bpost SA/NV (BPOSF) CEO Jean-Paul Van Avermaet on Q2 2020 Results - Earnings Call Transcript

bpost SA/NV (OTCPK:BPOSF) Q2 2020 Earnings Conference Call August 5, 2020 4:00 AM ET

Company Participants

Jean-Paul Van Avermaet - Chief Executive Officer

Leen Geirnaerdt - Chief Financial Officer

Conference Call Participants

David Kerstens - Jefferies

Najet El Kassir - Bank of America

Frank Claassen - Degroof Petercam

Marc Zwartsenburg - ING

Marco Limite - Barclays

Andre Mulder - Kepler

Operator

Hello and welcome to the bpost Second Quarter 2020 Analyst Call. My name is Judy and I'll be the coordinator for today's event. Please note that this call is being recorded and for the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end of the call. [Operator Instructions]

I will now hand you over to your host CEO, Jean-Paul Van Avermaet and CFO, Leen Geirnaerdt to begin today's conference. Thank you.

Jean-Paul Van Avermaet

Okay. Good morning ladies and gentlemen. I'm very pleased to be here to present you bpost Group's second quarter 2020 results. I'd like to welcome you and thank you for joining us. With me I have Leen Geirnaerdt our CFO; as well as Saskia and Stephanie from Investor Relations.

I assume you already had the opportunity to read through the materials which we posted on our website last night and we will talk you through the presentation. And afterwards we will take your questions.

Our second quarter results were obviously still impacted by COVID-19. And this until the end of May, the second quarter was fully dominated by the lockdowns in place as well in Europe as in North America. This resulting in a net negative impact on the total group EBIT year-over-year also when we exclude the gain on sale of the headquarters building we had last year in May 2019.

With regards to the timeline, let me remind you that the federal government in Belgium imposed a lockdown as from March 18th including the closure of non-essential retail and this until May 10th included. A promotion ban was also introduced at the start of that period and was in place until April 3rd. The month of June on the other hand proved to be unexpectedly and exceptionally strong. We will elaborate on that later on.

Predictability remains very low since there are many unknown factors as to how COVID-19 will further evolve. However, we can say that we are seeing some structural trends emerging from this crisis. These trends also confirm that the diversification strategy which bpost Group embarked on since a few years is really bearing fruits.

I repeat remaining an efficient mail operator in Belgium while growing in the areas of e-commerce and last mile delivery in the home country. For that purpose, we continue to invest in capacity expansion in those growing activities this with two new parcel sorting machines in Antwerp and Brussels and sites expansion for e-commerce logistics in Europe and in North America.

Coming back to our second quarter 2020 results on slide three. The group adjusted EBIT stood at €74.9 million. This includes an estimated net negative impact of €9.5 million related to COVID-19. This result is much stronger than our own expectations driven by the sharp recovery during the month of June where we have seen that mail volumes were much better than expected and e-commerce volumes remained at a very high level.

Please do note that all COVID-19 impacts mentioned are best-effort estimates based on actuals and are net of negative and positive impacts.

Our Mail & Retail business contributed for €36 million to the group adjusted EBIT and this with a margin of 7.7%. The COVID-19 net EBIT impact over the quarter was still significant for this business and is estimated at minus €37 million.

Year-on-year, the segment was impacted by accelerating mail volume decline at minus 17.7% and this with a severe negative development quarter-to-date May and a much higher than anticipated catch-up during the month of June.

Our Retail business as well was negatively impacted by COVID-19. These topline developments are the main drivers behind adjusted EBIT decline and are partly offset by cost phasing and the cost-containment measures taken to face the current volatile environment.

In our business Parcels & Logistics Eurasia, we generated €32.4 million adjusted EBIT and this with a margin of 11%. Top-line here was fueled by COVID-19-driven growth in all revenue lines in particular in the Parcels Belgium and Netherlands with volume growth of 78.4%. This started only slowly at the end of the first quarter in March, but exceeded our expectations since that persisted to a large extent up to June in the second quarter and this despite the reopening of nonessential retail in the beginning of May.

Excluding the unfavorable year-over-year evolution in terminal dues settlements, adjusted EBIT was up by €13 million or 76% operationally. The net COVID-19 impact on EBIT is estimated at plus €13.1 million.

Going to North America. North America was affected later in time by the pandemic. While we did not see an impact in the first quarter, the second quarter showed a significant e-commerce volume growth from existing clients at Radial and positive operating leverage. E-commerce logistics operating income grew by 53.5% to €331 million.

The adjusted EBIT for the whole business unit increased by €18.1 million to €17.6 million. The positive EBIT evolution at Radial North America was partly offset by continued margin pressure in the International Mail business. For this business line, the net COVID-19 impact on EBIT is estimated at plus €16.5 million for the quarter.

Thanks to this contained net financial impact from COVID-19 on bpost Group so far, we are able now to reconfirm our initial group adjusted EBIT guidance range of €240 million to €270 million. The contribution by business unit though will be different versus what was initially foreseen and that you will understand. Of course, this outlook is based on the current situation and facts assuming no second national or important local lockdown during the rest to the remaining time of 2020.

I will come back on this in more details, but will first hand over to Leen for more details on the financials of the second quarter. Leen?

Leen Geirnaerdt

Yes. Thank you, Jean-Paul and good morning to you all. We are together on page 4 now. Well, yes, and that shows the EBIT bridge for the second quarter. As you can see the adjusted EBIT showed a decline of €32.6 million compared to the same period last year. Two big things that we noticed there €19.9 million is due to the gain on the sale of our headquarter building that we had last year in the month of May.

