Oesterreichische Post AG
VSE:POST
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Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Austrian Post Q1 2020 Call. [Operator Instructions]
I would now like to turn the conference over to Harald Hagenauer, Head of Investor Relations. Please go ahead.
Welcome, ladies and gentlemen, to the conference call of Austrian Post. We would love to discuss the first quarter results today, but of course, also the recent trends triggered by the COVID virus.
And I would like to hand over to Walter Oblin, our CFO.
Good afternoon, ladies and gentlemen. Thanks for joining our Q1 call. Let me start right away on Page 3 of our presentation, providing an overview of our group structure and introducing a new segment structure that we, as of Q1, are now using to report our numbers, with the 3 operational segments being Mail, including letter mail, Direct Mail, newspapers and magazine; second segment being Parcel & Logistics, predominantly encompassing our parcels business in Austria and Eastern Europe; and third, and this is the new segment, Retail & Bank, where we have carved out our retail network and where we will show the development of our new financial services in the bank -- in bank99, which is the brand of the bank that we launched on April 1 in the Austrian marketplace.
Having introduced the segment structure, let me now spend a few minutes giving you an overview of how COVID-19 has challenged Austrian Post, how we have performed over the last 8 months, protecting the health of our employees and, at the same time, maintaining a high level of service as part of the critical infrastructure in Austria and, at the same time, protecting the profitability of our business. As I said, Austrian Post has been part of the critical infrastructure that was important to maintain -- that was important to support consumers and the Austrian people in the face of a complete lockdown in Austria over the last weeks. I think our employees did a great job in maintaining a very strong service throughout these weeks. We delivered every day to every door without major disruptions throughout this crisis. We had our retail network open, including most of our postal partners, and we provided other critical services such as cash logistics or the delivery and payment of pensions and unemployment benefits through our retail network.
Page 5 gives you a few details on what this specifically meant. Given that -- being conscious of time, let me jump right away to Page 6, which tries to give you an overview of how Austrian Post and its revenues are currently being impacted by COVID-19, starting with the areas where we have negative impact. Our letter mail business has been negatively impacted, of course, by COVID-19. With government institutions, most of them, being closed during the lockdown, with businesses partially being closed, with the retailers partially being closed, letter mail has suffered. We see not that much of negative impact in the Q1 figures as there are only 2 weeks and as addressed letter mail impact in the last 2 weeks of May -- of March was not that high. But in April, we have seen a substantial impact on letter mail volumes.
The area that was most immediately and most negatively impacted has been direct mail. Here, we have seen a resilient part of that business, which was the Direct Mail business with retailers, roughly half of our volumes. The other half pretty quickly came down to 0, and -- which means that we lost 50% of the EUR 7 million to EUR 8 million revenues that we have had per week in Direct Mail.
On the other hand, on the Parcel side, we have seen support of volumes and revenues through COVID-19. This was not clear in the early days where it was not only volatile but where it was unclear where the net of negative impact on B2B volumes and positive impact on e-commerce volumes would play out. I think over the last weeks, it became clear that the net impact is positive, and we have had strong volumes -- strong additional volumes in April and continued to have strong parcel volumes also during the first week of March. This has not only been the case in Austria but also in [indiscernible].
Let me now come to our Q1. And again, Q1 was the result of 10 weeks of normal life and development pretty much as expected with the core trends, mail volumes structurally declining, parcel volumes growing substantially, where these trends were in place with the dynamic that we have seen throughout the last quarters; and then there were 2 weeks of lockdown where we have seen the first 2 weeks of the impact that I've just talked about. In terms of numbers, this came out with revenues that you see on Page 8. Group revenues showing a quite positive development of up 2.1%. The growth, of course, coming from our parcel business, which had a very strong growth of almost 24%. This 24% was a combination of the inorganic impact from the takeover of DHL volumes and a good high single-digit organic growth. Mail revenue is down 4.6%, this being the combination of a letter mail volume decline in the order of magnitude of 4% to 5% and a COVID-19 impact in the last half -- in the second half of May, mostly visible in the Direct Mail segment.
