Österreichische Post AG (POST) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Natalie, your chorus call operator. Welcome, and thank you for joining the results for the full year 2021. [Operator Instructions] I would now like to turn the conference over to 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 fourth quarter and full year figures of our group. Here with me is Walter Oblin, our CFO, and I will directly like to hand over to you, Walter. Please start the presentation.

Good afternoon, ladies and gentlemen. It's a pleasure to have the opportunity to present to you our full year results for 2021. As a summary upfront, 2021 was one of the best years in the more recent history of Austrian Post, with record growth and strong earnings. At the same time, our outlook into 2021, 2022 into the current year is significantly more clouded and uncertain given the current macroeconomic environment. Let me start the presentation on Page 3, which provides a summary of our group. We operate in 3 segments. Total group revenue last year, EUR 2.5 billion revenues. And our revenue mix has been more balanced last year than it has ever been, both across product groups as well as across geographies. This is the result on Page 4 of an accelerated transformation over the last 10 years, where over the last decade, we transformed Austrian Post from a company, which was dominated by Mail revenues, to a company, which last year stood on -- last year and today stands on 2 strong feet, a resilient Mail business with revenues of about EUR 1.2 billion, and with Parcel & Logistics, as a second strong foot, with almost the revenues of similar size last year, slightly overtaking our Mail business. Page 5 provides an overview of the highlights of 2021. 2021 was another challenging year where the pandemic was the dominant driver of what happens in our different markets. Total group revenues were up for the full year around 15%, 5.7% of that organic. In Q4, you see that the dynamics behind this growth were declining over the year. And in Q4, group revenue was slightly negative. The decline of the Turkish lira was a significant driver of that. Earnings for the full year, up 27.5% on an EBIT level. Also here, Q4, slight -- was a decline compared to a very strong Q4 in 2020. And to summarize the outlook, which we will be more detailed at the end of this presentation, the summary is, it is significantly more clouded and uncertain given the current environment, both the war in Ukraine has a lot of uncertainty and clouds, but also some of the -- some elements of the macroeconomic environment before Ukraine, drives a more challenging outlook in a more challenging environment for the full year. We have an ambition to achieve stable revenues as possible. And we do have an ambition to come close to previous year's EBIT with -- also in 2022. Page 6 provides you more details and an overview about our revenue development. As I said, total group revenue up 14.9%, roughly EUR 200 million of the absolute growth of EUR 325-roughly million came from the -- the first full-time consolidation of Aras Kargo, which we started September 2020. So 8 months of first full consolidation effect still in there. The base for the 15% growth was a stable Mail business, which was plus 0.1%, a slight positive revenue development despite continued structural decline. We saw some recovery effects given the difficult year 2020. And then, of course, Parcel & Logistics was the growth driver with a growth of 36.4% from EUR 913 million revenues 2022, more than EUR 1.2 billion. In addition to the inorganic Aras effect, we saw very strong organic growth across the portfolio, both in Austria with a revenue growth of 18.5%, but also in our International business, and in particular also in CEE with a growth of 13.6%. EBIT, moving to Page 7, was up 27.5% and was EUR 204.7 million. We came back to pre-pandemic profit levels, the EUR 160.6 million from 2020, of course, was significantly negatively influenced by the pandemic. Recovery to EUR 204.7 million was substantially driven by the growth in Parcel & Logistics, where also on an EBIT level, we saw plus EUR 44.5 million EBIT growth. Mail, slightly negative on a high absolute level and the other 2 segments, Retail & Bank, and Corporate providing small positive changes compared to 2020. With that successful year, we added another pillar in a successful long-term development of Austrian Post. Over the last 13 years, we proved that Austrian Post operates a resilient business model, which proved to be stable in 2 big crisis, the financial crisis of 2009 and 2010, and the pandemic of 2020 and 2021. We saw this period showed a stable, slightly expanding margins, strong reliability. We are -- we continue to be committed to an attractive dividend policy also with our dividend proposal to the AGM of EUR 1.90 for 2021. And over this period, we also made good progress in decarbonizing our logistics and will later provide more detail on our ambitious targets and initiatives in that area. Let me now give you an update on our strategy and the progress in implementing this strategy, which can remind you of the 3 core strategic priorities, defining our market leadership, and profitability in the core Austrian Mail and Parcel business, number one. Number two, growing profitable in near markets, both geographically near as well as adjacent to the value chain. And priority 3, developing retail and digital offerings for private customers and SMEs. This is about our retail network, our bank and a few other initiatives. And in the middle as an overarching