Good afternoon, ladies and gentlemen, to our half-year and Q2 presentation of Austrian Post, where we want to discuss these figures with our CFO, Walter Oblin. I directly hand over to Walter.
Good afternoon, ladies and gentlemen. Thanks for the opportunity to present to you our half-year results. Let me start on page three, which is an overview of Austrian Post and our structure. Just to remind you, we operate and report in three segments. Mail, Parcel & Logistics. These two segments, these are the two segments where we book most of our revenues. and the third segment, Retail & Bank, which consists of our retail network and our bank99. all together, in the first six months, we had revenues of EUR 1.2 billion and an EBIT of EUR 91 million. More details later on.
Page four, we operated in a very challenging macroeconomic environment in the first six months, characterized by strongly rising energy costs, with the diesel price, of course, having the most direct impact on our cost structure. Gas prices affecting us indirectly as high gas prices cause high paper prices with corresponding impact on direct mail revenues in particular. Second, major headwinds from an inflationary environment affecting consumer confidence and accordingly e-commerce volumes and therefore parcel volumes. Third and most significantly also reflected in the first six months figures, a very challenging macroeconomic environment in Turkey, characterized by very high inflation and a strongly devaluing Turkish lira, where we also had to apply a high inflation accounting standard. Page five.
Against this context, against this background, I think we showed a Q2, we were able to stabilize both revenue development, cost development, and accordingly, I think, show the improving and catching up first half-year revenue and EBIT picture. What were the key developments worth mentioning here up front as a summary. I think point one, improving revenue and volume trends both in Letter Mail and in Parcel. Letter Mail, in particular, showed a very strong Q2 with unadjusted volume up 6%, which was a combination of a structural trend of around 3%, supported by a strong one-off mailing. Parcel also improving substantially to -9%, comparing ourselves against a very strong Q1 2021.
I think in Q2 we showed that we came already close to last year's figure with month by month an upward trend. In the meantime, we have also seen months where we are above last year. Accordingly, strongly improving revenue developments in those two segments. Number two, we took a number of measures starting February and March to improve our cost structure and adjust to lower than expected parcel volumes. These measures were implemented quickly and improved our cost structure, which is also reflected in the results in Q2. We accelerated price adjustments with the aim of forwarding the sector cost increases we had across the business to our customers, and I will comment on two bigger steps on Letter Mail tariffs.
In Turkey, we continued to face a very difficult macroeconomic environment, with volumes down from a very strong Q2 last year. Strong inflation was constantly increasing prices as a result. Turkish lira revenues up 22%, however, in euro terms given the strong devaluation of Turkish lira, and the Turkish development had a strong impact on our group P&L. Page six provides a number of details. Let me move right away to page seven, where I will try to give you the big picture on the revenue development. Group revenue is down 4% in the first six months.
Page seven is pretty much all of that revenue decline comes from the Turkish business, mostly from the devaluation of the Turkish lira. Net of that, group revenues were flat, plus 0.1%. This revenue development is a combination of a, I think, better than expected strong Mail revenue development. Mail down only -1.4% given the structural declines of business. Volumes are down 9%, so this is less than half the decline. Almost flat development after six months of other business and Retail & Bank up to the 9.3%. This is the combination of organic growth and the impact of the ING acquisition. I think it's worth highlighting Q2 standalone figures.
Group revenues Q2 almost flat, including the Turkish business, -0.8%, excluding Turkey, +2.8%, with Mail showing positive situation from last year. After down -5%, Austria up 2.4% in Retail & Bank, as mentioned, up almost 6%. This I would say good revenue development in total translated into an improving picture also on the EBIT side after six months compared to starting line figures however down -33% for the first six months, similar to around plus percent, with EUR 91 million after EUR 103.4 million last year. This versus EUR 48.2 million in 2020, of course, then heavily impacted by the pandemic.
I think we are well navigating through the current macroeconomic challenging environment. The -4% is a net of Mail stable, other logistics down EUR 14.2 million, Retail & Bank improving and corporate down EUR 5 million. Again, here two figures, both core segments up by around EUR 4.5 million. I would like to mention here already that in the top logistics segment, we include here a one-off impact from the revaluation of the liability in connection with the put option of a minority shareholder in Aras Kargo.