And as Jean-Paul mentioned the second thing is the impact of COVID-19 with a net estimated EBIT impact of negative €9.5 million where on the one hand, we had a decline in Mail & Retail, which was to a large extent compensated by significant growth in our Parcels & Logistics businesses.

Besides this COVID-19 and the headquarter sale, our second quarter EBIT was favorably impacted by targeted cost-containment actions and cost phasing towards the second half of 2020. In Mail & Retail adjusted EBIT declined by €38.8 million mainly impacted by COVID-19. We estimate this €37 million on a net basis. This was visible to the Domestic Mail volume decline at minus 17.7%, while specific cost-containment actions as well as phasing helped us to smoothen significantly the impact at EBIT level.

Parcels & Logistics Eurasia they recorded an adjusted EBIT increase of €8.8 million. The adjusted EBIT figure of €32.4 million includes an estimated positive net impact of €13.1 million from COVID-19 and on the other hand minus €4.2 million negative evolution in the settlement of terminal dues. You will remember that last year in the second quarter that was a very positive phasing.

Parcels & Logistics North America, adjusted EBIT increased by €18.1 million versus the second quarter of 2019. This strong positive EBIT development from e-commerce logistics and Radial in particular was only slightly offset by margin pressure in the International Mail in the U.S. Like said in Corporate, the adjusted EBIT decline of €20.7 million is largely explained by the gain on disposal -- sorry of our headquarters in the second quarter of 2019.

On the next page we have an insight on the key financials for the quarter. At group level, total operating income was up by 12.5%, positively impacted by the strong growth in Parcels BeNe and e-commerce logistics, both in Europe and in North America. More details on the revenue and EBIT developments following the breakdowns per business unit later on.

When looking at the EBIT, always we have the adjustment for non-cash amortization charges on intangible assets that were recognized in the purchase price allocation. These charges also positively impacted the reported income tax. That effect has been adjusted here as well.

The net financial result of minus €14 million, improved slightly by €0.8 million versus second quarter of last year and that's mainly due to improved exchange rate results. Income tax expense decreased by €13.5 million, as a result of lower profit before tax, while also the effective tax rate of 26.7% decreased, mainly as a result of the lower Belgian corporate tax rate from 29.58% last year to 25% as of this accounting year or fiscal year.

The normalized free cash flow increased. Thanks to an improvement in the working capital evolution. This is primarily thanks to COVID-19 extended payment terms and the absence of tax prepayments in the second quarter this year, something that was allowed by the Belgian federal government. These effects were partly offset by lower building sales, given the sales of our headquarter last year and I will come back on the cash flow elements a bit later in the presentation.

All in all and by consequence the net debt decreased compared to end of 2019 helped by the free cash flow generation and of course also by the absence of paying a final dividend on 2019 in the second quarter of this year. Capital expenditure for the quarter amounted to €24.9 million, a decrease of €0.9 million compared to the second quarter of 2019, which spent primarily relating to capacity expansion, partial sorting on the one hand and also in e-commerce logistics.

Let's now have a look at the different operating segments. On this slide, you will find we are on page 6, the results by segment in which you see the contribution per business unit. And it shows a strong contrast to the previous quarter's due or thanks to if I can combine that with the word COVID-19. It boosted the growth in Parcels & Logistics segment, contrary to the acceleration of mail volume decline in Mail & Retail. So indeed, Mail & Retail generated 48% of the group adjusted EBIT of €74.9 million. Remember that on a full year basis last year, Mail & Retail was contributing about 80% of the EBIT.

Parcels & Logistics Eurasia was the second contributor at 43%. And Parcels & Logistics North America contributed positively as well, accounting for 24% of the group adjusted EBIT in the quarter. These figures do show that the business transformation is on the right track towards sustainable EBIT growth. Over time, the growing EBIT contributions from our Parcels & Logistics business will increasingly compensate the EBIT decline in Mail & Retail.

We can move to page 6, where we see the external revenue bridge of Mail & Retail. We see a decline in the external revenue of €71.9 million to €407 million. And we see a couple of things €40.9 million revenue loss from Domestic Mail and €27.8 million decline in proximity and convenience retail network.

Domestic Mail was driven by an underlying mail volume decline in the quarter of minus 17.7% and the absence of elections, partly compensated by positive price/mix impact. Mail volume decline shows a very different pattern between quarter-to-date in May, it was at minus 22.3% and between the month of June, which showed a stronger-than-anticipated recovery and it stood at only minus 6.6%. The discrepancy in trend is particularly obvious for Advertising and Transactional Mail.

In Transactional Mail, the underlying mail volume decline was minus 16.7%, of which minus 19% in the first two months. And in June, we noted minus 8.9%. Transactional Mail was relatively resilient to the impact of COVID-19 because it was still supported by big senders' administrative volumes, which were less impacted than the smaller administrative volumes, the daily and the registered mail.

Despite this, all product categories were negatively impacted over April and May, with a catch-up in June. Then the Advertising Mail volume declined. It stood at minus 26.6%, of which minus 37% in April and May, still impacted by the ban on promotions in April and by the closure of nonessential stores. Advertising Mail then gradually resumed with food retail in the second half of April and the other sectors as of May.

In June the picture was very different, with minus 4.2% in Advertising Mail volume decline, which highlights indeed a sharp catch-up, although not in all sectors. The Press volumes in the quarter are minus 8%. It showed a continuation of the trends towards e-substitution and rationalization, so normal trends relatively robust in the COVID-19.