priority, a strong focus, a strong ambition in the areas of sustainability, diversity and customer orientation. Let me start this update on strategy and development in our core business lines with our Austrian Letter Mail business. You see here that Austrian Post continues to operate a relatively resilient Letter Mail business; however, in structural decline, compared to other geographies on a still a relatively moderate decline. The pandemic provided some acceleration of this decline, roughly 1 percentage point, but despite 0.6% given the strong acceleration in the digitization of our economy, we think this is a reflection of a resilient Mail business. On the right side, you see the quarterly development Q4 was minus 3%, a relatively moderate decline. Page 12 reminds you of the still very attractive price proposition of Austrian Post in the Mail market. We continue to be one of the cheapest European mail markets. On one hand, we think this is one of the reasons for why Mail decline has been moderate. In Austria, we offer high quality at moderate prices. At the same time, of course, this also shows some headroom to increase prices and to forward cost increases, which we currently face forward to our customers. Page 13 gives an update on the development in our Direct Mail and Media Post business, still a significant business. Here, of course, the pandemic hit most immediately and most severely over the last 2 years. An average decline of 6.2% per annum, with most of that happening in the first year of the pandemic. Last year volumes were still depressed, still a number of lockdowns in Austria, put brakes on Direct Mail volumes. We saw some recovery in particular in Q2 against the very depressed volumes of 2020. And while we do expect some recovery, of course, the structural drivers of decline in physical Direct Mail continue to be present, in particular an acceleration of digital marketing and the weakness of the traditional stationary retail, in particular, in the current environment, high paper prices provide additional risk for volume developments in that segment. Page 14, moving to our growing business of Parcel in Austria. The last 2 years, record growth, of course, with a lot of tailwinds from the pandemic on average, 20.4% growth. The chart on the right side, at the same time, shows that the growth dynamics were declining, and since Q2, we are back to single-digit growth and in Q4 comparison -- comparing ourselves, of course, against the very strong Q4 2020, we only had a plus 1% volume growth. For the current year, we do not expect a further tailwind from the pandemic. And we also have to expect a further shift in market share. Moving to Page 15, which shows you the current -- market share distribution in the current Austrian Parcel market. In the Austrian Post market, Austrian Post continues to be the clear market leader with more than 50% share in the total market and roughly with 60% in the B2C segment. However, our biggest customer, Amazon, continues to build out its own delivery network, is already number 2 in the B2C market and will add further market share given this expansion of its own delivery network. Page 16. We -- our investment program continues. We think it is the right decision to expand our capacity in the Parcel network. And this expansion program was vital for the growth that we achieved in the last 2 years. Last year, we spent around EUR 160 million, primarily for the combination of -- primarily for investment into Parcel growth in Austria, but some elements also, of course, in CEE and in Turkey. In our transformation towards sustainable logistics, investments into electric mobility and other elements of the sustainability transformation and also investment in IT. The expansion program will continue to drive CapEx spending, in particular in 2023, and with some decline already or still in 2024. After that, we do expect CapEx volumes to come down significantly. Page 17 provides you more detail. Basically, we are building new or substantially expanding existing sites at pretty much every major sorting center in Austria. I think we -- as a rough summary, we are 2/3 through this investment program. Current big projects include a new -- significant expansion in our large logistics center in Upper Austria as well as an expansion in our -- with our first and historically biggest sorting center in Vienna. Page 18 provides you an update on our staff transformation, the shift from civil servant labor contracts and old collective wage agreement employees towards the new collective wage agreement employees and the new collective wage agreement continues at pretty much constant speed. At the same time, the strong growth in Parcel was the driver that for the absolute head count to slightly increase plus 222 FTEs last year. This transformation continues to provide cost relief both in 2021, but also in the years ahead. Moving to strategy pillar #2, profitable growth in near markets. I already summarized that this is about 2 priorities. One is Parcel growth in geographical in near markets, in particular, in South and Eastern Europe. You see here our portfolio and in Turkey, and growth in value-added steps close to our core delivery products in Parcel and Mail. It's about business outsourcing -- business process outsourcing services around document management and the around mail products. And it's about e-commerce, logistics services, around our Parcel core business. Talking a little bit about our geographic expansion. Page 20, our international Parcel business is volume-wise already substantially bigger