Interim Financial Report First quarter Investor presentation

Transcription

1 Interim Financial Report First quarter 2014 Investor presentation Brussels May, 8 th 2014 Koen Van Gerven, CEO Pierre Winand, CFO Paul Vanwambeke, IR Director Presentation transcript

2 Thursday, 8 May 2014 (11.00am CET) THE OPERATOR: Ladies and gentlemen, welcome to the interim financial report first quarter I'm pleased to present Mr Koen van Gerven, Pierre Winand and Paul Vanwambeke. For the first part of this call let me remind you 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 conference call to Koen van Gerven, Pierre Winand and Paul Vanwambeke. Gentlemen, please begin. MR PAUL VANWAMBEKE: Good morning and welcome to the first quarter conference call. Paul Vanwambeke speaking. As usual we will have a short presentation on the results by Koen and Pierre. Today we have something a little special after the presentation of the results as we got many questions on some topics of the AGM of next week we wanted to give some clarification on some corporate governance matters. We will do that just after the presentation of the results and then we will go to questions as soon as we can. Thank you and with that I pass to Koen. MR KOEN VAN GERVEN: Ladies and gentlemen, good morning. I am happy to present what I would call solid results of this first quarter and they confirm to me that all elements of our strategy developed in the right direction. Just a short reminder that the comparisons that I will make will always be to the first quarter of this year 2

3 compared to the first quarter of last year and passing to the highlights on slide 2. The total operating income is up with 8.6 million to reach million this quarter, this first quarter. I will come back on the breakdown in more detail on the next slide. Costs were better than expected with lower operating costs of 6.7 million and a strong average FTE reduction of 1037 FTEs. Let me say already, we expect that this FTE figure will dilute later in the year. EBITDA margin continued to improve to 27.6 per cent or 1.8 percentage points better to reach 173 millions and EBIT came out at 152 million. EBITDA increased with 13.3 million where EBIT did improve with 13.1 million. I know that some attention was paid at the start of my tenure at the union relations. I can tell you that after preparatory discussions with the Unions Leadership, management made a proposal of collective labour agreement spanning 2014 and The union's national representatives were what I would say positive and are presenting the proposal to their local representatives in order to gain their support for the proposal. This is, of course, an important step towards final agreement that we expect to reach before the summer holidays. The proposal is, as far as we are concerned, in line with our plan. So let us now go to slide 3. Here we have a high level breakdown of the 13.3 EBITDA increase and that is without the not material scope change. Then we experienced what I would 3

4 call a perfectly manageable decline of 4.6 percent in our mail volumes. It is a bit slightly south of the 4.2 of the full year 2013, but fairly in line with the 5 per cent planning assumption that we had for this year. Parcels continued to perform well with an organic growth of 15.8 million. Domestic parcels are up 5.6 percent, which is short, or slightly short, of the expectations that we have for the full year. I have to admit that I'm not satisfied on this. International parcels outside the country continue to flourish quite strongly with an increase of 14.5 million due to strong growth both in the US in our lanes from and to China. I'm happy that our sources of revenue, other sources of revenue, are back in the green showing already a modest growth. Then in the corporate part, it is related to sale of buildings and some other not material elements. So all of this in combination with the 6.7 cost improvements we can say I think that we have a strong EBITDA performance. With this short overview, I would like to pass the floor to Pierre to guide us through a more detailed analysis. Thank you, Koen. On slide 4 you see the details of the scope changes I propose not to go in there. As Koen said they are very immaterial, very small companies added to support our international parcels activities. Moving to page 5, which shows basically several lines of our P&L. As usual, we present reported figures and normalized figures. The only difference this quarter between normalized 4

5 and reported is the emanation of the 14.6 million profit that we had made in 2013 on the disposal of some of Certipost activities. So the normalized revenues are slightly lower than the reported revenues for Otherwise Koen mentioned the positive evolution of EBITDA, of EBIT, but this evolution often finds its way into the net profit, consolidated net profit, which grew 16.6 per cent. The free cash flow, we will come back on that, but also the profit of the parent company in Belgian GAAP which is the basis of the payment for the dividend which grew by 24.5 per cent. If you remember, in the first quarter of last year we had already recorded in Belgian GAAP the first tranche of the exceptional tax linked to the exceptional dividend, so last year we had a tax charge of 7.3 million. If we exclude that tax charge the Belgian GAAP net profit grew by 13 per cent, perfectly in line with the rest of the results. Page 6 shows the various evolutions in the various lines. I don't propose to go in detail there. So moving on to page 7 and the domestic mail business. As Koen mentioned, the volume decline was 4.6 per cent which was in line with our planning assumptions and that cost us 16 million. That was partially compensated by the price and mix increase which is in line with the 2.3 per cent we had announced, we increased the price on 1 January as foreseen. Looking in a little bit more detail on the volume decline, what you can see is that compared to the full year we are at 5