Proximity and convenience retail network revenues declined by €27.8 million, partly due to one deconsolidation of Alvadis that explains minus €7.8 million versus last year, secondly the Ubiway retail revenues that were impacted by the COVID-19 confinement measures, which led to a significant decrease in footfall, primarily in our travel locations.

Then thirdly, banking and finance revenues also declined, due to less traffic in post offices and also less ATM transactions. Value-added services, decreased by €3.2 million and we observed that in phasing out of the e-ID activities, nothing to do with COVID-19 the document management and the European license plate, which was impacted by COVID-19.

Looking then at the P&L for M&R, the adjusted EBIT amounted to €36 million with a margin of 7.7%. This is a net decrease of €38.8 million compared to the second quarter of 2019, explained by the decrease in total revenues of €53.2 million, combined with a EUR 14.4 million decrease, in operating costs, when including the adjusted D&A.

Operating expenses declined, as a result of the following, we did have higher payroll and interim costs, we did have specific COVID-19 OpEx. But on the other hand, that was more than compensated by lower costs from again technically, the material costs from Alvadis deconsolidation impact, the fact that we have a higher recoverable VAT amount than last year, cost containment actions, and also a bit of cost phasing, towards the second half of 2020.

COVID-19 had an estimated net impact on Mail & Retail's EBIT of €37 million. And we see two things, of course the top line development at Domestic Mail and in Ubiway retail I just explained, as well as by additional costs linked to the COVID-19 premium, health and safety measures, an increase in absenteeism and also additional bad debt risk.

Note that the estimated COVID-19 net impact was significantly negative quarter-to-date May, while in June we noted a faster-than-anticipated catch-up in the mail volume. Then we move to the PaLos and starting with Eurasia. On revenue we recorded a growth of €95.6 million. This is driven by favorable development across all sub segments, thanks to the strong increase in online demand, due to the lockdown.

Parcels BeNe to start with, it recorded an increase of €58.4 million. That's an increase of 64.2%, and that's driven by significant organic volume growth of 78.4%, only slightly slowing down in the month of June, from the peak levels recorded in April and in May. Also DynaLogic continued on a very good volume trend. E-commerce logistics revenue also increased nicely, by €17 million, thanks mainly to positive COVID-19 impact on Radial Europe, Active Ants and DynaFresh as well as the MCS Fulfilment consolidation impact.

Cross-border revenues, contrary to what happened in the first quarter if you remember, we have now in the second quarter a very positive top line impact from COVID-19, which explains an estimated €15.4 million of the €20.2 million increase year-over-year. The important activity loss that we experienced at the beginning of the COVID-19 outbreak, relating to the lack of airfreight capacity, closure of international borders, gradually recovered over the month of May, although still modest.

But through June, the cross-border activities evolved exponentially and especially for the parcels from Asia as a result of the train solution that we put in place, as an alternative to the airfreight. What does it give in results? Adjusted EBIT for Parcels & Logistics Eurasia increased by €8.8 million to €32.4 million, with a margin of 11%.

This was driven by top line evolution, I just talked about partly offset by higher variable costs and specifically also COVID-19-related costs. In addition to that, a net minus €4.2 million less terminal dues settlements than we experienced last year. Excluding those terminal dues impact, the adjusted EBIT would be up by, €13 million or 67% operationally.

COVID-19 had an estimated net positive EBIT impact of €13.1 million, supported by a much stronger month of June than anticipated with e-commerce volumes remaining at high levels and cross-border showing a strongly positive evolution as opposed to what we've seen to quarter-to-date May.

Then let's talk North America. Operating income of e-commerce logistics with an imposed of COVID-19 lockdowns and they started a bit later in North America than they did in Europe, but we experienced a growth of €115.4 million. This was mainly driven by Radial North America, recording 49% growth from existing customers, as well as significant growth from the new clients that we launched end of 2019. This was only to a small extent offset by churn.

In International Mail, we saw external revenues declining by €1.4 million that's minus 6.5% this despite positive foreign exchange evolution. This was due to negative impact on business from mail from COVID-19. Overall, external revenues were just up by €113.9 million for the business unit. We estimate here just to give you a bit of color that COVID-19 impact on revenues is €90 million positive.

On slide 12, we see that that positive top line development translated into a strong adjusted EBIT increase of €18.1 million to amount now to €17.6 million and an EBIT margin of 5%. I think we all agree that this is a very promising result as it does show the importance of reaching a critical scale in that business and that North America, Radial in particular is geared to do that. The positive evolution at Radial was slightly offset by continued margin pressure in International Mail from lower volumes and also higher transport costs.

The COVID-19 net impact is estimated at a positive €16.5 million and is the net of a higher variable margin contribution driven by the volumes on the one hand and on the other hand costs of additional health and safety measures and increased transport costs for International Mail and also bad debt.

May I also point your attention to the bottom of the table where you see Radial North America had an EBIT margin of 4.3% as you can see in the U.S. dollar KPIs. With the result of the second quarter, Radial achieved a breakeven result after the first half year. In total, North America is now contributing positively to bpost Group with an adjusted EBIT of €10.1 million.

Then moving to the Corporate segment, not many things to say because we already said it all. It's mainly the gain on the disposal of headquarter buildings in the second quarter last year. Net of the inter segment [ph] operating income, the OpEx was flat and it led to an adjusted EBIT decline within Corporate of €20.7 million.