than our Austrian Parcel business, 269 million parcels delivered last year, majority of that in Turkey, 217 million was still good growth after the record growth in 2020, but also Eastern European business was 52 million on gaining size every year and growing at double-digit levels over the last 2, 3 years. Page 21 provides more details about the development of Aras Kargo, a real highlight in 2022, both records revenue and strong growth development over the last 2 years at strong margins. Of course, the downside was the development of the Turkish lira in particular in the last 4 months of 2021. And of course, we start into the full year with a substantially depreciated Turkish lira, which will weigh on our Euro financials, in particular, in the first 8 months. Page 22, our -- an update on bank99. We successfully closed the transaction to acquire the retail business of ING in Austria on December 1 last year. And we now operate a bank with critical mass in terms of customers, more than 200,000 customers, 240 employees, a balance sheet of EUR 2.7 billion, a balanced -- balance sheet with both substantial credit volume was EUR 1.4 billion as well as a substantial deposit position, and a combination of a strong and at the same time, a cost-effective branch network, where basically the bank can use the branch offices of Austrian Post. And, at the same time, strong digital channels that we took over from ING. Page 23 gives you an update on the development of our self-service solutions, which are -- continue to be well accepted by customers, where we continue to invest. And which provides a significant positive impact, also customer convenience as well as efficient processes. Let me spend a few words on sustainability, diversity and our initiatives in those areas. Let me maybe shift -- move right away to Page 27. We refined our targets in alignment with the Paris agreement based on science based -- on the science-based targets initiative. We do have an ambition to reduce our CO2 footprint by almost 40% until 2030. And in the 1 and 2, and 23% in Scope 3. The page -- the next page, Page 28, shows you the road map towards achieving those targets and also beyond that, the road map on the way to 0 emissions by 2040. Basically, it's about 3 areas each contributing a good 1/3 of our CO2 footprint. One is the building area. We operate alone in Austria, 1 million square meters here. We already made strong progress through a number of efficiency measures and procurement of green electricity. On -- in the area of delivery of letters and parcels for the last mile, our e-mobility effort is the key driver to get to an emission-free last-mile network by 2030. And more long-term way is probably the Transport Logistics, the trucks, connecting our sorting centers and our customers with sorting centers. Here, we do have pilots with hydrogen and LNG. But of course, we are still missing proven industrial solutions. Page 29 shows you the progress on the way towards a carbon-free delivery network in Austria, fully relying on electric mobility. In the recent weeks, we decided to stop procuring combustion engine-driven vehicles for the last mile. We will pretty much only procure electric vehicles. As of now, we already today operate more than 2,500 electric vehicles. By far, the largest electric fleet in Austria, I think, in relative terms, also in our industry. Page 31, not only, of course, reducing our CO2 footprint is a priority, but also the diverse social elements of sustainability management. We already, a few years ago, started a very comprehensive diversity management initiatives, as a result of which we have already today a substantial female leadership group, and we have a number of initiatives running to further implement and benefit from diversity in our group. Last element on sustainability is on our nonfinancial reporting. Page 32 shows you the first run through in implementing the EU taxonomy. We come out here with 95% of our revenues eligible under the EU taxonomy, almost 80% of our CapEx, and 58% of OpEx. And then, of course, next year, we have to report our compliance share of that. And at the same time, we continue to serve the various international nonfinancial reporting guidelines, be it the Austrian legal frameworks, the GRI initiative, TCFD, science-based targets and others. And the rating results page -- on Page 34, resulting from this reporting continue to show that Austrian Post is a leader in our industry in the various aspects of sustainability. Let me now move to our -- more details of our group results for 2021. Page 36 provides a summary of the core financial KPIs. I already commented on group revenue, EBITDA and EBIT margin was almost 15% and 8%, I think, on very respectable levels. Earnings per share, EUR 2.25 and 2021 was a strong -- showed a strong cash flow generation of the group in a positive macro environment. Let me skip the P&L, which I think is a little bit hard to read as it is characterized by the inorganic effect of 8 months first full-time consolidation of Aras Kargo. Let me step right away to commenting the development of the individual product groups on Page 38, starting with our Letter Mail division. The core addressed Letter Mail business, almost stable, minus 1.3%. You also see here the development over the quarters. In the first quarter, we still benefited from a tariff increase implemented in Q2 2020. Q2 was then the recovery quarter, I would call it. And then we came back to the more steady structural decline. On Direct Mail, I would say, again, little bit volatility on the quarters, given the