Q2 2026 bpost SA Earnings Call
Speaker #1: I have Mr. Chris Peters, CEO, and Mr. Philippe Dartienne, CFO. Please note: this call is being recorded, and for the duration of the call, your line will be on listen only; however, you will have the opportunity to ask questions at the end of the call.
Speaker #1: This can be done by pressing pound key 5 on your telephone keypad to register your question. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad.
Speaker #1: I will now hand over to your host, Mr. Chris Peters, CEO, to begin today's conference. Please go ahead, sir.
Speaker #2: Thank you. Good morning, ladies and gentlemen, and thank you for joining us today. As CEO of Benote, I'm pleased to welcome you to our second quarter results presentation.
Speaker #2: Joining me today are Philip, our CFO, as well as Alexandra and Antoine from Investor Relations. The presentation materials were published on our website earlier this morning.
Speaker #2: We will first take you through the presentation, and we'll then be happy to answer your questions. As always, be kindly ask you to limit yourself to 2 questions each to ensure everyone has the opportunity to participate during the call.
Speaker #2: Philippe will first take you through our Q2 financial performance. I will then come back to provide an update on the progress of our key strategic and transformation initiatives during the first half of the year and conclude with our outlook for the remainder of 2026.
Speaker #2: Philip, over to you.
Speaker #3: Thank you, Chris, and good morning, everyone. As you can see from the highlights on page 3, group operating income for the second quarter amounted to 1,046,000,000, representing a year-on-year decrease of 46,000,000 on 4%.
Speaker #3: Most of the decline was driven by. In addition to the accelerating structural decline in net volumes, which reached almost 17% during the quarter, parcel volume also contracted by around 9%, reflecting the impact of the 5-week strike that took place through April.
Speaker #3: And with we first discuss with our Q1 presentation. At the same time, Paxon delivered solid top-line growth of +6.5% in Europe, helping to offset both the impact of the previously announced customer churn at radially rest and temporary revenue pressure at Stasi Americas.
Speaker #3: At landmark global, revenue was slightly lower year-on-year, mainly reflecting the impact of the domestic strike on inbound flows from Asia to Belgium. Turning to our adjusted EBIT of 29.4 million, with respect to the EBIT strike impact, you can see that our estimate now stands at 25.5 million, compared with approximately 15 million when we first communicated on the matter early May.
Speaker #3: Shortly after the end of the strike. Since then, contractual penalties compensation and other short-term effects have continued to increase the overall impact. Excluding this strike impact, the year-on-year decline was limited to around 3 million euro, which is better than we had anticipated.
Speaker #3: Indeed, despite the termination of the 679 activities, and the accelerated decline in mail volumes, weighing on bpost profitability, groups underlying performance remain relatively resilient.
Speaker #3: This resilience was supported by continued EBIT growth at Paxon, despite ongoing top-line pressure in the US. As well as by the positive contribution from the reorganization and operational measures implemented in Belgium.
Speaker #3: While these factors were not sufficient to offset the exceptional risk impact, they demonstrate the continued effectiveness of our transformation initiatives and the underlying strengths of the business.
Speaker #3: The strike impact nevertheless has a material effect on our full-year outlook. And take us below our initial guidance range, Chris will come back to this point in detail in a few minutes.
Speaker #3: Before turning to the performance, our business unit, let me highlight, as shown on slide 4, that beyond the evolution of EBIT, our adjusted net profit benefited from a 19 million euro improvement in financial results.
Speaker #3: This improvement was mainly driven by unfavorable non-cash ethics effects last year, as well as higher net income from our treasury investment this year. This positive effect was partially offset by higher interest expense relating to the bond issued in June 25.
Speaker #3: With that, let me turn to the performance of our business unit. I'm now on slide 5, covering bpost segment. Revenue declined by 43 million year-on-year to 493 million euro.
Speaker #3: Domestic mail revenues decreased by 29 million or minus 10.4%. Mail and press volume contracted by 16.8% during the quarter, compared to a only minus 11.3% last year, and 14.3% in Q1.
Speaker #3: And in line with the meetings volume decline guidance, we provided earlier this year. The accelerated decline mainly reflects lower transactional mail volumes, following the introduction of the management B2B invoicing at the beginning of the year.
Speaker #3: As well as the termination of several advertising contracts. Overall, mail volume decline had a negative revenue impact of around 45 million euro. Partially offset by the positive price and mix effect, of 16 million euro or 6.4%.
Speaker #3: Parcel revenues decreased by 10 million euro or minus 7.9% year-on-year, reflecting a volume decline of minus 9.2%, compared to a growth of plus 9.3% in Q1.
