Österreichische Post AG (POST) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen to our half year end Q2 presentation of Austrian Post, where we want to discuss these figures -- present and discuss these figures with our CFO, Walter Oblin, and I will directly hand over to Walter.

Good afternoon, ladies and gentlemen. Thanks for the opportunity to present to you our half year results. Let me start on Page 3, which puts an overview of Austrian Post and our structure. Just to remind you, we operate and report in 3 segments: Mail, Parcel & Logistics, these 2 segments of -- these are the 2 segments where we book most of our revenues, and the third segment, Retail & Bank, which consists our retail network and Bank99 and altogether in the first 6 months, we had revenues of EUR 1.2 billion and EBIT of EUR 91 million. More details later on. Page 4, we operated in a very challenging macroeconomic environment in the first 6 months, characterized by strongly rising energy costs with the diesel price, of course, having the most direct impact on our cost structure. Gas prices affecting us indirectly as gas prices cause high paper prices which caused volume impact on direct mail revenues in particular. Second major headwind from an inflationary environment, affecting consumer confidence and accordingly, e-commerce volumes, therefore parcel volumes. And third and most significantly also reflected in the first 6 months figures, a very challenging macroeconomic environment in Turkey characterized by very high inflation and a strongly devaluating Turkish Lira where we also had to apply hyperinflation [indiscernible]. Page 5. Against this context, against this background, I think we showed a Q2, we were able to stabilize both revenue development, cost development and accordingly, I think showed at least proving -- improving and catching up of first half year revenue and EBIT picture. What were the key developments worth mentioning here upfront is a summary, between point one, improving revenue and volume trends, both in Letter Mail and then Parcel. Letter Mail in particular, showed a very strong Q2 with unadjusted volume up 6%. It was the combination of the structural trend of around 3%, supported by one-off mailing -- a strong one-off mailing, yes. Parcel also improving substantially Q1 of minus 9% comparing ourselves against a very strong Q1 '21. I think in Q2, we showed that we came already close to last year's figure with month-by-month and upward trends. In the meantime, we have also seen months where we are at top. Last year, accordingly, strong improving revenue developments in those 2 segments. Number two, we took a number of measures starting February and March to improve our cost structure and adjust to lower-than-expected parcel volumes. These measures were implemented quickly and improved our cost structure, which is also reflected in the results in Q2. We accelerated price adjustments at the end of forwarding the factor cost increases. We had a positive business through our customers and I'll comment on two bigger steps on Letter Mail tariffs. And in Turkey, we continue to face a very difficult macroeconomic environment with volumes down from a very strong [indiscernible] last year, strong inflation of relating to increase in prices with regards to Turkish Lira revenue is up 23%. However, in euro terms [indiscernible] with strong variation in a [indiscernible]. And particularly Turkish development had a strong impact on our group of P&L of which provided a number of details that may be right away. To Page 7, where I will try to figure the big picture on the revenue development. Group revenue is down 4% in the first 6 months [indiscernible] is pretty much all of that revenue decline comes from the Turkish business mostly from the devaluation of Turkish Lira. Net of that group revenues were flat at plus 0.1%. And this revenue development is the summation of a better-than-expected strong Mail revenue development, Mail down only minus 1.4%, given the structure of the Parcel business. Parcel was down 9%. So business is on less than [ 1% alone ] almost flat development of the 6 months of other business. And Retail and Bank up 49.3%. The combination of organic growth and the takeoff the ING acquisition. I think it's worth highlighting Q2 stand-alone figures. So group revenues in Q2 almost flat, including the Turkish business of minus 0.8%, excluding Turkey, plus 2.8% with Mail showing positive [indiscernible] from last year after [ sales from ] minus 5%. However, Austria up 3.4% in Retail & Bank, as I mentioned on the [indiscernible]. This, I would say, good revenue development in Q2 [indiscernible] into improving picture also on the EBIT side of the 6 months compared to [indiscernible] figure on minus [ 68% ] for the first 6 months, simulated to [ 12% ] with EUR 91 million of the EUR 103.4 million on for last year, this [ representative ] of EUR 48.2 million in [indiscernible], of course, then heavily impacted by the [indiscernible]. We are well navigating through the trends macroeconomic challenging environment. The minus 12% is net of Mail [indiscernible]. Parcel and Logistics down EUR 14.2 million, Retail and Bank improving, down minus EUR 5 million. Again, here figures of 4 segments up around EUR 4 million to EUR 5 million. I would like to mention here already that in the past in the business segment, we see a one-off impact from the reevaluation of the liability connect with option of a minority shareholder in part of [indiscernible]. So this, of course, helped to see strong Q2 results in Parcel & Logistics and the group overall taking out net impact of roughly EUR 11 million. Q2 EBIT was EUR 2 million low with very strong Q2 last year. Let me now give you an update on our strategy implementation and on the development of our 4 business segments, which can remind you of our 4 strategic pillars. Let me start -- let me continue right away on Page 11 with our Letter Mail business. To remind you, our Letter Mail business has grown relatively constant with time of around 5% over the last year. This pandemic, of course, showing also some acceleration 9% in the first 6 months 2020, with some recovery in 2021, where we were down only 2% again in 2020. The structural decline has been around 3%. This was supported on top of those 3%, we have a number of one-off mailings partly relating also to the energy price development and countermeasures by the Austrian government. So including those one-off mailings slightly positive development in the first 6 months. Overall, if you take the cumulative decline over the last 3 years, we see around minus 15%, which I think re-confirms around 5% structural decline per annum that we have been guiding for a few [indiscernible]. Rising inflation, rise in factor costs require a rate adjustment to forward at least some of those cost increases for our customers. And accordingly, we implemented inflation adjustments in our Letter Mail structure effective July 1. We implemented a change in the economy letter scene. You see here the numbers on Page 12. And as of October 1, we will implement the change. Adjustment in our priority letter, because this is the next day letter, this adjustment has already been approved by the regulatory party. Even with those rate increases, Austria remains one of the cheapest working mail market. Moving to our Direct Mail segment on Page 13, Direct Mail on the one hand continues to suffer from structural downward pressure resulting on the one hand, from the increase of digital advertising, from the prices of the stationary retailers, and third, and this is a new development from rapidly increasing paper prices. On the other hand, we saw that there is also some recovery potential. Last year in Q1, there were still some lockdowns in Austria with retail closed and accordingly, very little direct mail volumes against this week Q1 last year, we saw improvements in the first 6 month, plus 7% compared to last year. Again, if you here look at the 3-year development, we are still down 9%. And going forward, we expect this segment to continue to suffer from this factor pressure [indiscernible]. Moving to our Parcel business, Page 14, after the strong growth in the last few years with more than 50% volume decline since 2019, Parcel volumes have been consolidating in the first 6 months, stronger in Q1 than in Q2. Q1 was a record Q1 last year, again given lockdown stores to Eastern Austria in 2021. We already reported in Q1 that is against the strong previous year quarter 1, we were behind. We have catched up in Q2 [indiscernible] comparison in Q2. Volumes down only 1% in Q2 and as I mentioned, once a month this comparison against previous year has improved, and we already seen once when we were above last year. To cope with the growth and going forward, we expect our [indiscernible] business segment, we deal with our large-scale capacity expansion program in the Austrian auto business. Our guidance for CapEx for this year is around EUR 180 million, EUR 100 million on maintenance CapEx, which includes a lot of investments in [indiscernible] our sustainability efforts and launched EUR 80 million in the growth CapEx in particular [indiscernible] we are currently working on 2 large projects, one is the substantial expansion of the big sorting center in Upper Austria, where we are more than doubling our capacity and the other project is an upgrade and expansion of historically biggest sorting center [indiscernible] where we started construction earlier this year. And these 2 projects, we just assumed the potential part of this [indiscernible]. Page 17, our staff development, give consolidating [indiscernible] volumes, also staff numbers have consolidated a little bit. At the same time, the change from expensive civil servants and also wage agreement contract to employees under the New Collective agreement continues. I think going forward, we expect pretty much light figures, but it was challenging to find the right employees in the very top of [indiscernible] level. Page 18, now moving to our second strategic pillar, moving away from our Austrian business to profitable growth in nearby markets. Page 18 shows you our international business