developments in 2020 in Q2, in 2021 recovery, similar in Q4, with lockdowns both in 2020 as well as in 2021. Driving this volatility overall was plus 2.7%. We have seen a slight recovery, but volumes were still depressed as I already said. Segment P&L on Page 39 shows a resilient and profitable Mail business with EUR 1.2 billion revenues and absolute EBIT contribution of EUR 155 million. EBIT margin, double-digit. Moving to Parcels. Page 40, Parcel & Logistics business, as already commented, strong growth, 36.4% organic growth, within that 14.2% with growth strong and double digit across our portfolio, Austria plus 18.5%, CEE plus 14%. Page -- this resulted, Page 41, in a -- I think, a strong profitability, also comparing this year against the past was 9.5% EBIT margin. Here, our Turkish business contributed substantially. Page 42 shows you the revenue development of our Retail & Bank division, smaller absolute numbers, of course. Here also the growth resulting from the organic growth of bank99 plus a small effect of the takeover -- from the takeover of ING's retail business in Austria. P&L on Page 43, still characterized by ramp-up losses. There also some provisioning effects from our postal retail network, minus EUR 39 million, a small improvement from 2020, but still some way to go towards breakeven here, of course. Page 44 provides you -- shows you the development of our balance sheet. Of course, a substantial expansion of our balance sheet, given the expansion of bank99 and the takeover of ING's Retail business was EUR 1.7 billion balance sheet that we took over. At the same time, we continue to operate a conservative balance sheet with a strong equity position, pro forma equity ratio, excluding bank of roughly 31%, including the bank, 14%. However, this is the combination of -- of course, of our bank balance sheet with the Industrial balance sheet of Austrian Post, low level of intangible assets and goodwill, high level of provisioning. And a good balance of liquid financial resources with very small financial debt. Page 45 shows you that 2021 has been highly cash generative. Our business has been highly cash generative. Again, here, the bank makes it hard to read our cash flow statement. I would like to focus your attention on the pillar in the middle, EUR 217.9 million operating free cash flow. This is kind of the operating free cash flow from our core Logistics business, net of the maintenance CapEx, which given its character is repetitive. This is the cash flow number where we aspire to cover our dividend. And last year, it has provided -- this number, of course, provides a strong coverage for our proposed dividend payment, growth CapEx after that paid out of this operating free cash flow of EUR 80 million. And I think overall, a strong and robust cash flow. Page 46, is strong cash flow, our strong earnings was the basis for another attractive dividend that we proposed for 2021 with EUR 1.90. We are making a significant step back to the pre-pandemic dividend levels, a little bit reduced payout ratio. We continue to be committed to our dividend policy of paying out of at least 75% of net earnings. At the same time, our business has a higher share of more CapEx heavy Parcel business. And as a result of that, we think it's appropriate to be a little bit more cautious in our payout ratio. Let me conclude with the outlook for 2022. I think already Q4 showed an increasingly challenging macro environment with much slower growth. The Turkish lira depreciating heavily, Amazon building out its retail network, and this challenging business environment continues to be present and new challenges arise from -- of course, from the Ukraine crisis. Inflation has reached Austrian Post in recent months, later than many other businesses, given that we have a very strong direct and indirect staff cost share in our P&L. But, of course, as inflation is the basis for most wage agreements, also staff cost inflation is starting to increase our cost base and weigh on our results. And the tailwinds that the pandemic provided over the last 18 months, in particular, for our Parcel business, will not -- we do not expect them to be around in 2022. And as a result, our outlook in general is more -- significantly more cloudy and uncertain than it has been over the previous quarters. In terms of -- on the revenue side, we do target the revenue as stable as possible compared to 2021. We do expect our Letter Mail business to decline at the rate that we have seen over the last -- the rates that we've seen over the last 2, 3 years, on average around 5%. We do see some risks on the Direct Mail side, as I said, from increasing paper prices. At the same time, there is some recovery, assuming there will be no further lockdowns. On the Parcel side, we do expect increasing volatility, and in particular the first half of this year, a reduction in volumes compared to last year given the absence of tailwinds from the pandemic and the build-out of Amazon networks in Austria. And of course, the impact of the Turkish lira, which, in particular, in the first 8 months, will weigh heavily on the comparison versus last year for our Turkish revenues. On the earnings side, we have an ambition to come as close as possible to previous year's EBIT levels; however, this is a challenging ambition. And over the last 2 weeks, significant additional risks have come to the table, and it's still, of course, very uncertain how long and how severe the Ukraine crisis will continue. With that said, let me close my presentation, and I'm now looking forward to your questions.

