Oesterreichische Post AG

VSE:POST

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I am Jason, your Chorus Call operator. Welcome, and thank you for joining Austrian Post first quarter 2021 results. [Operator Instructions] I would now like to turn the conference over to Harald Hagenauer, Head of Investor Relations. Please go ahead.

[Harald Hagenauer, executive]

Good afternoon, ladies and gentlemen. Welcome to this conference call of Austrian Post. We would love to discuss our start into the year '21. And so I want to hand over to our CFO, Walter Oblin.

[Walter Oblin, executive]

Good afternoon, ladies and gentlemen. It's a pleasure to have the opportunity to give you an update on where Austrian Post stands after Q1. I think overall, I can summarize that Q1 has been a strong start into the new year despite the difficult environment.

Let me start on Page 3, summarizing who we are. We, last year, showed revenue of EUR 2.2 billion and EBIT of EUR 161 million. We operate in 3 well-known segments, Mail; this is our incumbent Austrian declining business; our Parcel & Logistics, this is our growth engine covering Austria and 8 geographies, including Southeastern Europe and Turkey; and Retail & Bank, this includes our retail network and our newly started bank99.

The pie chart on the right side shows you the revenue mix of Q1. And it's a pleasure to inform you that for the first time after Q1, we show revenue distribution, where our parcel business is equally strong as our mail business. And where our Austrian parcel business is equally strong as our addressed Letter Mail business. So the transformation that we are in from a predominantly Mail-dominant group to a group that stands on 2 strong legs is well underway. It has been accelerated by the pandemic.

Page 4, I think, shows you this in a quite compelling way. 2 years ago, our Parcel & Logistics revenues made up a little bit more than 1/4 of our group revenues. This Q1, Parcel & Logistics made up 49.7% of our revenues. Of course, this includes the revenue of Aras Kargo, which is now, for the first time, fully consolidated in Q1. But with those 49.7%, our Partner & Logistics business is a little bit stronger and bigger than our Mail business.

To summarize, Q1, as I said, a good start into the year. Of course, COVID-19 still substantially influenced our business environment and to also continue to challenge our operations. I think on the health aspect, I think we had a quiet first quarter with our safety measures working well and protecting our workforce. Accordingly, we had very smooth operations that also resulted in good productivity and cost efficiency.

On the volume side, of course, the pandemic continued to negatively impact our Letter Mail and predominantly our Direct Mail volumes. For those of you who are not familiar with the Austrian situation, we had 5 weeks of relatively strict lockdown at the beginning of the year. Then shops were allowed to open up again with restaurants and hotels still closed. And then at the end of March, Eastern Austria again went into a strict lockdown, which lasted until a few days ago. As of May 19, Austria will step by step reopen, so restaurants and hotels and a lot of other service industries will be allowed to open again.

But in Q1, the 5 weeks of lockdown in January, where the predominant impact of the pandemic environment with negative impact on the Mail side, but of course, also positive volume impact on our partial businesses across the regions. As a result, we had a strong revenue development as the group revenues increased by 28.5%. Yes, this includes the inorganic contribution of Aras Kargo was around EUR 83 million out of this EUR 646 million. Without that, you see that on the next page, organic growth was around 12.5% and the earnings well above last year's admittedly weak Q1 EBITDA, plus 51%, so EUR 99 million and EBIT up almost 80% to roughly EUR 60 million.

Page 6 shows you an overview of our revenue development. I already said that the group revenues increased by 28.5%. Excluding the contribution of Aras Kargo, this translates into an organic growth of 12%. This is the combination of a resilient Mail business, which, despite 5 weeks of full lockdown in Austria, showed a stable revenue development with minus 2.1%. Volume declined stronger than that but we still had the impact of a tariff reform implemented April 1 last year.

On Parcel & Logistics, this was a very strong growth quarter with, in total, 85.6% revenue growth with, again, Aras Kargo contributing EUR 83 million of inorganic growth and also the -- but also the organic growth in all regions being above 30%, and we'll come to more details later on. Moving on to Page 7. EBIT, given this strong revenue development and smooth operations, increased by almost 80% to almost EUR 60 million. Of course, Q1 2020 was EUR 33.3 million, was weaker than a typical Q1. I think we're all aware that the pandemic started to hit us in mid-March, and the second half of March showed a strong -- last year showed strong Direct Mail decline -- Direct Mail volume declines and a Parcel business, which did not yet show the strong growth that we saw a few weeks after that. The first impact on Parcel & Logistics last year has been that B2B revenues were negatively impacted. So Q1 in total last year was, of course, already the start into a difficult period. But even compared to previous Q1, the EUR 59.8 million is a strong start into the year. And the composition of the revenue shows you that our still strongest EBIT contributor, Mail, was relatively stable with EUR 45.5 million revenues. Parcel & Logistics EBIT almost quadrupled from around EUR 8 million, EUR 9 million to almost EUR 36 million. And our Retail & Bank segment, which showed good operative development, of course, not supported by the pandemic showed an operative -- positive EBIT development. One-off negative effects from staff-related provisions caused a small decline in EBIT in the corporate segment a little bit on the positive side.

