Österreichische Post AG (O3P.HA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Österreichische Post First Half 2025 Results. [Operator Instructions] Let me now turn the floor over to your host, Harald Hagenauer, Head of Investor Relations. Please go ahead.

Good afternoon, ladies and gentlemen, to this conference call of Austrian Post, where we would like to discuss the financial results of the first half of the last year -- last month. And here with me is our CEO, Walter Oblin; and our CFO, Barbara Potisk-Eibensteiner. And I would directly like to hand over to Walter. Please go ahead, sir.

Good afternoon, ladies and gentlemen. It's a pleasure to welcome you to our half-year results. As a summary upfront, the environment continues to remain challenging. However, I think we've shown resilience and can present solid results today. Moving to Page 2, a few sentences on the environment. As a summary, the environment remains challenging, both in Austria, where we are in the third year of a recession as well as in Eastern Europe and in Turkey, where we continue to see high inflation. In Austria, there is cost pressure on the public sector. The government tries to consolidate the budget. The stationary retail is in a continued crisis mode, all of these in putting pressure on mail volumes. And on the parcel side, the international trade conflicts create uncertainty and subdued customer demand, which overall leads to subdued growth in parcel volumes. Against this context, I think we, as I said, have shown resilience and can show to you quite solid results for the first half year. We've shown here the 2-year development as I think the development from '23 to '24 puts the '25 figures in the right context. Compared to last year, we report a revenue decline of 1.1%. This, however, after a growth of 17.2%, where in absolute terms, roughly EUR 100 million came from Turkey, where it was mostly an effect of high inflation combined with a stable currency. An effect which has not been present this year. This year, Turkey has been almost flat despite some volume growth in euro terms. And for the rest of the portfolio, the decline in mail volumes was larger than the growth in Parcels, leading to a decline of 1.8% for all volumes, all revenues outside Turkey. Again, this after an unusually high growth last year of 10.3%, where also one-off volumes resulting from 2 countrywide elections in Austria provided a special boost. On the profitability, both EBITDA as well as EBIT below last year, 5.7% EBITDA, 11% EBIT, but pretty much on the level of a good year 2023. And a lot of the decline in EBIT can be explained by the absence of elections and positive one-offs in mail as well as by the development in the Turkish currency. However, also the outlook remains challenging in terms of the overall environment. So we have implemented additional initiatives, both on the revenue side as well as on the cost side, different growth initiatives. We try to stronger penetrate large international e-commerce platforms by offering them the Austrian Post portfolio of companies as one region out of one sales interface with ideally one product and one IT interface. We continue to invest in out-of-home offerings through a strong initiative on the local side, both in Eastern Europe as well as in Austria. We have indirectly acquired a small competitor who exited the market in Slovakia. And we continued our international expansion out of Turkey into Azerbaijan and made first cautious steps into Georgia and Uzbekistan. On the cost side, we have taken several measures to adjust the staffing, both in operations as well as on the retail network side on somewhat lower volumes. We have doubled down on moving mail volumes to a slower economy product, which in the meantime is the standard product in the Austrian market, both for national as well as international volumes. We try to leverage synergies across the group, have integrated various affiliates into the parent company, and we have initiated group-wide cost optimization in administrative areas, which already have started to show effect in Q2. Page 5 summarizes the strategy update we communicated in May. Our ambition is to become a leading logistics and services group, reaching more than 150 million people in Austria, Eastern Europe, Turkey and beyond with 3 core business pillars. Number one, we want to be a strong post in Austria. But more than that, post and beyond in Austria, we call it, In particular, this means that beyond defending our market leadership in Austria on the postal side, we want to grow bank99 and also offer a post-owned telecommunication offering as of next year. Pillar # 2, growth in international e-commerce. This is our obvious growth opportunity. We cover here a region with 150 million people with growth momentum, and we continue to invest in this region. Pillar #3, one group is operationally excellent. We think there is more to gain from a stronger integration across the group on the sales side, on the operations side, on core functions and technology and efficiency has become part of our DNA, and we continue to invest in leading-edge technology to drive efficiency. Let me now use this framework to give you an update on business development and strategy implementation along those 3 core business pillars, starting with our Austrian Mail business. Letter Mail continues to decline in Austria. We're now in the 17th year of mail decline versus last year, roughly 7%. Last year, a strong election year with in the first 6 months, 2 countrywide elections. This year, pretty much apart from the Vienna municipal election in the first quarter, no more elections are coming. So we see the pure volume reduction. On the direct mail side, a similar trend here, the consolidation on the nonfood stationary retailers is ongoing. At the same time, food retailers continue to work with postal advertising mail, direct mail, both unaddressed as well as addressed as their main promotion form. We continue to be in the lower 1/3 of European tariffs here in a European comparison. Our strategy is to offer high-quality services at affordable rates, both for private customers, but even more importantly, for business customers. We have successfully implemented a product reform as of May 1, where we made the economy product to the standard product. So the standard product in Austria across all customer segments now has a run time of 3 days. Premium continues to be offered as an