On slide 14, you can see that the reported free cash flow stood at €113.2 million, which is an increase of €108.7 million versus the second quarter of 2019. The cash flow from operating activities stood at €138.3 million, which is a €165.7 million improvement compared to last year. We said in a couple of things. The cash flow from operating activities before the change in working capital at €135.2 million or €53 million better than last year. This is primarily, because we made use of the fact that we could postpone our tax prepayments in 2020. We used the possibility offered by the Belgian government.

Secondly, we have the cash relating to the collected proceeds due to Radial's clients as we call it and that amounted to €69 million, which is an increase of €83 million. Remember that due to effect is excluded from the adjusted free cash flow that we present in the key financials on slide 5.

Finally [Technical Difficulty] working capital excluding that due to represented an outflow of €63.7 million for the quarter, which is also €30 million better than last year. And this is primarily driven by extended payment terms during the COVID-19 period, partly offset by higher receivables due to increased sales.

Looking at the cash flow from investing activities that decreased by €56.9 million year-on-year was driven by the proceeds on the sales of our headquarters last year. OpEx of €24.9 million like said was spent on capacity expansion. We've done that at Radial at the Parcels, B2C and at Active Ants. The cash flow from financing activities at minus €24.4 million in the quarter it's also improved by €36.4 million versus the same period of last year. Of course that's explained by the absence of dividend payment in the second quarter 2020.

Having a look at the balance sheet, we already mentioned the net debt at €539.5 million. That includes of course now IFRS 16 and a decrease versus the same quarter last year as a result of the cash generation that I just explained.

The main balance sheet movements versus end of 2019 related to decrease in trade and other receivables due to the usual settlement of the SGEI receivable in the first quarter, which also resulted in an increase in cash and cash equivalents. The other liabilities that increased, that's due to the income tax payable as no prepayments were done in 2020 yet.

Like previous quarter and given the current circumstances, we also like to give you some more insight in our financing structure and liquidity. The total available liquidity at the end of June consisted of €925 million of cash and cash equivalents, of which €718.5 million is readily available on bank current accounts and as short-term deposits.

bpost Group also has two undrawn revolving credit facilities for a total amount of €375 million. Looking at the total external funding, it amounts to roughly €1 billion, out of which €833.4 million is long-term debt. And then looking at outstanding commercial papers, they amounted to €168 million with a maturity between one and six months.

Early July remaining prudent on liquidity, we took the advantage of favorable market conditions to issue €100 million and this secured a major part of our short-term funding until the collection of the next SGEI payment in January 2021. The current portion of the European Investment Bank amortizing loan of €9.1 million will be repaid in the fourth quarter.

So we can conclude that we have sufficient short-term liquidity to serve our debt obligations and we keep on managing this in a very cautious way, given the lack of visibility on the length, the impact and the severity of the crisis.

I hand back to you Jean-Paul for the outlook.

Jean-Paul Van Avermaet

Okay. Thank you, Leen. The current exceptional crisis has and will continue to have unprecedented consequences and this across the globe. Visibility and predictability on the length of the crisis, and also on its economic consequences, we must say that this remains extremely low.

Yet COVID-19 had already a visible impact in the first half year of 2020 on our operations and also on our financials, and this with a net EBIT impact estimated at minus €26.2 million.

Nevertheless, the recovery that we have experienced in June, in our mail business, and the potentially sustainable higher growth in the e-commerce activities, be it in Eurasia or in North America, enables us to reiterate our initial outlook at adjusted EBIT group level. This represents a figure between €250 million and €270 million -- €240 million and €270 million, my excuse.

The respective contributions of the different business units, though, will most likely and we are pretty sure, be highly different than what was initially foreseen as you understand from the second quarter results.

These assumptions are based on the absence of a second national, in any country or important local lockdown in 2020. And again, the uncertainties related to the evolution of the crisis may also still further impact our full year results. We do continue to strive for capital expenditures for the year 2020 below or at maximum €150 million, as already announced during the last quarter's publication.

In order to preserve bpost's balance sheet cash reserves and the capacity to invest on the longer term in the growing businesses, the Board of Directors will recommend to the Annual General Meeting, not to grant a dividend on 2020 results to the shareholders.

Although we realize that this may come as a disappointment in the light of the outlook reiteration, we believe that prudency must still prevail, especially in this context of a transforming industry. The Board will announce a new dividend policy going forward, when the longer-term impact of COVID-19 becomes more clear.

And with this, we are happy to -- your questions now. Operator, you may open up the lines. Thank you.

Question-and-Answer Session

Operator

Thank you, Jean-Paul. [Operator Instructions] The first question is coming from the line of David Kerstens from Jefferies. David, you are unmuted and may now go ahead.

David Kerstens

Hi. Good morning, everybody. I've got three questions please. First of all, on your Parcel business in Belgium and the Netherlands. I was wondering how were you able to accommodate a 78% increase in volume. And could you give an indication on how capacity utilization has developed as a result of that spike in parcel volume? And is it fair to assume that if volume will slow in the second half that profitability will improve? Then on the second question. What was very interesting you highlighted the train solution in your cross-border business. Could you give an indication how the train solution compares versus airfreight in terms of differences in capacity transit times and prices? We've seen airfreight rates spike in May. I think there was a factor four. And how is train becoming more competitive in such an environment? And then maybe finally on the longer-term CapEx outlook as you highlighted as one of the reasons to skip the dividend, what do you foresee in terms of CapEx longer-term? I understand no more than €150 million this year. But I think you were previously guiding for CapEx up to closer to € 200 million for the foreseeable future. Any further color on that would be much appreciated? Thank you very much.