Earnings-wise, moving to Page 9, group revenues were then down 41.9% from EUR 57.4 million down to EUR 33.3 million. This came from basically 2 areas. One was our financial services business, where we had no -- as expected, no revenues from the former corporation. Last year, we still had roughly EUR 10 million revenues from the corporation with our former bank partner. And at the same time, we had the full ramp-up costs without pretty much any revenues in -- of our new bank. So this translated to a decline in the Retail & Bank segment of EUR 18 million.
The second area where the decline in EBIT came from was Mail. This is the combination of the ongoing structural decline in the last quarter before a rate adjustment and the already mentioned COVID-19 impact in the Direct Mail business, of course, partly compensated by cost savings.
Let me now guide you through the core developments in our business using the well-known framework of our 4 strategic pillars: number one being -- number one, defending our market leadership in the core Austrian mail and parcel business; number two being growth in selected markets, predominantly outside Austria; priority 3 being improving efficiency, working on costs every day and expanding our capacities; and priority 4 being to improve and innovate our customer service.
Let me start with addressed letter mail. As said, the poor trend of relatively moderate decline in the order of magnitude of 4% to 5% continued in Q1. On top of that came COVID-19 and a very early COVID-19 impact that in the second half of March was, in particular, visibly in our international letter mail business here. Borders were closed. Planes were grounded. And as a result, international letter mail volumes relatively quickly came down as mentioned, in April and, to some extent, also in May and the other months. After that, we will see more of COVID-19 impact.
In April, we had a volume decline north of 10%. And we have to expect that this crisis accelerates mail volume decline as was visible in the crisis of 2008. Partly compensating this decline in volumes is the rate adjustment that we implemented on April 1. You see here the rate table that we already communicated over the last quarters. With these rates, the Austrian mail market remains one of the cheapest mail markets across Europe, giving us further room to maneuver if volumes go down further without pricing ourselves out of the Austrian mail market.
Page 14, moving to Direct Mail. Here, as mentioned, impact of COVID-19 was seen very quickly with volumes and revenues pretty much halved as of mid of March. And we see volumes now coming back, in particular unaddressed volumes. Addressed volumes are still being subdued. To what extent and how sustainable, if we will come back to old volumes remains to be seen as I think we have to expect that both consumer activity and that the financial health of our core customers here will be fundamentally challenged.
Moving to our parcel business. Here, I think you're aware that we have seen a strong growth history with accelerated growth over the last 2 years. Last year was the inorganic growth coming from the takeover of the former competitive DHL network. We have seen strong organic growth continuing into the first quarter. And during the lockdown, we have seen, after some really weeks where, as I said, this was not clear, we have seen additional positive impact on volumes, providing quite a challenge to our operations in delivering these volumes. I think our people have done a great job in mastering this volume so far, although this remains a challenge every day, with the challenge coming not only from very strong volumes but also from infections that we have also seen and continue to see in our workforce with sick -- absenteeism higher than historically and with a large number of people quarantined.
And additionally, there was a challenge of employees coming over the borders from Eastern European countries that we're not there. I think given all these challenges, as I said, a great job that our people have delivered, but this remains a challenge.
In terms of numbers, we are optimistic that we will reach this target of 145 million parcels that we put on this chart already a few months ago, and we also see some upside here.
Page 16 summarizes our international portfolio and the developments there. Similar to Austria, good development in our parcel businesses in Eastern Europe with double-digit growth in almost any geography, accelerated in April. Good development also in Turkey. The company reports good numbers now already over a number of months after a difficult start into 2019. And we continue to be in constructive talks with the family about resolving the shareholder conflict that we have been in over the last years. Good development also in our pharmaceutical wholesale joint venture, AEP in Germany and in some Austrian subsidiaries where we are trying to capture opportunities in e-commerce, one example being ACL, a provider of e-commerce solutions that has also seen good growth and increased demand during the COVID-19 lockdown.
Page 17 gives you an update on our development in the financial services. We launched a new bank in Austria, bank99. To remind you, this is a joint venture between Austrian Post owning 80% of this bank and the GRAWE Group, a midsized Austrian financial services group. We launched this bank in the middle of the lockdown and had some considerations whether we should go ahead with this launch or not. We decided to go ahead, and we're overwhelmed by the customer ramp-up that we have seen over the first 6 weeks.