Let me now proceed with an update on our strategy implementation. Page 9 reminds you of the new framework that was the result of the strategy update last year, with 3 core business priorities, number one, defending our market leadership and profitability in the core business, meaning our core Austrian mail and parcel business; priority number two, profitable growth in new markets. This is about growth in Parcel & Logistics, internationally, in particular, East of Austria and about growth in value-added solutions and services along the value chain left and right from Mail & Parcel. And priority three, continue to develop our retail and digital offering for private customers and SMEs. This is about our retail network, about our bank, about our online marketplace, shipping and a few other consumer-focused initiatives. And then we have a fourth important priority which covers all business segments, which is about sustainability, diversity and customer focus as overarching priorities. And we'll give you a brief update on our efforts and progress on the sustainability side later on. I last time gave a more extended talk about our ambitious target in that field and a comprehensive program.

Let me start on Page 10 with an update on our Letter Mail business. Our Letter Mail business last year declined around -- at a rate of around 7% after around 4% to 5% in previous years. Q1 resulted in a Letter Mail decline of around 6%, which I think is within expectations. And over -- you see the monthly development on the right side. And without over interpreting individual months, I think that the message is that the lockdowns also impact our addressed Letter Mail business. And once the economy reopens and gathers speed again also our Letter Mail revenues and volumes start to recover a little bit. Still we have to expect a somewhat higher Mail volume decline as a result of the pandemic.

Page 11, moving to our Direct Mail and the Media Post business in Austria. This is the business segment which has been hit most heavily and most immediately by the pandemic. Last year, revenue and volume decline of 11.3%. While we see shops and our customers increasingly better equipped to handle lockdowns, still, of course, the 5 weeks of lockdown in May, again, hit this business, and volumes were down 8.5% compared to previous Q1, which again included already 2 weeks of strict lockdown. But you also see here in the monthly development that once shops reopened, this business at least partially comes back. We have the REIT -- food retailers is a very stable element in our customer portfolio and the nonfood retailers are, of course, not distributing Direct Mail when they have to close. And this is also the segment which -- where the pandemic will have also longer-lasting impact as, of course, this segment suffers most from the success of e-commerce. So I think still we have to expect that this business segment remains under pressure also going forward.

Page 12, moving to our Austrian parcel business, which is, of course, in terms of volumes benefiting from the increased e-commerce shopping activity that the pandemic has induced. Last year, volume growth of 30% to record volumes of 166 million parcels shipped in -- delivered in Austria and this growth dynamic continued in Q1, 33.5%.

We should not expect this strong growth to continue for the remaining 3 quarters as we are now comparing ourselves against a very strong individual months. Last year was April and May being last year record months with volume growth compared to 2019 compared to prepandemic of 40% and 50% plus. Still, we do -- what we see from the last weeks that we do not fall behind these record volumes of April and early May. And I think we are optimistic that also for the remaining 3 quarters, we will be able to show a net growth in volumes.

Moving on to Page 13. This strong growth in Parcel has led us to accelerate our capacity expansion program in Austria but also in our other geographies. We are currently in a few bigger projects well underway. A bigger project is a new logistics center in Tirol. One is the second expansion base now of our logistics center in Allhaming in Upper Austria, which should come into operation next year. This is only a selection, but the next page then gives you a broader road map of the individual project. But the impact of this is that we will see most probably a record year also in terms of CapEx on top of EUR 70 million to EUR 80 million maintenance CapEx. We will see EUR 20 million to EUR 30 million CapEx also internationally. Of course, also a large parcel network, such as Aras Kargo represents, with the strong growth, they have required investments into capacity expansion. And then in Austria, we expect to spend around EUR 20 million on properties and at least EUR 60 million in growth related CapEx for buildings and equipment.