[Operator Instructions] And the first question is from the line of Marco Limite from Barclays.

So my first question is on Letter price increase. I think you will not be able to have any price increase in Letter in 2022. So if you might add some color on how discussions with the regulator are going on and when we can expect some price increase in the Letter products? And also, if you can remind us how much of your Letter revenues are regulated and how much are not, and therefore, you are free to increase prices as you want? My second question is on wage increase. So when we can expect the next wage increase and wage negotiation with unions? And my third question is actually on your ESG targets. So you are targeting last mile free carbon-free delivery by '30 and carbon-free at group level, in carbon free group level by 2040. So can you please clarify how much of your CapEx in your CapEx plan is coming from investments in ESG? And from the cost side, whether you expect cost savings maybe from a lower cost of the energy versus fuel? Or if you expect OpEx increase from other variables?

Okay. Well, thank you for your questions. Let me start on the ESG target side. On CapEx investments, I think the major CapEx investment goes into renewing and transforming our fleet. Here we were talking about roughly EUR 30 million to EUR 40 million annual CapEx resulting of the loading stations and other equipments. We also continue to invest in PV. However, there is a probably a single -- a smaller single million digit figure per year over the next years. So I think that is the predominant CapEx side. We -- outside Austria we rely heavily on subcontracted last mile. So here, the CapEx will not result -- will not -- it will not be us, who will have to make this investment, but we will have to work with our subcontractor. On cost savings, in Austria already, before this energy cost inflation hit us, total cost of ownership of electric last-mile delivery vans were more favorable than for combustion engine-driven vehicles. So this over the next years will, of course, all other things unchanged, be, I would say, small source also of cost savings, also in maintenance, for example. How this plays out on energy cost, I think, will very much depend on how the current strong volatility and the strong increases on the energy side play out over time. On your second question on wage increases, we last -- so we typically negotiate in the second quarter for our wage increase to be effective July 1. So last year was still, I would say, normal wage increase in the area of around 2%. This year, of course, the inflation that we typically face. Our negotiation upon will be substantially higher. We're talking about order of magnitude, 3.5%. So this will be the starting point for our wage negotiations compared to inflation probably 2 percentage points lower in the past. And then on price increases, we're talking about roughly 50-50 USO versus non-USO. In our Letter Mail business on the non-USO side, we are, of course, constantly implementing smaller price increases that are not as visible as the tariff changes on the addressed Letter Mail side, so I'm talking about Direct Mail Media distribution, et cetera. On the Addressed Letter Mail, we, of course, given the current inflation, are working on ways to forward this inflation also to our customers, also in the USO. The framework here is that our price increases are -- in the past have been kept by the consumer price inflation and with increasing consumer price inflation also our headroom for price increases on the addressed regulated mail side do increase.