This of course helps to show a strong Q2 result in Parcel & Logistics and improve overall, taking out this net impact of roughly EUR 11 million, Q2 group EBIT EUR 42 million below the very strong Q2 last year. Let me now give you an update on our strategy implementation and on the development of our four business segments, which then reminds you of our four strategy pillars. Let me continue right away on page 11 with our letter mail business. To remind you, our letter mail business has shown a relatively constant decline of around 5% over the last year.
This pandemic, of course, causing some acceleration, 9% in the first six months of 2020, which some recovery in 2021 where we were down only 2%. Again, in 2020 the structural decline has been around 3%. This was supported or on top of those 3%, we had a number of one-off mailings, partly relating also to the energy price development and countermeasures by the Austrian government. Including those one-off mailings, a slightly positive development in the first six months. Overall, if you take the cumulative decline over the last three years, we see around -15%, which I think really confirms the around 5% structural decline per annum that we have been guiding for a few years now.
Rising inflation, rising factor costs require a rate adjustment to forward at least some of those cost increases to our customers. Accordingly, we implemented inflation adjustments in our letter mail structure effective July 1. We implemented a change in the Economy letter tier. You see here the numbers on page 12. As of October 1, we will implement a change adjustment in our Priority letter. This is the next phase letter. This adjustment has already been approved by the regulatory body. Even with those rate increases, Austria remains one of the cheapest letter mail markets. Moving to our direct mail segment on page 13.
Direct mail on the one hand continues to suffer from structural downward pressure, resulting on the one hand from the increase of digital advertising, from the crisis of the stationary retailers, and third, and this is a new development from rapidly increasing paper prices. On the other hand, we saw that there is also some recovery potential last year in Q1. There were still some lockdowns in Austria with retail closed and accordingly, very little direct mail volumes against this year's Q1 last year. We saw improvements in the first month, plus 7% compared to last year. Again, if you look here at the three-year development, we are still down 9%, and going forward, we expect this segment to continue to suffer from structural pressures I mentioned.
Moving to our parcel business, page 14. After the strong growth in the last two years with more than 50% volume decline since 2019, parcel volumes have been consolidating in the first six months, stronger in Q1 than in Q2. Q1 was a record Q1 last year, again, given lockdowns for a few weeks in Austria in 2021. We already reported in Q1 that against the strong previous year quarter one, we were behind. We caught up and improved in that previous year comparison in Q2. Volumes down only 1% in Q2. As I mentioned, month by month, this comparison against the previous year has improved, and we have already seen months where we were above last year.
To cope with the growth and going forward, we expect positive years, growing business segment. We continue with our large scale capacity expansion program in the Austrian parcel business. Our guidance for CapEx for this year is around EUR 180 million. EUR 100 million on maintenance CapEx, which includes a lot of investments in our sustainability efforts, and around EUR 80 million in the growth CapEx. In particular, moving to page 15, we are currently working on two large projects. One is a substantial expansion of our big sorting center in Upper Austria, where we are more than doubling our capacities.
The other project is an upgrade and an expansion of our historically biggest sorting center or hub in Vienna, where we started construction earlier this year. These two projects will become a substantial part of this growth. Page 17, our staff. Shows you our staff development. Given consolidating parcel volumes, also staff numbers have consolidated a little bit. At the same time, the change from expensive civil servant and old collective wage agreement contracts to employees under the new collective wage agreement continues. Going forward, we expect pretty much like figures, but of course, the challenge is to find the right employees in a very tough Austrian labor market. Page 18. Now moving to our second strategy pillar.
Moving away from our core Austrian business to profitable growth in nearby markets. Page 18 shows you our international business portfolio, and in particular, our parcel network, our portfolio of parcel networks southeast of Austria, with Turkey, in terms of parcel volumes already bigger than Austria. CE, a portfolio of smaller countries, roughly one-third of the Austrian volume of Turkey in a consolidating mode. CE still in a growth mode. Let me talk a little bit about Turkey. In Turkey, we have a combination of different drivers. On the one hand, after a strong expansion of the Turkish parcel market, similar to other markets, we see a correction of the parcel market.
