bpost NV/SA (BPOST) Earnings Call Transcript & Summary

Hello, and welcome to the bpost Second Quarter 2021 Analyst Call. My name is Rosie, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to Mr. Dirk Tirez, bpost's CEO, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. Welcome. I'm pleased to present you the second quarter 2021 results as CEO of bpost Group. Welcome to all of you, and thank you for joining us. With me, I have Leen Geirnaerdt, our CFO; as well as Antoine Lebecq from Investor Relations. We posted the materials on our website last night. We will walk you through the presentation and will then take time for your questions. [Operator Instructions] Now let's get to the second quarter results. It's obviously another quarter for which year-on-year comparison are peculiar given COVID circumstances and lockdown in Q2 of 2020 in Europe and especially in the U.S. We will do our best to shed some light, not only on year-on-year dynamics, but also put things in perspective versus the first quarter of the year and 2019. As to the highlights of the second quarter, our group operating income for Q2 stands at EUR 1.038 billion. This is a 1.4% decrease year-over-year, mostly driven by nonrecurring COVID revenue in PaLo Eurasia and North America, among others, lockdown surcharges. The group adjusted EBIT stands at EUR 107 million. This is a EUR 32 million increase versus last year, underpinned by a margin increase from 7.1% to 10.3%. This is, among others, due to constant operational measures taken, including higher operational leverage in our Belgian operations. At Mail & Retail, mail volume actually grew year-on-year by 1.4%, both because of a particularly soft comparable base in 2020 and the support of one-off COVID-19 communication volumes this year. These mail volumes, combined with a positive price and mix impact led to a revenue increase in domestic mail. Compared to the second quarter of 2019, mail volumes are down due to their structural mail volume trends we know on the long term. The adjusted EBIT doubled versus second quarter of 2020 from EUR 36 million to EUR 72 million with a margin of 14.1%. At PaLo Eurasia, the adjusted EBIT stands at EUR 35 million, namely a EUR 2.5 million increase versus last year. The 3.9% decline in top line is mainly driven by an anticipated price mix impact of minus 6.9% at Parcel B2X, of which 2.8% is due to one-off COVID surcharges to customers in April and May last year. Parcels B2X volumes grew by plus 2.9%, and Radial Europe and Active Ants continued to grow their top line. The EBIT margin increased from 11% to 12.2%, supported by benefits of operating leverage in the integrated network. This is also due to a restore dynamic of reorganizations of our distribution rounds, which will structurally benefit us in the second half of the year and in the year and peak periods. I will come back to this later. At PaLo North America, the total operating income stands at EUR 310 million, which represents a decline of 4.6%, excluding the exchange rate impacts. This is driven by Radial's nonrecurring volumes of last year's lockdown, including temporarily soaring sales of sanitizers. This was slightly offset by new customers' contribution that started to accelerate through June. As a result, the adjusted EBIT decreased by EUR 7 million to EUR 11 million with a margin of 3.5%, including the impacts of the current wage rate pressure in the United States. Overall, at group level, our adjusted EBIT stands at EUR 107 million, meaning a EUR 32 million increase compared to the same period last year, and this is mainly from our Mail & Retail business units, as illustrated on the bridge on Page 4. To conclude on the highlights, on the back of these strong quarterly results and based on current assumptions of mail volume trends and normalization for COVID-19 e-commerce activities for the rest of the year, bpost raises its updated guidance for 2021 and now expect the group adjusted EBIT to be above EUR 340 million versus EUR 310 million previously. I will come back on this later in the presentation, together with our management priorities. I would now like to hand over to Leen for more details on the financials.