additional service. And as a result, around 85% of the mail volume in Austria is already in the standard product. And this product, we can bundle every other day in the last-mile delivery. Moving to our bank on Page 8. I'm very happy to be able to tell you that bank99 showed a positive result for the first 6 months for the first time in its history, in its fifth full year now since the launch of the bank in April 2020, as I always say, out of the home office into a full lockdown. The bank has a balance sheet of around EUR 4 billion, roughly 300,000 customers. We think that the business model to use the ecosystem of Austrian Post was a trusted brand, a dense retail network consisting of postal branches and postal partners. And all that combined with strong and impactful digital channels that this business model is working. We continue to attract easily customer deposits and also loan production is going quite well in a challenging Austrian credit market. So a very positive first 6 months for bank99. A very important milestone was also the successful migration of the core banking system of the former ING retail business to the outsourced core banking system of the Bank. We are also proud that bank99 is increasingly showing up on the top spots in different customer service. Here, you see some awards that bank99 has received over the last months for us a sign that after 5 years, bank99 has a strong awareness among Austrian consumers and not only awareness, but also a positive innovative service-focused reputation, and this makes us optimistic for the near future. In our Austrian marketplace, back to the postal core business, we continue to implement a comprehensive self-service initiative. Last year, 32.4 million shipments were handled through self-service facilities by Austrian consumers. This number has grown 12% in the first 6 months, and we continue to roll out self-service facilities. By the end of the year, we expect around 3,000 postal network points. Here, we're coming from 1,900 2 years ago. And the addition is pretty much only self-service. These facilities are adopted very well by consumers in larger cities such as Vienna, we are also rolling out full self-service branches. You see some pictures here, which again are very well accepted by the Austrian market. Moving to Page 11. We last quarter communicated that as of next year, we will lift the cooperation with A1 on a new level. We will launch a mobile virtual network operator under a post-owned brand as of Q2 next year. The preparations for this offering are well underway, and we are very optimistic about this new service offering. Page 12, moving to our parcel market, starting with Austria. Austria has seen growth continued in 2025 after a very strong growth last year, in particular in the first half year, 3% volume growth, 5% revenue growth despite subdued consumer demand. In Eastern Europe, we had a rather challenging first quarter. Also to put this in context, last year, we grew 27%, mostly through the influx of quite volatile Chinese volumes. Against this strong growth, we are down 70% compared to last year, which means that we're still up roughly 20% compared to 2023. And Q2 showed a quite positive approach towards last year's volumes. In Q2, we were almost reaching last year's volumes and a similar trend in Turkey, where Q2 was better than Q1 in Q2, 4% volume growth. We continue our expansion towards Azerbaijan, which is running quite well and made first steps into Georgia and Uzbekistan. The business model is always similar. We are following Turkish e-commerce platforms in their expansion into these markets. We are working with partners in those respective markets with a very risk-conscious approach. And in Azerbaijan, we have already -- we are already at a high single million-digit revenue number with a positive earnings contribution. Also in Eastern Europe, we are expanding our out-of-home network. Our target is to -- in the group to have more than 20,000 out-of-home points by the end of next year. Currently, we stand at around 1,600. We are in the midst of a very strong push in Eastern Europe, which is running according to plan. We continue to invest. We continue to invest in infrastructure and capacities, both in Austria as well as international. We yesterday in the Supervisory Board made the decision to start the implementation of the last outstanding logistics center renewal and expansion in the city of Salzburg on the existing site. This project will go into construction next year. And with that project, we will conclude the rebuild and expansion of the Austrian logistics center networks. By then, we will pretty much have touched every logistics center and substantially expanded capacity, improved speed for the Austrian market. But also internationally, we are investing in growth. We are in the midst of a project in Budapest, which should open next year a new hub in Budapest, which has been a core center of the growth in Eastern Europe with a lot of Chinese volume coming to Europe via Budapest. And then also in Istanbul, we are in the planning phase for a large logistics center north of Istanbul. We also invest heavily into technology, both in hardware, software, robotics and automation systems. Here are some examples. We equipped all Austrian mail and postmen with new handhelds last year. We are successfully piloting robotic technology in our sorting centers and in our e-commerce fulfillment business called Systems Logistics, we are successfully operating in an AutoStore location, a highly automized 3D storage and order picking system where we are serving Austrian large e-commerce players in e-commerce fulfillment. Concluding this strategy update with an update on sustainability. We communicated a few weeks ago that by the end of the year, we will have fully switched the city of Vienna to CO2-free last mile. We are rolling out electric mobility across Vienna. And to our understanding, this will be the first largest city in Austria where a whole postal network is completely CO2-free, only pedestrians, e-bikes and electric mobility. We are already across Austria standing at more than 50% electric fleet. And the plan, the road map towards CO2-free delivery across Austria in 2030 is defined. This train is running and electric mobility in the meantime, has positive total cost of ownership compared to combustion engines. With that said, I hand over to Barbara, who will give us more detail on the financials.