portfolio, and in particular, our Parcel network of portfolio, Parcel network southeast of Austria. With Turkey in terms of parcel volumes already bigger than Austria and CEE portfolio of smaller countries, roughly 1/3 of the Austrian volume of Turkey and consolidating mode, CEE still on a growth mode that we talked a little bit about Turkey [indiscernible] combination of different drivers. On the one hand, after a strong expansion of Turkish Parcel market, there is similar to other markets we [indiscernible] market, very strong inflation, of course, creates a lot of uncertainty among consumers and therefore -- is therefore the e-commerce market. The contracting parcel volumes down minus 20%. At the same time, by inflation means that we are almost positively increase in prices. So revenues in particular were still up 23%. The third driver is, of course, the devaluating Turkish Lira, which showed a strong devaluation ended last year and given the high inflation differential as well as stable development so far this year. The high inflation also caused us to implement a hyperinflation accounting standards where now IFRS group balance sheet, we now show on the Turkish assets and related to P&L, and adjusted to current purchasing power of the Turkish Lira. I would say, a lot of changes in individual lines of the Turkish part of group revenues. Overall net EBIT impact of [ pure ] hyperinflation accounting is limited talking about around minus EUR 1 million EBIT impact of the accounting standards. Parcel volume in Southeast Europe, still in a growth mode. As I said, also comparing the long volume last year. Here, [indiscernible] parcel market has held well, and we have continued to gain market share. Volumes up 10%, revenue up 6%. There has been some mix changes also in our volume. But overall, a very typical of Europe are already over or a number of [indiscernible]. Moving now to the third element of our strategy, our consumer, our consumer businesses, here I would like to start with Bank99. To remind you, we launched Bank99 roughly 2 years ago, out of the home office into the first lockdown. We were able to gain around 80,000 customers in the first 12 months in a very difficult environment, but then an opportunity to [indiscernible] in the Austrian market as ING decided to exit the Austrian Retail Banking market, we were able to win the tender for us and are now in the integration process. A biggest thanks to an operative level works well. We continue to grow, to gain customers, to grow our balance sheet [indiscernible] grow our asset portfolio is developing well. At the same time, we are, of course, busy with the integration, in particular IT integration. But still, at the same time, we're also able to bring new products to the market, including standard consumer credit offering, which was launched 2 weeks ago. Page 22 reminds you of our self-service solutions, which continues to grow on a number of installed equipment as well as usage. Page 23 is an example of how we are trying to rejuvenate and innovate the historic philately business. I think we're successful [indiscernible] and development with new products coming out almost every quarter, which are well accepted by the bank community in this market as by new younger customers. So very, very successful development in business. Last page in this chapter. We continue to drive forward our sustainability efforts. Here I would like to mention and acceleration of our EV photovoltaic initiative. We have already been one of the largest EV producers among non-utilities in Austria. Our current plan is more than double, all capacity from 3-megawatts fleet to more than 8 megawatts fleet. Of course, it is dependent on suppliers to deliver those plants of the optimistic multi-track [indiscernible]. And our mid-term target to generate around 30% of substantially bigger and exclusive new trends than we have today [indiscernible]. So 30% of our electricity in price [indiscernible] generates from EV. With that said, let me move to more details on our group results. Page 26 shows you a few KPIs already commented on revenue. I think it's 14.8% EBITDA margin in a challenging market environment is a respectable results. Similar on the EBIT margin, earnings per share, suffering a little bit from a one-off, which is kind of public compensation in the positive one-off on the EBIT side resulting from the updated valuation of the liability of our minority shareholder in Aras Kargo. And on the cash flow, we are not as strong as in a record year -- record first half year 2021, but still EUR 106 million operating free cash flow of 6 months is very respectable cash flow, which for the cash generation as [indiscernible]. Page 27 shows our book in P&L, as already commented on a few items, group revenues down 4%. I think the number of the expense lines are, of course, also similar as the revenue line impacted by the Turkish Lira development. The other operating income includes the impact of this already mentioned revaluation of the liability of the put option of other family member, given a changed outlook for the