interim financial report second quarter 2014 investor...
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Presentation transcript
Interim Financial Report Second quarter 2014
Investor presentation
Brussels – August, 7th
2014
Koen Van Gerven, CEO Pierre Winand, CFO Paul Vanwambeke, IR Director
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Thursday, 7 August 2014
(10.00 am)
THE OPERATOR: Ladies and gentlemen, welcome to the interim financials report,
second quarter 2014. I am pleased to present Mr Koen Van Gerven, Pierre
Winand and Paul Vanwambeke. For the first part of this call, let me remind
you that all participants will be on listen-only mode and afterwards there will
be a question and answer session. I would now like to return the call to Mr
Koen Van Gerven, Pierre Winand and Paul Vanwambeke. Gentlemen, please
begin.
VAN GERVEN: Good morning, ladies and gentlemen and welcome to our second
quarter 2014 conference call. With me I have Paul Vanwambeke, Pierre
Winand and Saskia Dheedene of our investor relations team. I propose to go
quickly through some introductory remarks. As I imagine that you all
already have had the opportunity to read through the material from
yesterday so I will concentrate on the results of the second quarter and go to
slide 3.
So let's go to slide 3 and where we see in the grey area in the middle that
our operational results grew solidly in the second quarter. Revenues grew
organically by 8.1 million euro and that was the result of a continued growth
in parcels and other sources of growth which, together, more than
compensated the decline in domestic mail. As we already announced, this
quarter's domestic mail revenues were positively impacted by the elections.
With this impact, the domestic mail volume decline amounted to minus 3.6
per cent, on the reported basis. On an underlying basis, that means we
exclude the effect of the elections, the decline of the quarter was minus 5.1
per cent, which is indeed worse than the minus 4.6 recorded in the first
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quarter. On a year-to-date basis, this brings the decline to minus 4.9
per cent.
On the other side the growth in parcels amounted to 9.1 million euro on
an organic basis. Within that figure, domestic parcels experienced
an underlying volume growth of 4.7 per cent in domestic parcels.
International parcels continued to grow strongly, although a bit less than in
the first quarter of the year and in particular due to the slowdown of the
growth of shipments towards China and, as you know, this has to do with the
milk powder streams.
Finally, other sources of revenues performed well with organic growth of
5 million euro for the quarter, this was mainly in international mail and value
added services.
On the costs side, all major costs lines showed improvements as we
continue to work on our productivity and costs control. We achieved
an organic decrease of 3.6 million euro for the quarter or even 11.3 million
euro if we exclude the transport costs which are, of course, correlated to the
growth of our international activities.
So, all in all, this resulted in an organic increase of EBITDA by 7.7 per cent,
as you can see on the slide for the second quarter, compared of course to
last year. And I can tell you that I feel quite happy with this result, so this is
the overview and I propose now that I give the floor to Pierre, to provide
some comments on the financial part and some highlights on our different
product lines. Pierre.
MR WINAND: Thank you, Koen. I am now on slide number 5, which presents
the full P&L. As Koen has already said, our revenues grew slightly 1.7
per cent over the period. Our costs went down slightly as well, which means
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that our EBITDA increased by 11.8 million or 7.8 per cent and our EBIT
increased by 13.4 million euro or 10.5 per cent. If we look below the EBIT in
the IFRS financials, we see that we had an increase in the financial charges
which relate to basically the non-cash discounting cost of our IAS19
employee benefits. As you know this discounting is dependent on the long
term interest rate which went slightly down in the quarter and that cost us
7.4 million, again a non-cash cost.
The net profit increased by 11.1 million euro, or 13.5 per cent, which was
helped at that level by the fact that last year we had incurred a special and
exceptional tax of 10.3 million euro, relating to the decapitalisation of the
company. We didn't have that charge this year and that helped our tax rate.
If we look at the Belgian GAAP level, the net profit of the parent company
increased strongly by 39 per cent. On the one hand it was not impacted by
the IAS19 non-cash interest cost because there is no IAS19 in Belgium. On
the other hand it was also considerably impacted by the same 10.3 million
euro non-recurring tax that we had last year, so if we take out this tax
effect, the Belgian GAAP still increased, 13.4 million euro or 18.9 per cent.
Moving to slide number 7, domestic mail. As Koen has mentioned, the
results of the quarter were favorably impacted by the elections to the tune of
4.6 million euro. If we add about 400,000, which is included into our
international mail, in total the elections did indeed bring us 5 million which is
exactly in line with what we had announced.
If we exclude the impact of the elections, the underlying volume in domestic
mail declined by 5.1 per cent in the quarter. It is mostly due to the
worsening of the trend in transactional mail which went from a decline of 5.3
per cent in the first quarter to 5.9 per cent in the second quarter, as many of
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our customers have reduced their postal usage by a small amount and a few
large accounts have taken more aggressive measures to move to their own
digital solutions.
In terms of advertising mail, at minus 3.6 per cent, it is a little bit worse than
what we had hoped. We had hoped that the overall advertising market was
getting a bit better. This has not materialized in our figures for the quarter
and what we hear from the overall media spend in general is also less
positive in the second quarter than what it was in the first quarter.
With regard to the press, we had an improvement at minus 2.9 per cent
versus 3.2 per cent of the first quarter.