Thank you very much, Dirk, and good morning to all of you. I'm with you on Page 5, showing, as always, an overview of the key financials for the quarter, both reported and adjusted. More details on revenue and EBIT developments following the breakdowns to business units. But here, we can point out that the net financial results of minus EUR 4 million, it improved by EUR 10 million versus the second quarter of 2020, mainly from lower noncash financial charges related to IAS 19 employee benefit and last year's contingent liability for the remaining shares of Active Ants. Income tax expense, it increased by EUR 11 million, mainly due to higher profit before tax. Reported effective tax rate for the quarter amounted to 27.1%. As a result, adjusted net profit was up EUR 27 million to EUR 75 million. The adjusted free cash flow at minus EUR 61 million decreased compared to the same period last year, as expected, mainly from the variance in change in working capital and also higher tax prepayments. I will come back on the cash flow elements later on this presentation. The net debt decreased by EUR 50 million compared to June last year, supported by the free cash flow generation and the absence of a dividend payment in the fourth quarter 2020. We can move to Page 6, and there we see the external revenue bridge of Mail & retail. Mail & Retail external revenues increased by EUR 41 million to EUR 449 million. This is driven by domestic mail, recorded an underlying mail volume growth of plus 1.4% for the quarter. This mail volume rebound versus the easy comps of last year, remember that bpost then reported a mail volume decline of minus 17.7% in the second quarter has impacted revenues by plus EUR 3 million. In addition, a positive price and mix impact, mainly driven by mail price increases has impacted revenues by another EUR 24 million. Together with the working days impact of plus EUR 2 million, this has resulted in a net revenue increase of EUR 29 million. Transactional mail noted an underlying volume decline of minus 1.3% compared to minus 16.7% in the second quarter 2020 from negative impact of lockdown on all product categories. Admin mail volumes were also supported by some COVID-19 communication that had already started in March this year. This refers, in particular, to the invitation sent by the government for the vaccination, and we estimate a contribution of about EUR 8 million to the top line in this quarter. Overall, the volume trend remained impacted by the new structural trends of e-substitution and digitization. In advertising mail, there was an underlying volume growth of plus 15.6% for the quarter against a soft comparable base of minus 26.6% last year. The quarter can be broken down in 2 distinct phases. First of all, quarter-to-date May, the underlying volume growth amounted to plus 22.3% against a soft comparable base of minus 37% from the lockdown of nonessential retail shops last year. And then we have June, where the underlying volume growth slowed down at plus 4.2% compared to a tougher comparable base of minus 4.2% in June last year, where we saw already then a volume recovery post the first lockdown. Press volumes decreased on an underlying basis by minus 1.1% versus minus 8% in the second quarter last year, benefiting from a good performance from periodicals. Given the volatility implied by last year's lockdown on volumes quarter-over-quarter, it is also interesting to put the domestic mail volumes in perspectives, and excluding the mail pricing impacts. In units, domestic mail volumes of the second quarter, they seem to be in line with the previous quarter. They are above last year's second quarter lockdown, as just explained. But nevertheless, as you can see, still below the second quarter of 2019, which illustrates the known structural mail volume decline. In proximity and convenience retail network, the revenues increased by EUR 7 million, resulting from a combination of higher revenues from Ubiway retail since we recorded lower sales in the second quarter last year due to reduced footfall, especially in the travel locations; and second, lower banking and finance revenues from the low interest rate environment, despite it was slightly compensated by more ATM transactions. Also profiting from soft comps of last year's lockdown, the value-added services increased by EUR 5 million, driven by higher revenues from fines and license plates, which were negatively impacted during the lockdown of last year. Looking then at the EBIT of Mail & Retail