Interim Financial Report First quarter Conference call transcript. Brussels May, 7 th 2015 Koen Van Gerven, CEO Pierre Winand, CFO

Transcription

1 Interim Financial Report First quarter 2015 Conference call transcript Brussels May, 7 th 2015 Koen Van Gerven, CEO Pierre Winand, CFO Transcript of the conference call held on May, 7 th :00am CET

2 Presentation THE OPERATOR: Ladies and gentlemen, welcome to the Bpost First Quarter 2015 Results Analysts call. I am pleased to present Mr Koen van Gerven, CEO, and Pierre Winand, CFO. For the first part of this call let me remind you that all of the 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 and Pierre Winand. Gentlemen, your line is open. KOEN VAN GERVEN: Thank you very much indeed. Good morning, ladies and gentlemen, thank you for joining us as always. I have with me Pierre as well as the IR team with Saskia and Paul. And I imagine that you have already the opportunity to go through the material we posted yesterday evening, and I will try to briefly summarize some key matters and afterwards which we will go rapidly to the Q&A. So I propose that we move to page 3. And there you can see that the results of the first quarter are fully in line with our outlook. Mail volumes have been soft in the first quarter with the decline of 5.3 per cent. And this, combined with the lower remuneration of the Services of General Economic Interest resulted in a decrease, a slight decrease, of the revenues by 1.6 per cent. Nevertheless, a strong performance in parcels, and the excellent results delivered on our cost saving plans allowed us to compensate those impacts. And, as a result, EBITDA and the net profits of bpost 2

3 SA are stable versus last year. As we move to page 4, there you can see the various impacts I just mentioned. If one excludes the impact of the lower compensation, the 4.2, the EBITDA progresses with 4.0, with growth in parcels and cost savings more than compensating the decrease in mail revenues. And Pierre will come back on this later. Now, before handing over to Pierre I would like to take the opportunity to thank him for the good work at Bpost for the past nine years. As you have seen, Pierre decided to take another challenge outside of bpost as from July. But for the time being he is still here and he will provide some additional comments and afterwards, of course, I'm sure that you have some -- some good questions for him. PIERRE WINAND: Yes, thank you very much Koen. Moving on to page 6 you can read on an organic basis sales have been lower by 6 million euros or 1 per cent. In addition to that there has been a decline of the services of the remuneration we get for the Services of General Economic Interest of 4.2 million. This was announced, this is part of the 16.5 million reduction of the remuneration that we had announced. If with go product-per-product and if we move to slide 7 which talks about domestic mail, Koen already said that we lost 5.3 per cent in terms of volume. If you look by product at the underlying level, transactional mail was a decline of 5.3 per cent, which was a little bit higher than what we had in 3

4 the full year On the other hand, in advertising mail we have a decline of 5.9 per cent, which is quite a bit more than the 3 per cent that we had registered for the full year of Which means basically that advertising mail and probably the advertising sector in general still has not recovered compared to previous years. In terms of the press, decline was 3.1 per cent, which is basically in line with the full year. There are variations during the year quarter-for-quarter so I would not certainly worry too much about that one. Moving on to page 8 and parcels, there we can say I think we had a very good performance in domestic parcels with a volume growth of 10.2 per cent, which is basically explained by the success of our biggest customers in particular, which also explains why there was a negative mix effect of 3.7 per cent. Actually, the price effect is slightly positive, which means that customer prices are not going down, but because of the great success of the largest customers, those who got the smallest prices, the mix, basically, is negative. On the positive side in this story of mix we have mentioned last year that we had been declining in C2C because basically one of our competitors, in particularl Kiala, had done a very good job at luring away some of our more accuracy C2C customers. You know that we launched a new product at the back end of last year to respond that, and in this quarter 4