Jean-Paul Van Avermaet

Okay. Thanks for the question. Well, your first question was how did we tackle the volume increase. I think we had -- we've used every mean possible to fulfill the request of our customers. We did importantly also work closely with customers to spread their deliveries along the weekend because in that business it's clear that some days are much more I would say heavy and it's mainly in the beginning of the week after people have ordered during the weekend. So we have been able to spread. We have been able to adapt also our distribution partly helped by the mail decline periods. But also in the sorting we've been using the sorting machines more than during normal operation and I would say normal planning hours. So this was really a possibility. And as you have seen in our press release and in the presentation, we have also now invested in two new sorting machines to be able to do more parcels in the normal planning I would say in the normal operational planning also for the year-end peak. As far as U.S. and other e-commerce logistics activities are concerned, there we really had capacity possibilities if it's about I would say about the fixed assets. But also there and also in the Parcels Belgium-Netherlands, we have been pulling up temporary workers to make sure that we were able to fulfill the demand of all the customers. So it was a huge job and definitely also a lot in the U.S. But I would say we have passed the test very well. I think your -- so we used capacity as we had it but also beyond I would say a normal operational planning. In distribution, we have had certain weeks where we did the second wave of distribution. We had the second wave of sorting machine usage. So all that showed us that we really have -- yes we had the necessary capacity to cope together with some spreading during the days of the week.

Leen Geirnaerdt

As to your question on train solutions, I think in first instance it was driven by the fact how can we serve our customers and how can we solve that. That was actually our first intent. We still have to do the deep-dive now to compare indeed what's the advantages disadvantages of the two solutions because I understand that your question is what solution will we choose on the longer-term and we're not there yet. So...

Jean-Paul Van Avermaet

Maybe to add on that on the train solution I think it's -- your questions are very much detailed. You will understand that the train solution is of course less fast [Indiscernible] ride solution. But because of COVID-19 the airfreight solution was very much limited and was becoming at a very high cost the capacity that was available. And we've been very flexible and agile to adapt also our operation to the train solution because you will understand that one train arriving with a huge number of containers full of parcels demanded another way of operating.

There was much more peak I would say in that to start handling all these volumes. But of course, I think – what will be the future? I think for us it was mainly, how can we get that volume in as much as possible. Is it now by train or by airfreight? We want to work the volume. I think yes, it will be the customer in the future and the consumer that will decide, if he's happy with the time delay yes or no. And that will probably drive the train solution up or not.

Leen Geirnaerdt

Yes. Your question on capital expenditure so guidance going forward. So this year €150 million indeed you see but it was initially planned for €200 million. What does it mean for the future? I think that's an exercise that we're in the middle of it. Like Jean-Paul explained and you could read between the lines, I think what we were able to do with the CapEx already invested up to now exceeded our expectations.

I think we have experienced that we could do it smarter and handle more volume than we would have initially thought. So based on lessons learned there I think we have to revise future capital expenditure plans but of course, being sure that we do not miss any volume opportunities for the future. So we have to revisit that and we will come with a new outlook when we discuss on 2021.

David Kerstens

Okay. Thank you very much.

Operator

Thank you, David for your question. And the next question is coming from the line of Najet El Kassir from Bank of America. Najet, you are unmuted, you may now go ahead.

Najet El Kassir

Thank you. Good morning, everyone. Just three questions please for me. Just in terms of the BeNe parcel growth in volume, it seems like it has been very – an exceptional level. What should we expect for the second half of the year? Do we expect that trend to continue? And what are you seeing in July?

And secondly on Mail & Retail. Domestic volume were down only 6.6% in June. What trends are you seeing in July? And how we should think about it for the second half of the year? And my last question is related to the free cash flow which benefited a lot of one-offs and postponement payment, how we should think about it for the second half of the year as well. Thank you very much.

Jean-Paul Van Avermaet

Okay. I will answer your first two questions. Well, indeed it was an exceptional level of volume growth in the BeNe Parcels that's for sure. What we see in the latest weeks figures is that, of course the same increase as during the COVID period is not there anymore. It continued until end of June, let's say. And as from July it's on a lower level. It's too early to say that this lower level is this now the remaining level for the rest of the year.

What we do see is that the current level is higher than what we expected before or what we had estimated to be a normal growth level for 2020 versus 2019. So I would say that everybody talks about a new normal. I also think that in the Parcels business we are into a new normal, meaning that the curve we are on, the growth curve we are on made a little jump upwards. But of course, the figures we had in the second quarter on Parcels volumes was extremely extraordinary. But I think the positive feeling we have is that we are on a higher curve now in – on a higher growth curve for the Parcels business because much more consumers yes found a way to the e-commerce consumption I would say.

With respect to mail volume decline in June, which was relatively low I would say, if you compare it to the COVID and also compare it to our prediction between 9% and 11%, there we see that July is more into the direction of our yes, our prediction for the year. But also there of course, it's very difficult to say is this now the fixed figure for the coming months. I would say that June definitely and maybe also a little bit in July, we had some catch-up of mails – of mail that has not been done during the three months of COVID lockdown.

Leen Geirnaerdt

Okay. And then your question on the free cash flow. So a couple of things that you have to take into account for the second half of the year. So to start with of course that we see – we can reiterate the initial group EBIT guidance that might be helpful. Like I indicated the effective tax rate that is expected to decline, it was 36.7% last year and now we have indeed a new Belgian statutory rate. So we do think it will be above 30% a bit depending on recognizing or not deferred tax assets. But of course, that's a noncash item so. Then we have the pre-COVID-19 estimates of working capital requirement. Remember and that's also why I stress it so much when talking about the presentation what we said about Radial we see that the product mix – it is planned to move away from the payment business. I think we see that already a couple of quarters. I think the fact is still there. But also that was disrupted as you say by COVID-19. So we feel that customers want to move away from that payment basis so that we would have less cash in the due to. But when that will happen, it's very hard to predict.