6 4.6 per cent compared to 4.2 per cent. What we see is a partial recovery I would say of the advertising mail, which this quarter is only down 2.7 per cent which. It s an improvement certainly over last year but also over the last quarter of last year. On the other hand, transactional mail has slightly more declined at minus 5.3 per cent and mostly there the big change was registered mail. It is a bit too early after just one quarter to see if it is timing, phasing or if it is a trend. Overall, as I said, 4.6 per cent for domestic mail is perfectly manageable and in line with our planning assumptions. In terms of parcels on slide 8, Koen mentioned the growth of domestic parcels of 4.8 million, which is 4.4 per cent on a reported basis. If you look at the real underline, it is plus 5.6 per cent. As Koen said, this is a pretty good result but we are not always happy with that. 1 per cent, we lost 1 per cent due to the loss of one client which effectively went into a reorganisation, was taken over and the company taken it over operates with one of our competitors. We are still in negotiation to try to recover that one. Otherwise, we would have been at 6.6 per cent. Still, I think it is something we need to work on. International parcels are very strong: 14.5 million. Good in the US, good in China outbound, so what we sent towards China, the famous milk powder. As we say each quarter, we never know if it's going to stay but it's still there and it is still growing. The volume coming from China is also growing, which is a new business we are building. 6

7 On slide 9, Koen has mentioned that the other sources of revenue are back in green territory. International mail is negative for 1.9 million but that is due to what we call the one-off settlements of the terminal dues which relate really to the previous year. We are having less positives this year than we had last year on the first quarter. The underlying value of international mail is back on track. As you know, last year we had decided to restructure the portfolio, now we are back in normal. What is good also is that value added services, in particular solutions in there, are growing nicely. 2.2 million as part of our strategy and we have a number of products there, some new, some existing, which are doing well. Banking and financial activities are also positive this quarter, mostly driven by the good performance of the pre-paid credit card. Moving on to costs. Good performance on costs with a net decline of 6.7 million, an improvement driven by payroll and interim which are 8.3 million better. There we have good FTE decline at a 1,037 FTEs less than last year and relatively low increase in unit cost, given the fact that there has been no indexation, no automatic indexation of salary in the first quarter compared to last year. Second is on the various services that we buy outside or SG&A. There is a reduction of 2.9 million. In there you have some different movements, you have an increase of the transport 7

8 costs which is fully correlated with the increase of the turnover in international parcels. We have then a good result on a number of lines. Some are structural, like the energy costs due to the lower than expected costs. Some others, more in the discretionary area, are positive but are partially phasing and should not be simply multiplied by 4 to get to the full year results. In terms of other costs there, we have also phasing in the other direction. Remember last year we recorded from September the new local and regional taxes that we were expecting the law to impose on us. We did in September retroactively from 1 January Now we are accruing that on a monthly basis, which means that there will be in some way a catch up, a positive catch up, in September. As from September. So altogether a good performance on costs, but not necessarily repeatable in the following quarter to the same extent. In terms of cash flow on slide 11, the operating free cash flow increased by 109 million to achieve 368 million. If you remember, last year our Q1 cash flow had been negatively impacted by the 37.4 million fine we had to pay to settle a competition claim. This will not reoccur this year. The second component is that in the context of the settlement of the famous terminal dues this year we are getting the money earlier than we did last year and that brings us 42 million. Then you have the underlying improvement of the operations, which is delivering almost 20 million additional cash. The investing 8

9 activities deliver slightly better result, because last year we had the capital increase of the bank. In terms of the financing activities, 88 million better but that's linked to the repayment of the overcompensation following the settlement with the European Commission. You remember the state that was held part of the remuneration to the extent of 88 million in the first quarter of We are back to normal this year. Slide 12 provides a summary of the balance sheet. Nothing really new and unexpected, of course. With the generation of cash in the first quarter and given the seasonality of our cash flow we are at the highest cash position of the year and, as you know, on 31 st December we are always at the lowest cash position for the rest. I don't think there are that many other changes in there. So I will pass back to Koen. MR KOEN VAN GERVEN: Okay. Let's go back to the outlook and given the results, good results of the first quarter, but knowing also that we made reference already a few times that there are some phasing aspects. I m happy to reiterate the outlook of the year and we are confident we would be able to at least maintain the operating results as well on EBITDA level as on EBIT level on a normalized basis. Of course, this takes into account the mail volume decrease, of up to 5 per cent this year. Parcels growth should be about the 2013 performance, we keep that outlook. Taking the planning 9

