Österreichische Post AG (POST) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the full year results call of the year 2023. [Operator Instructions] Being my pleasure to turn the conference over to Harald Hagenauer, Head of Investor Relations. Please go ahead, sir.

Good afternoon, ladies and gentlemen. Welcome to the conference call of Austrian Post, where we would like to discuss the facts and figures of the fourth quarter and so the full year results of our company. Here with me is our CFO, Walter Oblin. And I would like to directly hand over to -- please, Walter, go on.

Good afternoon, ladies and gentlemen. It's a pleasure to have the opportunity to provide to you our results for the full year 2023, I think it is as a summary upfront, we are pleased to say that in a very challenging environment, I think we can present today very solid results for the full year 2023 as well as a confident outlook for the year 2024. Let me start on Page 2. Page 2 shows you the overview of our 3 segments in which we operate in which we report our Austrian mail business, our international parcel and logistics business and our, again, Austrian retail and bank segment, which includes our bank99. Parcel & Logistics for the first time with a revenue share clearly above 50%. Total group revenues of EUR 2.74 billion and group EBIT [indiscernible]. Page 3, a short summary of the environment in which we're operating a stagflationary environment. First key point with still high inflation even if it's coming down in Austria and in most of the markets we operate in, combined with negative GDP growth last year, minus 0.7% and a small GDP growth forecast for this year. Point two, our most important customer segment, the retail segment, the stationary retailers or online retailers are in a difficult environment, in particular, the stationary retailers are in a consolidation environment with a number of exits, insolvencies and this has had impact on our customer portfolio of [indiscernible]. Our second biggest market after Austria is Türkiye. And in Türkiye, we are faced with an environment of still very high inflation and the very volatile and over time, deteriorating currency. Page 4. In this environment, we, as I already said, delivered, I think, very good, very solid results. On a group level, we can report a revenue increase of 3.7%. And a stable EBIT, a small increase by 1% as of [indiscernible] EUR 2.74 billion revenues, EUR 190 million EBITDA, this is some of a mail business where we have seen somewhat accelerating the changing volumes, combined with significant tariff increases as a result of relatively moderate revenue decline. Strong growth in Parcel & Logistics across the portfolio, in particular in Türkiye, also supported by high inflation with a relatively favorable currency development and also good growth in the third segment, Retail & Bank, where we are benefiting from tailwinds from the interest rate environment. Page 5 shows you the detailed revenue development by segment, Mail segment, minus 2.3% for the full year in Q4, minus 2.2%. As I said, this is a combination of a little bit stronger than in the past declining mail volumes. We're also comparing ourselves to come to that is a very good year 2022 in Mail. The combination of change in volumes with compensating price measures in Parcel & Logistics, very good growth, 16.6%. Even if we take out Türkiye, it's double-digit growth, a little bit about 10% in Q4 [indiscernible] stronger excluding Türkiye and the segment Retail & Bank [indiscernible] of 37.6%. Page 6. The intention of this page is to remind you that combination of the high inflationary environment with a currency that is devaluing against the euro, however, not linear, but in a very volatile way. And on top of that, the application of the high inflation accounting standards, [indiscernible] accounting standards means that we report quite volatile revenue figures and revenue increases from Türkiye. Just looking at the yellow [indiscernible] here, 66% in the first quarter, minus 14.5% in the second quarter, 80% in the third quarter and 30% in Q4. High penetration accounting means that we basically apply the -- always the end of the quarter, currency exchange rate for the full year behind us, and this leads to more or less a kind of a restatement of the already reported revenues in prior quarters and therefore, to substantial volatility. Just if you want to interpret quarterly figures be aware of that. Coming to EBIT development. Page 7 shows our group EBIT, as already mentioned, increase of 1%. We see some margin pressure in our core logistics segment, Mail & Parcel, Mail down minus EUR 5 million. However, still very strong, absolute profitability was EUR 152 million, Parcel & Logistics, a strong second pillar in the meantime was almost EUR 90 million, EBIT contribution small drop compared to last year. If you adjust for one-offs, the operating increase is substantially bigger than that. Retail & Bank, here, we're still in a ramp-up loss phase in bank99. However, we were able to roughly half ramp-up losses and make a significant step towards breakeven that combined with the usual bandwidth of EUR 35 million to EUR 40 million in corporate delivered a total of EUR 190 million. Q4 EBIT contribution reported a little bit down compared to '22. However, we have had some positive one-offs in 2022, some negative one-offs in 2023. On an adjusted operational EBIT level, we would see a positive development from '22 to '23. Page 8, let me now go a little bit into the details of our business lines using our strategic framework as a structuring elements. Let me briefly summarize the 4 elements. Element 1, expanding our market leadership and profitability in the core business, meaning Austrian Mail and Parcel. Element 2, profitable growth in new markets, in particular, parcel internationally. And Element 3, development of retail and digital offerings