Speaker #3: Alongside with the positive price mix effect of 1.3%. As discussed during our analyst call in May, parcel volume declined by around 27% in April as a direct result of the strike.
Speaker #3: These figures do not include cross-border volume, with destination Belgium, which are reported within the landmarks global that I will comment in a few minutes.
Speaker #3: Following the end of the strike, we observed a gradual recovery in customer volume, with activity improving week after week. By the end of the quarter, volumes were broadly back in line with last year.
Speaker #3: However, this means that we have not returned yet to the underlying growth trajectory, we were experiencing before the strike, and particularly in the first quarter.
Speaker #3: Turning to price mix, the positive effect during the quarter was driven by a favorable product and customer mix effect during the strike period, as large customers did not inject their usual volume, as well as a temporary fuel surcharge.
Speaker #3: This positive effect was partially offset by contractual penalties and commercial claims related to the service quality issue during the strike. Finally, revenues from other activity, including retail, value-added services, and personalized logistics, declined by 4 million euro year-on-year.
Speaker #3: This mainly reflects lower revenue following the termination of the 679 activities, at the beginning of the year, as well as lower revenue from fine solution, partially offset by higher revenue at Dyna Group.
Speaker #3: Let's move to the P&L of bpost on page 6. Including inter-segment revenue from inbound cross-border volume, processed through the domestic network, total operating income declined by 44 million euro or minus 7.1% year-on-year.
Speaker #3: On the cost side, OPEX, including DNA, decreased by 21 million euro or minus 3.9%. Mainly driven by two opposing effects. First, we reduced our workforce by approximately 1,500 FTEs, and interim staff, representing a decrease of around 6.5%.
Speaker #3: This reflects the benefits of the ongoing reorganization of our distribution rounds and retail operations. Second, those these savings were partially offset by higher salary cost per FTE, which increased by 2% year-on-year, following the March 26 salary indexation.
Speaker #3: This impact was slightly mitigated by unpaid absences during strikes. As a result, the adjusted EBIT declined by 23 million year-on-year. This includes around 24 million of strike impacts, which, together with the termination of the 679 contract, more than offset the continued productivity gains delivered throughout our ongoing reorganization initiative.
Speaker #3: Turning to Paxon on slide 7. As in previous quarters, the performance reflects two contrasting trends. At Paxon Europe, revenue slightly increased by 3% year-on-year.
Speaker #3: Across our European businesses and geographies, we delivered a growth of around 6.5%, compared with 4% in Q1 26. With several activities continuing to grow at high single-digit rates.
Speaker #3: This positive momentum was partially offset by the performance of SASI Americas, which which is reported on the Paxon Europe. Following a contract termination announced in the fourth quarter, year-on-year revenues continued to decline significantly during the first quarter, further impacted by adverse FX effects of around 1.5 million euro.
Speaker #3: At Paxon North America, revenues declined by 9 million euro. At Constant Exchange Rate, this corresponds to a minus 3% decrease. Driven by three factors.
Speaker #3: First, the expected revenue churn from customers from customer contract termination announced last year. Second, low single-digit negative same-store sale, although this is a slight improvement compared to the first quarter of 26.
Speaker #3: And third, these effects were partially offset by the contribution from recently signed customers, which generated around 23 million euro of revenue during the quarter.
Speaker #3: Let's move to the P&L of Paxon on slide 8. Again, this backdrop, total operating income remained nearly stable year-on-year, while operating expense including DNA slightly decreased.
Speaker #3: The development of our cost-based reflects the contracting trends across Paxon geographies, with continued growth in Europe on one end and lower activity level in the US on the other end.
Speaker #3: Importantly, despite continued revenue pressure in the US, we have maintained a resilient cost structure. Variable contribution margin remained solid. While additional fixed cost and headcount actions continued to support the profitability.
Speaker #3: As a result, adjusted EBIT increased by 2 million to 23 million euro, in the quarter. Driven by top-line growth and productivity gains in Europe, and cost measures and related state optimization in North America, helping to mitigate the impact of the continued top-line pressure.
Speaker #3: Turning now to landmark global on slide 9. At landmark global, underlying market trends remained unchanged. However, top-line performance was flat year-on-year, as domestic strikes at bpost negatively impacted partial volume from Asia into Belgium.
Speaker #3: Volumes were lost to competition during April, and remained under pressure in May, while operations progressively returned to normal. On a more positive note, June delivered a strong recovery and growth resume towards the end of the quarter.
Speaker #3: Other European destinations were not impacted by the strike, and continued to develop broadly in line with previous quarter. At landmark North America, revenue was slightly up year-on-year at Constant Exchange Rate.