Page 14 shows you a more detailed road map. I will move on to Page 15, giving you an update on the development of our staff structure and numbers in Austria. I think 2 messages. One is we have been a stable and secure employer throughout the pandemic. We've been one of the few Austrian companies, bigger Austrian companies who has hired new and additional employees. We have used none of the state subsidy schemes, such as furlough schemes, Kurzarbeit. Rather, the opposite is true. We have increased our staff year-on-year comparison by almost 700 employees to handle the strong growth in parcels and also to substitute one or the other subcontracted delivery agent. And also in sorting centers, we increased our own workforce. So this is message number one, increased number of employees, message number two is that the transformation from expensive civil servant contracts and contracts under the old collective wage agreement to new collective wage agreement is continuing. We now have a substantially larger workforce already under the new collective wage agreement than under the old schemes. But still there is further cost relief from continuing this transformation to be expected in the coming years.

Moving on to Page 16 to our second strategic priority growth in new markets. As I said, with 2 sub priorities. One is enhancing the value chain versus value-added services, on the one hand around mail and document services with scanning services, printing services but also around the parcel value chain -- e-commerce value chain with warehousing, order picking and shipping services. In particular, this area showed a very good development over the last months. We also were able to help in mastering the pandemic with logistics services around testing, mass distribution and information services using traditional mail and other communication products of Austrian Post to inform about vaccination. And increasing speed is also shown in the development of our digital business models, such as ACL, our e-commerce software solutions provider in the group, which showed very good revenue and EBIT development. So this is priority one -- sub priority #1. And the bigger sub priority in this growth in new market is the growth in international markets with Parcel & Logistics. And most importantly, of course, with parcel delivery networks, you see here in the markets that we cover Southeast of Austria. And, as of August last year, also including Turkey.

Page 17 shows you the volume numbers that this growth over the last decade has resulted in. We started with 7 million in parcels in 2009 delivered internationally. In last year delivered -- including as for the full year, 250 million parcels from that base Q1. Again, it showed very good growth with 35% to 40% growth in the individual markets. And we are very satisfied with how our international portfolio has been developing over the last 12 months.

In particular, pleasing is the development of Aras Kargo. On Page 18, we have given overviews in the previous quarterly communications, Q1 has shown spectacular growth, revenue growth of 69% compared to previous Q1 revenue volume growth of 37%, which I think also makes clear that the company is able to implement price increases above inflation, resulting also in margin expansion. And as a result, there was also a very good EBIT contribution from Kargo to the group.

Moving to the third strategy pillar, our Retail & Bank and the consumer business in general. bank99 continues to develop. Of course, the pandemic is somewhat hindering new customer acquisition and some transaction service segment of the bank. Still a year after the start, almost 80,000 current account customers, I think, is a very good development after 1 year.

And as you will see on Page 20, we are now working on expanding the product offerings of bank99. I think we have well established payment services with current account -- with a very well-functioning current account product with various sub categories established last year. And we are now building a product -- portfolio of loan products, including consumer loans that we established with a partner, so this is not going on our own balance sheet. And later in the year, we plan to add housing, mortgage loans and investment products. So I think good development there.

Then an important element of our third strategy pillar is also to further develop our consumer self-service solutions. You will see this well-known chart, which continues to show upwards, all our self-service solutions already established. We continue to invest in these services. They are a source of differentiation in a competitive marketplace, are well accepted by the consumer as consumer convenience and save process costs.

A brief update on our sustainability efforts. Let me just briefly remind you about the targets we communicated last time. Our aim is to reduce specific CO2 footprint. So the CO2 footprint per shipped ton by 70% from 2009 to 2030, by 40%, the absolute footprint from basically last year to 2030. And the third ambitious target is to deliver all mail and parcels fully CO2 -- fully, not only CO2 neutral as we do it since 2011, including substantial compensation with CO2 certificates.

Now by 2030, we want to have eliminated the last combustion engine from our delivery fleet. We are well on track with that program with more than 2,000 electric vehicles in our fleet. This year, as you see here, on this chart, which gives few examples of recent priorities on the sustainability program. We see that we have ordered already 600 additional vehicles this year. We are well on track with a pilot in the area of Graz, where we want to, for the first time, eliminate combustion engines in a full larger area, including also the delivery of parcel, already 50% implemented this project. And you see also in other elements from the customer sustainability side to social aspects of our sustainability program that we implement every month's additional initiatives.

On the social side, for example, one of our priorities, of course, has been to support both on a national level but also within the company to fight the pandemic. We are -- we have established more than 35 vaccination sites and now hope that soon also the jabs will arrive.