10 of the productivity improvements initiatives, this year s reduction is expected to be at the low end of our 800 to 1,200 FTE reference that we always use. Last but not least, no material exceptional cash flows are expected during this year. The net capex should be at 90 million, as we announced earlier. So this is, as far as the outlook is concerned, and now I would come back to points Paul made reference to in the introduction of this call. Some information and some questions that we did collect in the preparation of the general assembly of shareholders next week. Actually, they relate to two decisions that should be taken in the general assembly. One concerns the remuneration report and will be submitted for approval and the second relates to the appointment of two new directors. Let's point to the first as far, as the remuneration report is concerned. I understand that the absence of indications in the report of a long-term incentivization scheme for management that should ensure alignment of interest between the shareholders and the management, that this is felt as a concern by some shareholders. Two remarks on that. It is indeed correct that the current government is not in favour of any form of option or warrant incentivization scheme. So they don't want to support it. That is the first point. On the other hand, I remind you that all members of the Group Executive Committee are shareholders of bpost as part of the specific employee offering at the occasion of 10

11 the IPO and they are too subject to a lock up provision of two years, starting as of the IPO date. So those are two additional comments we want to provide you already. The second concern has to do with, or under remuneration report, relates to a lack of information on the bonus schemes applied to group executive management. Here, for the avoidance of doubt, their package includes a variable pay of 30 percent of their fixed based salary for the on-target realization of objectives and it is calculated with a formula that you can find on slide 16 where the performance versus target on EBIT level counts for 70 per cent, and the performance versus targets on customer loyalty level counts for 30 per cent. Next to both corporate related targets, we take into account the realization of a limited number of agreed personal objectives, like project delivery, product development and so on, then afterwards we multiply both buckets. Then just to be complete, the amount that management can obtain is capped at, if they exceed, of course, the target, it is capped at an upside of 45 per cent. Except for the CEO, but that you can read in the footnote where it is capped at an absolute level. So Pierre will give some more context and color on the selection process and the profile of the two newly proposed directors, which was the second point of concern that we collected on the AGM. Yes. The points specifically we heard about was that, were the two individuals proposed considered to be independent directors 11

12 and to which extent does it mean there are not enough independent directors to in a way to counteract or compensate the fact there is a majority shareholder in the company. The first point is what are the articles of association that they perceive that there will be a board composed of 12 directors appointed by the majority shareholder. Three directors deemed independent and two directors which originally were CVC appointees. It was foreseen that the day CVC would stop being a shareholder those two directors would be appointed by the shareholders, excluding the majority shareholder. Which means basically the minority, or the not majority shareholder, will vote exclusively for those two. So technically they are not in the category of independent. I would remind you the independent directors are voted in by all shareholders, but they are voted in by the non-majority shareholders. Those are the two directorships which needed to be filled following the departure of the two CVC appointed directors. In order to appoint them, and I'm on page 17, there was a detailed process which was run by Korn Ferry. There was a profile established of basically the skills that we felt could complement the rest of the board. There were a number of candidates and the conflicts of interest of those candidates were thoroughly tested which led to a proposal, to appoint the two gentlemen described on page 18, Ray Stewart, which basically can bring additional strength in everything we set to do: financial, audit 12

13 and accounting. Ray has a long experience in finance and in his latest position, Chief Financial Officer of Belgacom, a publicly quoted company and much stronger experience in the US and abroad. The second director is Michael Stone, who has a long experience in the parcels business which we know is an important component of our future and can provide very valuable experience in this sector, both for the more local and more international approach. So those two gentlemen we feel really complement the rest of the board and bring specific skills to the board. Under Belgian law, and it is page 19, those gentlemen qualify to be considered as independent directors in terms of their relationship with the company or lack thereof. Therefore, even though some in other countries have different standards to determine that, we feel that one of the facts that under Belgian law they would qualify as independent directors and secondly they are employed by all shareholders but the majority shareholder ensures or makes sure on top of their intrinsic qualities it ensures that they can certainly both support the company in its development and make absolutely sure all shareholders' interests are properly represented, along with the other directors, those appointed with the majority shareholders. MR PAUL VANWAMBEKE: Yes. With that, I think we can go straightaway to the question and answers. So please open the line for questions. THE OPERATOR: I will, thank you very much. 13