Moving on to slide 8 and the parcels. First of all, the domestic parcels, there
we can say that in spite of what is still a healthy growth at 4.7 per cent we
are not reaching basically our ambition for the full year, which was to
increase faster than the 7.1 per cent of last year. What we see is our normal
customers, I would say are still growing nicely but a little bit less
customer by customer than what they have in the previous quarter which
would suggest that they have got also a slight softening of their own
business.
We also have a few negatives which are the same as in the first quarter
which is the continued decline of the catalog sellers, and also of the C2C
volume, for which we have a recovery plan but which will come only later, in
a later part of the year.
International parcels continue to be strong, even though the growth has
been less than in the first quarter. It is still positive for an amount of
7.7 million. The main reason of the slow down is the slow down of the milk
powder, as Koen has said. It is still very slightly growing but not to the tune
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of what it was. As we always said, this amount, this product is something
that we don't believe is sustainable for the long term; it's still growing but
less than before.
Relating to the other sources of revenues, I don't think there is anything very
special to mention except that it is doing pretty well this quarter.
Page 10 talks about the costs side, the first element is of the payroll and
interim where we had a reduction of 1,061 FTEs quarter to quarter on
average which means that our productivity improvement plan continued to
deliver as expected. The total reduction in our payroll and interim costs was
less even though the number was also the same as the previous quarter, the
savings generated were slightly less due to a few effects, a mix, which was
a little bit less favorable. We had more interim workers than in the previous
quarter and they cost more because of a VAT which is not recoverable but,
on the other hand, it increases flexibility so it has its own benefit and the
second element is also that we had the costs of the collective labor
agreement beginning to come through, which was not the case in the first
quarter, and the impact in the second quarter was about 2.3 million in
additional costs. For the full year the total costs of the CLA is expected to be
about 6.7 million so it's a little bit more in the last two quarters than what it
was for the first half.
For the rest of the costs you see an increase in the transport costs of
7.7 million which reflects the growth of both our international parcel and
international mail business. All the other costs are under control, which
means that overall, in spite of the increase on the transport costs, our costs
base is lower this quarter.
Moving on to slide 11 and our cash flow, our operating free cash flow is
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perfectly in line with our seasonality. As you know, the first quarter is where
we generate most of our cash and we then have negative cash flow most of
the other quarters and this year we have a small minus 4 million operating
free cash flow which is an improvement of 15.2 million compared to the
previous quarter, which is a mix of the good operating result and a little bit
less of net investing activities.
Looking into the financing activities this quarter, 2014, you have the impact
of the dividend, whereas last year you had the impact of a number of capital
restructurings.
Koen.
MR VAN GERVEN: Thank you and to recap I think it's fair to say that while we
have witnessed worsening trends in domestic mail during the second
quarter, our operating results, again, prove that our business model
continues to deliver and our costs saving plan are well on track and delivered
as planned.
The development of our parcels activity has been slower than we expected
but delivered solid and –I think that it’s not unimportant- a healthy growth.
The revenue evolution followed volume growth closely which means that we
have been able to avoid the dilution of our margin.
With all that, I think that it is fair that we revise our outlook for the year and
then we go to slide 13. Overall we expect to keep the positive EBIT variance
we achieved in the first half of the year and which means that the second
half of 2014 should replicate the EBIT achieved last year’s second half. Then
with this result, of course, in higher dividends than last year. This outlook for
the second half reflects the fact that we think that the domestic mail volumes
will decline and for the full year could go up to 5.5 per cent, which would
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mean that a further worsening of the trend will take place in the second half
of the year.
In domestic parcels we no longer with information that we have now, expect
to exceed the 2013 growth of the 7.1 per cent but we think that we should
achieve a full year growth that is higher than the 5.2 per cent that we
achieved in the first half.
International parcels' growth is expected to be in line with the first half of the
year, at least for the routes into Europe and, of course, the traffic to China
related to the milk powder is expected to decline further in the second half,
as Pierre already explained.
So, as indicated previously, we confirm that the FTE reduction for 2014 is
expected to be at the low end of the reference range of 800 to 1200 on
a yearly basis, which means lower savings in the second half compared to
the same period last year and also compared to what we had in the first half
of this year.
So with this I propose that we go now to the questions and answers and
operator, please open the lines.
THE OPERATOR: I will certainly. Ladies and gentlemen, we will now begin Q and
A. If you wish to ask a question, please press 01 on your telephone keypad.
That's 01 on your telephone keypad to ask a question. Our first question is
from Andy Jones with RBC. Please go ahead.
Q. Good morning, gentlemen. I just have three questions, if I could. Firstly, on
the mail volumes, you know, any thoughts on how you might approach
pricing if 5 to 6 per cent decline is the new normal run rather than 4 to 5
per cent; would you look to replace that with CPI +1.4 or would you focus on
cost or other sources of revenue, so any kind of evolving thoughts around
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that would be great?
My second question is on parcels. I notice there was a positive price mix. Is
this just mix growth has slowed a little bit and you can keep hold of that for
the rest of the year, as a result your volume expectations, the revenue
expectations are possible on falling quotes as much as that?
Thirdly, on third party remuneration in the costs line, there is a big saving
here. How long can you hold on to this? Is this safeguarding in response of
volumes being softer? Is there anything to be done to catch up with that in
the second half? Thank you.