In the meantime, we have 20,000 new current account customers and continue to gain and acquire new clients every day. So very good early momentum here.
We have been confirmed in our view that there is an opportunity in the banking space for Austrian Post given its retail network, given its strong brands, given the fact that 1.2 million Austrians are used to doing financial services in post offices. And we're optimistic that this momentum in customer ramp-up will continue throughout the year.
Also, very good momentum in our online market -- online shopping marketplace under the brand Shöpping. Here, we have seen customer accesses and orders quadrupling compared to last year. Of course, the lockdown has provided an opportunity for this marketplace. We have seen also strong demand from new retailers which we have been onboarding and continue to onboard every day, also supported by an increased sentiment to buy local. And we have seen many new consumers being on this marketplace for the first time and hope that they will sustainably do online purchases at Shöpping.
Moving to page -- to pillar 3 of our strategy, improvements in efficiency, investments in capacity. Here, our -- here, we are continuing with our expansion program with a target to double our capacity in the Austrian parcel market. We successfully went live with a second sorting center in a place called Hagenbrunn, north of Vienna, last fall. And despite COVID, we are optimistic to open up a new logistics center in the southeast of Austria, a place called Kalsdorf. And as you can see on Page 20, there is a further pipeline of larger projects, which, we believe, is the right thing to do despite the crisis. So the CapEx guidance that you see on page -- on the previous page of roughly EUR 70 million in maintenance CapEx, on top of which we will spend at least EUR 50 million growth CapEx and potentially further cash out on strategic land acquisitions remains in place.
Page 21 gives you an update on the development of our staff structure in Austria. And you see that despite the surge in parcel volumes, we operate our network with fewer FTEs. And at the same time, the transformation from expensive legacy contracts to our new collective wage agreement is progressing at a high pace. In the meantime, roughly 50% of our workforce is in the new collective wage agreement, and this development will continue over the next year.
Also, good continued development on our self-service solutions. During the lockdown, we introduced a contactless delivery, where our rate of first deliveries went up substantially, also providing efficiency in last-mile delivery. But the self-service solutions continue to be an important element in having a service advantage in the Austrian B2C market.
Let me now proceed giving you more details on our group results. Page 24 gives you pro forma numbers for our new segment structure that should help you navigate through the next quarters and having a prior year comparison despite this new segment structure. Page 24 shows you a few core financial KPIs: revenue, as I said, up 2.1%; EBITDA margins and EBIT margins, of course, down. Still -- I think EBIT margin is still at a respectable 6.6%; earnings per share, down a little bit less than compared to EBIT given some positive one-offs in our other financial results; a robust cash flow in the first quarter. Of course, this will also be impacted in the quarters ahead. And our equity ratio was strong. The reduction predominantly comes from an expansion of our balance sheet due to an effect I will explain a little bit later.
Page 26 gives you our group P&L. Let me jump right away into the segment financials. Mail Division, Page 27 here. Addressed letter mail revenues, including our mail solutions business, down 2.4%. Again, predominantly, this is pre-corona -- pre COVID-19 numbers, where this business has shown its resilience. Direct Mail business, as mentioned already, more heavily impacted already in Q1 by COVID-19 and accordingly down 8.4% in revenues.
This translates into Mail Division segment P&L with an EBIT of EUR 46.9 million compared to EUR 55.7 million last year, so down roughly EUR 10 million, which also shows you that despite the structural decline and despite the COVID-19 impact, we have been successful in partially compensating this decline by cost savings. But of course, the Mail Division will be more heavily impacted in the quarters to come.
Parcel & Logistics Division, good revenue development, as already mentioned, up almost 24%. Most of this coming from Austria, but also our Eastern European portfolio developing quite well with a growth of -- double-digit growth of almost 12%, translating into segment EBIT of EUR 8.7 million after EUR 6.8 million -- or compared to a pro forma of EUR 6.8 million last year, EBIT margin of 5%. We are still operating not at an efficiency -- not at an optimal efficiency point due to 2 reasons. One, we are operating beyond efficient capacity utilization in a number of our sorting centers. And secondly, we are still in the -- I would say, in the first half of integrating the DHL network operationally. On the last mile, some progress has been made, but there is further potential. And also, in the backbone of our logistics network, there is further integration potential to be captured over the next 2 to 3 years.
