“We transform to ensure our growth”
In recent years, the decline in traditional mail has put pressure on bpost’s profits. Changing customer needs are accelerating the mail volume decline, while e-commerce is increasingly gaining ground. “The corona crisis has clearly shown how an acceleration of the business transformation can look like, with spectacular growth rates for the Parcels & Logistics activities,” says CFO Leen Geirnaerdt.
What are bpost’s financial ambitions?
Geirnaerdt: “Our ambition is more than compensate for the ebit loss due to the decline in postal activities in the 2021-2026 trajectory. We are busy writing a new growth story, although, of course, we cannot predict exactly when our e-commerce logistics business will become more profitable than the traditional mail business. For this we also depend on external factors, including the pace of companies’ digitization and the growth of e-commerce.”
What does the new course mean for capital needs?
Geirnaerdt: “In order to accelerate the growth of the Parcels & Logistics activities, additional investments are required, for example, in sorting capacity or in new warehouses and their equipment. Additional financial resources are also required to make the switch from negative to positive working capital. Sending letters is traditionally financed in advance, e.g. the purchase of stamps. Newspaper delivery is also pre-financed. That is not the case for parcel delivery and logistics e-commerce services, where payment follows later.”
What kind of investments do you see as a priority in the coming years?
Geirnaerdt: “Our strategic priority is to further expand the e-commerce logistics business in Europe. Targeted acquisitions can also accelerate growth. To facilitate growth, we must also invest in more sorting capacity for last mile parcel delivery in Belgium. And to be clear, investments will also be needed in traditional mail activities to optimize the network as letter mail volumes continue to shrink.”
What is the size of all these investments?
Geirnaerdt: “We prefer not to pin ourselves down on that. The starting point is mainly that we want to maintain our investment grade credit rating. Every investment or fantastic acquisition opportunity will be tested against it and will have to fit within that framework. It would be very cool to loudly proclaim how big our war chest is. But with every investment decision, the free cash flow and debt position will determine how much additional debt we can incur. This is an important safety net for a company in full transition. In addition, a strong credit rating guarantees that we have easier access to the financial market and that we can more easily take out loans with longer terms and at lower interest rates.”
“Over the past year, bpost group has shown that we can compensate the loss of profits from our traditional activities. The momentum is now to speed up that evolution even more.”
How will the dividend policy be revised?
Geirnaerdt: “The dividend policy of the past years was no longer sustainable, given the investments we need to transform our business. At the same time, we naturally still want to provide an attractive annual return to our shareholders. That is why we have opted for a flexible pay-out ratio of between 30 and 50 percent of net profit, using the international IFRS accounting standard. With such a flexible pay-out ratio, we can match the dividend with the company’s cash needs. This gives us the necessary space to manoeuvre during the transformation of our business. In addition, the distribution of an interim dividend has also been cancelled and the annual dividend will be paid in one go, which is an important simplification.”
Isn’t that new dividend policy less favourable to shareholders, who often invested in bpost because it was a generous dividend payer?
Geirnaerdt: “For the shareholder’s return, the dividend is only one aspect. Price evolution is also important. Profits have declined in recent years. By investing and transforming from a traditional postal company to an omni-commerce group, we want to increase profits again. If that transformation is successful, we will become a growth company that is valued much more favourably on the stock exchange than a traditional postal company. That also creates added value for shareholders. The past year has shown that we can compensate for the loss of profits from our traditional activities. The momentum is now to speed up that evolution even more.”