5 we've registered a small growth of our C2C segment, which is of course one quarter doesn't make the year but it is good news and could indicate that the products that we have launched are positive. In terms of international parcels, we've done well in the US, we've done well in Asia, in China. We had a decline in the shipments of milk powder to China, but that is something that we also said we would say for a long time that one day it will go down. It has gone down. It's too early to say if it's a long-term trend, but I think we repeat what we've always said: this is a part of the business that is not maybe for ever. Looking into slide 9, the other sources of revenue. The only really negative one is international mail. And there's it's the continuation of our restructuring of our international operations. We did quite a bit of work last year, but this year we've drastically reduced our wholesale activity in international mail. "Wholesale" means that we are not in contact with the ultimate customer, we are kind of a middle man who is selling capacity. It is an extremely low margin business and we have felt it didn't serve the strategy of the company and did not help us achieve our goals. So we've strongly curtailed that, almost completely stopped in the US, and reduced it a lot in the UK. That improves the margin, basically, of the company. Moving on to slide 10 and the cost. Costs are absolutely under control, with a reduction in particular with the payroll 5

6 costs and interim costs, which is driven both by the reduction in the number of FTEs, 681 FTEs in the first quarter compared to the first quarter of This is absolutely in line with our expectations and with our plans, and therefore we are quite happy about that. And there are other positive effects in the personal cost that has helped make the savings. All other costs are under control also. Looking on cash flow, page 11. Cash flow has been, operating free cash flow, has been impacted by a number of elements. The first one is the cash payment of the stub of taxes relating to 2013 when we had this special tax also - 42 million were paid in January. We never know exactly when we are going to have to pay, depends when we receive the statements from the authorities for the taxes. It happened in the first quarter, 42 million. Then we have some impact of the payments of the terminal dues for about 25 million, 7 of which is basically phasing between the quarter, and 18 is the famous payment we mentioned last year we had received twice, basically they paid us two years in one -- one particular partner. Last year we said that this year we would only get one, which is more logical, and it happened in the first quarter. There are then a few other things but they remain under control. With this I would like to hand back to Koen. KOEN VAN GERVEN: Thank you, Pierre. 6

7 So with all of this I am comforted with this quarter by our strong results in parcels and in cost control, which allow us, as we set out in our outlook, to generate results in line with last year, despite the lower compensation for SGEIs and the higher decline in mail. And at this stage, and with the elements we have in hands, we can firmly confirm our outlook for this year. Question and answer session THE OPERATOR: And our first question is from Christopher Combe from JP Morgan. Please go ahead, your line is open. CHRISTOPHER CROMBIE: Good morning everybody. Just a couple of questions. First of all, given your domestic volume growth in the first quarter is your unchanged guidance for the full year not overly conservative? And if you see the (inaudible) gains continue what impact should we expect on price-mix? PIERRE WINAND: I didn't understand the last question. On parcels? Okay. I think for the full year guidance we always are cautious after the first. And cautious in general, I mean I don't mean we are being cautious and conservative, I am saying we are cautious because one quarter doesn't make the full year. If you remember last year we had a pretty weak first quarter, even were second quarter in terms of volume, and then we had a much better third quarter and very good fourth quarter. So it's very difficult to say quarter-to-quarter. 7

8 I think what we noticed is that a weaker quarter also like last year. If everything goes right it will have the same shape as last year, but we don't know yet. So at this stage we don't feel any confidence that we can improve the quarter, but also no worry that what we -- what we guided is to risky particularly. In terms of price mix, in many ways this price mix is affected a little bit as a result of our success. With the very good growth of some of the big e-tailers it has an impact on price mix. So we have guided for the full year parcels and kind of mid-single digit. I suspect if we do better than that the price mix will be worse; if we do less good as that it's probably -- or if we do around our guidance it's probably because the most -- the biggest have started to slow down a bit which could be positive for the -- for the guidance or for the price mix. But on -- on balance it is still very positive, of course, and we like this additional volume which shows also that E-commerce is doing well in Belgium. CHRISTOPHER COMBE: Okay, and just one last one on SGEI. What's the real probability of possibly addressing the shortfall? And can you update us on your efforts in that respect? PIERRE WINAND: So for 10 million of the 16.5 million was contractual so it always in the cap and it was always -- it was even in the IPO documentation. You know, there was a cap and the cap for the year was 10 million lower. So that one, nothing to do. 8