Page 31, our Retail & Bank Division, shown here for the first time. Revenue is down here due to the loss in revenues from our former bank operation, roughly EUR 10 million that we had last year, translating into a segment result -- segment EBIT of minus EUR 16 million, which predominantly comes from the ramp-up costs of the bank before go-live. So this should also be the worst quarter in terms of bank ramp-up costs not being covered by revenues.
Let's look at our balance sheet for a few seconds, I think more important in these days than -- more important than before. Austrian Post continues to operate a very healthy, very conservative, very robust balance sheet with a strong liquidity position of almost -- of roughly EUR 400 million end of Q1, with a low level of intangible assets and on the equity and liability side, with a solid equity position of EUR 725 million and no financial debt. So a robust balance sheet that we are happy to have in these times. Also in Q1, our business has proven to be highly cash generative with an operating free cash flow of EUR 60.4 million, adjusted for some positive one-offs that you see here.
And let me now close my presentation, and then I'm happy to take questions, with the outlook for 2020. We continue to operate in a very challenging market environment with mail volumes, as mentioned, heavily impacted by COVID-19, in addition to the structural trends that has been there before. And we have limited visibility how quickly and to what extent mail and Direct Mail volumes will recover. As I said, we see Direct Mail volumes recovering in -- now that stores are open again as of tomorrow. Restaurants will open up again in Austria. Hotels will open up end of month. So the economy is ramping up again. And we hope that both addressed mail revenues and volumes will recover as well as Direct Mail, but we have to expect that this will take time and that we will not return fully to the levels that we have seen before.
On the other hand, we do expect strong parcel volumes beyond the growth momentum that we have seen before for the next months. Again, here, it's hard to see how long and how sustainable this positive additional momentum will last. But currently, we still have record parcel volumes and substantial challenges to cope with that.
In terms of revenues, our objective is to keep revenue as stable as possible. And I have talked about the trends in the respective segments. I've also talked about our CapEx program and our CapEx guidance. We -- 8 weeks ago, we decided to discontinue our earnings guidance for the full year. We do not have enough visibility to provide you a robust guidance. We hope to come back to some full year guidance in Q2 depending on to what extent the volatility comes down and visibility increases. But I think from all I've said, I think it should be clear that the negative impact of the volume of the -- the negative impact on mail and Direct volumes EBIT-wise far outweighs the positive impact that is coming from parcel volumes.
Finally, 2 sentences on our dividend and our dividend policy. We do maintain our dividend proposal for the AGM. We have postponed our AGM that was originally planned for April. We now have a set date for June 17, and we'll propose to the AGM a dividend of EUR p2.08, unchanged to what we communicated in March. We feel committed to our proposal, to our promise to investors to be a reliable and stable dividend title, and we do not see any reason to change this dividend proposal.
Also, we remain committed to our dividend policy. We continue with the dividend policy to pay out at least 75% of group's net earnings. Of course, we cannot give you now an indication where group earnings will be, but there is a commitment to paying out at least 75% of whatever net earnings we would have.
With that said, I'm now happy to take your questions.
[Operator Instructions] The first question comes from David Kerstens, Jefferies.
A couple of questions from my side, please. First of all, on the guidance for parcel revenue growth of 15%, what does that imply for the remainder of the year for the organic growth that you are targeting? I think it's about 9% coming from the DHL partnership. That would imply a mid-single-digit growth rate organically for the remainder of the year. What's driving that slowdown? I was wondering, is that in line with the market? Or is your main competitor also further expanding coverage?
The second question is regarding the impact in April on your parcel business. You're saying that the net impact on volume is positive, the shift from B2C towards -- from B2B to B2C. But what is happening in terms of additional costs that you have to incorporate to deliver all the additional B2C parcels? And you mentioned that the employee mix shift is progressing well and that there are fewer people in the business. Will this continue at the same pace in the coming quarters? Those were my questions.