MR VAN GERVEN: Thank you very much, I will take the first question on mail
and perhaps Pierre can give insight in the mix and costs element. As far as
the pricing policy going forward is concerned, we are convinced that we have
to continue what we did in the past, which means that, of course, we can
increase price inflation plus part of the quality index, we never used in the
past the entire potential that we have in terms of gain by quality because we
think it is prudent not to exaggerate in order to try triggering to avoid
triggering negative price elasticity and that's what we are going to do further
on, so with an almost zero inflation we will have a slighter increase than
probably we had in previous years. Of course this means that we will have
to compensate and we will continue to do that both the costs side and we
know that if we go further than the decrease of 6 per cent that we have to
activate and we have a number of plans which we can execute and next to
that, of course, next to the costs side we will continue to work on an increase
of the revenues. So, we will play in different fields. Price will be one of them
but we are eager not to exaggerate and to trigger elasticity.
MR WINAND: In terms of the positive price mix in parcels, I think we have been
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able to achieve for the full first half, so so far we think we are okay in there
and therefore we hope to be able to continue to maintain the growth in
volume without any significant dilution as we have been able to do in this
first half and we have no indication at this stage that that would change.
In terms of a third party remuneration, as you indicated we are below in the
quarter. We were also below in the first quarter. It is one of those cost
categories where we try to -- that we try to pilot, depending on what the top
line is doing and as we have a number of concerns as we have indicated, in
terms of the volume decline in domestic mail that's one of the things that we
will continue to pilot for the rest of the year.
Q. Okay, thank you very much. Could I just have one very quick follow up: has
there been any specific trigger for what has changed with the mail volume in
terms of your customers' behavior on the transactional mail side; is it one
customer copying the other because they can see that it is being accepted?
A. Too early to say that it is being accepted. Two big trends happening in, the
franking machines, which is the collection of literally hundreds upon
hundreds of customers. There you see a lot of them reducing their spend so
it's basically people cutting a little bit and doing some savings and that's one
element.
A second element is that there is a discrete number of large customers which
has embarked in more aggressive tactics to try to get their own consumers
to move to electronic and that's something which is a little bit new. It used
to be much softer and much more on a voluntary basis from the customers
and now it's much more aggressive. What we don't know yet and I think our
own competitors and others don't know yet, what is the acceptance by the
customers and what it will do to customer satisfaction, payment, et cetera,
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et cetera, so still early days to see, to the extent it will be pursued and other
customers might then follow suit.
Q. Okay. Great. Thanks for that. That's very clear.
THE OPERATOR: Thank you very much. Moving on to Matthew O'Keefe from
Berenberg. Please go ahead.
Q. Thank you very much. Just three questions from me, please, two operational
and one financial. On the first question, just on the merit of separating
election related volumes from your overall volume, it seems to me that
elections are pretty frequent affair in Belgium but I may be quite wrong
about that. Perhaps you could just remind us of the electoral cycle how it
affects your volumes?
Second question, just with respect to head count, I wonder when you think
that head count attrition might move closer to the normal range of
a thousand a year rather than 800 which you're anticipating in the current
year?
Final question: I noticed also that tax was a little bit on the low side in the
quarter of this report. I wondered what guidance you could give us on the
tax rate for the full year and looking beyond, so those were my three
questions.
A. Okay, on the election volume, so this, two years ago we had the municipal
election. This time around we had European regional and national elections,
so normally we should not have election until the next cycle of municipal
election --
A. Something like --
A. Three, four years and the idea of separating the election was to try to see the
true underlying trend of that, so that was the reason and it's not a yearly
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affair anyway.
In terms of head count, basically we know reasonably well what are the plans
that are going to be implemented in the second half of the year. As you
know, we always have plans. It comes from specific actions and we have
less of those in the second half of the year than what we had in the second
half of last year, so the first half of this year benefitted from a carry over of
the actions on the second half of last year and we know we have less this
year, so that's why we are saying that the head count reduction will be lower
for the full year than what it is for the half year.
In terms of the tax rate, indeed it is lower than last year. Last year we had
effectively, an effective tax rate which was close to 40 per cent but it was
mostly due to the tax on the exceptional dividend. If you back that out and
you back out all the movements relating to previous years, we end up with
a tax rate of about 34 per cent, between 33 and 34 per cent, which is in line
more or less with what we said, we always said 34, 35 per cent, so,
removing the exception, we are in line with what we always said we would
be.
Q. Okay, if I could just ask a quick follow up. I was thinking really more about
what the head count attrition might look like in 2015 and 2016?
A. Oh, sorry.
A. I think that the head count attrition and the natural attrition that we still have,
provided that more than 30 and, if I have the figure in the top of my mind,
37 per cent of our population is above 50 so we will have some years more
where we will have important natural attrition, so that will continue for the
years to come. The exact figure of the natural attrition for 2015 I do not
have in my head but we can provide you that figure.
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A. And the FTE reduction for those years, which is, as you know, we have more
natural attrition than FTE’s reduction. We still need to finalize the plans for
2015 and for 2016. We confirm for the five year duration in the way of our
vision 2020 plan, we confirm the average of a thousand per year with years
of 800 and years of up to 1,200 with an average of a thousand. We don't
yet exactly know how much it's going to be for 2015.
Q. That's very helpful, thank you.
THE OPERATOR: Thank you very much. Moving on to Hugo Turner from Credit
Suisse. Please go ahead, your line is open.
Q. Hi, I have got two questions, please. The first is, if next year volume declines
accelerate to close to 6 per cent, which I think is the level which EBIT
margins stops growing at. What are the steps that you can take, can you
accelerate attrition? We talked about pricing and things being limited there.