14 Ladies and gentlemen, please press "01" on your telephone keypad to ask a question. That's "01" on your telephone keypad to ask a question. The first question is from Dieter Furniere with KBC Securities. Please go ahead, your line is now open. DIETER FURNIERE: Yes, hi. Thanks for taking my questions. I have a couple, I will break them down a bit. Maybe first starting on corporate operating income and such. We see such volatility there in the quarter, despite that year on year the numbers seem to reconcile. But for instance Q1 of last year it was 14 million, Q3, Q4, minus 5.8. Could you help us a bit to guide what is exactly a normalized trend there. Is there some seasonality in there? What we should take into account on a normalized base? I think the same question for other opex where we see similar volatility. Is there some seasonality also in the first quarter where you have actually negative costs? That's the first of my questions. Secondly, on the parcels operation. The 1 per cent you lost to a client, could you say this happened at the beginning of the quarter or throughout the quarter? So could this 1 per cent still move up a bit higher as you go into the second quarter? Also on parcels. You guys thought parcels volume being above After the first quarter in domestic, can you still confirm that you expect parcels, volumes both for domestic and international, to be above from 2013? Then my last question is on working capital. Part of the working 14

15 capital, so 42 millions improvement in working capital of which 25 million fell from earlier settlements so likely binding impact. The remaining 17 millions, is this something sustainable or do you expect also a reversal of that amount and throughout the rest of the year? Thank you. MR KOEN VAN GERVEN: Thank you very much for your questions. I propose that we start with the first question, we will take them one by one, and that Pierre gives some additional insight, if it is available now, on the corporate operating income. Yes, the movement, the big movement there is always the timing of the sale of the buildings. As you know, buildings get sold when they get sold and you have some volatility during the year, depending on the number of buildings sold and their value. Regarding the full year in terms of the building, we said it would be a bit below 2013 which had been a very good year in terms of building. That is incorporated in effectively in our guidance. So there will continue unfortunately to be volatility because we can't predict when the buildings will be sold and the overall figure will be slightly worse than last year. In terms of the other, based on what we have this quarter, as you mentioned, the other costs, it is slightly worse than last year because of two things. There is an element of VAT recognition difference and there is an element which is related to the local taxes, the local tax thing, as we said, that's purely temporary, that s about 600,000 euros a month. So that s 15

16 1.8 million negative that will disappears as from September, basically. The other bit will stay. So that is, I think, on those two lines. Maybe I can do the working capital. MR KOEN VAN GERVEN: You can do the working capital. As you mentioned, one part of the element of the improvement, 37.5 about, is structural in the sense that last year we had that charge we don't have this year and we don't anticipate to have such a charge. The other 18 million, 17 or 18 million, is mostly linked to the movement on the settlement from the operators and there we expect that it will revert in some ways in the rest of the year, ie we are collecting the money a bit earlier than anticipated. Not anticipated, but earlier than what we have collected last year. You remember we were saying we had a bit of delay, this year is coming back to normal. For parcels, MR KOEN VAN GERVEN: For parcels, the 1 per cent when it happens during the quarter in my understanding this was already going on, the problem this customer had was already going on last year. We have to verify what exactly has happened in the course of this year (I think it s January) so our understanding is that that s fairly early, so that it counts full blast in this quarter, but we will confirm that to you later. Now, the second part of the question is the outlook that we have in terms of growth on the domestic parcel, we can confirm that our outlook where we want to be better that previous year 16

17 is eligible for parcels too. DIETER FURNIERE: Okay. Thanks. Maybe to dig in a bit further on the first question, on the corporate operating income. So not other income that's really cost operating income in which there is also, I think, non-real estate gains and such. If you would see year on year, the real estate gains are actually the same, while your corporate operating income went from 14.4 to 11.8 and there is also a lot of volatility within the quarter. Are there other explanations beside of real estate gains, maybe other reconciliations between the separate divisions that explains that? Because it doesn't seem to be fully explained by real estate gains. I was talking in general about the full year. That is what explains the big variation from quarter to quarter. If you take quarter one and compare it to quarter two -- sorry, quarter one of this year compared to quarter one of last year, you also have some smaller elements of revenue recognition basically that we re-compute on a quarterly basis and which are linked to basically what we assess is the sale of stamps, the actual - not the sale, the sale stays what it is - but throughput of stamps in there. That is effectively mechanically impacted by the decline in transactional mail. So when you have more transactional mail decline and this is the case this quarter, this has an impact on there. So it is going to go forward? This is normally a phenomenon of the first quarter because it is based on the stock up at the end of the previous year in anticipation of the 17