Speaker #3: This reflects on one end modest volume growth in the context of a macroeconomic slowdown, and on the other end, an unfavorable mixed effects driven by a higher proportion of US domestic volumes and lower Canada-to-US volumes.
Speaker #3: Overall, landmark global operating income decreased by 2% on 1.6% year-on-year. As shown on slide 10, OPEX and DNA increased by 3%, primarily reflecting higher transportation costs, linked to volume growth, as well as higher corporate and ICT charges.
Speaker #3: As a result, despite underlying growth across most of our commercial activities, adjusted EBIT decreased by 6 million to just under 17 million. Reflecting a strike impact of around 1.5 million euro, an unfavorable mixed effect both in Europe with higher share of commercial product versus postal volumes, and in North America with higher proportion of US domestic volume and lower US-Canada cross-border flows.
Speaker #3: And higher intersegment charges. Moving on to corporate segment on slide 11. Adjusted EBIT was slightly lower at minus 10 million euro, primarily reflecting higher marketing and communication and rebranding investment during the quarter.
Speaker #3: At the same time, we continued to exercise cost discipline reducing our workforce by around 2%, while absorbing general salary indexation of approximately 2%. Let me now turn to the cash flow slide on cash flow on slide 12.
Speaker #3: Sorry about that. Net cash outflow for the quarter amounted to 90 million euro, compared with an inflow of approximately 480 million, in the prior period.
Speaker #3: Which benefited from the bond issuance completed in June 25. Excluding this financing effect, free cash flow remained broadly stable year-on-year. The main drivers were the following.
Speaker #3: First, cash flow from operating activities before changing working capital, amounting to 107 million euro, representing a decrease of 27 million euro year-on-year, mainly reflecting lower EBITDA.
Speaker #3: Second, changes in working capital and provision, resulted in an outflow of 95 million. Compared with last year, this represents a positive year-on-year variance of 29 million, primarily driven by the timing of terminal due settlement and movement in suppliers' balances.
Speaker #3: Third, net cash outflow from investing activities, amounted to 30 million, and remained broadly stable year-on-year. Investment continued to focus on parcels lockers, end capacity expansion, the renewal of our domestic fleet, and further development of our international e-commerce logistics activities.
Speaker #3: Together, these elements largely explain the evolution of the free cash flow during the quarter. Finally, net cash outflow from financing activities, total 73 million euro, excluding the proceeds from last year bond issuance, the higher outflow mainly reflects the annual coupon payment of 26 million associated with the bond issued in June 25.
Speaker #3: Chris, over to you.
Speaker #2: Thank you, Philippe. I'm on slide 13 with the strategy and transformation highlights. At bpost, overall, the April strikes created significant operational disruption during the first half of the year.
Speaker #2: At the same time, execution over transformation agenda continued, with strong progress across the majority over transformation initiatives translating into concrete results. Importantly, these results further validate the strategic direction we have set for the group.
Speaker #2: Despite the April strikes, the transformation towards a parcel-led operating model remains firmly on track, following successful pilots where now moving into the scaling phase.
Speaker #2: September marks an important milestone as we roll out later distribution start times and expand the new dynamic distribution model from 4 to 23 distribution offices.
Speaker #2: We are further strengthening our leadership position in out-of-home, through Belgium's densest locker network, where well on track to reach our accelerated year-end target of 3,500 lockers, with only around 100 locations remaining.
Speaker #2: At the same time, locker utilization continues to increase strongly, further reinforcing our multi-channel proposition for both consumers and businesses. Our retail network transformation progresses further through the introduction of new products, services, and partnerships.
Speaker #2: Over the past months, we successfully launched nationwide partnerships with Digi, a telecom operator, and the home security provider, Verisure. Strengthening the relevance and value proposition of our retail network.
Speaker #2: Nevertheless, progress has been somewhat slower than initially planned due to the ongoing discussions on the eight management contract. And finally, our transport activities continue to gain momentum as a new growth platform.
Speaker #2: We are steadily expanding the pilot now serving more than 20 internal and external customers, with over 150 volunteer drivers. This allows us to further validate and refine the operating model under real operating conditions while preparing for future scaling.
Speaker #2: Turning now to Paxon and Landmark Global on page 14. Across our international business, we continue to make progress against our strategic priorities while each business faces a different set of challenges impacting the pace of progress.
Speaker #2: At Paxon, commercial development has progressed more slowly than initially anticipated, and accelerating top-line growth remains a key priority. At the same time, our commercial pipeline continues to strengthen, particularly at Paxon Europe, and disciplined cost management has helped protect profitability at Paxon North America.