9 The 6.5 million what we have done, we've reserved our rights, i.e we basically told the State that they had no legal basis for that, but that we were going to look at that as a part of our overall negotiations. As you know, we've got the two contracts, the two press contracts, for which we need to submit the tender. But there is also, for the other services, discussions around the renewals, and I think ourselves and the Board will look at it on balance taking into account the whole of our relationship during the year. So for the moment we are assuming that the 16.5 million are the ones that we will see in are figures this year. CHRISTOPHER COMBE: Okay, thanks, and good luck in your next role. PIERRE WINAND: Thank you. THE OPERATOR: Thank you very much. The next question is from Andy Jones from RBC. Please go ahead, your line is open. ANDY JONES: Good morning. Thanks for taking the question. I've just got a couple as well. First one on cost, I know in the past when you've had a weaker quarter you've made kind of -- what can I say? -- emergency safeguarding of certain costs. Was that kind of similar in Q1? I think the point I'm trying to get out is, you know, how much of this cost can be held onto beyond a couple of quarters and does it need to come back? My second question is on the other SGEIs, so the non-press SGEIs contracts that you have with the Government. Do these have to be settled by 1 January 16? Or can they kind of 9

10 roll on as it is with the 5 th management contract? Thank you. PIERRE WINAND: On the costs, we don't necessarily manage costs in the sense that we move things from one quarter to the other. What we do is then when we do things that there is weakness we start telling the units to be more conservative in their costs. And we release that, i.e. we let them spend if we feel more confident about the top line. So it's not a question of manipulating the cost from one quarter to the other. But clearly if the volume remains soft there are a number of spends that we had initially foreseen for the year that we will not do. We've asked the units to ring-fence some costs, as we call it, internally, i.e. it's still there, but they cannot spend it until we give them the green light and the green light will depend on how volume evolves in the next few months. So that's clearly -- on the non-press, the contract is until 31 December 2015, so in principle it has to be resolved by that date. Otherwise, the Government could of course roll it forward. They can do -- you know, they are the Government. But I think it would not be good with the European Union if we were to do that because they always want to have a strong legal basis for those kind of services. KOEN VAN GERVEN: And we started off discussing with the Government, and we expect that later in the second quarter or the third quarter we will find an agreement on the content and, of course, the compensation. 10

11 ANDY JONES: Okay, thank you. And just a couple of follow-ups on those questions. Firstly, on the ring-fencing. Is your kind of full year guidance -- does that kind of allow for some of this ring-fencing in addition to what is already factored in? And on the SGEI, what is the total revenue amount? I know what the revenue is for the press contracts, but kind of the other SGEIs that are in discussion as well. Thank you. PIERRE WINAND: I need to check the exact amount. It's the total amount is 290, and within that the press is, what, 190? So it's about 100 million on the other services. KOEN VAN GERVEN: And, as you know, the other services, they cover the retail network, the distribution of pensions and the cash payments in the offices, which are the biggest one, and then a number of other ones. So -- and those are the main things that will be under discussion. PIERRE WINAND: And the ring-fence doesn t impact really the outlook because again those are spends that if volume evolution is okay we will do, if volume evolution is not good we will not do. So basically we flex it depending with the eye to get to our outlook. ANDY JONES: Okay, perfect, understood. And thank you very much, and best of luck, Pierre, with your future role. PIERRE WINAND: Thank you very much. ANDY JONES: Thank you. 11

12 THE OPERATOR: Thank you. And the next question is from Dieter Furniere from KBC Securities. Please go ahead. DIETER FURNIERE: Yes, good morning. A couple of questions from my side. Firstly, on the parcels performance, if you look at parcels and international and there is a margin of around 14 per cent which I think to be quite strong, especially against last year which was 9 per cent and against other quarters that were loss-making. Could you just provide more detail whether we should see it as an underlying margin as there were no restructuring costs and no exceptionals? And second question is on mail volumes and Q2. Could you just provide some more details on whether there is a working day adjustment, election mail impact that could skew performance? And third question is on a study that was out by the Belgian regulator BIPT which WIK provided on the Belgian postal market. Could you provide your take on this? And also where do you see the biggest risks? And also opportunity on the base of this document. Thank you. PIERRE WINAND: The parcels in international margins. As you know, last year we started effectively restructuring the parcels and international -- particularly international activities, which include international parcels, with a new management led by Dave Mays from our US subsidiary. We took over the whole of 12