Yes, let me now conclude before I finish then with the outlook with a few more details on our financials. Page 25 shows you the core KPIs. I think quite good EBITDA and EBIT margins was 15.3% and 9.2%, and the good start into the year with an earnings per share of EUR 0.71 and a cash flow of EUR 74 million in operating cash flow.

Let me maybe jump to income statement on Page 26 and move right away into the segments. Page 27 gives a little bit more -- sheds a little bit more light on our Mail division. The core Letter Mail segment with the support of the tariff increase last year, showing a slight plus on the revenue side, plus 1.1%. So this is kind of the net of a 6% volume decline and positive tariffs and also mix effect given that we also have e-commerce volumes flowing into these products with a larger piece revenue.

On the Direct Mail side, we see that kind of decline of volumes, almost one-on-one translated into revenue, minus 8%. And again 5 weeks of lockdown left their marks.

Page 28, the summary of the income statement of the Mail division. Revenue, down minus 2.1%. As I've already commented on the individual product groups. EBIT down minus 3%. But still, I think, given the environment, it's EUR 45.5 million in Q1 and EBIT margin of 14.6%. I think those numbers show a resilient Mail business and show also that our efforts to contain costs and take out costs when volumes decline pay off.

Moving to Page 29 to our Parcel & Logistics division. Revenue, up 85.5%, almost EUR 150 million, EUR 83 million coming from Aras Kargo, which, for the first time in Q1, is fully consolidated; Austria showing a revenue increase of almost 40% and also Eastern Europe showing a good revenue development above 30% growth.

Income statement on Page 30. The good revenue development, combined with smooth efficient processes also enhance productivity through additional capacity. That bottom line good progress on the final integration steps from -- resulting from the takeover of DHL resulted in a strong margin improvement, also international portfolio, including Turkey, had a strong contribution to absolute EBIT and margin expansion. So it's almost EUR 36 million, almost quadrupling of last year's Q1 EBIT. Retail & Bank segment, revenue growth of 27.3%, mostly coming from the fact that, last year, in Q1, we didn't have a bank yet. So I think, operationally, good progress. Of course, as I said already, not supported, but hindered by the pandemic.

P&L of this segment, page 32, shows a small EBIT decrease. This is, to a large extent, due to a one-off staff restructuring provision that we booked. On an operational level, both our retail network, as well as our bank showed improvements compared to Q1 last year.

Yes. Let me now close the financial part with our balance sheet -- with the balance sheet update and an update on cash flow development. We continue to show a conservative balance sheet with a stable absolute amount of equity around EUR 700 million. This is before paying out a dividend of EUR 108 million, which we did end of April. I think key highlights of our balance sheet include a cash surplus of EUR 230 million for the whole group, as I said before, dividend payout, a stable level of provisions, slightly increased even we continue to be conservative in accounting and an extension of the balance sheet due -- mostly due to the fact that our bank with every customer goes to the balance sheet. But I think, overall, a very conservative balance sheet. And also, as in the past, free of any pension obligations.

Page 34, update on cash flow development. CapEx activity in Q1 was still a little bit slow. There's a lot more to come in the remaining 3 quarters. Operating free cash flow before growth CapEx was at EUR 74.4 million, substantially above last year, and free cash flow after growth CapEx at EUR 70 million, I think a good start into the year. And we continue to see a business that generates free cash.

Yes. Let me now conclude with the outlook, which is in terms of core trends and market environment is pretty much unchanged. In terms of outlook on revenue and earnings, it's slightly improved. We continue to see a volatile and challenging market environment, which continues to be impacted by the pandemic and government-imposed measures. Although we are optimistic that we are now entering the new phase in the pandemic development. And also in Austria, we have about 40% of the population already being vaccinated or recovered from COVID-19 and vaccination momentum gathers pace. And so I think the opening plan seems quite robust. And we do hope that we will see this reflected also in the development of the business segments that have been negatively impacted by the pandemic.

Specifically for our business, this environment means that we continue to expect strong growth on the Parcel & Logistics side with more than 25%, including the contribution of Aras Kargo. We expect our Mail revenues coming out roughly where they were last year, so either stable or a slight decrease. We continue to expect the ongoing revenue growth in our Retail & Bank division. I already gave the details of our CapEx outlook a little bit higher than last time given the strong volume development and the need to accelerate our investment programs. And on earnings, we now guide for an EBIT increase of about 15% compared to 10% growth last time with Mail again being roughly stable.

On the parcel side, we see at least 25% earnings increase. We also do expect an improved operational earnings level in the Retail & Bank division. And yes, I think overall, we would see this outlook as still being a little bit more on the defensive side. Despite having had a very good Q1 and also good business momentum continuing into April, we still see a quite volatile and uncertain environment ahead of us and do remain cautious.