18 price increases we put on in January and it becomes much smaller in the following quarter. That would be the second element in there. DIETER FURNIERE: And the same is true for other opex because also there in the first quarter year you have negative costs, while in the other quarters, I think, underlying the costs or somewhere between 2 and 6 million last year. It's also something that we should expect a real opex, so not a negative opex in the coming quarters? So normally you take the other quarters and so there I can answer on the difference on the other operating expenses. Last year we had also a negative figure, 5.6 million, this year we have 1.3 million. As I mentioned in there, you have some element of VAT and some element of the regional and local taxes. But that is specific to the first quarter, the fact that it is negative should take the other quarters normally should be more or less in line with the last year except, of course, that from the second quarter you will have, again, the impact of the social -- sorry, of the regional tax and the local tax, same thing. Then it will disappear in the same quarter as we have the catch up, which happened in But normally quarter to quarter it is reasonably comparable in terms of the seasonality, to answer your question. And that is very specific for this quarter, next quarter, and Q3. DIETER VERMEIRE: THE OPERATOR: Okay. Thank you very much. Thank you very much. Moving to Andy Jones with RBC. Please 18

19 go ahead, your line is open. ANDY JONES: Good morning, all. I had three questions which I hope will be quick. The lost customer in parcels, I think you intimated there might have been operational issues rather than necessarily customer loss to a competitor. Is that the case or has it gone to the competition and on what metric did it go? Then, secondly, on the FTE change, how does that phase through the year and particularly in comparison to last year was the reduction in FTEs particularly back end loaded in 2013? Then, finally, in terms of just the remuneration issue, how does the 70 per cent maximum payout compare versus the outlook in terms of the normalized EBIT guidance which you provide. Does meeting that enable the full 70 per cent or is it more of a stretch involved in the target? Thanks. So the lost customer is basically a company which I won't name, but which went into reorganization. They then transferred all their operations on the operational aspect to an existing company in the Netherlands which was working already with PostNL for the Netherlands. Therefore, the reason of the change is exclusively due to this element as I mentioned. We are in negotiation with the company to try to get back the contract which would mean integrating with this new, what would be effectively a new customer but it would be the same volume, effectively. But it is not about pricing, not about quality. That happened the day they moved for internal reason. FTEs, as Koen has said, we are guiding for the full year at the 19

20 lower range of the 800 and 1200 which means mechanically that indeed in the second half of the year we are going to hit more difficult comparatives compared to last year, where we had very good FTEs and the fact that in the second half of the year we have, compared to last year, less plans. As you know, our plans are three years to five years in advance and it is based on actual reorganizations and in actual work which is done, which means we can say yes for this second half of the year compared to last year we have different phasing. So a good 1,037 in the first quarter and it is going to go down towards the figure we have guided. But it is perfectly normal, that's the plan as they were anticipated. On your question on the 70 per cent, on the EBIT target. Basically it is a line with the guidance that we provide. So basically in order for us to earn more than the 70 per cent, as we said, we can do more if we do better. We would need to do better than the guidance. ANDY JONES: THE OPERATOR: Okay. Thank you very much. Thank you very much. Next in line is Matthew O'Keefe with Berenberg. Please go ahead, your line is open. MATTHEW O'KEEFE: Yes, thank you. Just another question, please, on employees and costs. I see that your costs per employee picked up a little bit in the first quarter and you mention that merit increases were a factor in that. I wonder if you can just tell us a little more about merit increases and how they work. That's it. Yes, it is actually merit and seniority. On the one hand, we said 20