on Slide 7. Adjusted EBIT almost doubled to EUR 72 million with a margin of 14.1%. This net increase of EUR 36 million is explained by an increase of EUR 40 million in total revenues and a limited increase of EUR 4 million in the operating expenses, including adjusted D&A. The operating expenses only slightly increased year-over-year as a result of, on the one hand, higher payroll and interim costs driven by headcount and merit increases, a higher material costs at Ubiway, driven by the sales, but this increase was compensated by the non-repeating COVID-19 specific OpEx last year, including the premium, health and safety measures and also bad debt. Also by the positive evolution of the FTE wage mix and increased sorting cost that could be cross-charged to PaLo Eurasia, driven by sustained parcel volumes handled through the mail operations. Moving then to Parcels & Logistics Eurasia. First of all, in the second quarter, in a post-COVID-19 environment, e-commerce and cross-border volumes surpassed last year's spike. Due to an anticipated negative price mix effects at Parcels B2X, we did record an external revenue decline of EUR 30 million. Let's have a look at the revenue development per subsegment. Parcels BeNe recorded a decrease of EUR 9 million or minus 5.8%. First, the sales at Dyna are down versus last year. This is where not yet at the level of COVID-19 uplift. Second, as to B2X. Despite the tough comparable base of the second quarter last year, where our parcels B2X volumes increased, as you will remember, by 79.3%. We witnessed sustained online sales in the second quarter this year, and our parcels B2X volumes continued to grow by plus 2.9%. Nevertheless, the revenues decreased by minus 4% due to an anticipated negative price mix of minus 6.9%. In this quarter, we see a price impact of minus 2.8%, explained by the one-off of COVID-19 surcharges to customers in April and May last year; and second, a mix impact of minus 4.1%. This comes mainly from lower volumes in the prepaid products, consumer-to-consumer parcels, they peaked in the lockdown last year. Also, we see our contractual top customers growing their volume shares. It is also here interesting to look at the parcels B2X volumes retrospectively. The parcels B2X volumes in the second quarter were in line with the volumes of the first quarter. They are, like I said, above last year's COVID peak with plus 2.9% and 84.4% above the second quarter of 2019. This shows that in these first months of post-COVID-19 environment, we continue to structurally benefit from the volume growth of last year. In e-commerce logistics, also against a hard comparable base of last year, Radial Europe and Active Ant sales continued to grow year-over-year, thanks to continued organic growth at Active Ants from our existing customers and Radial Europe growth, mainly driven by the new fulfillment site in Poland, which opened in the third quarter of 2020 and the third site opened in Germany in February this year. Combined revenues of Active Ant and Radial Europe, they grew about 5.7% year-over-year. At the same time, year-over-year revenue development at Leen Menken, active in food service logistics and the Netherlands, it offsets the revenue growth of the subsegment. This is due to a loss of contract in July 2020, which was compensated at that time by the COVID-19 growth. Cross-border also recorded a strong quarter against last year's high comps. Revenues only decreased by EUR 1 million or hardly 1%. There is a continued growth of commercial sales throughout the quarter in the U.K. and the rest of Europe, driven by new customers and higher custom services revenues in light of the Brexit. And we saw a robust Asian parcel volumes with an exception during the month of June since volumes grew exponentially in June last year with the real transport alternatives. This revenue development was partly offset in cross-border by the declining cross-border postal business. On the next slide, adjusted EBIT for Parcels & Logistics Eurasia increased by EUR 2 million or 7.1% to reach EUR 35 million with a margin of 12.2% compared to 11% last year. This was driven by top line evolution I just talked about. And on the cost side, lower operating expenses, mainly thanks to lower volume linked transport costs from Asian cross-border activities. Non-repeating COVID-19 specific bad debt risk of second quarter last year and overall lower variable labor cost at Leen Menken. This is partly offset by higher costs from growing activities and e-commerce