Speaker #2: At Landmark Global, our business demonstrates strong resilience, maintaining volumes and defending our key trade lanes despite increasing trade barriers and the temporary disruption caused by the new 3 euro EU import fee.
Speaker #2: We're not yet delivering the top-line growth ambition embedded in our plans, hence protecting profitability remains our immediate priority. To do so, we continue to implement structural cost measures, including workforce reduction, and real estate optimization, in parallel we further execute our mid-market penetration strategy, diversifying our customer portfolio and reducing our dependence on a limited number of large customers.
Speaker #2: At Paxon Europe, the commercial transformation is progressing more slowly than initially anticipated. Nevertheless, the commercial action plan introduced by the new BU CEO earlier this year is beginning to generate encouraging momentum.
Speaker #2: With increased commercial collaboration and cross-selling across the organization, yielding a sustained strengthening of the commercial pipeline. In parallel, we are leveraging proven stasi capabilities to accelerate the turnaround of selected legacy sites and customer contracts.
Speaker #2: And finally, at Landmark Global, we demonstrate a strong resilience despite increasing trade barriers and the temporary market disruption following the introduction of the new 3 euro EU import fee.
Speaker #2: Through targeted commercial actions, we successfully restored China-Belgium volumes following the April strike and largely mitigated the impact of the new 3 euro EU import fee.
Speaker #2: We did so by increasing our volume share with leading Asian platforms and marketplaces, further strengthening our position in one of our most important cross-border trade lanes.
Speaker #2: So, as you can see, our reshaped 2029 strategy continues to advance across all pillars. Let me know translate this operational progress into financial performance.
Speaker #2: Philippe has just walked you through our Q2 results. Taking a step back and looking at the first half as a whole, three key observations that stand out in terms of revenue development.
Speaker #2: revenue decline of around 100 million euro is attributable to our US-based 3PL activity at Paxon. Combined, radial US and stasi Americas saw revenue decline by around 62 million euro year on year, or minus 14%, including a negative foreign exchange impact of approximately minus 6%.
Speaker #2: This decline was only partly offset by the strong performance of our European 3PL businesses, which delivered growth of more than 20 million euro or slightly above 5%.
Speaker #2: Second, at Landmark Global, we continue to grow volumes despite a demanding market environment. Revenue growth was more modest due to product mix effects, but overall activity levels showed resilience.
Speaker #2: Third, at bpost, the anticipated acceleration in male volume decline to approximately minus 15% resulted in a revenue reduction of around 50 million euro. Under normal circumstances, part of this impact would have been offset by continued parcel growth.
Speaker #2: However, the five-week April strike disrupted that trajectory. Despite the strong first quarter and the gradual recovery in volumes following the strike, during which parcel volume fell by 27% in April, first half parcel revenue ended slightly below last year, resulting in an overall parcel revenue decline of around 3 million.
Speaker #2: Turning now to EBIT. At bpost and adjusting for the February 2025 and April 2026 strike impacts, EBIT declined by 15 million euro year on year, while profitability continued to be effective by the structural decline in male volumes and the termination of the high margin 679 contract, a meaningful part of these headwinds was offset by the benefits delivered through our ongoing reorganization initiatives and efficiency measures.
Speaker #2: At Landmark Global, EBIT declined by around 10 million euro, excluding strike effects. This was despite resilient top-line performance and was mainly driven by an unfavorable business mix evolution both in Europe and in the US.
Speaker #2: The positive highlight comes from Paxon. Despite a revenue decline of approximately 40 million euro or minus 5%, largely attributable to the US activity, Paxon delivered EBIT growth of around 6 million euro, together with a margin improvement.
Speaker #2: While commercial momentum remains below our ambition and there is still work to do, this performance demonstrates that the action implemented over recent quarters are moving the business in the right direction.
Speaker #2: This overview of our first half performance brings me to the outlook update for 2026. I am on slide 15. Based on our first half results and our current view of the business, we are today revising our full year 2026 adjusted EBIT outlook to approximately 140 million euro.
Speaker #2: You will recall that earlier this year we communicated an initial EBIT guidance range of 165 to 195 million euro, with a midpoint of 180 million euro.
Speaker #2: So what has changed since then? The first element is the April strike impact. Which we could not anticipate and is now estimated at approximately 25 million euro.
Speaker #2: Mechanically, this brings the midpoint of our guidance range from 180 million euro to 155 million euro, and implies a strike adjusted range of 140 to 170 million euro.
Speaker #2: The second element mainly relates to Paxon. As I have just discussed, commercial development at Paxon is progressing more slowly than initially anticipated. While our first half performance at group level was broadly in line with our expectation, excluding the strike effects, a meaningful portion of our EBIT planned for the second half relied on new business ramp-ups and commercial initiatives that are now expected to materialise later than initially planned.