for the consumer and SME market. This is about our retail network in about bank99. And the green arrow in the middle is our aspiration to be a leader in sustainable logistics. Starting with Element 1 of our strategy, our core business, Mail and Parcel, as I already mentioned, Mail has seen a decline last year that was a little bit of [indiscernible] we've seen the years before made it to [indiscernible] Austria since 2008. So we are in the 15th or 16th year of mail decline. I think we've shown that we can work with mail decline in the order of magnitude of somewhere 4% to 6%. You have to read those 6% compared with a decline in 20.4%, which was lower than average 2022 was the year where we had a number of special mailings, including price increases by utilities, government measures to fight inflation and so on, still 6%. And we -- accordingly, we've seen a decline in mail revenues and also a small decline in profitability. However, I would say, still a very strong business in terms of both revenues [indiscernible] and margins. Page 10, our strategy continues to be to offer good quality at moderate rates. We have been increasing rates quite substantially in the last 2 years, basically more or less in line with inflation, always combined with product measures where we tried to move more and more volumes into a slower stream, which is more or less the economy letter, a product [indiscernible] of 3 days. And in the meantime, we have around 80% in this product. The latest important step was a product price adjustment effective September 1, where we, more or less, open the economy letter for the consumer segment and the whole letter box stream was shifted to economy. Page 11, moving towards Direct Mail and Media Post business. Still a substantial business with a strong EUR [ 420 ] million in revenues. This has been particularly under pressure given the prices of the stationary retailers and further challenges came from substantially increased energy and paper prices for our business customers in this field. We saw here decline rates of around 9%, but substantially a number of exits, I think we're not 100% through yet through the consolidation of our retailers, and we see customers continuing to shift from print advertising for digital advertiser. Page 12, moving to the growing part of our business, the Austrian Parcel business. We reached a threshold of 200 million parcels last year, a growth of 11%, a very good growth in a market that has grown more in the mid-single-digit figures. Very good quality, very good convenience for consumers. Sub-service solutions and all that, combined with a very competitive cost structure and the very competitive pricing has added to our success in the marketplace as a result. Page 13, The latest market share statistics also show that we have gained some market share around 2%. The market continues to be competitive. Amazon now being #2 in the B2C market. At the same time, Amazon continues to be a very important customer there. We continue to invest in growth in the green transformation for logistics and also substantially in renewing all the equipment. We haven't [indiscernible] maintenance CapEx last year, around EUR 155 million CapEx cash spending for this year. And next year, we expect CapEx to come down a little bit as we have more or less completed our substantial expansion program in Austria. Moving to Page 15, where we basically built new or substantially expanded almost every logistics center in Austria. The last step was completed before last year. The logistics -- the new logistics center in the South of Vienna, expanding our existing and most important, Vienna logistics. Moving to Page 16, our debt structure. The staff transformation continues -- transformation from insurance and labor agreements in the [indiscernible] what we call old collective wage agreement, which exists for new entrants until [indiscernible]. We are also in year 15 of new collective wage agreement. In the meantime, majority of employees, more than 10,000 people [indiscernible] new collective wage agreement. This is a substantially, yes, cheaper, potentially less expensive collective wage agreement and as a result this transformation observes to offset effective cost increases, which, of course, has been high inflation we've seen in Austria. Page 17, moving to our strategy [ pillar #2, ] growth in our markets. Moving to our international parcel portfolio. We are present in more than 10 geographies covering Southeastern Europe. And of course, Türkiye, our second biggest market of Austria and since last year, [indiscernible] a successful start into [indiscernible] including, good growth of 8% for parcels and 4% shipments in total. We also have documents being within our cargo, which is not growing. But overall, a very good development in the Türkiye, both revenue-wise profit margin average, good development also in Eastern Europe where we -- our revenues in the meantime has come close to EUR 200 million. Page 18 shows a little bit more details on the development in Türkiye, very strong growth in Turkish lira, 130%, given some imbalance between inflation and the currency exchange rate also a quite strong growth in euro terms plus 41%, as I said, with hyperinflation accounting and with a substantial currency devaluation, which typically doesn't happen in a linear way. We've seen a quite strong downward push last year in Q2 at any time, some volatility and some downward push can happen [indiscernible] accumulated revenues for a given year. But overall, a very positive development. Moving to strategy pillar #3, our consumer trust here, bank99 is the most significant investment and significant -- most significant growth push that we have made over the last years, I would say, overall, positive development, of course, also supported by tailwinds from the interest rate environment. We are growing our customer base, [ 208,000 ] in