logistics expansion plan. Also higher operating expenses charged by Mail & Retail. We, again, profit from the favorable channel mix in distribution activities to the integrated last mile mail and parcels network. Then the North American parcel and logistics business. Operating income of e-commerce logistics decreased by EUR 40 million, down 12%. Excluding the unfavorable [ fixed ] development year-over-year, this corresponds to a decline of minus 4.3%. This is driven by Radial due to lower sales from existing customers, reflecting the non-repeating growth of last year's COVID-19 shutdown where closures of physical stores and temporary serving sales of sanitizers and related products increased the volumes. We also see client churn from terminated contracts, partially offset by a gradual ramp-up of the new customers launched in 2021 and accelerating through the month of June. At the same time, our activities at Landmark and Apple Express, they continued to record strong volumes from existing clients and new customers, fueled by e-commerce development. Putting the Radial revenues in perspective, we can see how this quarter compares with the previous ones. In million dollars, Radial revenues amounted to EUR 272 million in the second quarter this year, and this is 10% above the revenues of the first quarter, minus 14% below last year's COVID-19 spike, as just discussed, and 36% above the second quarter of 2019, which reflects the structural and continued growth at Radial. International mail saw a decline of minus EUR 4 million in external revenues year-on-year, driven by lower volumes in the business mail segment, partially compensated by higher domestic parcel revenues, and Dirk will come back on that. Overall, external revenues were down by EUR 44 million for the business unit to reach EUR 308 million. On Slide 11, you see that the operating expenses, including adjusted D&A, decreased by 11% or by 3%, excluding the foreign exchange effects. The variable OpEx evolved in line with the revenue development, except for the labor costs due to the current wage rate pressure in the U.S. Lower bad debt expenses and cost containment in general contributed favorably to the OpEx development. As a result, mainly due to high comps of COVID-19 spike in second quarter and the wage pressure, PaLo North America adjusted EBIT decreased by EUR 7 million and came in at EUR 11 million, with a margin of 3.5%, which is still growing quarter-on-quarter. Moving quickly to the corporate segment. External operating income remained flat year-over-year. And as net operating expenses also remained globally stable, the adjusted EBIT remains in line with last year. Then we move to the cash flow. Cash flow from operating activities stood at minus EUR 32 million. This is a EUR 101 million decline year-over-year, which breaks down as follows: First, higher EBITDA generation. Second, tax prepayments done in the second quarter, while last year, we postponed these out of prudency and cash preservation in the context of the pandemic. And third, negative variance of EUR 74 million in the change in working capital and provisions, primarily driven by what we told you about last quarter, the temporary extension of payment terms as initiated during the pandemic and resulting in a positive impact in the second quarter last year, of which we no longer profit this quarter. Besides that, we recorded EUR 69.3 million lower cash flow relating to collected proceeds due to various customers due to high level of merchandise sales during the COVID-19 peak last year. Cash flow from investing activities at minus EUR 28 million remained broadly in line year-on-year. Capital expenditure of EUR 29 million was mainly spent on increased capacity for e-commerce on customer implementations at Radial U.S., the additional sites for Active Ants, the Radial Europe scale-up, Parcels B2X sorting and also the sustainable initiatives for e-fleet infrastructure. This reported free cash flow in the quarter stood at minus EUR 61 million. Then the cash flow from financing activities, minus EUR 29 million in the quarter was EUR 4 million lower than in the second quarter last year, mainly due to higher lease liability payments. As a result, net cash flow decreased compared to the same period last year by EUR 178 million to minus EUR 90 million. The net debt decreased by EUR 6 million when we compare to the year-end 2020 and now amounts to EUR 489.4 million. After those financial details, I will now hand over to Dirk for the outlook update.