So there that might give a swing in working in DSO as to speak in the payment terms, but still to be seen. We have indicated in the past that it would be about €15 million negative. COVID-19 change in working capital indeed that you observed in the first half of the year, we worked on extended payment terms. We indeed discussed with the --- also because we were in renegotiation of some big contracts we indeed agreed that during this COVID-19 we could profit from extended payment terms, but they are limited in time. So they will go back to normal payment terms by the end of the year. Then next to that is the CapEx revision yes. So we will spend €50 million less than initially set. And also where we expected initially that we would have to fund in the bpost bank for now that would also not be the case.

So, but you're absolutely right. So if you look at what is in due to what is in extended payment terms – and as to the payment there so we did take a big chunk of extra liquidity because of working capital management just because we wanted to be prudent. We said that as of the beginning of COVID-19 liquidity will be our focus and that's clearly also to be seen in the balance sheet at 30th of June and some things will unwind going forward. But based on what we see and based on the reiteration of the outlook that's also not an issue.

Najet El Kassir

Thank you very much.

Operator

Thank you, Najet for your question. And the next question is coming from the line of Frank Claassen from Degroof Petercam. Frank you are un-muted and you may now go ahead.

Frank Claassen

Yes. Frank Claassen, Degroof Petercam. Two questions please. First of all, on the – can you elaborate on the situation of Radial for new clients? I can imagine that it's more difficult. And what do you expect there? And could you also save some onboarding costs because of lower – new clients? And secondly, what can we expect from the sale of buildings for 2020? I can also imagine that that is more difficult. Can we expect still some to come? Some words on that please.

Jean-Paul Van Avermaet

Okay. Thanks for your questions. On the first one, I would say the situation as we see it now you're right and I think we discussed it also with the last quarter that, yeah, the COVID pandemic did push a little bit clients not to change during that period from supplier or stay. So the volume increase is mainly with existing customers, existing clients. And – but what we see and what we can say is that we have a very, very healthy pipeline and an interesting TCV ahead of us, which will have positive impact in our opinion for 2021. I mean, no new clients means of course less onboarding costs or less onboarding inefficiencies. But – okay the sales or the revenue from new clients is also not there. The main revenue increase, we had at Radial has been done with – from existing clients.

Leen Geirnaerdt

And as to the building sales you're correct that within the current context property disposals are a bit on hold and it is to be seen when we come back to normal activity. Talking here internally, we're not too pessimistic but a bit difficult to already see the final outcome. But we keep it – so far we're on track and we keep on working on it.

Frank Claassen

Okay. Thank you very much.

Operator

Thank you, Frank for your question. The next question is coming from the line of Marc Zwartsenburg from ING. Marc, you are un-muted, and you may now go ahead.

Marc Zwartsenburg

Thank you, again. Good morning. A couple of questions left. Leen can you perhaps give a bit more feeling for what your liquidity position is currently what you also expect to see by year-end? Obviously, you're canceling the interim dividend so that will save a lot of cash. So can you give me an indication? I know based on your outlook what you currently have what your liquidity position will roughly look like at year-end. That's my first question.

Then I would like to come back on the Parcel volume growth the 70%, 80% of growth and then moderating a bit in July. But – yes, okay moderating. It's a huge number. So is there anything -- a range that you can provide where you say okay, this is the current trend in volumes that we at least have some yes proxy to work with going into the second half?

And then lastly, you're expanding into new regions at Radial. Can you give me a bit of a feeling what your plans are there? And how -- what kind of investment does that need? How do you work with clients? Just a bit the business model behind the expansion of Radial. Those are my questions. Thank you.

Leen Geirnaerdt

Okay. Let's start with -- you really talk about liquidity. As such our free cash flow...

Marc Zwartsenburg

Yes. I wanted to -- it's a combination, obviously. But indeed how much credit lines would you have prepared -- or how much liquidity do you have to finance the business? And in the end then also to pay maybe next year the dividend.

Leen Geirnaerdt

Okay. That's the question...

Marc Zwartsenburg

That's a bit early yes. Yes, yes. Okay.

Leen Geirnaerdt

Okay. So looking at – yes, cost. So in the presentation slide 16 we gave an insight on liquidity. And I think there you can tell and also perhaps better on the balance sheet that we're quite good in June on the liquidity like I explained to Najet. We have something that will be unwinding. But you're absolutely right, we also try to work on it structurally one thing is that reduce the CapEx.

So it's not only externally that we see we do not pay a dividend, we've also taken our own measures internally and decided not to spend the other €50 million. We would have splendid thoughts, but we said we will wait for, I will not say next year but we'll wait for the right moment to come to look into how can we spend more wisely any CapEx and decided this year we will reduce already with €50 million. That's structural.

In addition to that we have already the final dividend of last year which is structural. And next to that indeed the fact that we now indicate -- there will not be indicated that we now see we decided not to grant a dividend on the results of 2020. Those things are structural.

What does it say for dividend on the longer term? I cannot say that. As you know Jean-Paul with his entire management team, we are working on strategy updates with that to make our financial plans and look into capital allocation. And then we will come out indeed with an updated dividend policy. So it's too early to tell what we will come back with but we will come back in due course to plan for the end of the year in which we will indeed explain strategy update capital allocation and with that goes updated dividend policy.