Very strong inflation, of course, creates a lot of uncertainty among consumers and therefore we see the e-commerce market rather contracting, parcel volumes down -20%. At the same time, high inflation means that we are almost constantly increasing prices, so revenues in Turkish lira is still up 23%. The third driver is of course the devaluating Turkish lira, which showed a strong devaluation end of last year, and given the high inflation differential, a relatively favored development so far this year. The high inflation also caused us to implement a hyperinflation accounting standards where in our IFRS group balance sheet, we now show the Turkish assets and P&L adjusted to current purchasing power of the Turkish lira.
I would say a lot of changes between individual lines of the Turkish part of group revenues, overall net EBIT impact of pure hyperinflation accounting is limited. We're talking about around minus EUR 1 million EBIT impact of the accounting standard. Parcel in CE in Southeast Europe still in a growth mode, as I said, also comparing the strong volume last year. Here the e-commerce market and the partner market has held well, and we have continued to gain market share. Volumes up 10%. Revenue up 6%. There has been some mix changes also in our volume. But overall a very good development in Eastern Europe now already over a number of years.
Moving now to the third element of our strategy, our consumer businesses. Here specifically, I would like to start with bank99. Reminder, we launched bank99 roughly two years ago out of the home office into the first lockdown. We were able to gain around 80,000 customers in the first 12 months in a very difficult environment. An opportunity came up in the Austrian market as ING decided to exit the Austrian retail banking market. We were able to win this tender for us and are now in an integration process. I think the bank on an operative level works well. We continue to grow, to gain customers, to grow our balance sheet. We have good momentum, so our asset portfolio is developing well.
At the same time, we are of course busy with the integration, in particular IT integration. Still at the same time, we are also able to bring new products to the market, including an extended consumer credit offering, which was launched a few weeks ago. Page 22 reminds you of our self-service solutions, which continue to grow both in number of installed equipment as well as in customer usage. Page 23 is an example of how we are trying to rejuvenate and innovate the historic business. I think very successful football fans development. There are new products coming out almost every quarter, which are well accepted by the bank community in this market, also by new dynamic customers. It's a very successful development.
Last page in this chapter. We continue to drive forward our sustainability efforts. Here I would like to mention an acceleration of our PV, photovoltaic initiative. We've already been one of the largest PV producers among non-utilities in Austria. Our current plan is to more than double installed capacity from 3 MW peak to more than 6 MW peak. Of course, we're dependent on suppliers to deliver those plans. Optimistic that most of that will happen. Our midterm target is to generate around 30% of a substantially bigger electricity needs than we have today by 2026. 30% of our electricity needs by 2030 we want to generate from PV.
With that said, let me move to our more details on our group results. Page 26 shows you a few KPIs. I already commented on revenue. I think it was 14.8% EBITDA margin in a challenging market environment is a respectable result. Similar on the EBIT margin. Earnings per share suffering a little bit from a one-off, which is kind of public compensation. The positive one-off on the EBIT side resulting from the updated valuation of the liability of our minority shareholder in Aras Kargo. On the cash flow, we are not as strong as in a record first half-year 2021.
Still this EUR 105 million, EUR 106 million operating free cash flow for six months, a very respectable cash flow, which shows the cash generation capacity of our business. Page 27 shows our group P&L. I've already commented on a few items. Group revenues down 4%. I think a number of the spend lines are of course also similar as the revenue lines impacted by the Turkish lira, its development, the other operating income includes the impact of this already mentioned revaluation of the liability of the put option of an Aras family member, given a changed outlook for the Turkish business. Yeah, a number of. I think most of the items worth mentioning here I have already mentioned.
I also have already commented on the adoption of the hyperinflation accounting standards for hyperinflationary economies, with which we fell into as of Q2. This net monetary gain is a line that is basically resulting from the application of this hyperinflation accounting standard. As I said, net impact on EBIT around EUR -1 million, so rather negligible so far. Let me comment a little bit on the core business segments. Mail division, as I said, this division saw a strong, a very robust development in the first six months.
