the second distribution route, which are extremely expensive. In other words, evolving high cost with negative EBIT result. So a lot of persistency on the volume of the peak, but also the timing, will the volume come in one week or will the volume come in 2 or 3 weeks, it's not the same approach and we need to be SME flexible. So the reason why we're keeping that growth because we don't know first, how deep or big will the peak be and what's going to be the spread over the recent period. But one thing I can tell you is that both in Belgium and in the US, we have prepared to be as lean and mean as possible and to be flexible to be able to react to potential upsides.

Moving then to Eurasia, you asked a specific question on Dyna. So indeed Dyna is facing difficult market conditions for quite a while now. It's important to say that there is no client churn at Dyna that the underperformance is really driven by falling pressure from lower market overall. So lower consumer spending in white goods and in home furniture in the current macroeconomic environment is impacting the Dyna result. Obviously, we've taken measures on cost control, but lower density in the distribution network does not allow to fully offset the fixed cost, as well as some higher variable cost from the tight labor market in the Netherlands. Dyna is working in parallel on productivity gains, but also on targeting new markets to diversify its exposure and to gain back volumes. Having said that, bpost Group is committed towards active portfolio management where non-core and/or non-profitable assets could be identified and considered for disposal. We will continue to rigorously and meticulously look at our subsidiaries, our businesses and activities and assess whether or not they fit our strategy, whether they deliver EBIT and cash and how much CapEx they require, as well as the return on those investments. Perhaps a bit more broadly speaking for e-Logistics Eurasia, we do expect the fourth quarter EBIT to be better than last year where it was at EUR 6 million if I recall well. And we see that now that things have normalized -- where we start to see a different trend that we saw -- we've seen throughout the first half of the year. We also see very promising growth at Radial and Active Ants, which as I said is at plus 22% now and we expect to see similar growth there as well in Q4. So we see things are looking up on e-Logistics Eurasia. To be fair though, I do want to call out that the initial guidance we gave back in February which foresaw a mid to -- I think low to mid-teens growth. We will not reach that anymore, I think you will have seen year-to-date we are at minus 8% even with a better Q4 we will not fully catch up. From an EBIT margin perspective, where our original target was 6% to 8% given the inflationary pressure and some margin dilution from the lower top line, we expect to end up slightly below that 6% to 8% range.

We'll now go to Marco Limite calling from Barclays.

So you have mentioned expected price increase for Parcels in 2023. What about for price increase for letters, clearly there is a formula you apply. So, yes, what would be the price increase based on the formula if we plug in current expectations? My second question is on the, just going back quickly to the concession of newspaper and magazines. So you have mentioned that the annual compensation was EUR 170 million, but what was or what has been historically the EBIT contribution from that concession you'll not be able to win the tender? And third quick question if I may. In the past you have mentioned that about you were targeting about to replace about 40% of the loss from Amazon, but you also have mentioned that you have gained now big customers starting from November. So just wondering if you're still aiming at replacing 40% of the Amazon volume loss or if that number is now higher?

Thank you for the question. I'll take the first one and the last one and I start with the last one. Are we still targeting to replace the 40% that we lost to Amazon? The answer is definitely, yes and we are moving in that direction. The last big thing that we have signed, which is bol.com that has been mentioned already. It's a good sign of that. We had started in the beginning of the year what we call the hunting plan, it has already delivered good result so far and we do not intend to stop. Coming to your question on mail price increases. What I could say is that for our regulated mail products, the annual price increases is subject to a price cap formula, which is controlled by our regulator, the [ EPT ]. The price increase for 2023 being reviewed by the regulator and will be announced in the coming days. As a formula allows to compensate for inflation and volume decline, one could expect the price increase between 10% and 15% for the regulated domestic mail products excluding the scope of the press concession, yes.

For the question on the concession, Marco, could I just ask you to repeat it because you sounded quite far from the speaker and I didn't quite get it.

Sorry, I was just wondering, what's the net EBIT from that concession. So compensation was EUR 175 million, but what was the EBIT?

So, as is the case in these type of state contracts, the margin on those is also regulated and bpost is allowed to make a reasonable margin on that, that reasonable margin is kept by the European Commission at 7.5%. We are below that for the moment. So the EBIT impact would be in the range below 7.5% that's the maximum I can tell you at this stage.

Now next question is from Henk Slotboom coming from the Idea.

Perhaps a clarification question and perhaps I misunderstood it, but earlier on in the call you said that the current contract on the distribution of newspapers and magazine accounts for around 4% of Group operating income. Is that -- was that correct?

Yes.

And if so the -- suppose what if question, suppose you do leave -- lose the contract, the thousand people you mentioned are they exclusively active in the distribution of newspapers and magazines or are they doing other work for bpost as well, because that would -- then it would mean that the profit contribution changes a little bit because of the fixed cost, perhaps you can clarify that? And my second question I respect that you can't comment on the internal investigation, which is currently taking place, but am I right to assume that given the fact that you have been appointed as CEO of Interim that is going to take longer than originally foreseen? And maybe you could lift the tip of the wheel by saying, what your expectation is? How long this uncertainty might drag on? Those were my questions. Thank you.

Okay. So let me take the second one. We will stick to what we have said, I will not comment any further.