21 merit but it's merit and seniority. Then we said also to the extent of 1.1 million basically the improvement of the profit in there. I will come back to that. So merit, it is basically once a year based on the performance of the previous year so that people are entitled sometimes to a small salary increase. That is one part. The seniority increase is for the population of what we call the statutory, so the ex-civil servant or the civil servant and the contractuels barémiques are people which are also working on the field. There every year when they hit another year of service there is an increase which comes every year. This is not the case for the auxillary postmen which do not have that same increase in scale, or at least for a much lower level. That is why we have always said that on average we always increase salaries above inflation with the merit and with the seniority slightly above inflation. This year there is no inflation so you see that appearing. The second element is the 5 percent profit share. All our workers are entitled to 5 percent of the profit of the parent company. Since the profit of the parent company picked up sharply during the quarter, and it's a formula that is a bit more complicated than just 5 per cent, there is an additional profit sharing accrual. Of course, depending on what happens quarter to quarter the results could be slightly different. MATTHEW O'KEEFE: Okay. So then I will assume that the profit share component is ongoing, all being well. I guess I am also assuming that over 21

22 time that the seniority component should taper away as your workforce gets a bit younger. Is that a reasonable way to think about the future? Yes, but it is going to take a long time. Because if you take the number of auxiliary workers, which are those on the much flatter salary scale, those people, there are 5, almost 6,000FTEs. Our total population if you exclude the managers, et cetera, 23,000 employees. So it is still a long way before it goes away. And the fact that the older workers retire, okay, fine, but all the others are also increasing each year because they get one year older each year. MATTHEW O'KEEFE: THE OPERATOR: I have what I need, thank you. Okay, sorry about that. Okay. Thank you very much. Next in line is David Vagman from Exane. Please go ahead, your line is open. DAVID VAGMAN: Yes, good morning. One question on my side, it is actually concerning the cost cutting. How much room do you have, do you think, to cut cost further concerning SG&A for instance? I think regarding SG&A if you exclude the impact of the transport costs which are correlated to the increases in sales of parcel, of the international parcels, in total SG&A are going down by 10 million or something in the quarter. In there, you have a mix of elements which are structural and others which are more in some ways management decisions or linked to projects that we may have. Advertising costs are down in the quarter, consultancy is down. Third party remuneration which 22

23 includes basically the IT developments that we buy in are all pretty much down during the quarter. I think we have always explained for those things that to a certain extent we always very closely monitor the results, the overall results of the company and depending on how we see them moving in terms of volume evolution, cost evolution on the personal side, we then decide to which extent we want to reign them in and, therefore, slow down some projects, slow down some initiatives or cancel them. On the contrary, if we feel there is a bit of room we accelerate. So there is an element in there of phasing, that is what I mentioned when I talked about it, and there is an element of discretion, knowing that it is not money being thrown away and if things are less good we don't throw them away. It is a question of phasing, of project initiatives, et cetera, which is something that historically we have always used. So one should not expect SG&As to go down by 40 million over the year, over the full year, ie 10 million times four. I think there is an element of phasing and there is an element which we will continue to manage to achieve or exceed our objectives. DAVID VAGMAN: And, if I may pursue, in the coming years let's say that -- well, mail volume decline, accelerate. What would you consider as a floor for these operational expenses, next to payroll cost? We have never computed the floor. I think it's one of those things that is an ongoing process. A few years ago when we were concerned, in 2009 actually when we were concerned 23

24 about the volumes following the crisis we did an exercise of going through those costs and we took out, I think, at the time in excess of 20 million. On top of the discretionary, I would say. Looking at the costs, the unit costs, the usage. That is an exercise we do from time to time. I cannot say the minimum is going to be -- we need fuel, we need maintenance for trucks and machines, we need a number of things. We don't have a minimum figure. MR KOEN VAN GERVEN: Of course, we fully agree this is one of the things we have to monitor and keep in mind. But if you make reference to the volume decrease of mail. The most important part we have to monitor is personnel costs. There, as you know, we still have and this has to do with the age pyramid of our personnel, here we have still ample room to adapt swiftly to the evolution of the volume decrease. DAVID VAGMAN: THE OPERATOR: Okay. Thank you. Thank you very much. Next up is Chris Combe from JP Morgan. Please go ahead, your line is open. CHRIS COMBE: Thank you. Hello, everybody. Just a couple of questions. One more follow-up on parcels. Can you give us some sense of how much volume would be ascribed to your top five or top ten customers? Then, second, with respect to the mail volume guidance at 5 percent unchanged. Given the first quarter performance and expected support in the second quarter from election volumes, is it safe to say that expectation on the guidance of a more 24