Yes. On the parcel guidance, I think the 15% is probably on -- given what we see also during this weeks, on -- more on the conservative side, on the cautious side. I think it is very -- it has been very volatile over the last 6 weeks, supply chain disruptions, B2B volumes down, coming back, B2C strongly surging. Now we have stores open again in Austria, and we see volumes coming down a little bit. And it's just very hard to predict how these trends will net out over the coming quarters.
On top of that, you rightly are aware that we have one large customer who has targets to expand his own distribution network, which is also, at least as we see it, to some extent, been impacted by COVID-19. And I think it's very hard for us to provide you a robust guidance for what parcel volumes will do over the next quarters. Given the momentum that we've seen over the last 2, 3 weeks, we would probably tend to see this number as more on the cautious side.
And maybe one word to add on the organic growth. Beginning of the year, we did always have organic growth of some single-digit number in mind. Now in the first quarter, we saw that the organic growth in parcel was rather on the high single-digit numbers; and of course, in April, far above the 10%. So we definitely think organic numbers are growing double digit. I think that's what we can say so far, that the organic number -- the organic growth is definitely more than 10%. But I have to say that's the run rate then for the second, third and fourth quarter.
Yes. I think on the second question, the issue -- and sorry if we're not giving you a simple answer, the issue is a little bit more complicated because we have a highly integrated production system with mail and parcel, 50%, as you are aware, being delivered by the same people out of the same network with the intention and also the advantage of further increasing that share of integrated production. So what really the question is, with mail volumes substantially down and Parcel volumes substantially up, what is the net impact. Out of that, we are currently analyzing April figures. This is also a completely new and still very volatile situation for us with big deviations in both businesses.
There is an expectation that on the parcel side, we benefit from increasing scale, from increasing stock density, from increasing utilization of our assets. On the other hand, we have -- we are, as I said, running beyond efficient capacity and -- given the high volumes and local disruptions that we have seen through quarantines. And you might have seen in the press, these hours that we have a series of unfortunate -- a series of COVID infections in 2 of our large Vienna sorting centers. And these local disruptions always also provide additional cost as we have to send additional people there. So sorry for not giving you an easy answer. I think the core message is the decline in mail is stronger and it's more heavily impacting EBIT than the increase in parcel volumes -- than we are benefiting from the increase in Parcel volumes substantially.
Yes, understood. And maybe on the employee mix shift. Does -- is that shift continuing? Is that better than what you would have anticipated given the change in legislation that you had in Austria last year for people to take -- were encouraged to take early retirement in 2019?
As we are showing here full year numbers, partially, this is -- we are, of course, benefiting from the big run towards early retirement plans that we have seen over the last 18 months. We continue to see -- however, we continue to see people going into retirement but at a lower rate. It's very -- it will depend on volumes and on also agreement with our unions, how our FTE numbers will develop over next month.
In terms of structural shift, of course, this will continue just biologically. The 5,000 civil servants and the 3,900 employees under the old collective wage agreement will leave the company over the next 10 years to a large extent. And yes, we -- it will be slower than the last 24 months, but it will continue.
The next question is from the line of Bernd Maurer.
One question from my side that is left, referring to operating expenses being quite high in the first quarter this year with EUR 77 million. There are 2 extraordinary effects, I think: COVID-related costs in the parcel business for additional personnel; and second, setup costs -- or at least some setup for the new financial services business. I would be curious, both effects together, how would you quantify them? Is this less than EUR 10 million, more than EUR 2 million -- less than EUR 10 million, more than EUR 10 million, up to EUR 15 million? This would be something I'm interested in.
Harald will answer this.
Bernd, you are right. There are, of course, some costs included with -- kind of onetime costs there. For example, the setup of the bank has some kind of infrastructure costs, IT costs, consulting costs. I think all together we'd be -- we had about EUR 5 million costs included there that -- I think 2 of them just for the setup of the software in the first quarter. So infrastructure of bank is about EUR 5 million. And I guess another EUR 5 million -- EUR 4 million to EUR 5 million are some kind of COVID-related activities, where we had some costs there. But it's also -- that's more difficult to judge what is really just truly COVID. Let's say some EUR 3 million is COVID related.