Turkish business. Yes, a number of -- I think most of the items worth mentioning, I have already commented. I also have already commented on the adoption of the hyperaccounting standard for hyperinflation rate economies that we sell into as of Q2 which is net monetary gain is the line that is basically resulting from the application of this hyperinflation accounting standard, as I said, net impact on around minus 1. So rather negligible so far. Let me comment a little bit on the core business segments. Mail division, as I said, this division showed a strong -- a very robust development in the first 6 months. Direct Letter Mail revenues down 4.6%, multiple [indiscernible] comes from international Letter Mail. Volumes were a combination of a shift from one large customer to other product stands on delivery than some of the design [indiscernible]. And on the other hand to expectation of kind of -- all of the minimum value for which international volumes were we achieved what we sense or not [ to be ] paid and the other development international volumes, particularly China, are down substantially. At the same time, domestic Letter Mail volume as already commented held strongly and [indiscernible] is minus 4.2% of Direct Mail flagship and 7% on good development -- in positive development in both quarters. As we said already, most catch-up effect and going forward, this business remains under pressure. As a result, total group revenues in the mail division down minus 1.4% and the good, I would say, we will [indiscernible] profitability of this division is at around EUR 83 million. Parcel & Logistics division, moving to Page 30. Revenue, as already commented on, minus 9%. Austria returning to growth mode month-by-month over the first 6 months cumulated at minus 1.9%. Turkey, as already commented on, is [indiscernible] most of 30x and revenues in Eastern Europe up 6.3%. Given this volume and revenue development on Page 31, we show a design compared to a record first half year last year. At the same time, the EUR 45.5 million [indiscernible] we have historically ever achieved and also the margin of 8% is respectable. Page 32, our Retail & Bank division, revenue of around 50% with our traditional branch services, a little bit under pressure. Availability of cellular phones, price point of cellular phones, putting a little bit pressure on sales volumes there. On the other hand, our Bank revenues more than doubling as a combination of the impact of the ING acquisition as well as our inflows. EBIT in this division, exchange rate up from EUR 27 million last year, up to minus EUR 20 million. Still we are investing into the ramp-up of this bank, investing into the integration of the ING acquisition. But hope -- are optimistic that the second half will be better than the first half in terms of EBIT. Moving to our balance sheet, page 34. I think we continue to operate a robust healthy balance sheet with an equity position of around EUR 640 million, with an expanding total balance sheet, in particular, coming from the expansion of the bank's balance sheet, continued inflow of liquidity, which is turning into an asset with rising interest rates and otherwise, I would say, not a lot of change since our annual accounts '21. Page 35 gives you an update on our cash flow development. Operating free cash flow of around EUR 106 million. This is before growth CapEx. The first 6 months typically show a lower CapEx expense, both on maintenance as well as on growth CapEx. As mentioned guidance for the full year is around EUR 180 million. And with that said, let me close with our outlook on Page 37. We, of course, looked into the second half of the year with a lot of macroeconomic uncertainties and in particular, an uncertainty on energy and gas supply and on further development of energy prices at large. And I think there are different scenarios. What could happen in all, I think if there is no further escalation, we think that Q2 should deliver a decent results for Austrian Post in terms of revenues as well as in terms of earnings. In terms of revenues, we target to as close as possible to the revenue of last year, probably will not 100% reach last year's revenues. And of course, the exchange rate of the Turkish Lira is one of the uncertainties there, but we do expect a, as I said, assuming no further escalation on the energy side, we do expect for the full year, a relatively resilient Letter Mail business and an Austrian positive business, in particular, where quarter-by-quarter, we should improve compared to last year. And on the earnings side, we -- our guidance remains unchanged. We do expect the full year EBIT to be somewhere between the 2020 EBIT of EUR 161 million and 2021 EBIT of EUR 205 million. Given the development in Q2, I think there is increasing optimism that -- that it is the increasing optimism and up in the -- rather in the upper end of this the upper half of this [indiscernible] than in the lower. But of course, there is quite some uncertainty. So with that said, I'm at the end of my presentation, and I'm now very happy to take your questions.