And when we can expect price increases on USO products as well?

I was talking about USO products in the last -- so there's nothing we can communicate today, as we typically talk about price increases once we have regulatory approval. But given the inflationary environment and the development of consumer price inflation, given the fact that our latest Mail tariff increase is almost 2 years behind us. Of course, this discussion is on the table.

The next question is from the line of Andre Mulder from Kepler Cheuvreux.

First question on the Parcels side. Can you give us an indication how the split in Parcels in Aras looks like? Secondly, looking at Q4, we saw stable volumes in Austria, still some growth in Eastern Europe, but there was a decline of more than 10% in Turkey. Of course, there's quite some economic turmoil, but how are things progressing so far this year? Then a question on Germany. I saw that sales in Germany almost tripled last year. Can you give some insight in what's that? And last on Amazon. Any idea of where you think that the market share of Amazon will ultimately land?

Yes. Thank you, Andre, for your questions. I think we do not have full transparency about Amazon's plans. So I think we -- it is hard for us to comment on target market share figures for Amazon. They do have a very strong position in the Austrian e-commerce market with a substantial share of all B2C parcels coming from Amazon. And then, of course, it's a question of how quickly and how far they build out their own distribution network. And again, bear with me that we do not have inside knowledge about their plans. But we do expect further build out and further market share gains by Amazon's own delivery network. On Germany, to be honest, I'm not 100% sure what you are referring to. Our sales in Germany -- maybe you comment and clarify that for me. Turkey in Q4, we still saw revenue increase in Turkish lira in Q4, but the FX rates depreciated from around TRY 10 per euro in August to around TRY 16 today, and with strong fluctuations, in particular, in December, given the Central Bank interventions. So just from the currency, you basically have a revenue decline in Euros. All other things being equal of around 30% only resulting from this currency devaluation. And then your first question on the split of Parcels, can you clarify what you exactly mean? I didn't get you.

That, I mean, can you give us a split, what EBIT is coming from Austria, and what from Eastern Europe and what from Turkey?

In Austria, we had 184 million parcels and Page 20 shows you our volume resulting from our activities in Turkey and Eastern Europe. So 217 million from Turkey and 62 million from Eastern Europe. So we're talking about roughly 40%, 45% Parcel volumes from Austria and more than half, roughly 60% from Turkey, and then some share of Eastern Europe. And -- but not sure if I'm 100% answering your questions again, but then...

I was looking for the EBIT contribution, maybe some indication of the margins that you're making in any of these 3 areas.

Yes. Again, we do not -- please bear with me that we do not provide a detailed margin reporting for our geographies. But I think what I can say is that Turkey provided above-average margins -- substantially above average margins last year. And then...

Got a question on Germany. That's in the annual report on Page 130, 1-3-0.

Andre, let me take that question with me. I'm not 100% sure whether I know the answer to this question, yes.

I call you up later, Andre.

[Operator Instructions] So this concludes our Q&A session, and I would like to hand back to Harald Hagenauer for closing comments.

So thanks, ladies and gentlemen, for being in this call. For some more questions today that will arise, we are available here. And of course, you can call me any time you want. So have a good weekend. Bye-bye.

Ladies and the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.