13 the international operation. And what has been done is indeed to clean up the portfolio in many ways, loss-making clients, loss-making products, but also reducing the overhead costs and a number of structural costs. So what we are seeing this year in terms of improvement of the margin is a combination of a number of factors. It's good sales in both domestic and international parcels. The no margin or very low margin going away, which of course improves the margin even if it has an impact on sales, and the costs going away. In terms of sustainability, I think -- I don't know if we'll keep the 14 per cent because it depends a bit on the mix in the various product lines, and how much, you know, the international versus domestic and the lanes, et cetera, are going to work during the year. But the purpose was absolutely to increase the profitability and the margin of that activity, which we didn't feel was satisfactory. And so far the new management team is delivering on what they are -- on what they promised. In terms of -- and, yes, there was some Combo start up cost also in the first quarter of Combo is now being launched operationally and so there are less start-up costs. So altogether improve the margin. In terms of the next quarters, I don't know about working days but working days have a relatively limited impact. But the biggest impact in the next quarter is elections which is 13

14 about -- we estimated 5 million in revenues in total. About, I think, 4.2 million in domestic and 800k in international. So that we will not have next quarter whereas we had it last year. So 5 million in total revenues. KOEN VAN GERVEN: Yes, BIPT actually there are two points that are worthwhile to mention. First of all, as you know, we have number of licensing conditions that for a certain time already are seen by the European Commission as a kind of a barrier to entry that is too high. I remind you that the licensing conditions that new players that come into this mail market have to comply with are mainly 4. They have to work with contractual workers on the one hand. Over time, over a period of five years, they have to cover the entirety of the territory of Belgium, and they have to at least deliver mail two times a week. And with all of this there is the uniformity of pricing over -- over the territory. So those are the licensing conditions. Europe already pointed out in 2013 that a number of them were considered as too stringent. And more particularly the geographical coverage, and the uniformity of the tariffs. Those are the major concerns. Important to mention is that, for example, the condition on contractual workers is something that they have not challenged. And, moreover, at certain moments in time they acknowledged that this was accepted or acceptable at least. So this is one thing. 14

15 Now, provided that the European Commission was not satisfied with the reactions or the actions that were taken until now, they started off an infringement proceeding against the Belgian State late So we expect that of course the Government will react on that. So this is one part. The second part is the study you mentioned which was commissioned by BIPT, and they tried to make an evaluation of actually the impact on the market of the opening. And they came to the conclusion that at the end of the day they considered that the opening didn't work, or at least failed, and they jumped to the conclusion that it is due to the access conditions. And, on the other hand, they think that we didn't grant sufficiently access to bpost's infrastructure. So, based on those two things, of course the Government will have to look into this, and probably we expect that... we expect that a number of changes at this legislation could occur in the future. Two additional comments on this. First of all, I think that it's a little bit premature to jump to the conclusion that the access conditions are the reason why the opening failed and there are no new entrants or no more new entrants, because there is one on the market. If you look to other countries, for example the Netherlands, yes, indeed the access conditions are probably in one or other ways softer; but even in that market, after ten years of a fully free and liberalized environment you don't have many players neither. And the 15

16 only player there, it took him 10 years of start-up costs before he stopped losing money. The second observation is that if we talk about competition in that market, then of course I think it's correct to say that the main competition in the postal business doesn't come from other players that could appear in the market, but that a much more important competitor is everything that has to do with the digital world and Internet. DIETER FURNIERE: Okay. And are there also I think opportunities for you coming from the document. I read about the retail network for instance, that the requirement to have and the number of retail offices is not giving you sufficient flexibility, I think. On the other hand you are obviously paid through the management contracts so for that. Do you see that more as an opportunity also for you from that advice? KOEN VAN GERVEN: Well, I think that's too early to point out in one or another direction, but I fully agree with you that there are a number of constraints that we have to live up and for which probably we get some compensation. But if we are not -- are not well obliged to do that, that we can put in another framework. And I'm not sure that indeed we will continue to do everything that we do today in the same format. DIETER FURNIERE: Okay. Many thanks for the elaborate answer. THE OPERATOR: Thank you very much. The next question is from Hugo Turner from Credit Suisse. 16