Speaker #2: We estimate to result in EBIT shortfall at approximately 20 million euro to be mitigated by around 5 million euro of additional corporate cost saving initiatives resulting in a net EBIT impact of around 15 million.
Speaker #2: So if you think about the guidance revision, there is a really two distinct steps. First, the mechanical adjustment reflecting the update strike impact, and second, the lower-than-expected contribution from commercial development at Paxon, consistent with the trends we have observed during the first half of the year.
Speaker #2: Put differently, our current expectation of around 140 million euro corresponds broadly to the lower end of our initial guidance range adjusted for the 25 million euro strike impact.
Speaker #2: With this, we are now ready to take your questions. Again, two questions each, please, so that everyone gets the chance to be addressed during the session.
Speaker #2: Operator, please open the lines.
Speaker #1: Ladies and gentlemen, as a reminder, if you'd like to ask a question or contribute on today's call, please dial, pound key 5 on your telephone keypad to enter the queue.
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Speaker #1: The next question comes from Mikhail DeClercq from KBC Securities. Please go ahead.
Speaker #3: Yes. Hi, and thanks for taking my questions. I have two on the Paxon business, please. One on Europe and one on the US. But first, on Europe, as we filter out, of course, the customer loss that you had in the US, your growth improved to 6.5%, but then if I look at the guidance, you mentioned that you expect some slower development of business activities in France.
Speaker #3: What do you mean with this exactly? Is that new customer onboardings or new pillars? If you can elaborate a bit on that, because it's a bit different than what we've seen in the second quarter.
Speaker #3: And then the second question is on radio, US. So during the capital markets day, you were quite positive on these new customer onboardings, these smaller customers.
Speaker #3: Now that seems to be trending a bit below your expectations. Can you tell me a bit what the pushback or what the reasons are for this?
Speaker #3: Why is it more difficult than you originally expected, or is it just a bit of a delay of a phasing that you just see that some contracts are being postponed into 2027?
Speaker #3: So if you just can comment a bit on those topics, please.
Speaker #2: You take your way.
Speaker #3: Yes. So on Europe, indeed, so thank you for your question first. Indeed, your analysis perfectly right. Despite the growth of 6.5% in Europe, we are seeing that in France, particularly, the development is not at the level that we're expecting.
Speaker #3: You know that we have a point of sale activity which is not growing the sector in general. It's not growing very fast. But we are experiencing some delays in onboarding new customers on for new services.
Speaker #3: So it's not that it will not happen. I would say it's a delay in onboarding those customers.
Speaker #2: On the US, so indeed, when we launched the Fast Track product, we had a very good traction in the initial part of that. If we now take back the the fact that the tariffs inclined a number of retailers from outside of the US that were importing directly towards consumers, a couple of fashion brands that started to do local fulfillment.
Speaker #2: And we could benefit from that momentum that was there at that moment. And we estimated, based on that, to some extent, let's say overexaggerated, the growth curve that we could expect going forward, that rebalanced in terms of tariff later on, which means actually that the pipeline was less filled with these kind of opportunities.
Speaker #2: And therefore, it's developing a bit slower than or expectation that we had at the moment that we made the capital markets day announcement.
Speaker #3: Okay. If I can quickly follow up again on Europe. So you mentioned some delays on new customer onboardings. If you look at the growth of existing customers, the 6.5%, can you break this down a bit?
Speaker #3: I mean, what part is maybe radio Europe fulfillment and which part is Stassi? And based on your comment, I would expect this growth rate to come down again in the second half of the year.
Speaker #3: Is that correct?
Speaker #2: So in fact, when we're speaking about operating in Europe now, we operate as one. All the activities we told you, we move from an organization just post-acquisition, where in every country we had former Stassi, former Radial, former Activanes.
Speaker #2: Now, since the beginning of the year, we're really operating those countries as one. And all the Salesforce, all the warehouses, are operated as one.
Speaker #2: So it's very difficult to make the split. And frankly, it would to our for us, it does not make much sense to continue looking what is what was further Stassi customers or versus further Radial customers.
Speaker #2: We made the acquisition to reinforce our presence in Europe in all the geographies where we were present. And we added some. And it's exactly what is happening.
Speaker #2: Particularly to France, what is really in fact, there are two elements that are penalizing us, as I said, you know, there there were no former activities from Radial or Activans.
Speaker #2: Despite the fact that we want to bring that knowledge on e-commerce into France, which is a competence that Stassi did not have, there it's a bit more difficult to penetrate that market of e-com in France so far.