Yes. Okay. So on the bottom line, some high single digit up to EUR 10 million in the other operating expenses, which have a kind of extraordinary character.
Correct.
The next question is from the line of Matija Gergolet, Goldman Sachs.
Two questions from my side. You kind of provided like a number for April letter mail. I think you said that the decline was over 10%. Could you provide us also, say, an April number for parcels? What did you actually see in the month of April, and then -- if possible?
And then second question, going back a little bit to David's question about your comment about high-margin versus low-margin business. I think some other companies -- for example, Royal Mail mentioned that now they need 2 units of revenue from parcels to offset 1 unit of revenue from letters. Could you give us an indication of how much you need basically to get in terms of, say, parcels revenue to offset letter revenue declines, to make it EBIT neutral? If it was 100 here, how much do you need on the parcels to compensate for that? Any indication...
Maybe I start with the volume. I mean, basically, we published a number which was between 4% and 5%, of course, a bit more in March. April, due to the lockdown of a lot of government institutions, was double digit, so about 10%. And that should improve hopefully with the end of the lockdown at the end of May. So most shops and also government institutions are opening up somewhere during May.
Then the Direct Mail volume, here, we published 8 to 11 point volume -- percent points volume decline in the first 3 months. Here, we had a total lockdown of some -- and that reduced volume somewhere between 40% to 50%. And those kind of volume should -- part of this volume should come back over the next weeks. We saw already first improvement here in the first 2 weeks in May.
And last but not least, parcel. Again, parcel, notably, we had a 28% parcel growth in the first quarter. As you know, parcel has had a help from the integration of the DHL volumes. So let's assume 20% coming from DHL; and 8 percentage points, around about, organic growth. And this organic growth did, more or less, double than in April. And it's hard for us to forecast the underlying trend for the next couple of months. But we think that definitely, a double-digit number should be the run rate organic growth in parcels then going forward.
Okay. And sorry to not give you may be a very helpful answer. I think we are far from a sustainable linear development. What is happening every day and every weekend in our operations, we are moving from 0 leaflets in 1 week to -- when stores started again to quite thick packages of leaflets. Our operations are challenged every day by parcel volumes that are far above plans, on the one hand; and local disruptions, as I told you.
So it -- we are not operating in a sustainable mode now, and also, volume development is too volatile to provide a helpful answer on your second question. Sorry for that. But we could look at this 2:1 formula with us and check whether it applies also with our business. A question on how you define a unit, but we'll take it with you, yes, sorry.
Next question is from Andre Mulder with Kepler Cheuvreux.
A couple of questions. Firstly, looking at the increase in letter mail sales -- or the decrease. It's only 2%, whereas the volume decline is around 4% to 5%. So what's happening there? You haven't raised your prices yet. So is there a positive price/mix effect?
Looking at the decline in Direct Mail and press, you're stating a 9% decline in volumes. Could you split that out in Direct Mail and press volumes? So I assume that it's mostly concentrated in Direct Mail and hardly anything in press.
On parcels, we see a good volume growth in Central and Eastern Europe. What do you mean with good? If I compare to the sales increase of 12%, it should be the first time in many quarters that I see a positive delta from these 2.
Then on the outlook, what puzzles me a bit, you're -- more than ever, looking at the detailed outlook, saying that you see a high single-digit decline in letter mail and Direct Mail and 15% increase in parcels, but that's still short of giving either a sales or an EBIT number there. So what's keeping you there -- what's keeping you from giving us sort of the range there? And to what extent are the extra costs in the branch network included? Are you still looking at EUR 35 million there? Those are my questions.
Maybe I can speak on the volume. So you mentioned the revenue -- volume in the advertising business. Yes, in -- the most of it is driven by just pure advertisement. That was minus 8%, unaddressed; minus 11%, addressed. That did significantly increase then in April, as I said. So the newspaper, this was a bit down, not that dramatic -- so it was a bit down, but not dramatic, yes.