17 HUGO TURNER: Hi, I've got three questions, please. The first is I am trying to understand if you have put in anything for the Alpha plan restructuring in the first quarter, and how you expect those restructuring costs to spread over the rest of the year. And the second is I was wondering if you'd give a bit of guidance on how the second quarter started in terms of mail volume trends. I am trying to understand whether the first quarter, the weakness was really a phasing effect on the fourth quarter and maybe how the second quarter has started. And the third question is just on the 10% volume growth in domestic parcels, you know, in your opinion how much of that is E-commerce in Belgium starting to pick up the European averages and how much of that is really market share gain in B2C, C2C and B2B? Thanks. PIERRE WINAND: The restructuring costs, we have none in the first quarter. As you know, there is an elaborate process in terms of consultation for any restructuring plan that we may want to do, which has a big impact not only on the package that people could get but also on how many people basically could become entitled to that package and many FTEs, et cetera. So at this stage the negotiations or discussions are following their course, but it is too early to say how much it will represent both in terms of one-off costs, restructuring costs, or in terms of benefits. 17

18 We would expect, but just an expectation the negotiations will have well advanced by the end of the second quarter, which might then be the trigger for the restructuring provision to be taken at that particular moment. April, volume trends, too early to tell. We get the definitive figures and detailed figures in a couple of days, I think. Therefore, I can't tell you. I will just say last year -- but again I'm not saying this is a new yearly trend -- we had a pretty weak first quarter, weak second quarter and then it started getting better. So too early to tell if it is indeed an impact of the very good last quarter or if it's something a bit more structural. Sorry not to be able to say that. Volume growth and E-commerce. E-commerce is doing very well in Belgium, I think everybody is getting pretty very good figures, I've heard 15 per cent recently, which is pretty good. I don't know if it s a catch up, but it is pretty good. Also, the customers, which are declining very heavily, in particular in distant selling, are getting smaller and smaller. So as an impact, although they are continuing to decline, their impact on our figures is less, especially because the big e-tailers are continuing to grow pretty aggressively. So the two together help our overall figures. But -- plus the fact that we are certainly keeping our share in the segment. If we look at the balance of the contracts we win and with those we don't; or those customers we lose and those we gain, we are pretty sure that we are having our fair share of the particular 18

19 evolution. B2B, again it is growing, it is growing above the market, without any doubt, but from such a small basis it has a lower impact on the figures. And C2C, which helps -- in the last year we lost quite a bit there and it was, you know, pretty high, single digit losses most quarters. Now we are back in slightly positive, again it helps in terms of the overall 10 per cent growth. HUGO TURNER: All right. Thank you and best of luck, Pierre. PIERRE WINAND: Thank you very much, Hugo. THE OPERATOR: Thank you. And before we go to the last question, for the moment. Let me remind you that you can still press 01 on your telephone keypad if you wish to ask a question. And we have the next question is from Edward Donoghue from One Investments. Please go ahead. EDWARD DONOGHUE: Good morning. A couple, if I may. Just one, I'd like to get an idea, previously when we've had low mail volumes part of that's been put down to digital campaigns from certain larger customers. Have you seen any of that with regard to Q1 at all? And do you actually see any planning of such campaigns evolving as you progress through the rest of the year? Question number 1. And then just with regard to the negotiations on Alpha. Is that actually taking -- is that tracking as you expected with regard to both the time frame and the, let's say, the framework that you had in place with regard to the expected 19

20 costs and the expected savings? KOEN VAN GERVEN: Okay, on the first one, and indeed last year when we took the first quarter then we could see clearly that the number of the big customers, a limited number I think we were talking three or four in telecom and utilities, started off actually quite aggressive campaigns in pushing their customers to the digital environment. At least aggressive because they were less kind and in our opinion less customer oriented than they used to be before. And of course those campaigns continued and probably continued for customers. Next, of course, to the general pressure that we feel in the market of people trying to push customers to the digital formats, and the general campaigns on cost pressure that all companies have. Did we see new big customers going in the same direction and starting up with quite aggressive campaigns? For the moment the answer is no. Do we expect additional ones in the near future? Of course, we are in very close contact with our big customers. We have account management to follow up those customers. And, as far as we know, today we are not and we don't have information on big, new waves that will start up. So we expect that the things that are launched, of course they will continue to bear their fruits. In the general market the trends that we already feel will continue. But nothing additional, important to mention on that behalf. 20