So on the concession then, so the people working on that concession, they are not 100% dedicated to it. So as Philippe explained, we have separate rounds for the newspaper delivery. We have integrated the periodicals delivery into a regular mail house. So if there is a combination with our existing activities, that said, should we not have the concession, we will obviously reorganize the way we set-up our rounds and take out the workload related to that. It should also be noted that the compensation we get for the concession is based on what is called net avoided cost approach, which means that it does seem to account the difference between bpost doing the concession and the hypothetical situation which bpost would not do the concession. And so that does to account what you mentioned around variability of costs but some of them are fixed and so on. So, at least from that perspective taking a sufficiently long-term view, we would be able to take out the cost related to the concession.

[Operator Instructions] The next question is coming from Nikolas Mauder calling from Kepler Cheuvreux.

The first one is on any details you can provide on the terminated customer in North America? What is the headwind on sales and EBIT for that segment going forward? And also why have you chosen not to adjust the provision? Second question is, whether the recent and current management shakeup that we've seen has postponed the implementation of Project OMEGA where pilots were scheduled for the second half of 2022?

So let me take the one on the US, I'm not sure I fully understand what you mean by adjustment on the provision. What we did in fact, we had a customer that as decided that has been terminated. So we mutually agreed to stop the contract and there is a dispute about some money that he owes us and we are entering into litigation, but we are considering, we might have a risk of losing some amount there. So we don't want to disclose any further because we don't want to jeopardize the arbitration that is about to happen.

On project OMEGA, no, I think your question was, does the shakeup effect that? The answer is no. There are a number of operational changes foreseen to happen in the next year and which we will indeed be rolling out. So there is no impact from that.

Okay. A question on the adjustment was whether the adjusted EBIT for the third quarter that you printed in the presentation reflects the -- an adjustment for the provision or not and I think it doesn't.

So, indeed, the provision we took is in the 7 -- sorry, so the 7 provision we took is in adjusted EBITDA. So if you would correct for that EBIT would be higher.

Keep in mind, you have the positive cash flow that you had same quarter last year and now we have a negative 7 for this quarter. The reason why we disclose it is because you know Radial US has a limited portfolio customer. Would we have 2000 customers, we would not end up isolating one dispute with a customer. But given the size -- the limited size of the portfolio, it's significant and hence we made the disclosure.

We now have a follow-up question from Mr. Marc Zwartsenburg calling from ING.

Yes, couple of follow-ups. It was asked I think, but what is the impact indeed of the lost revenues from this client because you have quite an concentrated client base in the US. What is the impact on 2023 revenue from the loss of this client? That's my first follow-up. And the other one is on the -- still on the concession, so you mentioned that the margin is below the 7.5 cap EUR 170 million mentioned as revenues. So let's say almost 7% is EUR 12 million, but is there also and part of the cost, like you say, we will need to manage down the cost base within -- in the first year of losing it you might have some costs that are sticky. So would then be the impact on 2023 be more in the line of EUR 20 million to EUR 30 million because if you have 1,000 FTEs and part of them work for that [indiscernible] yes, go ahead.

So I can only rephrase what I've said. We are -- the intention of the government is to extend its position for one year, meaning up to 2023 and re-tender the remaining years. So let's see how it goes and then we will come back. So there is no reason to believe that we would have a complete stop either at the end of 2022 or the end of 2023, would the situation arise, we would come back, but it's not the best case.

No, I fully understand that but we need to know a bit the downside risk from this because the share price doesn't work on when we announce. So maybe then looking forward to 2024.

I'm sorry, I cannot add anything more than [Technical Difficulty]. We are not providing a detailed guidance for 2023 neither 2024. When it be the time when we set-up a guidance for 2023 potentially forward, then we will disclose the assumption that we have taken relating to this topic.

Okay, fair enough. Maybe then on -- and then on the US, on the impact from the declines on revenues?

I don't figure like that. It is not one of our niche client to be clear, the EUR 7 million also is not just the revenue of the third quarter, it covers more than one quarter. So that should give you an idea of the range, it is not the very -- not one of our biggest clients to be clear.

Okay. Okay. And maybe on the subject of Mr. Tirez. There's been a lot of talks in the newspaper, I know you want to cancel this question but it's is quite important I think. Can you maybe say if you just sideline because of there is an investigation not onto him but on someone else in the company or can you not even comment on that? Because that is also might be an important statement.

I think the statement I made at the beginning and I will not add anything, no reasonable anything.

Okay. And is it possible to get a fine on the back of, if you found guilty, is that legally a normal thing or is that not possible? Is it just a personal thing?

Same answer.

As we have no further questions at this time, I like to turn the call over to Mr. Dartienne for any additional or closing remarks.

Thank you. I would like to thank everyone in the call for having the time to be with us this morning and for the interesting question. We will hear from you at the conference we're going to attend in November. We look forward to staying in touch on our fourth quarter's result that would be released in February next year. I also want to thank my colleagues being present with me, Koen Aelterman to help setting the presentation and taking your interesting question. Thank you very much.

Thank you very much, sir. Ladies and gentlemen, that will conclude today's conference. We thank you for your attendance. You may disconnect. Have a good day and goodbye.