The first question is from Marco Limite from Barclays.

My first question is on your parcel volume expectation for the full year. I think with the Q1, you were guiding for parcel volume flattish for the full year. So I'm just wondering, what's your expectation for the second half? And if you could also mention what's the July exit rate, please? My second question is on your banking division. Can you just confirm that during your presentation, you mentioned that you expect better EBIT in the second half compared to the first half. And when do you expect this division to break even, is full year 2024 still the target there? And my third question is your -- is on the price increase you mentioned on the priority rate from the first of October. Can you just specify what -- how much is the price increase? And on -- what's the base in euro million terms for that price increase? So how much -- how many revenues you're going to price increase?

Well, thank you, Marco, for your questions. I think on the parcel volume and I assume you're referring to Austrian parcel volumes, I think that this target of catching up for the full year after the decline in Q1, is still our target. And I think the monthly development over the last 4 months, including July confirms that this is possible. Again, there are uncertainties, of course, on the macroeconomic environment, but this remains our ambition. Second, on the -- and please bear with me that we do not provide monthly detailed figures. But I think July overall confirms this ambition, yes? Banking division, yes, I do confirm that for the segment -- for the bank, the second half should show some considerable improvement compared to the first half. We also see some headwind from interest rate and I would say, a breakeven over the course of 2024 probably, let's see. I think that's, again, a lot of uncertainty also on interest rates and optimistic assumptions also for the full year. This is a possibility, but to be on the cautious side, I would say, over the course of 2024, the breakeven is the target. And on the price increase, I would say the rough figure is the 2-year impact of this price increase is around EUR 20 million. And given that we are talking about the quarter, around EUR 5 million impact for the ongoing year.

The next question is from Bernd Maur from Raiffeisen Bank International.

The questions from my side. First, can you elaborate a bit how strong or weak is your pricing power in the Parcel segment in light of competition, self-delivery of Amazon and all the small freight forwarders. So how easy it was for you, how successful you have been to implement fuel surcharges and overall increased prices in light of your increased costs for external freight forwarders to the clients? And how is the outlook for the next half year on this front? And the second question refers to your P&L line or operating income. There we saw in the last quarters visibly higher operating income around about EUR 30 million versus roughly plus minus EUR 20 million in the quarters before. What's the reason behind this?

Yes. Thank you, Bernd, for your questions. Let me start with the first question, what's our ability to implement prices in a competitive parcel market. I think there are different aspects to comment on. On the one hand, there is a fuel surcharge or a fuel floater, which is a typical element in our parcel contracts with large corporate customers. And this fuel surcharge is an implicit hedge against rising fuel cost and has already led to price improvements, if you also see in average revenues per quarter. Point two, we have already been pursuing different structural initiatives to improve our price positioning across the portfolio of customers. We have also implemented a retail -- small retail price adjustment. And of course, we are also working with our big customers. Typically, there are also some -- these are longer running contracts where there is some kind of indication agreed on and so I think it's a case by case. So overall, of course, we are in a competitive market, but I think all the other competitors have very similar cost pressure. And assuming the rational behavior of our competitors, I think there is a potential to continue to get fair prices for the good service we deliver to our customers, but it's not easy, of course. And on the other operating income, I think there are 2 things to comment on, which are included in the first 6 months. I would not see this as a run rate. This are -- this is typically substantially influenced by one-offs. There are 2 one-offs worth mentioning in this quarter. One is a recovery of expenses for quarantined employees, which are shown as other opportunity at the meantime, of course, we have had the expense in our cost structure, and so this last [indiscernible] that, by the way, ended a few weeks ago where there is an official [indiscernible] that causes people to be absent from work, then the government reduced the expenses. There is, of course, this is not always in the new period. I would say, overall, this is both reflected in the other operating income, and on the cost side. And the other is the already mentioned impact on the revaluation of the liability of a number of the [indiscernible] family who holds 20% in cargo [indiscernible] option effective 2025 or '26.

The next question is from Nikolas Mauder from Kepler Cheuvreux.

Two of 3, if I may. First one is on the drivers of the strong growth in your Central and Southern European Parcel operations. They seem to be bucking the normalization trend in other European geographies. Can you please give some reasons for that? Then secondly, I've seen that you've taken out a financial loan of EUR 150 million. Can you share some details on that one? What kind of interest rate you're paying? When will be payback and so on and so forth, whatever it's worth sharing? And then finally, as a follow-up on the question of the COVID-19 reimbursement. I don't know whether I caught the level, if you would be willing to share that as well.