21 PIERRE WINAND: On the Alpha negotiation, both in terms of timing and shape, it's according to plan so far. But, you know, the proof of the pudding is in the eating so we won't know until we've got an actual agreement. But so far so good. EDWARD DONOGHUE: Is it correct to say that there's nothing from the Alpha program in Q1 and nothing to be expected in Q2 yet? PIERRE WINAND: Yes, there is something in Q1 of Alpha in terms of benefit, it's a strange one, but it was already in Q4 last year. Basically we've done a hiring freeze for the white collars in the scope of Alpha, and as a result, because there is natural attrition there as people leave the company for whatever reason, in reality we've got some benefits which you see in the mix cost in the personnel, we've got less white collar, less management than in the previous or the comparative quarter last year. But what we do not have is the full effects, number 1. And, number 2, we don't have the one-off costs relating to that, except some project costs, which are spent as they have been incurred, basically. EDWARD DONOGHUE: Sorry, just to go into more detail. But is it possible to quantify that benefit in Q1 versus what we were seeing in Q4? Because it was roughly, what, 45 FTEs in Q4. So if you could quantify that for Q1? PIERRE WINAND: It was about 1 million says1 of my colleague -- I need to check. I want to check how many, it looks like a lot of FTEs. So disregard this, we'll come back to you with the number of FTEs. So we have certainly the carry-over of the 45, and 21

22 I need to check how many more we've got there and we'll get back to you. EDWARD DONOGHUE: Okay. And then just one last question. Just going back to the point you were making earlier about the various business units, the levers that they have on steering depending on how volumes are tracking. If you actually curtailed some of the spend does that actually have a direct commercial impact with regard to your performance in the market vis-a-vis a cost saving? PIERRE WINAND: The policy that we have is that we try always to protect the top line. So in the things that we are looking at we tried to protect both the actual top line and the costs which are incurred to generate savings. So what we try then to do is looking at longer term phasing of some costs, but also for some things which are may be less essential or contributing less we become tougher. But it's always try to protect the top line, try to protect the projects that will deliver cost savings and everything else then becomes fair game. EDWARD DONOGHUE: Just one final one, it's may be a little bit spurious, but with regard to the decline in advertising volumes on the mail sides versus the E-commerce pick-up on the other. On parcels, and you are talking a large part of the advertising decline is due to catalogue sellers declining, in aggregate do you actually see a benefit of the two netting each other out? PIERRE WINAND: Well, we would need to do the math, but indeed there is a certain element of the two. The slight difference that could 22

23 be, you know, the catalogue sellers we were getting money from two sources, they were sending catalogues and then they were sending parcels for the people who ordered. Whereas, in E-commerce we have -- we have -- mostly only the parcels. Although we are -- and we had some success there, we are trying to convince some of the e-tailers to also use paper as a way to advertise their product, or to do reminders to their customers who have not ordered for a while, et cetera, et cetera. So I think over time on balance certainly the growth in E-commerce will certainly outpace the catalogue sellers, which were always a small part of retail. Whereas, according to all expectations, the E-commerce will take a bigger part of retail than, you know, just replacing the catalogue sellers. So over time certainly it will be net positive. This year we need to look, probably I would say some balance, yes, probably; but over time, as I said, as catalogue sellers disappear and the growth continues we will certainly come out winners there. EDWARD DONOGHUE: Okay, and just reiterating what others have said: many thanks for all your support and guidance. Thanks. PIERRE WINAND: Thank you very much. THE OPERATOR: And the next question is back to Dieter Furniere from KBC Securities. Please go ahead. DIETER FURNIERE: And maybe some smaller follow-ups to come back on the parcels margin maybe could you provide some flavour 23