Marc Zwartsenburg

Okay. Fair enough.

Leen Geirnaerdt

Jean-Paul you take the growth volumes. You were talking -- Marc you were talking Parcels right?

Marc Zwartsenburg

Yes. Yes the Parcel volumes indeed.

Leen Geirnaerdt

Okay.

Marc Zwartsenburg

Bit a feel for the second half trends. I know it's asked a bit before but moderating from 80% that's still a very broad range. So like 30%, 40% or 50% I don't know.

Jean-Paul Van Avermaet

Well it's above what we expected. And I think on this moment what we see the last weeks but also there as I said before it's difficult to say that that would be a number which we can agree upon or which we can yes make public. But of course it's not anymore in the range of above 50% I would say. Quite lower. And our expectation was -- I don't know if that's public, but the expectation was between 15% and 20% that we would increase. So we are quite -- so it's still above.

But July I would say the sign of the rest of the year difficult to say. First of all, I mean in Belgium if you talk about BeNe, we had the sales which were postponed until August. From July until August has this an effect -- this could have an effect.

Secondly, we've seen various changes also in sales from e-commerce, big e-commerce players that also postponed their sales or changed the way of doing yes seasonal sales. So it's all a little bit difficult to say. I'm pretty sure that we will be above our expectations initially. And as I said before that we will be on a higher growth curve than what we initially had.

And your last question is about I think the Europe Radial expansion…

Marc Zwartsenburg

Yes, that’s right. Yes.

Jean-Paul Van Avermaet

On these new sites. Well I think there it's clear that CapEx has been used for that and we have been able to attract new customers because of these new sites. We increased more or less with small 50% the capacity. And of course, yes, we do everything to start to fill it up. That's more or less what I can say on that side.

Marc Zwartsenburg

And then you're growing with clients. Is that how it works? That you have a sort of, joint venture with more contracts to do the fulfillment that kind of stuff?

Jean-Paul Van Avermaet

Yes. We attract new customers also in Europe. Yes.

Leen Geirnaerdt

But not the JV like -- I think you point out that -- as you see -- as with bol.com we don't have that kind of things.

Jean-Paul Van Avermaet

Yes. Correct, that wasn’t -- we really don’t have that one, yes.

Marc Zwartsenburg

Okay. Thanks.

Jean-Paul Van Avermaet

Okay?

Marc Zwartsenburg

Very clear. Now that was good details on the partner firms. Thanks for that.

Leen Geirnaerdt

Okay. Thank you.

Operator

Thank you, Marc, for your question. And the next question is coming from the line of Marco Limite from Barclays. Marco, you’re unmuted and may now go ahead.

Marco Limite

Hi. Good morning, all. I've got three questions, all in the Parcel division. So in the Parcel, Europe, you recorded about 75%, 80% volume growth, but revenues were up about 60%. So I was wondering if you had there some kind of price/mix effect, so if you can give a little bit of color on that.

Second is on margins. Your margins were slightly down year-on-year, but adding back to VAT, we were broadly flat, if not slightly up. And I was wondering if you expect for the second half a material improvement in margin, given that now you have better expectations on what you can expect on the volumes.

And thirdly, I know that you have kind of given already a little bit of color on that. But if you think -- what's your view for 2021 for volumes, if you think that volumes will be broadly flat or still growing or maybe slightly down compared to the very high base of 2020? Thank you.

Leen Geirnaerdt

Okay. The reconciliation assets speak between Parcels BeNe revenues and Parcel volume growing. Probably – remember, that we don't have the ability to give the volume growth of the total Parcels BeNe, because some things can simply not be measured. We have the two-man delivery; we have some things within domestic parcels like Euro-Sprinters like indeed Dynasure, Dynalink which are not translated in volume. So indeed, the number that we give, the 78.4%, is not total scope. It is Parcels Belgium and it is Dyna volumes. So the former domestic parcels, as to speak, and then Dyna that is included in the 78.4%.

Having said that, when we look ourselves internally at the same scope, then we do see that it comes pretty much closer. But you are correct. At least, I think, you insinuated, how is the price/mix impact. And it proves still to be a bit negative on -- disregarding the fact that the impact is also on pricing. Why is that? I think everybody knows.

On the positive side, we discussed with the customers that there would be a parcel surcharge that was in place from April 13 to end of May. That's a positive thing. We also have, of course, the fact that smaller customers also started more being geared into e-commerce. And typically, yes, they are lower volumes, so we have higher prices and higher margins on that one.

But looking again at our bigger customers, they also, like you have read, they made outrageous growth of which we profited. So the mix is still a bit negative in that sense that they are still the bigger customers that are growing faster than the smaller customers. And the surcharge indeed was also limited in time.

So there is a slight negative price/mix impact, but the major explanation of what you see in the numbers is a difference in scope of what we present in the Parcels growth so being the BeNe parcels growth [Indiscernible] and Dyna and not everything can be translated in a parcel.

Then moving to the question on -- and I think our – as I undeliberately, I skipped it a bit when David asked the question, too. So you state, looking at the results of the third quarter, it's slightly lower. Yes, exercise still on the slide, we tried to explain when we exclude the -- where am I, on slide 10 of the deck, when we exclude the impact of the terminal dues settlement. And actually the EBIT was up €13 million or 67% operationally. I think that is an important indicator to give.

Next to that, looking also a bit at the second half of the year. Also, David did that. So, yes, we have more visibility, but also the volumes gave us also a certain kind of operating leverage, of course. So I do think that profitability corrected indeed also for what I said on terminal dues, is not necessarily to increase into the second half of the year.