At the rest letter mail revenues down 14.6%, most of which declined from international letter mail volume, where a combination of shift from one large customer to other products and to home delivery explains some of the decline. On the other hand is application of the end of the fall of the minimum value for which international volumes where we achieve what we achieved to be paid explains the other developments of international volumes, particularly China down substantially. At the same time, domestic letter mail volume, as already commented, held strongly and the combination of this -42% of direct mail plus 2.7% good development in a positive development in both quarters.
As I said already, it's mostly catch-up effect and going forward, the business remains under pressure. As a result, total group revenues in the Mail division is down -1.4%, and a good, I would say, EBITDA and profitability of this division with EBIT at around EUR 83 million. Parcel & Logistics division moving to page 30. Revenue, as already commented, down -9%. Austria returning to a growth mode month by month over the first six months cumulative at -1.9%. Turkey as I've already commented on explaining most of the decline and revenues in Eastern Europe up 6.3%.
Given this, volume and revenue development at page 31, we show a decline compared to a record first half-year last year. At the same time, the EUR 45.5 million are substantially above what we have historically ever achieved. I think also the margin of 8% is respectable. Page 32, our Retail & Bank division, revenue up around 50%, with our traditional branch services a little bit under pressure. Availability of cellular phones, price point of cellular phones, putting a little bit pressure on sales volumes there. On the other hand, our bank revenues more than doubling as a combination of the impact of the ING acquisition as well as organic growth.
EBIT in this division, page 33, up from EUR 27 million last year, up to EUR -20 million. Still, we are investing into the ramp-up of this bank, investing into the integration of the ING acquisition, but we are optimistic that the second half will be better than the first half in terms of EBIT. Moving to our balance sheet, 34, I think we continue to operate a robust, healthy balance sheet, with an equity position of around EUR 640 million, with an expanding total balance sheet in particular coming from an expansion of the bank balance sheet. Continued inflow of liquidity, which is turning into an asset with rising interest rates. Otherwise, I would say not a lot of change since our annual accounts, 2021.
Page 35 gives you an update on our liquidity and cash flow development, operating free cash flow of around EUR 106 million, that is before growth CapEx. The first 6 months typically show a lower CapEx expense both on maintenance as well as on growth CapEx. As mentioned, guidance for the full-year is around EUR 180 million. With that said, let me close with our outlook on page 37. We of course looked into the second half of the year with a lot of macroeconomic uncertainties and in particular an uncertainty on energy and gas supply and on further development of energy prices at large. I think there are different scenarios, what could happen in fall.
I think if there is no further escalation, we think that Q2 should deliver a decent result for Austrian Post, both in terms of revenues as well as in terms of earnings. In terms of revenues, we target to come as close as possible to the revenue of last year, but we will not 100% reach last year's revenues. Of course, the exchange rate of the Turkish lira is one of the uncertainties there. As I said, assuming no further escalation on the energy side, we do expect for the full-year a relatively resilient letter mail business and an Austrian parcel business in particular, where quarter by quarter we should improve compared to last year. On the earnings side, our guidance remains unchanged.
We do expect the full-year EBIT to be somewhere between the 2020 EBIT of EUR 101 million and the 2021 EBIT of EUR 205 million. Given the development in Q2, I think there is increasing optimism that it is rather in the upper half of this bandwidth than in the lower. Of course, there is quite some uncertainty. With that said, I'm at the end of my presentation, and I'm now very happy to take your questions.
The first question is from Marco Limite from Barclays. Please go ahead, sir.
Hi. Good afternoon. Thanks for taking my questions. My first question is on your parcel volume expectation for the full-year. I think with the Q1 you were guiding for parcel volume flattish for the full-year. I'm just wondering what's your expectation for the second half? And if you could also mention what's the July exit rate, please. My second question is on your banking division. Can you just confirm that during your presentation you mentioned that you expect better EBIT in the second half compared to the first half? When do you expect this division to break even? Is full-year 2024 still the target there? My third question is on the price increase you mentioned on the Priority rate from the first of October.
Can you just specify what's how much is the price increase and on what's the base in EUR million terms for that price increase? On how much, how many revenues you are going to apply price increase. Thanks.