And also, on the question on parcel. And similarly, I fully agree, we did see a quite strong parcel volume growth and also revenue growth in Eastern Europe. I think there was a bit of that there that these kind of markets are -- they are more exposed to B2B business, and there was a bit of it that volumes could be more affected. But as we see it right now, and we also see in April because that the volume is quite strong, that the Eastern European countries are not that much affected to the pandemic volume changes than we see in Western Europe. So we are a bit surprised, and we are happy with the volume we see now in Eastern Europe.
Maybe on the third question -- sorry, Andre.
On the good -- with good volume, you may -- let's say, mid to high single digit, in that range, single digits?
Yes. In some countries, double digit but -- high single digit to low double digit depends country to country.
And the gap between the sales increase and this volume increase is that pricing, is that price/mix effect?
Well, we also include this mail solutions business in this product subsegment. And so mail solutions is a value-added services business, where we have -- where we are consolidating direct digital marketing company, which can get an impact of roughly EUR 2 million. And where we have shown good growth in both output management services as well as input management and document logistics services. But you're right. So in letter mail, there is no tariff impact in Q1.
On your question with guidance, Andre, sorry, we understand this is not satisfying to you, but we just have limited visibility. We have a government which every -- which basically gives us 2-week visibility on how the lockdown measures will be lifted. Our customers have a 2- or 3-week visibility what they will do and are themselves eager to see how customers are flowing back to their stores, how their sales are doing.
And so in particular on the Direct Mail side, we do have very limited visibility. And given that this is a part of the business with low marginal costs, volatility there is pretty much directly flowing into the EBIT. And also, on the other -- also on addressed letter mail business, we have now the April figures. And this is -- hopefully, we have left the worst behind us, but we do not have visibility how government authorities will resume the work, how they will catch up with speeding tickets that lie on their desks and things like that.
What -- we do have limited visibility what is really lost volume which will not come back because the transactions have not been done in banking, in -- also on the government side and what is ongoing business where there is a catch-up potential. And sorry, given that particular mail revenues translate very directly into the EBIT line, we ourselves do not have the visibility on earnings. We do have different scenarios, of course, and we learn every week. And we hope to come back to a full year guidance in Q2.
The third part of the question on the branch network. That still includes this EUR 35 million of, let's say, start-up costs in the year?
Yes. EUR 35 million is a good order of magnitude of ramp-up losses for our bank business, yes, potentially a little bit more depending also on how COVID-19 impacts transaction volumes in our retail network.
The next question is from the line of Marco Limite with Barclays.
Two questions for me. The first one is coming back to your parcel business. In the first quarter, your EBIT margin was basically flat compared to the first quarter in 2019. So I understand that, clearly, that depends a bit on the evolution of volumes for the rest of the year. But do you expect any kind of margin growth for the parcel division for the year? And also, in the first quarter, if you have seen some kind of headwinds from, let's say, the change -- the slightly change of mix in your parcel volumes with higher B2C volumes and less B2B volumes. And the second one, I'm not sure -- you have probably just answered it, but I was wondering if -- what's your kind of view now for the net loss for the financial service business for the full year?
Yes. So net loss for the financial services, we just gave an indication, reflecting on the EUR 35 million figure that was put on the table. On margins for the parcel business, I think our current best guess is that we'll see a flat development given that we -- on the one hand, we do have economies of scale. Of course, on the other hand, as I said, we have extra costs for running beyond efficient capacity for addressing local disruptions that we have seen every day or higher absenteeism given that we have infections in our network.
So I would say that is 5%. And potentially, there is a small upside. But I think we would be happy with a strong growth in parcel. We -- the absolute EBIT numbers go up at this margin level.
Yes. And in the first quarter, have you seen some kind of headwind on margins from, let's say, higher B2C volume and lower B2B volumes?
Not really, I would say. There is not that much structural difference.
Next question is from the line of [ Roberto Casoni ], [ Q2S Capital ]
Most of my questions have been asked. I just want to come back to Direct Mail and to the banking division. On Direct Mail, when you say EUR 4 million loss per week in April, I would say April was basically EUR 16 million. And possibly a recovery would be as fast as the economic recovery or possibly be slower than that. So is it -- forgetting about losses in Q1, is it possible to assume that for Direct Mail, we have a EUR 20 million, EUR 22 million negative EBIT embedded in the current circumstances coming from COVID?