25 severe decline in the second half and what would you expect in the second half, in terms of any unusual comparisons. Thank you. On the first question I would need to do the math, I don't have it with me. It is not as concentrated as one would think. It is a long tail of customers but I need to get back. We can provide that, I just don't have it now with me. But it is not as concentrated as one would think. We don't have anyone representing 10 per cent or whatever of our customer base. So I need to get back to you on that one. In terms of the 5 per cent, I don't think, you know, this is only one quarter and we are not unhappy with the 4.6 per cent of this quarter. We are not unhappy with seeing that advertising mail is doing better. But the 5 per cent is really a planning assumption. This is not an assumption it is going to go in a particular direction. MR KOEN VAN GERVEN: And in a 5 per cent planning assumption we already discounted that in the second quarter. We have these elections. Normally spoken, second quarter, we should see the volumes after the elections. But we don't have any indication yet, even with the good performance of the direct mail, that makes us think that we can change the outlook in another direction. So we think that it is a fair assumption to keep the 5 per cent for the entire year. And coming back, my team is very efficient, they are showing me that the top ten in domestic parcels, the top ten represented 25

26 in Q1, 15 per cent of the turnover. CHRIS COMBE: Okay, that's very helpful, and one very quick last one. When the bids on the newspapers and periodicals contracts, when those bids are due in June, should we expect any public disclosure of who those other bidders may be? MR KOEN VAN GERVEN: Well, that depends of course on what the BIPT is going to do. What we can tell you, and that is of course a new insight but I presume you are not going to be surprised by that, that we will respond positively to the request for both the newspaper parts and the periodicals parts. That depends on what is going to happen and it's not excluded there will be leakages in the press of that. In the process there is nothing formally foreseen, as far as we know, on the formal communication who is going to be on the shortlist of the candidates. CHRIS COMBE: THE OPERATOR: That's clear. Thank you. Thank you. Moving on to Douglas Hayes with Morgan Stanley. Please go ahead, your line is open. DOUGLAS HAYES: Yes, thank you. Good morning. Two questions, please. First, when we look at the margins, specifically in the mail and the parcels division, I understand there is going to be some phasing from the quarters from a seasonal standpoint. Do you think we have reached a pretty solid base level for the rest of the year? So the margins should follow a similar seasonal progression to what we saw in 2012 and 2013? You know, margins are very much linked in our business to volumes and volume development. Assuming we have the 26

27 same volume development as last year, quarter to quarter, then it will follow the same pattern. DOUGLAS HAYES: Great, thank you. Secondly, can you remind us on what you guys have for the capital reserves at this point and how much -- what you guys will think about, whether or not you distribute any excess capital? So a while ago we had the question which said will you be able -- somebody had computed and said 350 million, is it technically possible? The short answer is: it is technically possible. We have both the cash and the capital element. We are putting away this year a little bit of reserve because we are not paying 100 per cent of the results in the form of dividends so, yeah, there is about 27 million which is going to be put in the capital in some ways account to smooth out future dividend if needs be. So we are a little bit of the 350 million which could be done. That's a technical answer in terms of any decision or indication of decision. It is fully in the hands of the government, as you know, as the majority shareholder. At this stage we have not received any indication that there was any demand to review this. DOUGLAS HAYES: Okay. Great. Finally, you did mention there was going to be the positive election impact in Q2. Can you quantify that at all? In 2012 we had quantified how much it was. It was 5.8 million, 5.8 million. So that -- MR KOEN VAN GERVEN: But they are different elections. In 2012 they were local 27

28 elections with more candidates. But I think that we can guide them more or less around 5 million, in terms of impact on top line. DOUGLAS HAYES: THE OPERATOR: Very clear. Thank you very much. Thank you very much. Next in line is Peter Testa from One Investments. Please go ahead, your line is open. PETER TESTA: Hi. Thank you. Three questions on costs, I will go one at a time. Just on the headcount question, looking back at your disclosures H1, Q2 and Q4 and I don't really see the seasonality you talked about. So H1 was down 1163; Q3, 974; Q4 was 1067 and now you are down Q1, So can you go back and explain, please, why it is or what it is that is going to slow down the steps? Is there basically not much happening ahead of the collective labour agreement or is there something else that is going to dramatically change that year for year picture. It didn't seem like it was back-end loaded last year. Well, you obviously have to look at the previous year, so it depends on what happened on the previous year. The figure of last year depended itself on the figure of the previous year. What we know from the second half of this year is, that compared to last year, there are less programs and reorganizations than we had last year and possibly the year before, and probably the year before also. This is according to plan and from the beginning of the year we guided on the low figure at almost 1100 than we had last year. For the full year we said it would be on the lower side, so it is really a question of 28