You know, are there two or three steps you can point to continue to grow the
margin in line with market expectation?
The second question is are you likely to have a strategy update, maybe next
year, you know, giving some indication about how you plan to future shape
parcels, especially, you know, market opportunity -- in C2C? Thanks.
A. Actually, as far as the first question is concerned, indeed, as we always said,
between 4 and 5 we can increase the result between 5 and 6 we can keep it
and beyond 6 in terms of volume decline we have to activate a number of
levers and those levers will be of course in, as well in the additional projects
in costs saving. there will be levers where we have to reconsider the way we,
for example, distribute the mail as it's done in a number of other countries,
so we have a number of levers that we dig in now in more detail and that if
needed, we will activate next year and again I repeat the ambition is that we
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do the necessary to keep the results that we have.
A. In terms of the strategy update, I think in terms of what we do internally, this
is a continuous process. We keep on, you know, looking at what's working
well, what's not working as well as expected. We look at what competition is
doing in the market and outside of the market, so it's an on going process.
In terms of having a communication to the market on that, one of these days
we will probably do an investor day and, of course, if and when we do that,
you know, parcels will be a prominent subject there because I think it's
an important part of our strategy. We haven't yet decided when we would
do that, but we understand that it's something that we have to do and that
parcels have to be part of that conversation.
Q. All right., very clear. Thank you.
THE OPERATOR: Thank you very much. Ladies and gentlemen, if a question has
already been answered for you, you can press 02 to remove yourself from
the queue. Next in line is David Vagman from Exane BNP Paribas. Please go
ahead.
Q. Thanks. Good morning. Two questions on my side. First of all, the potential
price increase. Could you give us an idea of what you consider is a kind of
threshold you don't want to go, I mean above, that would, you know, in your
opinion trigger elasticity and so I mean the price increase on top of inflation.
And then second question, again, if you could provide us a little bit more
detail on the potential costs savings program levers that you could activate if
volume declines would go beyond 6 per cent next year? Thank you.
A. Okay, thank you very much. The first question, it partly depends on inflation
and if you see the track record that we have established in the past, so we
have inflation and we do something on top of it and if inflation was higher, as
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you can see from years around 2009 and 2010, then we were at 1 per cent,
1 per cent and a half, even. Last year we had an inflation of around 1
per cent and we topped it up with something like 1 per cent on average.
With the low inflation this year, we expect that we have to stay below the 1
per cent on top of inflation; otherwise we risk to trigger elasticity -- that we
don't do so. It will be very moderate, provided very low inflation this year.
It will be very moderate price increase compared to what we had in previous
years.
On the second question, levers on which we can still continue to work,
an obvious one and what we are looking and digging in for the moment is
the overhead structure of the company. We did a lot of work in improving
and organizing the productivity and resizing on the field but, of course,
provided that the company shrinks, I think it's the moment where we have
to reconsider the size and the organization of headquarter and overhead and,
of course, questions as layering and delayering are on the agenda and it's
one of the fields we want to work on.
A. I think there are also a number of other levers in terms of, I think Koen alluded
to them earlier, in terms of way of distributing, if and when volumes go down
to a certain level but it depends on the speed, intensity of the volume decline
in the absolute level at which we are. So what we are doing and we have
been doing that and we continue to do that is to basically have a tool box of
programs that are separately or in development and that will be depending
on which level of decline that we reach and what are the perspectives. We're
not going to disclose all of those but they are well-known in the industry,
they’ve been used in other places and it's a question of finding the right
moment and the right circumstances.
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Q. Thank you.
THE OPERATOR: Thank you very much. Moving on to Dieter Furnière from KBC
Securities. Please go ahead, your line is open.
Q. Hi, thanks. Also a couple of questions remaining. First one was on the
management contract. Yesterday there was an online newspaper mentioning
that the new Belgian coalition would not be willing to ratify or sign the
management contract proposed by the former coalition. Could you tell us
a bit how discussions are going there and to what the impact could be on the
management contract in its current form and the role of bpost in it?
The second question is also Government related with the Flemish
government and likely also soon the federal government announcing some e-
government initiatives. Okay, there is no concrete numbers in there but it
seems that they will be intensifying e-government initiatives. How do you
look it in that way, because it could come on top of the decline you currently
see, as they are your largest client. Maybe related to that, could you say the
percentage of volumes coming from the government in Belgium?
My last question relates to parcels. Last week CoolBlue which I believe is in
Belgium, especially in Flanders, one of your biggest clients has now decided
to offer delivery on Sunday for free but using PostNL and so could you say
that have you seen the competitive environment developing? And how is
your view towards Sunday delivery and is something possible in the current
setting of bpost? Thank you?
A. Okay, let us start with the tender on the newspaper and periodicals. I'm not
aware of what you're mentioning that there would be a problem with the new
coalition. As far as we know, there is nothing much to communicate. As you
know, candidacies were received mid of June. The analysis has to be made
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and in the initial schedule government has, by mid July, first to establish
the list of the retained candidates and secondly decide on the criteria and on
the content of the request for proposal.
As far as I know, there is no decision taken by the Government. My reading
is that actually provided that the formation of the new government, federal
government seems to be accelerated over the weeks and probably becomes
difficult for believing government to take a decision on that so it could have
an impact on timing, because we can manage that it will be new government
that will take the decision in this contract.
There is no indication whatsoever that there is a kind of hostility or plans to reduce
or eliminate this kind of service that is offered. Not at all.