Thank you, Walter, and very warm welcome also from my side. Let me start with the financial highlights for the first half of 2025. When we set revenue and operating profit into the context of the previous 2 years, this reporting period compares well with the first half of 2023 and was even close to the top line of the result of 2024 despite all the special effects last year. The other observation I would like to make is that we continue to have a strong balance sheet with a low level of debt and on the other hand, also a strong cash generation compared to last year. But let me go into further details of revenue development on the next slide. If you take top line growth over the last reporting periods, group revenues were down by 1.1% compared to the first half of 2024, but up to -- up by 15.8% between the first half of 2023 and the same period in 2025, with Mail down by 2.6%, Parcel & Logistics increasing by 30% and Retail & Bank up by 23.4%. At the divisional level, Walt already mentioned the special effects from elections in Mail 2024 of about EUR 20 million. In Parcel & Logistics, we had a positive FX effect last year in Turkey of about EUR 65 million. In addition, a reporting change in Logistics Solutions should be mentioned in the first half of 2025, but this accounted for only 1 percentage point difference in revenue growth on the parcel side. Parcel Austria showed a revenue growth of 5.2%, whereas Parcel in Southeast and Eastern Europe is volatile due to the volume shifts from Asia clients with a big increase in volumes in Q1 2024 of 44% and in Q2 2024 of 13% because of the volume push of a parcel consolidator. This year, the volume development in this region was in Q1, minus 13% and in Q2, only minus 1%. In turn, Parcel Turkey was up by 2.6% over the same period last year, but a significant 80% if compared with the first half of 2023. This puts our long-term ambition in this market into better perspective despite the volatility in exchange rates and continuing high inflation. Turning the page and applying the same divisional analysis for earnings. EBIT was down by 11% compared to the prior year, but only slightly below EBIT in the first half of 2023. On a comparative basis to the same period last year, the main moving parts were the volume decline and lack of special effects in mail and lower profitability in Turkey and CEE. I'm particularly pleased to report positive earnings for our Retail & Bank division with an EBIT of close to EUR 5 million in the first 6 months of 2025. This is based on positive contributions from bank99 as well as a good earnings development of the branch network. Next page, we present the group income statement for both quarterly and half-year periods and would just add the following observation from my perspective. We talked about revenue development already. And on the cost side, we make our best effort to keep them under control. Staff costs, for example, despite various salary increases through collective labor agreements from last year and also from July 2025 onwards, we managed to keep staff costs quite stable year-on-year. Other operating income includes proceeds from property sales of about CHF 5 million and indexation of rent and leases. Also other operating costs show a slight increase, mainly due to higher IT expenses. Bottom line, EBIT was 11% down year-on-year due to lower profitability, but still on the level of 2023. Going through the income statement for each division and starting with mail, the revenue decline of minus 5.9% year-on-year or minus 2.6% compared to 2023 was based on 2 main developments, ongoing digitization efforts by major customer groups like banking, insurance or telecoms as well as the cost pressure in the public sector and the lack of the EUR 20 million special effects from elections in Austria last year. Ultimately, the strong volume decline and top-line pressure resulting in lower profitability. Looking at the income statement of Parcel & Logistics, we are pleased with revenue growth in Austrian and Turkey, but see some volatility in the region of Southeast and Eastern Europe. This had to do with the push of volumes last year from the parcel consolidator, as already mentioned. Revenues in Turkey rose by 2.6%, which had positive effects over the same period last year. Despite the positive top-line development in Parcel and Logistics, reduced profitability in Turkey and CEE resulted in lower earnings. Finally, Retail & Bank was slightly below the revenues of the previous year to the lower interest rates, but achieved a significant 23.4% increase if compared with the same period in 2023. Having mentioned the turnaround of the bank by fully integrating the IT system of ING Bank Austria and further improving the cost structure of our branch network, we are pleased about the first earnings contribution of bank99 and are now focusing on further developing our banking operation. Still further development of bank99 will remain challenging with interest rates coming down from 4% in June last year to 2% now. On the next slide, we present the debt factor, and I would highlight here not only the continuing low debt with net debt to EBITDA of only 0.5x or 1.5x if IFRS 16 on lease contracts is included. This provides us with optionality for both organic and inorganic growth opportunities. Our strong operating free cash flow is certainly a very important highlight of the first half of 2025. As you can see from the comparisons with 2024 at the bottom of the page, the higher cash flow from operating activities, excluding core banking assets, was up compared to last year. More importantly, the operating free cash flow, which is the main metric for dividend payout, is up by 9% compared to the previous year. Maintenance CapEx as well as growth CapEx were a bit under the level of last year. This brings us to the next page, which shows CapEx development over the last 5 years with a range between of EUR 140 million to EUR 160 million. That is a level we also expect in the future. We are finalizing our expansion program in Austria with an extension in Salzburg next year and the year after and we will focus on the CEE and Turkey regions in line with volume developments there. In 2025, we aim for a stable CapEx of EUR 150 million to EUR 160 million despite having spent only EUR 41.3 million so far. But as you know from previous years, we tend to have higher CapEx requirements in the second half of the year. With this, I come to the end of my presentation and hand back to Walter to give the outlook.