29 doing that. Second, there are some seasonal effects which are hidden sometimes in there. For instance, at the end of the year, this is the period where we need the most people for let s say the Christmas or holiday rush. So basically sometimes the figure is the same as the previous quarter, but in reality it hides the fact that underlying there was a bigger effort in terms of real productivity improvement. Actually compared to the previous quarter, parcels compensated by the additional troops in the line to be able to deliver. So I think, you know, as usual we will try to do as well and as good as possible. But, as we said also, we have a reasonable visibility on the plans that we are doing and there are simply less plans. Basically when we guide that back in the beginning of the year it was before there was any discussion with the union, so whatever. So it was really based on the normal climes that we were doing. MR KOEN VAN GERVEN: Less plans that have delivery in the course of this year. Yes, yes. We are continuing to -- MR KOEN VAN GERVEN: We continue to build the pipeline of the plans and approaches we have, but there is less delivery or scheduled delivery in the course of this year. We have big years and small years, as we have said and then the average of a thousand that we said over the five year period. PETER TESTA: Okay. Then on the collective labor agreement, is there progress 29

30 being made, any understanding that is following an agreement to that that other plans would be released at that point? Or can you give a sense of how the collective labor agreement completion would at anything? MR KOEN VAN GERVEN: No, no. There are a number of small -- there are no big plans discounted in the collective labour agreement. There were small changes in the purchasing power for the lower paid people and then there is the confirmation of something that we have to confirm on a yearly basis. The non-recurrent bonus as we had already in the previous years, which is very important for big class of workers. But besides that, our number of ongoing programs is nothing big that is going to be included in this collective labor agreements. Collective labor agreements usually mean a deal with the organization and restructuring. Those are done throughout the year based on the plan. Collective labor agreement is more about framework and salary, basically. PETER TESTA: Okay. My last question is just a follow-on from a comment you made earlier, that you were not expecting to necessarily keep the cost performance of Q1 through the year. You have some one-off issues that were against you which have been well discussed: the VAT and so on and the one-off settlements. Can you talk about is there anything on the other side which you expect to bounce the other way for the year or that would explain that comment. No. As we said, for instance, we take marketing. Marketing is 30

31 a good example. This quarter we spend a little bit less than last year, but for the rest of the year currently we are seeing something which is more or less in line with last year. But, on the other hand, if we see that, you know, we need it we may then try to reject that. We have the same thing with third-party remuneration, I mentioned that in there. We have some ICT government costs. There is a search element of phasing, a bit less this quarter and we should have some catch up through the rest of the year, unless we come to the conclusion we need to phase even more. So there is nothing specific, we are just saying: look, 10 millions is a very big figure, I simply don't multiply by four to get to the evolution of the year. There is an element of phasing in there. PETER TESTA: Okay. Anything else on the larger costs that have not -- No. The number of FTEs as we have discussed and the other operating costs, as I said, this element, I think we have discussed that. PETER TESTA: THE OPERATOR: Okay. Thank you very much, appreciate it. And there are currently no questions in queue. Ladies and gentlemen, a reminder, you can still ask a question by pressing "01" on your telephone keypad. And we have a question from Hugo Turner. Please go ahead, your line is open. HUGO TURNER: Hi, just one question from me, please. Given the evolution in mail volumes over the last couple of quarters and with inflation in Belgian particularly low at the moment, do you think stamp 31

32 price increases this year are going to be well above the 0.3 to 0.4 per cent above inflation that you have targeted historically or is it going to be closer to the 1.1 per cent above inflation that you pitched through last year for 2014? MR KOEN VAN GERVEN: Well, of course, with the inflation that is very low this year and I understand the full year expected inflation will be at 0.62 percent. We expect an increase of the stamp price will be above inflation, but it is not going to be very important is done and dusted. So it is on 1 January 2015, indeed, there will be a smaller increase. MR KOEN VAN GERVEN: And that we will establish after the summer. But we expect it's going to be a small price increase of course, in absolute terms. HUGO TURNER: THE OPERATOR: All right. Thanks. Thank you very much. As there are no further questions in queue, I would like to return the conference call to you. Gentlemen? MR PAUL VANWAMBEKE: Thank you very much for attending today. As usual, if you would have any further question we are obviously available for that and also on the specific topics we mentioned today regarding the corporate governance. For the rest, have a nice day. THE OPERATOR: Ladies and gentlemen, this concludes today's conference call. Thank you very much for attending. You may now disconnect your lines. (The conference call concluded). (12:08am CET) 32