A. In terms of the e-government, as you said, there is not anything concrete. We
have read indeed the “regeerakkoord” of the Flemish coalition. Our reading is
they say that by 2020 they will offer the option of digitalization for
administrative transactions between the Government and the citizen. That's
almost a translation, in the agreement, which is not as aggressive as what
has been done in other countries like Denmark where it was not an offer or
an option but a push. In general we have always said that we expect players
to do digitalization and I am sure that the Government will do that like
everybody else.
In terms of what is the volume for the Government I think we said in general
it was 120 million all in. Not all of it is mail. There are other services in
there and it's all of the regions, the Flemish region not being one of the big
ones.
A. As far at CoolBlue is concerned, Indeed it’s what we learned too. CoolBlue is
an important customer of us but not the biggest customer in parcels and, of
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course, as you know our strategy is to continue to deliver what we call the
best last mile. If Sunday delivery becomes important we might consider it
too. As you know, we do Saturday deliveries and our experience is that
Saturday deliveries, that it doesn't show a better success rate of first time
delivery, even in the country and that would be the case that probably the
weekends might not be that important than perhaps we will convince or we
think that people don't work during the weekend, that they're at home and
that's one of the things that we have to learn, that people, even if they don't
work, they're not always at home.
There are other things to do and probably that's one of the explanations why
this first delivery successful delivery is even less successful over the
weekend than during the week, but, again, it's important for us that we will
provide the delivery methods that are requested by our customers, the
senders and our consumers and we will follow up and evolve with what they
need.
Q. Okay, very clear answers. Thank you very much.
THE OPERATOR: Thank you very much. Moving on to Christopher Combe from
JP Morgan. Please go ahead, your line is open.
Q. Hi, good morning, everybody. My question, first of all a follow up one. Can
you give us a sense of where mail per capita sits versus your Dutch and
German neighbors and then on press are there any features in that contract
or proposal that take into account profitability in the core business?
(inaudible) and lastly on dividend, how should we think about longer term
policy. Would you rather maintain a consistent pace of growth or a narrower
pay our ratio? Thanks.
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A. On mail per capita we don't have updated figures given at the time of the
appeal which were I guess 2012 figures. I do not have any updates from
there.
The second question I didn't quite understand it. There was a lot of noise on
the line.
A. It had to do with features on the newspaper contract?
Q. The development in the core business with respect to core volumes, does that
impact in any way the profitability of returns of the newspaper business,
contract take into account core mail volumes?
A. No, the current contract, the current contract is based on the net avoided costs
basis which is capped at a particular amount, certainly -- which therefore in
theory does not allow for inefficiencies to be included in the price, which
means that in a way if there is less than density in the network due to less
letters, it doesn't trigger an increase, effectively, in the price that we can get
for those elements.
Of course the parameter of the new contracts are not yet known because the
negotiation is not there yet but normally this is something that is a standard
feature for those types of things which is that the Government doesn't want
or is not allowed to fund the effective inefficiencies which would appear in
the system.
I don't know if that answers the question.
Q. Yes, that's clear. Thank you.
A. The longer term dividend, we have always said that our preference would be to
grow reasonably the dividend on a regular basis but on the other hand we
have got a policy which is 85 per cent payout ratio. As we said, if we, if
there were a hiccup in terms of some one-off exceptional, also some
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elements we felt were on a temporary nature we reserve the right to
increase that payout ratio or to use some of the reserves that we are
building with 15 per cent we are not paying but, again, our preference would
be a regular growth which will reflect the fact that we are able to regularly
grow the business.
Q. That's clear, thank you.
THE OPERATOR: And moving on to Jean-Marie Caucheteux from Bank Degroof.
Please go ahead.
Q. Good morning, most of my questions have been answered so only two or three
follow up questions. First of all, if there was a decline by 6 per cent in
domestic mail volume, would you have to take additional measures? In my
mind it was minus 5 per cent, having heard this I believe by the IPO, also do
we have additional comment about it? This is the first question.
The second question is about indexation of wages. The other company has
not planned to have an indexation of wages. Have you some comment about
this?
The last one, more of a detailed one. An increase in maintenance and
repairs due to transport costs do you anticipate higher efforts in this item for
next years to come? Thank you.
A. Okay, on the first question, so we have for this year a 5 per cent decline in the
plan. Of course with the experience that we have built in the first two
quarters we think that it's prudent to increase it over the full year period to
5.5 which means that if you do the math that we take into account the 6.1,
up to 6.1 decrease for the second half of the year.
A. In the IPO, we always said 5 to 6 per cent because there are a number
of elements, we could not be as precise as saying 6 per cent is the exact
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figure where we have always said 5 to 6 per cent, that's where we can hold
and above 6 per cent that's where we were saying. I think we always said
that.
Q. Okay, thank you.
A. As far as the index is concerned, as far as we know there is and provided on
the indications of the “bureau du plan” there is no indexation that is
transferred in the year. If I understood well, the next indexation is
scheduled with the current figures of the “Bureau du plan” for next year.
A. Basically we have no choice. Like all companies in Belgium we have to follow
the indexation and unless the Government was to decide that companies
could, you know, could keep one of the indexation, it's a mechanical
increase.
In terms of maintenance and repairs, the increase in maintenance and
repairs, if you look on the longer term has increased and a little bit of flip
side of the productivity improvement, we have more machines, we have
more vehicles, we have more IT to support the business and to enable the
productivity improvement. As a result of those we have more maintenance
costs on those additional machines, vehicles or IT software. It has to be
seen as a, as I say, as an enabler, as a flip side of the productivity
improvements.