the meantime, we are growing our balance sheet, EUR 3.4 billion. In a difficult credit market, also the credit volume has grown from 1.6% to 1.8%. And most importantly, our net interest income has more than doubled last year. Of course, we are benefitting here from the interest rate environment and the interest rates going down. We'll also see some -- probably some compression of interest margins. Current focus is on harmonizing 2 IT systems, moving the customer base from the proprietary system that is over with the acquisition of the ING retail business in Austria, migrating those customers to the regional bank99 outsourced core banking system, which is now managed by Accenture. This is a big, very comprehensive program where we are in the mix of it and where we do expect this migration to happen by the end of this year. At the same time, we are launching new products and trying to push also growth in various customer and product segments. Still, however, we are here in a record loss situation. We have roughly halved ramp-up losses, included in those numbers are significant migration cost for the harmonization of the IT systems, including some write-downs, if you would adjust for those we are already approaching breakeven, however, not yet there. Moving to Page 20. Self-Service solutions, Parcel Locker are growing not only in terms of numbers, but also in terms of consumer usage last year, 27.3 million parcels [indiscernible] self-service solutions of 16%, above our parcel growth. We are at the beginning of a strong push to make our sub-service network even more dense with smaller stations, both in urban areas as well as on the country side and to strongly believe in those self-service functionality. Let me now quickly give you an overview of our progress in the area of ESG. This slide shows you our comprehensive ESG program, our sustainability market and 2030 with various dimensions and a number of very detailed initiatives. Page 23 shows you some of the progress we've made last year, first year where our CO2 emissions in the Austrian operations have come down significantly despite strong [ particles ] [indiscernible] Austria down almost 6% as a result of our e-mobility push efforts in the real estate areas -- real estate infrastructure. On a group level, we are also moving in the right direction. However, the strong growth internationally has compensated the impact of various initiatives and some of the initiatives in Eastern Europe and Türkiye are only in their initial cases. Good progress on the rollout of e-mobility Austrian [indiscernible] already at 4,000 now more than -- or almost 1,000 [ upticks ] added last year. And also in the social dimensions, among important employee indicators, diversity, women in leadership positions, and so we've gone over. We are moving step-by-step year-by-year in the right direction. Page 24 shows again the ramp-up of our electric fleet as well as the ramp-up of photovoltaics. We are now close to 10 megahertz on our routes, we target of getting to around 15 by the end of this year is that we will generate around 20% of our electricity through PV on our own rules. Page 25 shows you our mid- to longer-term development including our targets, as I said, minus 6% last year despite substantial profit growth target for 2030 is to roughly half emissions compared to 2021. And by 2040, the ambition is to get somewhere to net 0 in Austria, of course, there is quite some time ahead and some of the measures, in particular, on the transport logistics side are not yet clear given the technology in this field is not yet market growing. On the other hand, on the last mile, the yellow area of this chart, we have a very clear plan to substitute all combustion engines by 2030 through electric vehicles. Page 27 shows you that also on the new taxonomy, we are moving in the right direction, significant progress on economy compliance revenue, CapEx and OpEx. This has to do with [indiscernible] classification of our electric vehicles with documentation for recycling of logistics, buildings, waste. So the whole role system is still a little bit delivering strength results in some areas. But at least you're seeing that the figures move in the right direction and reflect our ambitions and our initiatives in this sense. I think more telling and more balanced picture comes from the various ESG ratings from various agencies. You see here an overview of messages because all rankings, we are among the leaders in our industry. Let me now proceed with more details on our financials. Page 29 in addition to the already mentioned revenue and EBIT numbers, you see some margins here, given the environment and also the increasing share of Parcel business in our group margins are a little bit under pressure, a little bit declining. However, if you compare it with our peers in the post industry, I think still very good, very stable margins in the environment. We operate in earnings per share [indiscernible] for an attractive dividend proposal. I'll come to later. And also cash flow was EUR 221.6 million. We have a strong robust operating free cash flow. Let me switch to the income statement on Page 30. I have to answer the question is if there are any later on and now dive into our 4 segments, Parcels and Mail division, total revenue down minus 2.3% with the decline roughly in that order of magnitude, both in the Letter Mail as well as in the Direct Mail segment. In the Letter Mail, it's a combination of the decline of around 6% with various tariff measures and also in Direct Mail, the net of a substantial volume decline again with changes in mix and price points. Yes. So structurally, we are -- we will continue to see volume declines here, and we will continue to adjust our prices at least in line with inflation. Page 32 shows you the segment P&L, still a very strong absolute focus contribution in good double-digit margin. Moving to Parcel & Logistics, Page 33, as mentioned, good growth. You see the regional composition in Austria around 11% revenue increase in Türkiye, 41%. Again, I've mentioned it, a strong contribution also from inflation not fully compensated by the decline in the lira and also with 15% good revenue growth in Eastern Europe -- Central and Eastern Europe. Logistics solutions, here, we see another year of the discontinued -- effect of the discontinuation of certain one-off businesses related to the pandemic. We were a substantial provider of test logistics during the pandemic in 2022. We still have some significant business in the first [indiscernible] away. So therefore, we see some decline. For the whole group of Page 34, I think, very respective profit contribution of around EUR 90 million. And I have already said that we have had positive one-offs around the accounting and put option related to Aras Kargo in '22 and negative ones in 2023. Just the impact of those 2 is a double-digit million figure if you compare the 2 years. So on an operating level, the increase in this division was more than we'll see here. Retail & Bank division, Page 35. Again, here, good revenue increase. Most of this revenue increase is coming from bank99 from increased interest income in our group IFRS statement. We report the gross interest income and this year, a substantial increase also on net interest income in that substantial one, but we report here the gross interest income. Page 36 shows you numbers, the progress we make in targeting breakeven for bank99 and the whole segment. We made a significant step in 2023, a high single million digit number -- million digit number one-offs relating from the system harmonization is included here. So adjusting for that, we are not too far away from breakeven, however, not yet there. And we also have to acknowledge that we have had significant tailwind here from the interest rate environment. Moving now to our balance sheet. Page 37. Our balance sheet continues to grow, and that's the same, I think, continues to be a healthy balance sheet with a strong and stable equity position of more than EUR 700 million with a rather low financial leverage loan, financial loans of around EUR 125 million [indiscernible] cash, liquid asset position of EUR 100 million, strong and of course, impact of IFRS 16, both assets and liabilities within the real estate portfolio. We have also rented real estate and the blue element of the plan is very much the balance sheet of our bank on the liability side, customer deposits and on the asset side, financial assets, mortgage loans, consumer loans and a treasury portfolio of the bank. Page 38 shows you the usual breakdown of our cash flow, good cash flow from operating activities. Around EUR 150 million of cash or CapEx, which we split in this chart into maintenance CapEx and growth CapEx, subtracting the maintenance CapEx and adding some other income, which is mostly coming from the real estate [indiscernible] which was sold in Q3. It's an operating free cash flow of EUR [ 21.6 ] million. This is the number where our aspiration is to have dividend well covered. And I think we would like to see that our dividend proposal is well covered by this operating free cash flow. It would be in this year also be covered by our total free cash flow, also after growth CapEx and after acquisitions that we have made. This already leads me to our dividend policy -- we have made a clear promise to be an attractive and stable dividend stock, hence we once again would like to deliver on that promise with the dividend proposal to our AGM of EUR 1.78. This is a little sign that we would like to increase dividend. At the same time, given the investment needs of our business and the growth opportunities that we see in particular in our Parcel business, we also want to signal here that we have to balance investment and dividend, but EUR 3 increase is the time that we want to grow the dividend going forward. With that, moving to Page 40, we have delivered now another year in a 15-year long history of, I think a stable development also in multiple crisis with, I think, very stable. In the last years quite significantly growing revenues stable apart from the pandemic year, a stable EBIT, EBIT numbers and attractive dividend policy now over 15 years. And a good progress in decarbonizing our logistics operations measured here by kg CO2 for shipment volume. With that, I'm now closing with our outlook for 2024. I think overall, the summaries we look relatively confident into 2024. We have, I think, started well. However, we've only seen 2 out of 12 months and the visibility is low. The environment is still characterized by high inflation and low to 0 GDP growth. Despite all of this, we do expect a positive revenue development with growth in the low to rather mid-single-digit range with mail probably being somewhere between slightly declining and flat and [indiscernible] we do expect further good growth. Of course, as already mentioned several times, the exchange rate of the Turkish lira can have a significant impact. So therefore, we are also a little bit baked here with our revenue guidance. Capital expenditure still substantial, however, coming down from the high figures of the last years. And on an earnings level, our target is to generating EBIT that touches 2023 EBIT. And again, it's still 10 months to go. And of course, we'll also try to -- after having the AGM agreeing to our dividend proposal for 2023. Of course, the objective is for another year to generate good earnings and the good cash flow will then in a year from now, be able to propose, again, an effective dividend. So overall, I would say, a rather confident outlook in a challenging environment. And now I'm very happy to take questions. Thank you.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions]. We have our first question from Marco Limite from Barclays.