24 whether there is certain seasonality within the quarters in terms of margin performance. And, second follow-up, it's on E-commerce and specific. I think the Belgian Government is currently deciding on the use of a night labour to stimulate the Belgian E-commerce sector. Could you provide what the impact for Bpost would be both in terms of the market competition or internally? And the third one is also on the Belgian Government. I think some recent articles that they could again re-open the debates for a sale of Government stakes in Belgacom and bpost itself. Could you say operationally whether a change in ownership of the Government would operationally have an impact on you? Thanks. PIERRE WINAND: Seasonality, there is an element of seasonality which, for instance, we had in the past, what we called the "one-offs" we would get on the terminal dues part of them were -- all of them were in the parcels and international business because we don't break down in our reporting parcels separately from the whole in terms of margin. And usually we ve tried to identify those and mention those. So in the past we would get, you know, those lumpy settlements that we would do with our friends, so looking back to try to take them out. We've got less of those because now we are trying to be more precise in the way we make the accruals. 24

25 So there is an element of seasonality which is mostly linked to these big one-offs. In terms of what the Government is doing for E-commerce. Basically, one, growth of E-commerce is good for us, let's be clear. So anything that can be done through any means to foster E-commerce is good for us because we think that our product and our service serves well the E-commerce community and I think that is acknowledged by our clients. Second, this idea of nightwork is to try to do things like, you know, go above and beyond almost D+1 and try to be able to do as late-in as possible. So e-tailers would be able to take orders pretty late in the night, then still fulfil the order during the night and then give it to us. And that's what we call a "late-in" which is what some customers of ours want to have is to be able to bring in their products pretty late in our sorting centres. So that creates a little bit of on operational challenge. But so far we've stepped up to the plate, i.e. we've kept up with what the e-tailers wanted to do. Another thing that we hear about in the market is same day delivery, which, you know, then you start having even orders during the night and possibly fulfillment the same day. So far in Belgium it's not yet a demand of our customers but that's something we are monitoring very closely. KOEN VAN GERVEN: As far as the revision of the law of 91 you are referring to, Dieter, is concerned. A couple of thoughts on that. I think it's a good idea to revise a law which was established in 91 25

26 because actually the law governance, the way the Government handles with public enterprises and part of those points are about governance. And I think since 91 both the world and the company did change. We are stock-quoted company now, and there are a number of smaller points on governance that are very difficult to explain such as the appointment of the CEO by the Government, a number of balances that you have to have in the boards of directors, things like that. So I think it's the right thing to do that you bring actually a number of those things today. Secondly, as a CEO, I can testify that in terms of daily management I don't feel pressure or impact of the Government at all. So I don't think that this is going to change with a new legal environment. Thirdly, one of the points indeed that is embedded in this law of 91 is the shareholdership and the majority shareholdership of the Government in those enterprises. To be honest, if a government has to be or a state has to be shareholder of a company, yes or no, it's for me not a managerial question but it's a political question. And as a CEO of one of those companies I'm not going to -- and I am not supposed to I will not have an opinion, a public opinion, on that. As management we do respect all shareholders as long as they comply with a governance which is good and sound for the company. So -- and it's not the management that chooses the 26

27 shareholders, it's in reality the reverse, it's the shareholder that chooses the management. DIETER FURNIERE: Okay. Many thanks for your response, Koen. And best of luck to you, Pierre. Thanks very much. PIERRE WINAND: Thank you, Dieter. KOEN VAN GERVEN: No other questions? THE OPERATOR: Hello, we don't have any questions any more so back to you for eventual conclusion. KOEN VAN GERVEN: Thank you very much. And in concluding I think already I said it in the beginning, I wanted to thank Pierre for his support and his important role in the transformation of this company. You have to know that we started off almost at the same time nine years ago, and it s always a little bit sad to see a fellow traveller leaving the boat but those are things that happen in life. And I wish Pierre all the success in his new endeavors. And the one question I expected of you is what Pierre is going to do. It didn't come, so that you will discover later. Thank you very much. PIERRE WINAND: Okay, bye-bye. KOEN VAN GERVEN: Bye-bye. THE OPERATOR: Ladies and gentlemen, this concludes the conference call of today. Thank you all for attending, you may now disconnect your line. 27