Q. Okay, very clear. Thank you.
THE OPERATOR: Thank you very much and moving on to Edward Donahue from
One Investment. Please go ahead, your line is open.
Q. Hi, a few questions from this side. Just if you could go to slide 12 to start
with, looking at your balance sheet structure, what is the capital structure
that you feel comfortable with? You can probably guess which block I'm
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looking at, the cash and cash equivalent. What is the thinking behind that
ultimately? When does it become an embarrassment of rich and what do
you do?
A. Good question. Basically we have always said, this capital structure is
an inheritance of our previous owners and decisions which they had taken,
the state and city, basically and negotiation between them. It is what it is
today.
In terms of what could be done, somebody asked us a technical question and
said could you repay 350 million to the shareholders and why this figure? It
was based on the actual remaining equity in the parent company.
In Belgium a company cannot have negative equity or at least cannot pay
money to a shareholder which will bring it to having a negative equity of the
parent company in Belgium GAAP. And so the amount of 350 million which
was computed last year was about the amount that could be freed up in
terms of equity. And we have enough cash to pay that, so it's not a cash
issue, it's more a net equity issue so we could not technically repay
350 million to our shareholders, probably a bit more now with the money we
have put aside, but it is not our decision, basically. We have always said this
is a decision of our shareholders and to be more precise of our majority
shareholder because with 51 per cent, the State effectively decides on those
types of decisions.
As management, we would not oppose any decision in there but we are in
a neutral position compared to that, so that is available but the decision is
not for us to take as a result, you know, we have to wait for what the
shareholders can say.
Q. Okay. Following on from that, and if my understanding is correct and
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hopefully I have got it right, the change of government has brought
a different political colour and potential thinking, maybe. Do you see any
change in the new government thinking vis-à-vis the outgoing administration
with regard to a possible decision either way?
A. I think the only thing we can go by is the press and what is written in the
press. We have no particular insight, other insight, because basically the
Government is not yet formed and what is said in the press is that the new
government would like to work on the level of debt and the fate of the public
companies like ourselves, Belgacom and a few others has been mentioned
and the potential source of debt reduction of revenues to reduce the debt.
That's what’s in the press we can't confirm or deny that. We have not been
asked to work on that. If the press is to be believed, yes, that could change
the view.
A. Of course at management we don't have to take a position on that. We don't
choose the shareholders, the shareholders choose us. More precisely, the
only thing as from the beginning we will insist on is to have the right
governance and with the system in the past, we will continue to insist on
that in the future.
Q. Okay, a couple of other questions, if I may. When you were talking earlier
about the low inflation environment with vis-à-vis pricing, when you were
putting together your longer term planning, what kind of inflation
environment were you envisaging? Were you envisaging such a low inflation
environment? Does that constrain some of the plans?
Then the other one, just going on to the trends on mail, hearing your
comment that potentially, mathematically you get to roughly 6 per cent in
the second half decline, why would that be any reason to think in full year 15
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that attrition rate should hold at 5 and not decrease further?
Just on the trend in H2, can you give a split out between advertising and the
press and give us an idea what's going on there?
A. I think in terms of inflation, yes, our initial plans were done on a slightly higher
inflation rate. I think we had 2 per cent earmarked at the time because it
did seem to be a reasonable medium term inflation rate. So the fact that it
is lower, of course, restricts our ability to increase price but, on the other
hand, two-thirds of our personal costs, which are immediately correlated to
that, so, in a way, yes, having slightly higher inflation is probably slightly
more favorable for us and, but we are coping with that for the moment and
will do that also for the future through, you know, cost savings and making
sure that we compensate for that.
In terms of the 6 per cent, we can't split it into the various categories
because basically we took the mega trends of the first two quarters and
basically drew a line on the trends and said, you know, we have increased
quarter to quarter the decline, let's continue that to the end of the year and
that gives the 6 per cent but without really saying this is going to come from
here or there.
On the question on 2015, I think in terms of transactional mail, I would tend
to say that, yes, from what we see, we could have a trend which continues
and because basically some of the actions which are being taken could
continue and other players could start adopting those, so I am tempted to
say there is a risk indeed.
What's a little bit of a question mark is the advertising mail and there we
would hope that one day the economy is going to pick up a bit and the
overall media spent would pick up a bit and would allow us to either have
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lower rate of decline or even better results in advertising mail as it has been
in the past when the economy was picking up. When will the economy pick
up? I'm afraid I do not have a crystal ball to say that but so it's a little bit
early to say that 2015 will have the same rate of decline. It depends on
what's happening on the advertising markets in general.
Q. Great, thank you very much.
THE OPERATOR: Thank you very much. Moving on to Doug Hayes, Morgan
Stanley. Please go ahead.
Q. Good morning, gentlemen. A couple of questions left, please. First on the
parcels side of things, some of your peers have cited pretty aggressive
competition in the parcels market place. Can you just comment a little bit
more about what you have seen in Belgium because it looks like the
competition isn't quite as intense as in some of the other markets.