Thank you, Leen. We can summarize that while we also recorded e-commerce and cross-border volumes surpassing last year's spike, we indeed had a strong quarter at Mail & Retail. Therefore, in light of the performance of this quarter and based on our current assumptions of mail volume trends and normalization for COVID-19 e-commerce activities for the rest of the year, bpost raises its updated outlook for the current year 2021. We continue to expect our group total operating income to increase by a low to mid-single-digit percentage, but we now expect our group adjusted EBIT to be above EUR 340 million versus above EUR 310 million in our last updated guidance. For Mail & Retail, we expect the total operating income evolution to result from a combination of an expected mail volume decline of up to minus 8% as well as an approved mail pricing increase of plus 6% now expected to result in a price and mix effect of around plus 7% on a full year basis and an expected post COVID-19 recovery in value-added services. Adjusted EBIT margin is now expected to range between 8% and 10% compared to the previous guided range of 7% to 9%. For our 2 other business units, the outlook remains unchanged, as shown on the slide. The gross CapEx envelope of EUR 200 million to EUR 220 million for the group also remains unchanged and continues to be geared towards our strategy to grow omni-commerce logistics. Before taking your questions, I would like to walk you through our management priorities we worked on the last quarter as well as give a few general updates. As you will recall, as Chief Executive Officer, my first priority was to build a clear perspective on selected management priorities. These priorities and related initiatives aim at increasing the performance of bpost and making it more predictable. These structural initiatives are based upon a clear diagnostic. These priorities, as announced in the first quarter, have all progressed and will continue to form the backbone of my plan as a new CEO and my team for the coming months. We have made indeed progress on these priorities in line with the plan, thanks to the great work of the teams. I will shed some light on selected important achievements in the past months. First, we realized a significant achievement with the conclusion of the 7th management contract with the government. We know this is a file that is very important for the role of bpost to its Belgian stakeholders and, one, I was very close to in my previous role as this is the fifth negotiation I led with the Belgian government, and it was a great exercise in precision and negotiation. Under the 7th management contracts, bpost will maintain its existing service portfolio at similar financial conditions as before, for instance, servicing the Belgian population through the bpost retail network, the distribution of pensions or the distribution of election materials. In addition, bpost will provide new services to the Belgian population in its retail network, such as digital public services to close the digital gap. For these services, bpost will be paid an additional EUR 60 million a year to cover the additional expenses, including a reasonable margin. The overall contract is worth EUR 125 million to EUR 130 million every year before applicable indexation. After submission to and validation by the European Commission, the new contract will run from January 1, 2022, to December 31, 2026. This is the outcome of several months of a fruitful collaboration with all stakeholders, which I take the opportunity to thank. And as you may know, the prolongation of the 6 management contracts was approved on July 27th this year, and I'm therefore, reasonably confident about the approval of the 7th management contract as well. Another priority that is very high on my agenda is the preparation of the year-end peak in Belgium. I flagged it as a key priority as of my appointment as interim CEO. First, we have secured distribution and sorting capacity to capture growth versus the 2020 peak, including through the temporary installation of additional parcel sorting machinery in 2 sites. Second, a very important contribution to profitability will come from the ability to absorb a higher number of parcels in our mail delivery rounds, capturing operational synergies. Specifically, thanks to reorganizations, we have increased by more than 50% the number of parcels, which we expect to distribute in our regular mail rounds versus the level in 2020. This reduces the number of parcels we outsource to subcontractors and increases our operational leverage. Further, we have taken fleet optimization measures, including the replacement of 1,000 short-term leases by long-term leases. And finally, there is an ongoing optimization of our second distribution wave compared to Q4 2020. A few other developments are also worth noting. We are moving ahead on the overall topic of cost control and operational efficiency. Among other things, we are continuing to capture the benefits from our shift to Alternating Distribution Model, which went live in March 2020 and had to pause during COVID times. In 2020, we achieved 77 reorganization of mail offices, more than double is planned for 2021. On the portfolio management side. As you will recall, our strategy is to divest noncore assets or nonperforming assets so as to allocate capital to the booming e-commerce logistics market and to invest further in the big opportunity of e-commerce logistics. On this point, we can announce that the transfer of the international Mail Group in North America to Architect Equity was signed and closed yesterday. It is an illustration of our commitment to discipline and performance and continuous focus. We also have announced an operational benchmarking and process optimization exercise against best-in-class operators. The objective is, of course, to further improve our operating model and further translate parcel growth into best-in-class satisfaction and operating performance for profit growth. It is also my pleasure to announce the appointment of Gerrit Mastenbroek, a special adviser to the CEO to support in the operating model optimization. Gerrit was previously CEO of the Parcels & Logistics division of PostNL, where he helped installing the current PostNL operational network and for the last 3 years has been a special adviser on Parcels & Logistics at Boston Consulting Group. Finally, I wanted to bring you at the speed on the overall team of sustainable performance at bpost. The bpost Board of Directors has established an ESG committee that will be responsible to monitor the environmental, social and governance dimension of bpost and formulate recommendations thereon to the bpost Board. Committee is developing a renewed long-term ESG roadmap, which will be adopted by the bpost Board before year-end. I want to highlight that bpost will take a truly holistic perspective to the sustainability topic, including not only environmental, but also economic and social sustainability. Meanwhile, bpost will commit to becoming one of the greenest operators in Europe by 2030. Investments to accelerate this transition are captured within the CapEx envelope. We are now ready to take your questions. Operator, thank you for opening the lines.