Speaker #2: While at the same time, the PRSM, which is the core of the business of we still having in France, which is really not a growing business.
Speaker #2: The business as a whole is at best stable. So there is limited growth coming from that kind of activity.
Speaker #3: Okay. It's very clear. Thank you.
Speaker #2: Welcome.
Speaker #1: The next question comes from Frank Claassen from Degroof Petercam. Please go ahead.
Speaker #3: Yes. Good morning. My first question is on the strike impact. The 25 million negative. Is this it, or is there any risk of a sort of delayed impact from maybe penalties or loss of market share?
Speaker #3: So could you elaborate on that? And my second question is on the partial volume growth. We're back to flat-ish in May, June. What have you baked into your guidance?
Speaker #3: What do you assume for the second half? Do you expect to return to growth? And how much growth? Thank you.
Speaker #2: Okay. So on the 25 million, more or less everything that we had to include is included by now. So if we look at the effects that we had was, of course, the direct strike impact during the period itself, then you had a strong decline on the number of clients, of which for most of them we could regain their trust and they are in a normal operating mode again.
Speaker #2: Some of them took a bit of time because we had two effects there. One effect was that some said first you have to fully clean up the backlog before we start to re-inject with you.
Speaker #2: And that took some time. And some other ones had contracted with other players for a certain period of time. An agreement to do for them the last mile.
Speaker #2: And so it took before that contract ended, before they came back. But at this point of time, we have fully recovered of that. Second thing, that you mentioned there in terms of penalties, most of the negotiations are in a final state, meaning that legal documents have to be finalized.
Speaker #2: But I think that the agreements are more or less finalized for most of those of those penalties that we don't expect new penalties to come in.
Speaker #3: When it comes to parcels growth, for the second half, we expect in line with our initial guidance, a low single-digit growth. A low single-digit for the second half.
Speaker #3: As of so not for the full year, but for the second half.
Speaker #2: No, no. For the second half. For the second half.
Speaker #3: Yes. Okay. Yeah. Exactly. All right. Okay. Thank you very much.
Speaker #2: Welcome.
Speaker #1: The next question comes from Marc Zeck from Kepler Chevreux. Please go ahead.
Speaker #3: Good morning. Thank you for taking my questions. I'm afraid I just want to follow up on the question from my colleague on Paxon. To me, it's not yet quite clear if the slowdown or the delays in commercial development is kind of structural or is it just kind of a delay in that the volume or the revenues will come later.
Speaker #3: For Paxon US, I've got to say, from what you said, it seems more like a structural slowdown. So it's not really a delay, but that your initial expectation is just to just to optimistic.
Speaker #3: And that's it's not really a delay, but really less revenues to be expected going forward. For Paxon Europe, you said that there's delays in onboarding new customers.
Speaker #3: And could you maybe elaborate a bit on what is causing these delays? It's just kind of operational delays. Is it maybe due to, I don't know, France-specific issues or is this also some kind of a structural delay that will lead to lower revenues going forward?
Speaker #3: That's my first question. I recognize it's kind of a couple of sub-questions in there. The second question would be on that more global. Could you maybe give us a bit of feeling how H2 might develop for that more global?
Speaker #3: I believe for H1, we're significantly below last year. Even excluding strike impact. Where do you catch up on this a bit on H2, or should be more or less factor in the same delta for H2 on profits we saw in H1?
Speaker #3: That's my two questions. Thank you.
Speaker #2: Let me start with thank you for your question, Marc. Let me start with the second one on landmark. In fact, when we issued a guidance, we issued a guidance of mixed single-digit growth.
Speaker #2: With the impact of the strike and all the adverse impact that we have as Chris mentioned, in the US with the tariffs, we are more targeting a low single-digit percentage growth for the top-line development.
Speaker #2: This being said, I think it's important to highlight that in terms of profitability, we still maintaining our guidance. We might be at the low end of the range, but still meeting the guidance, which is still a very healthy profitability at EBIT level.
Speaker #2: It should not be underestimated the resilience of the LGI business when we see all the adverse macroeconomic impact that we are facing. There is the one in the US that started it did not start yesterday.
Speaker #2: It started a bit at the end of last year as well. But despite that, they've been able to develop new lanes to come directly to Canada.
Speaker #2: And also, developing some other new lanes destination Europe. So indeed, it's a bit slower but I would say increasingly I think we could qualify what landmark global is as very resilient being able to adjust to macroeconomical circumstance and adjust to customer needs.
Speaker #2: So I'm a bit more positive than what I'm hearing from your question, Marc, on landmark global. When it come to Paxon, if I start with the US, it's a question of it might be a question of terminology of words.