Yeah. Well, thank you, Marco, for your questions. I think on the parcel volume, and I assume you're referring to Austrian parcel volumes. I think this target of catching up for the full-year after the decline in Q1 is still our target. I think the monthly development over the last four months, including July, confirms that this is possible. Again, there are uncertainties of course on the macroeconomic environment, but this remains our ambition. Second, and please bear with me that we do not provide monthly detailed figures. I think July overall confirms this ambition. Yeah.
Banking division, yes, I do confirm that for the bank segment the second half should show some considerable improvement compared to the first half. We also see some headwinds from interest rates. I would say a break even over the course of 2024, probably. Let's see. I think there's again a lot of uncertainty also on interest rates under optimistic assumptions also for the full-year. This is a possibility, but to be on the cautious side, I would say over the course of 2024 a break even is the target. On the price increase, I would say the rough figure is the full-year impact of this price increase is around EUR 20 million. We're talking of around EUR 5 million impact for the ongoing year.
Thanks.
The next question is from Bernd Maurer from Raiffeisen Bank International. Please go ahead.
Good afternoon, gentlemen. Two questions from my side. First, can you elaborate a bit how strong or weak is your pricing power in the parcel segment, in light of competition, self-delivery of Amazon, and all the small freight forwarders? How easy it was for you or how successful you have been to implement fuel surcharges and overall increase prices in light of your increased costs for external freight forwarders to the clients, and how is the outlook for the next half-year on this front? The second question refers to your P&L line at operating income. There we saw in the last quarters a visibly higher at operating income from about EUR 33.0 million versus roughly ±20 in the quarters before. What's the reason behind this?
Yeah, thank you, Bernd, for your questions. Let me start with the first question, what's our ability to implement prices in a competitive parcel market. I think there are, you know, different aspects to comment on. On the one hand, there is a fuel surcharge or a fuel floater, which is a typical element in our parcel contracts with large corporate customers. This fuel surcharge kind of is an implicit hedge against rising fuel costs and has already led to price improvements, which I think you also see in average revenues per parcel. Point two, we have already been pursuing different structural initiatives to improve our price positioning across the portfolio of customers.
We have also implemented a small retail price adjustment. Of course, we are also working with our big customers. Typically, there are also some; these are longer running contracts where there is some kind of limitation agreed on. I think it's a case by case. Overall, of course, we are in an extremely competitive market, but I think all the other competitors have very similar cost pressure, and assuming you know, rational behavior of our competitors, I think there is the potential to continue to get fair prices for the good service we deliver to our customers. It's not easy, of course.
The other operating income, I think there are two things to comment on, which are included in the first six months. I would not see this as a run rate. This is typically potentially influenced by one-offs. There are two one-offs worth mentioning in this quarter. One is a recovery of expenses for quarantined employees, which are shown as other operating income. At the same time, of course, we have had the expense in our cost structure.
This is the Austrian regime that, by the way, ended a few weeks ago, where if there is an official quarantine measure that causes people to be absent from work, then the government reduce the expenses. There is, of course, this is not always in the same period. I would say overall, this is both reflected in the other operating income and on the cost side. The other is the already mentioned impact on the revaluation of the liability of member of the Aras family who holds 20% in Aras Kargo and who has a put option effective 2025 or 2026.
Okay. Thank you very much.
The next question is from Nikolas Mauder from Kepler Cheuvreux. Please go ahead.
Hi. Good afternoon. Thank you for taking the questions. Two or three, if I may. First one is on the drivers of the strong growth in your Central and Southern European parcel operations. They seem to be bucking the normalization trend in other European geographies. Can you please give some reasons for that? Secondly, I've seen that you've taken out a financial loan of EUR 150 million. Can you share some details on that one? What kind of interest rate you're paying, when will be payback, and so on and so forth, whatever is worth sharing. Finally, as a follow-up on the question of the COVID-19 reimbursements. I don't know whether I caught the level, if you would be willing to share that as well. Thank you.
Yeah, let me thank you, Nikolas, by the way, for your question. On the COVID-19, we're talking about roughly EUR 10 million that were shown on the operating income. We also had some similar numbers, not exactly the same level last year. That was 20,000 employees, of course, substantial percentage of our employees also at some point in time had COVID, were quarantined, and this is the kind of recovery from the government. On the loan, yes, we took out a loan of EUR 150 million earlier this year. A combination of five and seven-year runtime. I think EUR 100 million is on five years and EUR 50 million with seven-year maturity.