A. I think we are talking here B2C, we have got quite a lot of players in the
market. We have got, as you know, 50 per cent share of that particular
segment and most of the players are there. I think in terms of competition
activity, DPD it was already in previous quarters, announced new network of
drop-off points for their product and was making a move there, PostNL
upgraded its Belgian offer and is active on the market and I think in the
previous investor day, the Deutsche Post indicated that the Benelux
countries and Belgium in particular were focused for B2C for them, so we
expect them, they are already present and they are already quite big in the
B2C market but we would expect them to, again, be more active, so I don't
think it's fair to say that there is no competition on the market.
I don't know whether the price levels in the other countries, obviously, I
haven't checked what it is in B2C, so I don't know if they are starting from
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a higher base and competing very strongly on there but our view is that we
have got competitive price for the time being.
In most of the segments, maybe not in C2C which is why for the power
sellers we have probably lost a bit of volume this quarter in the previous
quarter but with that exception we feel we have got for the moment prices
which appear to be reasonably competitive but, of course, we will continue to
monitor that and if some of our competitors decide to become more active
we will see how we react to that.
A. Okay, great. Thank you. Competitors come in and develop, which means that,
of course, the potential is into the market, you know that Belgium was a little
bit of a lagger in terms of e-commerce, so a reassuring sign that we will
catch up in that area too.
Q. Thank you. Next question, just going back to the mail volume guidance, I
think you mentioned it briefly in the previous group of questions but can you
remind us how you get to the math behind coming out of four year guidance,
why you might be a little bit concerned but try to understand the math
behind it?
A. I don't think there is an enormous amount of science in there, to be honest.
What we simply said is to, let's say that the rate of acceleration of the
volume declines continues, almost mechanically you get to something
between 5.5 and 6 per cent for the second half, hence the up to 5.5 per cent
in there but it is basically simply taking the line of the slope and continuing
it. No more science than that.
Q. Okay, and then I guess finally, just a small question on Capex, your Capex
guidance has come down a little bit. Anything in particular to mention there?
A. No, it's a variety of things. It's a net Capex figure, so little bit more sale of
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building is received in the quarter, more proceeds, actually. Some savings
on some of the spent that we had planned better, better prices than we
expected, some little phasing things but what is important to say is that we
are not experiencing a delay in our cost savings program so, those type of
things that’s small things that bring us down to a lower amount than
90 million.
Q. Thank you very much.
THE OPERATOR: Thank you very much, moving on to Mark Zwartsenburg, ING.
Please go ahead, your line is open.
Q. Good morning, gentlemen. Good afternoon. A couple of questions, first for
just coming back on your outlook, for what I understand from the second
half, the numbers you mentioned, we're talking here about election mail
adjusted numbers. Can you clarify that, please? That's my first question.
A. Yes.
Q. Then --
A. That main underlying figure?
Q. Yes, correct.
A. Yes.
Q. Last year I remembered in the second quarter there was quite a difference
between April and June in terms of trends. What did that look like this year
in through the quarter in domestic mail?
A. This is something that has been going on for now for a year and a half,
enormous volatility and it's completely, you know, very big declines some
months, very big result other months, which is, it seems to be a feature of
the new world or at least of this world and so very difficult to see a trend,
very high volatility.
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Q. Is it because, June -- do you mean, your outlook might well be --
A. No, no. June wasn't bad.
Q. Then another one, just to clarify on the outlook, you mention you have EBITDA
in line with last year, the second half. Talking here about reported numbers
or normalized because last year I recall that there was a one-off in the
second half?
A. In the first quarter.
Q. There was nothing in the second half?
A. Not that I recall. I will check. If I am incorrect -- my recollection is the only
one was 14.6 million or 14.3 million in revenues and that was the disposal
of Certipost in the first quarter.
Q. Okay. Reversal of a provision last year?
A. That was not normalized. Nothing big because otherwise it would have been
normalized. The previous years I think that we had a reversal, a couple of
reversals, one 21 million, one 23 but that was in 2012, in the second half.
Q. So only 14.6, that's taken into account --
A. That was in the first quarter, yeah.
Q. Clear. And then a final question. If you will (Inaudible), declines, minus 6
(Disruption on phone line) how would that impact the Belgium GAAP
profit?
A. If we take one-offs? It depends on the types of measures, it depends on the
features but in principle if there was, for instance -- but that's, you know,
we're not talking about that now. Redundancy plans, yes, there would be
one of costs, that would be sorted with that which is exactly why we have
always said we wanted to create a reserve group in terms of payout or in
terms of the balance sheet so if that was to happen and, again, we're not
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saying that yet, if that was to happen, we could pay for -- we could still
maintain the dividend.
Q. Okay, clear. Thank you very much.
THE OPERATOR: Thank you very much and moving on to André Mulder from
Kepler. Please go ahead, your line is open.
Q. Good morning. Two questions. Firstly, yesterday the leading Dutch producer
of milk powder is saying there has again been an acceleration and demands
to reach new peaks. How do you look at that development? Also in relation
to your expectation that you find there is a slow down in milk powder
business will continue?
A. Maybe it's good news. One has to continue to say sending it through as
parcels through the postal system to us looks like a rather inefficient way of
sending vast amounts of heavy products. So it's not only about the flow of
milk powder but we have always said that one day someone will come up
with a better mouse trap to do that in a more efficient way, so it's not only
the flow of milk powder, it's also the transportation means but maybe I have
not picked up on that announcement. Maybe it's good news for the second
half but on the other hand, you know, I still believe there is something
bizarre in that product.