[Operator Instructions] And the first question comes from the line of Muneeba Kayani from Bank of America.

Two questions, please. Firstly, on your guidance for this year, EBIT of over EUR 340 million. Given the first half performance, your guidance implies EUR 120 million roughly of EBIT in the second half. It is significantly below what you achieved in the first half. So can you explain how you're thinking about the second half and why there would be such a sharp decline in EBIT sequentially between the first half and second half of the year? And then secondly, just on the longer-term priorities that you're looking at and the parcel optimization. Can you give some numbers around what your targets are? And would there be any kind of CapEx involved around it? So how should we be thinking about CapEx over the next couple of years as well?

Muneeba, thank you very much for your question. Maybe 2 elements of clarification of the trends we will see in the third and fourth quarter. The first one is that we expect the mail volume decline to accelerate in Q3 and Q4 to minus 10%, which is materially different from the trends we have seen in Q1 and Q2. And secondly, and that is due to the structural trends of continued e-substitution, higher acceptance of e-documents at the receiver site and digitization of C2B communications through smartphone apps continued to contribute to the overall volume decline. Secondly, we will also see that the COVID communication and transactional mail and the COVID communication in advertising mail, I think, will also continue to decline post-COVID. As a result, the price increase impact we have seen in Q2 will effectively decrease. As you know, we are -- have the ambition to translate 50% of the volume decline in price increases. In Q2, you have seen that that was significantly more. These 2 elements explain the justification of the outlook.

Yes. As to the CapEx going forward, so as you have seen, we have now spent year-to-date EUR 48 million of the CapEx envelope of EUR 200 million to EUR 220 million. Looking at the management priorities, we still believe that all the projects that were planned, we have to execute those in the coming quarters. So for the year, we did not update our guidance. Going forward, in the last strategic update that we gave in December, we give a bit the guidance that probably for the years going forward, that would be in the same amount. To date, I cannot give you any updates. Of course, now that Dirk our formal new CEO, we are working hard on the plans, like you just mentioned, on the postal optimization, and we will come back with new numbers if that should be the case, if it should be a different amount than the one flagged before.

And any targets from the kind of optimization program that you could share at this point? I realize it's still early days in the process.

So far, no, we're not updating on any. We continue on the management priorities and like with the CapEx. As soon as we have insights to share, we will do so. Like we said, with the Alternating Distribution Model, we're happy to announce that we will double the reorganizations compared to last year. So in the outlook, we do take into account that we further optimize. And that will be seen both in mail and, of course, also by the fact that we can be more efficient in parcel distribution.

The next question comes from the line of Frank Claassen from Degroof Petercam.

Two questions focused on the Parcels BeNe business. First of all, the mix effect was rather negative, minus 7%, of course, also some COVID surcharge effect. But what can we expect going forward? If I recall well, also in Q4, you had some COVID surcharges. So what is the normal mix effect for the parcel's BeNe business? And secondly, what have you seen in volume growth so far in Q3? Did it accelerate further because of the easier comparison base? Some words on that, please?

Yes. Okay. Yes, the price mix impact, I think we have seen a couple of things. You mentioned the surcharge, which was indeed significant in the second quarter last year, we applied it this year, this was not the case. And then 2 other things, that's the prepaid part, as I have been talking about. So for third quarter, for instance, year-on-year, we will not have that surcharge comparison base. So that will not be there. The 2 other factors, prepaid being less, we think that will continue into the third and into the fourth quarter. And then, of course, we do see that the SMEs, which had higher volumes in the second quarter last year, they also have the alternative of their bricks and mortar. So part of their sales return to their normal stores. And that's why we see that for the pure online big contracts, we see continuous growth of their volumes, and that has an impact that will still last for a while. But probably it will return back a bit to the levels that we have seen in the previous quarter. So this quarter is quite particular, especially because of the surcharge. Then second on the volumes, what have we seen going forward? Yes, that's, of course, I think the second quarter was for us like flagged before, already a very important one, what would it do. And I think being able to show the same volumes about compared to the first quarter is very comforting. Based on very preliminary volumes reports at bpost here for parcel B2X, in the month of July, we saw low teens growing in this month. But I do want to flag, at third quarter last year, we had a volume growth of 49%. We were post the first lockdown. So the third quarter 2020 will constitute a softer comparable base for the coming quarter, softer than it was in the second quarter and in the fourth quarter, where we had respective volume growths of 79% and 67%. So I think volumes, low teens, but adding indeed that impact of what we've seen in the growth, especially in the big retailers, that will continue also into the third quarter.