Speaker #2: When we speak about delay, yes, there is delay in onboarding new customers. But or is it a permanent loss? No, it's the fact that it takes more time to attract those mid-size customers.
Speaker #2: When we launched that fast-track product, it really rocketed in the first quarter. And now it's really plateauing we have to recognize it what also what leaders also to revisit our service offering.
Speaker #2: Is it the right one? We believe yes. But it's more difficult to attract those customers. Also, not to be underestimated, the same store sale impact in the past, we had development our of our base customers that were in the positive territories.
Speaker #2: Of course, it's come because you are serving them well and they stay with you, but you also benefit from their inherent growth of their business.
Speaker #2: While since several quarters now, we see that the same store sale is really in the negative territories. As I mentioned, it's slightly lets to make to be a very simple.
Speaker #2: We experience a minus five in the first quarter. We experience a minus four in the second one. Okay. It's a small improvement. It is still in the negative territories.
Speaker #2: And that affect us in terms of top-line quite significantly. When it come to France, I would say I will repeat what I said to Frank.
Speaker #2: It's more like we are trying to bring new type of services on the French market. What takes more time than expected. Our presence there were barely no mostly known for the POSM.
Speaker #2: We are bringing new customers. When you bring a new type of service offering based on new competencies, it takes some time a bit more time you need to convince some existing customers also to give us those e-commerce type of businesses.
Speaker #2: But it doesn't come overnight. We are seeing very confident that we'll prevail. But it's taking it's really a question of delay, I would say, on that one.
Speaker #3: Thank you very much.
Speaker #1: The next question comes from Henk Slotboom from the idea. Please go ahead.
Speaker #4: Good morning all. And thanks for taking my questions. I'm afraid it's on Paxon as well. Chris, it's more like a clarification question I remarks on the outlook for the current year, for the second half year of Paxon, I got the impression that when you refer to delays in commercial in new contracts and that sort of things, relates does that relate to contracts that have already been signed and have not kicked in yet?
Speaker #4: Or is it reflecting the fact that you hope to sign on to onboard new clients somewhere in the course of the second half year?
Speaker #4: That was a little bit unclear. So perhaps you could clarify that. The second question I have is you also refer to the fact that you've made a lot of progress in getting back volumes especially from the Chinese platforms.
Speaker #4: That is, of course, helping landmark and have with a favorable position of Liège and Brussels as European hubs I guess that should offer a little bit of help.
Speaker #4: But is there a crossover in the direction of Paxon as well? The Chinese some of them have advocated local warehousing, local fulfillment. Is that something you expect to be able to benefit from?
Speaker #4: Those were my questions. Thank you.
Speaker #2: Yeah. Thank you, Hank. On the first one, in terms of delays, the way how we have brought it into our outlook is that we looked at a pipeline and the conversion rate which is rate that we have seen over the last time.
Speaker #2: So it's not all signed contracts but a applied conversion rate that we have on a very healthy portfolio in terms of different stages that we see within that pipeline.
Speaker #2: That's always the way how we've done it. So there's a mix of some things might be signed, some things might be in negotiation. But on each of those different steps within our pipeline, we apply a conversion rate towards the final contract.
Speaker #2: And of course, a risk mitigation because typically people announce more volume than they really do in practice later on. That's also an effect that we see.
Speaker #2: So we correct for these effects. But that's the way how it was built up. So it's a mix of the two on which we applied conversion rates on the different stages in the pipeline that we are developing.
Speaker #2: If you look at the volume that we see happening, so there I think that indeed, of course, we benefit from the fact that Liège airport is a very important hub for the Chinese volumes coming in.
Speaker #2: The 3 euro impact as you have probably written in the seen in the press was written in the press that there was a serious decline in the volumes coming in.
Speaker #2: We could benefit from that situation and buy commercial action, capture a disproportionate share of the part that was still coming in. And meanwhile, indeed, we are in conversation with a couple of people.
Speaker #2: It's too early to make any announcement on that. That are looking for opportunities for closer to delivery market fulfillment opportunities. As you know, many of them have announced warehouses.
Speaker #2: Some are actually opening warehouses almost as we speak. And so in that discussion, of course, Paxon is in the discussion of multiple parties over there as well.
Speaker #4: Okay. Sorry, perhaps I can squeeze in a follow-up, Chris. When I look at earlier reports by, for example, PostNL and CTT, I sense an increased activity in the field of opening warehouses and fulfillment centers elsewhere as well.
Speaker #4: Do you see increased competition in that? You already referred to the Chinese that are coming. Is it something that is of any concern to you or is the power of the active hands and radios and that sort of things, is it so strong that you say, okay, well, we'll manage that.