Q. Okay, second question on your dividends, you only expect a rise from the
dividends in first half of Belgian GAAP jumped 30 per cent. The second half
will look different to last year. Can you give us a bit more direction as to
what kind of base you expect for increase; should it increase in line with
EBIT or do I have to make another calculation?
A. In terms of the dividend of the net after tax Belgian GAAP would expect to be
in line with the EBIT minus the taxes, of course, going in there. Part of the
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jump in the first half was, of course, due to the famous 17.6 million in extra
tax that we had last year in the first half. That has picked up over two
quarters which was cancelled out over higher dividend payout. That itself,
the fact that this 17.6 is not recurring this year is not indicative of an
increase of the dividend as we will go back to 85% but then in terms of the
evolution of the Belgian GAAP for the full year we would expect it to be in
tandem with the EBIT evolution.
Q. One other accounting item in the interest charges, in the financial charges
there was an amount relating to IAS19. Why does that amount reappear in
your calculation between IFRS net profits and Belgium GAAP net profits?
A. It does in reality, it is embedded in a number of movements but the only thing
is it's very much linked to the interest rate on which we have absolutely no
control. It's on a long term interest rate but indeed that is one of the
elements which makes the difference between the two results, as we said in
the narrative when I mentioned it earlier, but we have made assumptions to
be reasonably neutral on this evolution of the interest rate, basically. But it
is embedded in there.
Q. Okay, thanks.
THE OPERATOR: Thank you very much. Our next question is a follow up
question by Dieter Furnière from KBC Securities. Please go ahead.
Q. Thanks. Two small ones. Regarding also the question of what margins of
specifics, I remind that full year results you announced that special logistics,
there was some restructuring impairments, also some losses in there, which
had to impact EBIT. Could you maybe quantify the impact on costs of cost
logistics in the second half of 2013?
The second question is on the international parcels. I would try to calculate,
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so in the first quarter I see that your revenues went up by around 96 per
cent. Second quarter 36.7 per cent. If that's correct would you still exact
a double digit revenue growth for international parcels in the second half of
the year? Thank you.
A. Yes, special logistics, from memory last year, it was an amount, the provision
was of 11 million. The provision that we had in the last quarter was
11 million which was disclosed in our financial statement so that has not
come back this year.
International parcels, I think we need to make a split between the milk
powder, which will be what it will be, and we will had the discussion on that
before the rest of the business, we will do the budget growth in the second
half of the year.
Q. And could you maybe detail the significance of milk powder in percentage of
international sales, revenues, what is the rest of the business and what is
this business to China?
A. Last year, the milk powder was 21 million.
Q. Okay, thank you.
THE OPERATOR: Thank you very much. Moving on to Alex Paterson from
Espirito Santo. Please go ahead, your line is open.
Q. Hello there. If we look at the parcels market, just talk a little bit about
competition in the European markets, which have become more competitive,
it seems that they have polarized between a sort of a high priced and high
service and a lower priced and lower service. Offering the middle ground
seems to have been sort of completed or is being completed away
reasonably quickly, I imagine, given your cost basing coverage that you need
to move more towards a higher service offering. Could you give us
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an indication of what, how quickly you think you can introduce products
where you can kind of, you know, track delivery, you can give customers
options, let's say the night before delivery and, you know, a very narrow
delivery window. I think that you do offer a delivery window, I can't
remember how narrow it is, but if you could sort of elaborate on how quickly
you can get these products into the market and what it will cost to get them
there, please?
A. It is important to say that at the present time the decision on which carrier is
going to be used comes from the sender, not the receiver. So a lot of the
features, also the sender, they all have different views, of course, on what it
should be, some -- really on the costs and will try to find out ways to lower
costs. Others will favor a variety of options of distribution options or speed,
et cetera, et cetera.
The convenience for the receiver is not always their first priority. That's
basically, in the polarization you're mentioning, part of what's happening,
some of the senders are, for instance, trying to push to the out of home
collection, so instead of having a home delivery, they try to push the
distribution through collection points because that's cheaper, that's the Kiala
model in Belgium. So there we will be responding in the second half of the
year, already been indicating, through a particular offering in there.
On the second part, which is for the more, the senders wanting to have
a variety of options in distribution. We do home delivery. We will offer
a more competitive out of home delivery and collection point. We are
opening our -- stations which are open 24/7, et cetera et cetera, so we offer
a variety of options there. In terms of speed we offer B plus 1, we have --
we accept the product increasingly late, for day plus 1 distribution. Our
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customers -- to deliver on a Saturday. We have talked about that so, we
respond to the market demands from the senders.
In terms of the features for the receivers, I think what is quite important is
that we have a reasonable product but we should be chasing all the options
and all the things that each of our competitors are doing, except if we think
that it provides us a real competitive advantage in the decision-making. So
we monitor that constantly and we see those which we think are important
and then we do something about it.
In a way, Saturday delivery was exactly that. Some of our customers, the
senders, told us they would like a Saturday delivery and then we started
doing that pretty quickly, I think we responded to their demand. So we will
continue to monitor things. And if there are things where we say, yes,
they're important, then we will do it.
Q. Thank you very much indeed.
THE OPERATOR: Thank you very much and there are no further questions in
queue and with that I would like to return the conference call back to the
speakers.
MR VAN GERVEN: The other thing I would like to do is to thank you and wish
you a very nice afternoon.
THE OPERATOR: Ladies and gentlemen, this concludes the conference call.
Thank you very much for attending, you may now disconnect your lines.
(11.15 am)