And if I well understood, on banking, you expect -- still expect EUR 35 million loss for the full year. After the EUR 16 million, it means, more or less, EUR 20 million, EUR 7 million per quarter. Can you -- I possibly didn't catch the number. What is the structural cost base for the banking division? And what should drive revenues in order to make this the EBIT going toward a minus EUR 7 million, minus EUR 5 million, which is what we should expect for the rest of the year?
So on the bank, we have a full year cost base of roughly EUR 60 million. And as we said, we currently target ramp-up losses of EUR 35 million to maybe a little bit more. And the revenues that we expect come, first, from current account fees; second, transaction fees from services that we provide in our post offices, so third-party transactions, ATM transactions, cash payments of pensions and unemployment benefits and similar payments; and then finally, provisions of selling third-party products, so consumer credit products, mortgage loans and other things to the ramping -- to the customer base ramping up.
Those would come in the second half, I mean, approximately?
Those will -- yes, are gradually ramping up. So the cash payments, that, to some extent, has been there already in the first quarter, and the rest will ramp up over the course of the year, yes.
Your first question, can you help me...
Yes. On the Direct Mail, forget about the Q1. You said that current situation is EUR 4 million loss per week.
Yes.
And so I would assume that April, we saw the worst. So it's -- 4 weeks in April is EUR 16 million. Then the ramp-up to come back to normality will be slower. So is it fair to assume that from now on, forget about Q1, the Direct Mail would produce around -- between EUR 20 million and EUR 25 million negative gap into the rest of the year?
For the full -- remainder of the year, EUR 20 million to EUR 25 million?
Yes. I mean the starting point is EUR 4 million per week, and I assume that April was 4 weeks. And that's already EUR 16 million, so...
But I think -- for April, it's right. But again, for the next couple of months, the biggest question mark is we don't have visibility at the moment. The same story, more or less, happened in 2009. Companies -- the marketing guys of companies are not giving us what's for the whole year. We're seeing right now a wonderful week and then the next week, a bit down again. So it is very, very volatile.
We don't have a clear budget for the year. So I think there is a kind of stop-and-go process from a lot of clients out there. That's why -- of course, it is easy to say what happened in April, but it's hard to see what -- how is the economy coming back and what kind of volume will go away because companies are shying away from spending their marketing money.
No, no. I understand, but it will be -- it is difficult to assume at the moment that they will come back at the same level as 2019 from May onwards, yes? So maybe they will take a bit of time before they come back to the same levels at 2019.
Right. I think your number is too low. We have over EUR 80 million in Direct Mail revenue. And let's take the EUR 3 million, EUR 4 million -- the EUR 4 million per week. That is already EUR 16 million, EUR 17 million in April. So that would leave only EUR 10 million for the rest of the year. That is substantially too low. I think not even in a best case scenario where Direct Mail revenue's quickly recovering, we would see that low number.
Okay. A lot is possible there. So from EUR 20 million to EUR 60 million, everything can happen during the year.
Okay. And sorry, the other one is the payout. You said 75% payout on 2020 results. That is including also the loss at the banking division, correct?
I'm not sure what...
That is the reported number, correct, so the -- from the reported net profit 2020.
So the payout policy is 75% payout from the reported net profit?
Right. The official reporting -- dividend policy that we have had for the last 10 years is we'd pay out at least 75% of net earnings for the finished year, and in reality, we have paid out close to 100% over the last year.
Okay. Perfect. But it hasn't changed, that hasn't changed?
The message is there. If we can generate substantial net earnings, then we will pay out the dividend, and management will take that to the AGM.
There are no further questions at this time. I hand back to Harald Hagenauer for closing comments.
So thanks, ladies and gentlemen, again. And if you have some more questions, feel free in the next couple of days to give us a call, and we are available, of course, here. And otherwise, we hope to see or meet you in person maybe after summer. Thanks. Goodbye.
Ladies and gentlemen, the conference has now concluded. You may disconnect your phone. Thank you, and have a pleasant day. Goodbye.