Average coupon below 1.5%, fixed interest rate. I think still a very reasonable interest rate, also with the green elements or linked to our sustainability ratings. If those improve, then we get a little bit better interest rate, but that's not very significant. The question growth in CE, I think maybe we've seen less strong peaks last year, so the consolidation impact is also a little bit lower.
The other element worth mentioning is that we were able to agree a contract with a very substantial importer from East Asia, where we are a core partner for auto deliveries in Eastern Europe, also including Austria, and where this business has been developing nicely and to some extent may also compensate some of the main volumes that we are missing after this threshold fell last year. I think it's a very good business opportunity that our sales people were able to capture and which has been supporting our Eastern European development.
A quick follow-up. Thank you for the answers. Quick follow-up on the Asian customer. It's probably fair to assume that is an importer of rather low-value items, right?
I would say typically, it's not the very cheap volumes that we saw coming in through mail streams until the pandemic. Half those volumes and then the fall of this duty threshold pretty much canceled those volumes. Yes, I think, compared to what people buy with local online shoppers, it might be a little bit more cheaper stuff, but it's not this very cheap stuff that we particularly have seen mail volumes.
Okay. Thank you. I'll go back to the queue.
The next question is from Henk Slotboom, from the IDEA!. Please go ahead.
Good afternoon. Thanks for taking my questions. I've got two basically. One is on your tariffs. It's obvious that the last mile cost inflation is high. Higher fuel costs, higher labor costs and that sort of things. Sooner or later, that has to be passed on, and somebody has to pay the bills, either the online merchant or it's the online buyer that is confronted with a higher bill. Do you expect that that could lead to a shift from at-home deliveries to out-of-home deliveries, APMs, for example? Connected to that, what is the share of out-of-home deliveries in Austria at this moment? The second question relates to a name that has popped up in the Q&A session before, Amazon.
They've been insourcing the last mile partly themselves in a number of big cities. Could you update us on that? We recently had a conference call with bpost. They announced in their second quarter results that they saw 55% of their volume in the second quarter slipping away to Amazon because of insourcing. Could you give me any idea where Amazon is or where you are in relation to Amazon in that respect in Austria? Those were my two questions. Thank you.
Yeah. Thank you, Henk, for your question. I think in the out-of-home delivery, I assume you're talking about deliveries not to the door, but to lockers. That is the question. I think the share in Austria is still very small. It's more the backup solution when customers are not at home and the postman is not able to deliver the parcel. Therefore, this has been an expanding solution, of course, and Austrian Post was the first and has the broadest network of lockers. It's still, I would say, the strong exception, too, and typically it's only at the wish, at the explicit wish of the customer to deposit their parcel directly into a locker.
Whatever we have done in terms of market research, we have not seen a strong demand among consumers to replace door deliveries by out-of-home deliveries. Yeah. We continue to watch this, of course, and we are ready with the biggest and best locker network in Austria that we are constantly expanding. We're ready. There were a trend towards more out-of-home deliveries, but we don't see it at this point in time.
Okay.
On Amazon, I think Amazon has started to build out their own delivery network now three to four years ago. I would say quarter by quarter we see them add additional regions. They pretty much deliver on their own in the east of Austria, the bigger Vienna urban region. They have expanded their delivery network now towards the west and to the south. I think they are doing this slower than we originally expected. I would say quarter by quarter the volume is shifting. We're probably somewhere at 60% of their volume that they do on their own, but that's a very rough outside-in estimate. We expect this trend to continue, but still see a growth potential despite this trend.
Sorry for asking, but you said 50, 5-0 or 1-5?
50. 50.
Okay. Thank you very much. Most helpful.
Ladies and gentlemen, there are no further questions at the moment. I hand back to Harald Hagenauer for closing comments.
Thanks for participating in this call. If you have some further questions, we are also available today or tomorrow. Of course, we hope to see you again then, hopefully live on one of our roadshows in autumn. Thanks a lot.