So a few questions. The first one is on the Q4 results that at least compared to my expectations were a bit different in terms of mix. So main profitability despite letter volumes down high single digit, the profitability was up year-over-year, which, yes, sounds very positive, but I just wanted what's driving that? And in the Parcel unit, I think you've been mentioning more than once today that there were some one-offs last year and this year. Can you just please clarify or quantify actually the one-offs in Q4 last year and in Q4 this year, if possible? And my third question is on Aras Kargo. So in your presentation, I'm just trying to look for the slide but basically, yes, I'm referring to Slide 17. You're referring to shipments and to parcels. If you could just clarify what's the difference between the shipment and parcel definition. And if I'm correct, by comparing the full year rate versus the 9-month rate, it sounds like volumes in Q4 were weak. So just wondering whether -- yes, my analysis is correct.

Michael, thanks for your questions. Let me start with the question on mail in Q4. So I understood the question was why mail has been mailed profit-wise, so good. I think the main reason we had a substantial price increase together with the product change in effective September 1. So all these price change in the prior year in comparison, of course, was effective in Q4, also combined with cost savings. And we also have here the impact of the -- with the increase in parcel volumes in our network increasing mail volumes in our network, of course, parcels also picks a higher share of the fixed cost of the network. And those 3 factors in total explain, hopefully, the somewhat improved absolute EBIT of Mail in Q4. Then I think the second question was on one-offs in Q4 in parcel. I think there are roughly, if you take both years, we had a positive in '22, a negative in '23. I think it can take somewhere at EUR 8 million to EUR 8.5 million change. If you want to understand the operational development, so [ EUR 8 million ] more increase than reported. And I think the last question was around other shipment and of course, yes, I think the observation is that volume-wise, the fourth quarter was a little bit on the weaker side. It is correct. Yes, it's -- I think the balance here between volume and margins [indiscernible] over the last year, probably the balance was a little bit more towards margins, which we have appreciated in the earnings. But of course, we are also observing, we are trying to maintain our market shares and make sure we grow. Again, and looking for [indiscernible] results of the current year are positive. And the other question, I think, was documents versus -- or shipments versus pass-through. So to help to understand Aras counts parcels on the one hand and documents on the other, and there is a smaller share of probably in the booking market priority mail also within us. And this priority mail documents are declining in volume terms. And so total shipments have grown less than [indiscernible].