Yes. Thank you, Barbara. Let me conclude with the outlook for 2025 for the full year. In general, we expect the market environment to stay challenging in all areas. However, our target to come out at stable revenues and stable earnings remains intact. On the revenue side, currently, our target is revenue at the prior year level, of course, dependent on the development of the Turkish lira-euro exchange rate. On the CapEx side, as already mentioned by Barbara, an order of magnitude of EUR 150 million to EUR 160 million is what we expect to spend. And on the earnings side, our targets remain unchanged. earnings in the order of last year's EBIT, so an order of magnitude of around EUR 200 million. And with all that we've seen also over the last weeks, we are quite confident that this target is achievable. Thank you for listening, and we're now happy to take questions.

[Operator Instructions] The first question goes to Patrick Steiner of ODDO BHF.

Patrick Steiner speaking. Three questions from my side. I will take them one by one, if that's okay for you. The first one, looking at the segment level, especially, could you walk us through your assumptions of the drivers affecting the second half of the year in order to arrive at your EUR 200 million EBIT guidance? And what are the main risk factors in your view?

I think in general, we do expect to come back to slight growth on the partner side across our portfolio. The seasonality of last year was, in particular, a very strong Q1 with a special influx of Chinese volumes, in particular in Eastern Europe. this peak is behind us. The second half of last year was not as strong. Also, the main one-offs on the mail side were in Q1. In addition, we have the impact of the product reform with a tariff increase on the mail side. And with that and with several initiatives on the cost side, we are optimistic and confident to reach the EBIT guidance.

Perfect. Very clear. Second one, on Page 22 in the presentation, you stated the 6.45% salary increases mandated by collective bargaining agreements as of the beginning of 2021. I'm just curious, the number seems a bit high to me. Could you please provide maybe a bit more color from which regions is coming? Or is this an aggregate number? I mean any information on that would be helpful.