Speaker #4: It won't affect us.
Speaker #2: I would say overall market growth is good for Paxon Europe. Depending, of course, on the different markets. We don't have the same strength of position in each of the markets.
Speaker #2: But typically, if a market grows, it's beneficial for us because it means that our conversion rates in our pipeline are better at that moment of time.
Speaker #2: So as long as you hear that there is more activity coming to the European market, it's typically a positive signal for the, let's say, the quality and the healthiness of our pipeline.
Speaker #4: Okay. Thank you very much.
Speaker #2: Thank you.
Speaker #1: The next question comes from Marco Limite from Barclays. Please go ahead.
Speaker #5: Hi. Morning for good morning. Thanks for taking my questions. I've got a couple. So the first one is on the de minimis. How do you assess the risk from new European regulation, especially in your landmark business?
Speaker #5: You were mentioning that June was actually quite good. Do we think that there was a sort of front-loading of volumes? And yeah, how do you think that the landmark business will adjust or react to the de minimis?
Speaker #5: Do we think the second half is going to be challenging? And then my second question is on the new management contract on retail activities.
Speaker #5: If you could please remind us when does that expire? What is the risk around this contract? How what is the revenue that needs to be renegotiated?
Speaker #5: Thank you.
Speaker #2: Yeah. On the de minimis, so June was pre the 3 euro import fee the European import fee. And so it was a very strong month which showed that we could rebound from the strike.
Speaker #2: So for us, that was more a sign that we could strongly rebound from the strike. What we see now, as I just already mentioned, and it was already in a number of publications, so there was a hefty reduction of the import volumes in the first weeks after the 3 euro import.
Speaker #2: So you see that the Chinese platforms not have yet fully adapted to that reality. Meaning that neither local fulfillment has been completely delivered to them, neither they could compensate by commercial actions the impact of that 3 euro.
Speaker #2: That being said, the position of landmark global was very strong during the month of July as far as we can see. So that means that we actually are quite optimistic that relatively speaking to that market that we actually are fairly competitive going forward.
Speaker #2: But it's not yet played out fully what the end game is of this 3 euro. So the 3 euro rebounds after the 40% which typically seen that volumes gradually will come back, not fully, and some of that will go to local fulfillment.
Speaker #2: And so how that balance is out is a little bit difficult to have a real view on that. Second thing, of course, that we should not forget is there's a handling fee coming in later this year.
Speaker #2: And so that as well could have a second effect on that volume in that market. And that's an element, of course, that we will watch carefully and wear off well or commercial teams are preparing well to ensure that we don't have negative effects on the side of landmark.
Speaker #2: Can you go on the government contract? So on the management contract, it will end at the end of this year. The management contract in the past, which is when I say in the past, the current one, generates 150 million euro of revenue.
Speaker #2: The government has expressed its willingness to reduce that amount by 50 million. It's public information. They said to reach their budget, they want to reduce it.
Speaker #2: And we are in negotiation with the government to see how we could implement that. Because for us, it's quite obvious that the reduction in the top line will not lead to a loss of 50 million of EBIT.
Speaker #2: Will not absorb that reduction of top line by maintaining the same services. So we are discussing with the government to see how under which modalities we want to reshape the portfolio of services to reflect the fact that the top line will move from 150 to 100 million.
Speaker #5: Thank you. But on these, there is no risk that the wall of the 150 million disappears. So you can confirm that we should be quite relaxed that we only get a 50 million reduction, right?
Speaker #5: Yeah, there's no further risk on it. It's more a negotiation on the services and cost base.
Speaker #2: It's a statement in the government agreement. So that was also made public at the moment that this government started to operate. It seldom that you see big changes towards a delicate government agreement because then you would question all the elements in a very large government agreement.
Speaker #2: So it's indeed a very low risk that that would change going forward. But it's not something as it is a political decision, it's not something that can be fully excluded.
Speaker #2: But it would be strange that something which is written in hard text in a government agreement, that would drastically change during the course of that government.
Speaker #4: And during the discussion that we have, we are speaking about how to implement this 50 million reduction. It's not a question or it could be a go to zero.
Speaker #5: Okay. Thank you very much.
Speaker #1: Ladies and gentlemen, there are no further questions. So I will hand it back to Chris Peters to conclude today's conference. Thank you.
Speaker #2: So thank you everybody in the call for having taken the time to be with us and for your interesting questions. We look forward to staying in touch.
Speaker #2: And as a reminder, Philippe will present you our third quarter results on November 6th. For those who have not been on holiday yet, I wish you happy holidays.
Speaker #2: Thank you very much and have a nice day.