So thanks a lot for your attention, and I'm now happy to take questions.

[Operator]

[Operator Instructions] Our first question is from [ Alvier ] from LBV.

[Unknown Analyst]

So a quick question from my side. Can you provide some kind of visibility in terms of Aras Kargo contribution to EBIT and cash flow?

[Walter Oblin, executive]

Yes, we can. However, please bear with us that we do not provide full details. We had a very positive EBIT contribution, double-digit level of margins. And we had a positive contribution also to group cash flows.

[Unknown Analyst]

Okay. And you don't provide any kind of -- I mean, because obviously, for all the other segments, you provide on the presentation discrimination within the segment how much they contribute to EBIT. On the case of Parcels, you basically only disclosed like premium and stuff. You don't have any -- can you provide any kind of number in terms of contribution profitability?

[Walter Oblin, executive]

I think, overall, we do not provide EBIT contribution below the segment level. We do provide revenue contributions, both on the Mail & Parcel segment, and the revenue split is shown in the presentation, Aras Kargo on a revenue full -- so EUR 83 million of revenue. In local currency this was up 69% compared to last year, volume up 37%. And as I said, double-digit EBIT margin.

[Unknown Analyst]

Okay. So that is my first question. Just a second follow-up very quickly. Looking at the EUR 83 million contribution for revenue from Aras Kargo, and looking at your segmentation between Austria and CEE revenues, it seems that the revenues from outside of Aras Kargo actually had a significant decline in revenues. Is it true?

[Walter Oblin, executive]

In the whole division, maybe if we go back the growth of -- revenue growth we had, we had EUR 150 million revenue growth in parcel. So EUR 83 million revenue growth came from Turkey, EUR 10 million revenue growth came from CEE and [ EUR 57 million ] revenue growth came from Austria.

[Operator]

[Operator Instructions] The next question comes from Bernd Maurer from Raiffeisen Bank International.

[Bernd Maurer, analyst]

One question I do have. When I look at all the extraordinary personnel expenses, you had some EUR 10 million perhaps a bit more in Q1. Would you say it was the cause of extra charges of provisioning you expect for this fiscal year to be booked in Q1? Or is this can be [ read ] with a bit more provisioning than in the last 3 years going forward? Or was this now related to the bank done in Q1 and a small provisioning on it expected going forward?

[Walter Oblin, executive]

I think it's the character of provisions that you have to book them once the topics arise, so it's hard to forecast them.

[Bernd Maurer, analyst]

[indiscernible]

[Walter Oblin, executive]

Yes, so sorry that I cannot give more forecast on expected provisions. There's nothing we see on the horizon but it doesn't mean that we might not come to the conclusion that we have to put further restructuring provisions here or there. But given our staff development and given that some of the bigger discontinuities around the retail network and the bank are rather behind than ahead of us, I would not expect too much. But the year was only 4 months.

[Bernd Maurer, analyst]

Yes. Okay. Perhaps a follow-up. When looking at the cost split now after the consolidation of Aras Kargo, would you see Q1 cost split of kind of representative going forward? Or was there something included should I say it's a bit distorting the picture and we should rather not take the cost base of Q1 [ cost for ] quarters to come, knowing that Q4 has its seasonality items?

[Walter Oblin, executive]

Yes. I mean, of course, I don't need to explain to you that our business is -- has strong seasonal fluctuations on the revenue side, and we try to balance those with adjusting most of the cost base in Q1 is after Q4 the second strongest quarter and Q2 and Q3 are the weaker quarters. But I would say in terms of cost structure, if that was your question, I think there is no reason that Q1 should not be reflective of the full year cost structure.

[Operator]

There are no questions in the queue.

[Walter Oblin, executive]

I just want to say, of course, it's a mix change from mail to parcel. Of course, our cost structure also changes a little bit as for parcels we have more subcontracted costs on transport, on last-mile delivery. But I think this is a more gradual change than -- but Q1, I think is, by and large, quite reflective of the full year.

[Operator]

There are no more questions in the queue. This concludes our question-and-answer session. I'd like to hand it back to Harald Hagenauer for closing comments.

[Harald Hagenauer, executive]

Thanks, ladies and gentlemen for participating in this call. Obviously, everything was made clear to avoid further questions. If you have some more questions in the next stage, please don't hesitate to call us directly, and we can clarify everything, of course. So have a good day. See you next time.

[Operator]

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