The next question comes from the line of Ivar Billfalk-Kelly from UBS.

If I touch on your balance sheet, it's looking very strong. If my calculations are right, your net debt-to-EBITDA position is now below 1, which might be seen by some as being excessively conservative. So are you actively looking at larger M&A transactions now? Or could a special share with distribution are on the cards sooner rather than later? And secondly, you touched on the actions that you're taking to ensure that you can manage the peak in Q4 properly. But if you had actually implemented those strategies last year, can you estimate how much lower your OpEx base would have been?

Thank you. On your first question, I think the plan of Europe, PaLo Eurasia, Europe, is to continue to build a great e-commerce logistics business. This plan is based largely on organic growth, but we are always carefully considering bolt-on acquisitions to further enhance and take benefit of the markets. This is, I think, the strategy we're following, at the same time we are very much focused on the active portfolio management strategy by clearly focusing on performance and identifying noncore assets so that we can further invest in the growing market of e-commerce logistics.

As to your question on year-end peak on the OpEx, probably I can guide you the following. The market was heavily disappointed, especially looking at the EBIT margin that was lower for parcels or for PaLo Eurasia as a whole. So that's also what's driving us. We have particular parts in it. We have the bus part, e-commerce part, of course. So they're all quite distinctive, but we try to increase that EBIT percentage as much as possible. I think it's too early to flag an exact amount. We are quite confident we will be able to do so in the fourth quarter, but those measures should indeed help us to bring back our profitability a bit more in line with other quarters. That being said, and also important for the outlook, as you have seen year-to-date on PaLo Eurasia, we have a very nice EBIT margin. Still on the outlook we do flag 9% to 11%. That's because a couple of reasons. As you know, we're investing in e-commerce growth of Radial Europe. So that comes also with a cost. And secondly, since we have the structure that we have, which delivers us a lot of benefits in normal quarters with normal volumes since we can use the mail rounds of the mailman as optimal as possible. In the fourth quarter, despite all measures taken, of course, we will have additional cost. It's a bit typical of bpost. We will bring those costs down as much as possible. But again, we flagged for the total PaLo Europe business unit, 9% to 11%, which is somewhat lower than we are year-to-date.

And can I follow-up on the first one, please? Even if you are going to be investing at the same sort of levels that you're talking about now, I mean, all else being equal, hopefully, that should lead to your net debt position falling as you generate cash. Is there a threshold at which point you might think that if you haven't identified any opportunities for inorganic growth that you might consider the distribution?

I think we will continue to focus on the growth in the long run in e-commerce logistics, particularly in Europe, but that will always be based on strict investment criteria.

The next question comes from the line of Sumit Mehrotra from Societe Generale.

So focusing on Mail & Retail. Please bear with me for the long question here. It's in the context of your guidance of only 8% to 10% margin versus 14% on YTD. So what are your building blocks for the Mail & Retail EBIT declines in the second half versus the first half? Specifically, the boost that you got from the price mix for third quarter and the fourth quarter. Secondly, I'm also interested in the non-repeating COVID OpEx that figured in the base of last year. And lastly, I note that you are seeing declines in mail volumes as of third quarter, and I was expecting some help from an easier base, but I don't hear that from you. So yes, if you could help me with the building blocks of why H2 is much lower than first half?