The next question is from Teresa Schinwald from Raiffeisen Bank International.

I have a follow-up question on Turkey. We're looking at unit revenues, they went up significantly, far above inflation, very good. And where do you see the drivers for this year? Can you tell us a bit more what's going on in the market, where it's moving in terms of dynamics, both on the volume as well on the price side? This would be my first question. Could I continue with my next one?

Yes, let's take your questions.

Okay. Next one is on the IT expenses in the banking segment. So you said you expect the process to be finished by the end of this year. How much additional expenses do you expect for '24? And the last one also more on the one-off slide and for '24. Can we expect some more real estate deals? Do you already have an indication? And I'm sorry, I haven't looked at [indiscernible] recently.

Yes. I think I'm not sure if you find a lot on the hub. Yes, thank you, Teresa for your questions. Well, I think Türkiye, the visibility is, I would say, is rather low in terms of market dynamics. It continues to be a very volatile market. We still see inflation somewhere 60%, 70% despite a more rational financial policy by the Ministry of Finance and national bank with higher interest rates and obviously typically put in place to fight inflation, still inflation hasn't come down significantly. I think what we see that the market is used to that and that clearly price increases -- significant price increases are accepted by the market volume-wise, as I already mentioned. The new year has started a little bit better than last year. But it's very hard to make more precise comments at some point in time. And the third driver is, of course, beyond inflation and volumes, we believe, of course, the currency. I think our [indiscernible] And at some point in time, we will see what [indiscernible] last year more substantial devaluation of the currency [indiscernible] days or weeks and then will stabilize again over time. And so we have the [indiscernible] when and what it stands and whether [indiscernible]. On IT, I think the answer to your question on one-off is the expenses, I would say roughly EUR 10 million. This is what we expect in cost plus depreciation and write-downs of the IT system, final write-downs of the IT system, then we will then switch off once we have migrated in the third quarter [indiscernible]. Yes, there will be portfolio [indiscernible] portfolio cleanup where we sell smaller objects here and there and on old delivery hold any more or one of the other range that we sell, but we don't see something really significant in the [indiscernible].

And we have a follow-up question from Mr. Limite.

So I've got a few more questions, if possible. Can you just clarify what do you expect in terms of integration costs for the banking unit next year? And whether with your guidance of flattish earnings in '24 versus 2023, what we should expect for the banking unit? That's the first question. And my second question is on exit rates, both in letter and volume. So if in January and February, you're seeing broadly the same growth rates in letters and volumes that you saw in Q4? Thank you.

Well, thank you for your questions. Again, please bear with us that we do not yet provide full details on the first month, but I think we have seen some improvement on the mail side, [indiscernible]. I think we'll see over the next months and we give an update our Q1 call in May. But I would say the move is a little bit more positive, we also -- we geared Austria with the number of elections and not only a parliamentary elections, all new elections in May or June, some local elections and already now going on with workers chamber election. All of those elections will add some one-off revenues to our ongoing revenues. So I would say there is some optimism that we see some better volume numbers for the full years and also for the quarters ahead of us than last year. And on the bank, I would like to refer to my answer for Teresa. So let's assume around EUR 10 million in one-off costs related to the migration of the core banking system.

Okay. I'm not sure if you can still hear me. Can you?

Yes.

If I can add one more, please, on the wage cost. So just a reminder of what we should expect in terms of wage cost for '24?

I'm sorry, wage cost? Yes, wage cost. We last year negotiated a collective wage agreement where for the second half of the year, we had a kind of monthly one-off payment. And as of January 1, we're roughly at a 10% increase in wages. Of course, this is partly compensated by a small decline in total number of workforce that you have seen is partly compensated by the structural shift from [indiscernible] wage agreement and by productivity improvements. We are now, again, starting our negotiations for an increase as of Q3. There, I think the underlying inflation is somewhere between 6% and 7%. And that is typically the order of magnitude that one would expect, I would say, for the total year, if you take 10% for the half year and 7% for the first half year and somewhere around 7% for the second half of the year, take the average minus structural savings from the structural shift minus some productivity improvements and you will end up somewhere around, I would say, 3%, 4% wage increase in Austria.

There are no further questions at this time, and I hand back to Harald Hagenauer for closing comments.

So thanks, ladies and gentlemen, for participating in this call. If you do have some further questions in the next hours or days, we are, of course, available for all of your question. Thank you, and hope to see you soon. Bye-bye.

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