Yes. So the 6.45% is the collective -- is a result of the collective wage agreement of -- that was negotiated in March '24, effective July '24. So this is kind of more than a year ago. The most recent result was 2.8%. So this is always -- has always been inflation plus 0.2%, 0.3%. And so we're talking about something that was negotiated 18 months ago. And the most recent change that is -- so to what misunderstanding, we negotiate in spring with effectiveness July 1, always. And the latest result, as I said, was 2.8%.

Okay. Very understandable. And last question. If I understood this correctly, you were stating 3% volume growth in the Austrian parcel business in the first half. Correct me if I'm wrong, please. And could you maybe give us more information that number for Q2, if possible?

I think we are careful given some of the volatility that we've seen over the last months with precise percentages, but I would say a low to mid-single percentage point number is what we expect. It's a little bit lower than what we expected a few months ago, but we do expect -- we do expect growth for the full year.

And the next question goes to Christoph Schultes of Erste Group.

I have a couple of questions actually. The first are related to the Parcel & Logistics business. The first one would be the decline in the SCE segment, which is related to the decline in Asian volumes you mentioned in your presentation a couple of times. Do you think that this is, in general, that the trend is now broken? Or is this, in your opinion, just a weaker quarter in a long-term positive development? And in particular, also maybe incorporating or thinking about the trade tariff discussions. So maybe you can give us the kind of base scenario you have for the SCE segment in the next couple of years?

Yes. So overall, we see quite aggressive growth of Asian e-commerce platforms continuing in some areas with quite innovative, very cost-efficient business models. So I don't think the trend is broken. I think we have to get used to more volatility. I think both in terms of volume and promotional activity. These customers have more intrinsic volatility, but also their loyalty to partners for logistics is less than what we are used to for European and U.S. clients. So in general, we do expect continued growth. Also if you look at what happens with MediaMarkt in Austria. So the takeover by JD.com, I think a very capable Chinese e-commerce platform, brings a new player to Europe. And we also have seen -- to and the likes very aggressively expanding and really going to a next level. If you follow their communication, local to local is their next horizon. So basically, they are expanding their Chinese -- shipping Chinese goods to direct to Europe. They're expanding that model or complementing it by acquiring local producers and retailers, online retailers in Europe to serve the European market and thus going head-to-head against other e-commerce platforms. So I think it's much too early to write further Chinese growth off. I would rather expect them to continue to grow at the expense of European online retailers.

Okay. Great. And then you mentioned in your presentation also that you see again some in-sourcing ambitions and activities of an international e-commerce platform. And when I think back in the last quarters, you stated several times that you see e-commerce platforms rather giving back volumes to you and you were also able to gain market shares in this -- in the B2C segment. So do you think that you can lose now market shares again?

I think that message was focused on Turkey. I think in Austria, we see some kind of stability at least for the time being. And in some quarters, we gained a little bit more market share of some of the big -- particularly one big e-commerce platform in some quarters, a little bit less. But overall, I think there we have reached some equilibrium, at least for the time being. In Turkey, we have 2 big customers that have grown their own delivery over the last years, which has also led to growth in Turkey growth -- volume growth for Aras Kargo become more flattish. I think also there, these customers have come to a point where further substantial in-sourcing is not something that we do expect in the near term.

Okay. And then I have 2 more questions, if I may. The one would be looking at the development in your retail and bank division, this was surprisingly strong in this quarter. Were there any positive one-offs at least you did not mention any. You have reached more than EUR 5 million in the second quarter. And then I know you mentioned also the declining interest landscape we are looking at, but can we expect clear positive contributions in this segment also in the next couple of quarters and years?

So bank99 did a great job in the first half of 2025. There were some smaller onetime effects. So we did some provisions for the migration and -- but this was only a small effect. So we were -- we did not use them. And on the other hand, there was also a positive impact of retail. So what you can expect for the second half of the year is please do not take the results of the first half 2x. So this will not happen. You already said, okay, the interest rates went down. This is also why we are rather cautious on the bank side, but we are committed for breakeven. So this we say. And on the other hand, we also had some positive effects on the retail side. But this is more or less an internal calculation.