So probably starting with last one because it's indeed the most important. Just to recall, second quarter last year, the volume decline in domestic mail was minus 8.2% and the fourth quarter was minus 11.8%. Like Dirk just said, that was post-COVID that we saw a bit and a post-COVID postal lockdown. And there we saw the volumes coming back a bit at a normal structural trend. That's also, therefore, that we expect in the third and the fourth quarter that will again be the case. And so we do think that something like the minus 10% is a good insight for Q3 and Q4 that will still come. As a result, if you compare year-over-year, the impact of compensation of price increases will also be lower. And so because you will again have the decrease, you really again have lower volumes. So your price impact will also not compensate as much. And there we expect that year-over-year we will drift again to that 50%, which is the objective of the price increases. Nonrepeating COVID OpEx prior year, we did not make the split. I think in total, we gave an impact of EUR 37 million for Mail & Retail impact of COVID. There was the impact of both revenue and cost, but we did not adjust, so we did not have the same. We did not publish that number in detail, so I will not do that anyhow. So that indeed, year-to-date, we're at 14%. Lots of that is driven by mail volumes, which are actually better compared to the comparison base, and second, because of the impact of the price. That will not be the case in the third quarter. Let me also take the opportunity to flag that the third quarter last year was, for Mail & Retail, a particularly good quarter. So that will be very tough to beat and we will not beat, and [indiscernible] the third quarter for Mail & Retail will simply be lower because it was really an exceptional quarter last year. And if you look at the trend of bpost in the past year, you will always see that for Mail & Retail, the third quarter is a softer quarter.

The next question comes from the line of Henk Slotboom from The Idea.

I've got 2 questions. One is on PaLo Europe and the -- basically, the parcels in the BeNe area, in particular. I was a bit disappointed about the 2.9% growth. And I hear what you say about the difficult comps and how the second quarter compares to the first quarter in terms of volumes. But do you think you have succeeded in at least holding on to your market share? Or have you lost market share? Because I read DynaLogic did not produce a recovery. We see an incidental at Menken, which is not part of Dyna Parcels, I understand. But perhaps you could shed some light on that? And the second question is with regard to the new VAT rules on parcels coming from Asia or from non-EU countries and the impact that has. Now Landmark is doing significant volumes out of Asia into Europe. Is it affected by it? Is there a big share of parcels with a value below EUR 22? How are you handling it? And we've seen that PostNL, for example, reported earlier this week that they had some problems and some delays because they had to bill the clients themselves. Those are my questions.

First, the last one, and thank you for that. Good question. So yes, it was a huge project. I think for all postal operators preparing for that low-value consignment, it was really a big thing. Indeed, we anticipated what PostNL just encountered that probably there would be a long list for people not paying, that we would have to collect it ourselves, that they would be in a warehouse that we would need a call center. So I think we anticipated that. The downside of anticipating that it comes also with some additional costs. We have seen a few of them already in the second quarter. But in the third quarter, indeed, we expect some impact. We anticipated some volume decreases on average for the quarter linked to postal Asian flows, just specifically with destination Belgium. We also have a slightly lower payment rate from customers versus the estimates. That means, indeed, we get fees for that. So we're lower income and additional cost for the lounge like I said, especially extra costs relating to the call centers. All in all, if I may be fair, we thought it might be even worse. So I think that also the Asian customer of ours, they anticipated quite well. So they anticipated in very clearly communications to customers that makes perhaps it now in the month of July, we have a bit of slower volumes because everybody, the customers still have to get used to it. But all in all, I must say, yes, there will be a consequence. We will see it in the third quarter, is included in our outlook. But actually, it's a bit better than we expected, thanks to a very good preparation of the operations side.

And I think, on your question, it's actually spot on. I think Radial Europe and Active Ants are performing well and are continuing growing, the results are indeed affected by the decrease in top line only Leen Menken, but it has a very limited EBIT impact and by the performance of DynaLogic. We continue to focus on the growth of e-commerce logistics by Active Ants and Radial Europe.

But as far as the Belgian parcel business is concerned, do you think you were able to at least maintain your market share? Or have you lost market share?

No, the answer is that we have been able to maintain our market share and that we are preparing for the year and seek to increase our capacity to capture the growth of the market.

The next question comes from the line of Lotte Timmermans from ABN AMRO.

I have a question on the floods and the impacts on delivery of parcels and mails. I can imagine that it was [ holded ]and there might be some delays, resulting in financial impact. Is there any way to quantify this? And do you also see any impact on demand going forward? Then I have a second question on North America and the wage pressure. Does this already include Q2? Or should I see this more as a forward-looking impact? For example, if you have to ramp up hires in Q4 in Radial.