More importantly, like we said, we did everything we could do to contain the cost. And I think that's also an important one. Looking into the second half of the year, the amounts are not enormous. But bit by bit, some of the projects will be restarted. We had a very severe hiring. Even the volume growth also, that we will be a bit lighter on. So stating that knowing the more visibility that would come deliberately with an increase of EBIT I would not tell that. But again, I think first of all you have to look into the underlying EBIT percentage growth excluding the churn. Jean-Paul?

Jean-Paul Van Avermaet

On to your last question, I would be very happy if I would have a crystal ball to look in to predict what would be 2021. I think the growth figure of 2019 which we will probably see at the end of the year 2019 until '20 on Parcels volumes will probably not be repeated in 2021.

On the other hand I believe that we will see and I'm taking out any possible economic crisis or I would say recession in consumption also in -- for retail there is still room for important growth in e-commerce. And I also think that on the retail side and it's what I read in the press and which we hear also from some customers is that, the brick-and-mortar network and investments will probably go down. They will shift more of their business towards e-commerce. So I'm pretty sure that 2021 will still be a year with growth of course not with growth as we have seen between 2019 and '20.

Operator

Thank you, Marco. And the final question is coming from the line of Andre Mulder from Kepler. Andre you are un-muted and you may now go ahead.

Andre Mulder

Thank you, two questions. First question on the impact of COVID, I've seen it for PaLo in Eurasia PaLo North America, but I could not find it for Mail & Retail what the sales impact is of COVID. There is this EBIT impact of €37 million. But the impact on sales is -- I could not find it. Secondly...

Leen Geirnaerdt

That's correct. It's not in there. But we do give the percentages.

Andre Mulder

What -- can you tell me the number?

Leen Geirnaerdt

No we don't. I have it but we don't disclose sorry.

Andre Mulder

Why not?

Leen Geirnaerdt

We want to avoid. That's also why we say, it's our best estimate. We want to be very transparent on what we've seen. Of course you'll understand this is not accounting. So we want to avoid to be too precise and detailed on every line item. It won't help you.

Andre Mulder

Okay. I should give EBIT credits for the other decisions. But that's okay.

Leen Geirnaerdt

Well for North America we thought it was important because while we onboarded new customers, so we wanted to show indeed that we did onboard them and that they are also delivering growth. That's why for North America we did feel like the number was important to make your judgment.

Andre Mulder

Okay. For Mail and Parcels you gave a bit of an insight of what we should expect or where the momentum is heading. Can you also spend a few words on what's happening with Radial? What do you see happening there?

Leen Geirnaerdt

It is coming in.

Jean-Paul Van Avermaet

Yes. What is the question exactly, because...

Leen Geirnaerdt

The question for Mail & Retail we gave a bit of color how we think the second half is evolving. We did the same for Parcels. Can we give some color on, where we think Radial will be heading in the second quarter? And the reason why it's sizing it, because it's more complicated.

Let's be fair with each other, it's the first quarter that we live this, right? Seeing COVID-19 impact on the longer term in the U.S. is, a bit more complicated. I think we have seen very nice curves of a lot of consultants who say that, e-commerce is there to stay and will be very persistent.

And we're confident of that too. But what will COVID-19, do with consumer behavior? What -- will there be an impact on the economy? And given, yeah, the history of Radial we tend to be a bit more prudent to give color of course, into July and we still see volume growth. So it's not falling off a cliff.

They also did have different kind of lockdown so where we have calls with teams there. Everybody is still working from home, just to give you that color. So it's very different, than the evolution that we have seen here. So as such, it might be positive, but we are prudent given history of Radial and given indeed that it's not very sure, what it will do with the American economy.

Jean-Paul Van Avermaet

I think, we shortly said, we did - during the first quarter we had been looking at various actions and various measurements to address the Radial U.S. business and to make it better I would say which are being yes rolled out currently and being implemented. Secondly we have profited of course as you have seen from the high increase in volume. Now saying okay what will be in the second half year for us?

I believe that the actions we have taken will probably deliver something, in the second half year. And then the question is of course, but it's very difficult to see what will happen with the volumes and the positive effect we had in the second quarter, how much will be left for the second half year. We are relatively positive.

But as Leen also said, and as I said before for 2021, we feel that customers probably will shift more to e-commerce than from their brick-and-mortar sales. But on the other hand, the main risk is, yeah what will happen with the consumption in the U.S., for the second half year and definitely also for the last quarter? And of course, yeah retailers are also, if I may say you read it everywhere are also in the cliff. And some retailers have it very difficultly to survive. There's also risk for the second half year. So, let's say that we are positive, but prudent in really predicting what it will be.

Leen Geirnaerdt

Very nice wordings, positive wording.

Jean-Paul Van Avermaet

Okay.

Andre Mulder

Thank you so much.

Jean-Paul Van Avermaet

Thank you.

Operator

Thank you, Andre. And that was the final question, in the queue. So I will now hand it back over to your host to, conclude today's conference.

Jean-Paul Van Avermaet

Well, I would like to thank everybody for participating. And of course we are happy, that we could show the results we have shown. Thanks for all the questions as well. And I hope we were able to answer them in a proper way that -- as you would have expected. And hope to see you soon again or to hear you soon again at least.

Leen Geirnaerdt

Yeah.

Jean-Paul Van Avermaet

And, wishing you a nice day.

Leen Geirnaerdt

Bye-bye.

Operator

Thank you everyone for joining today's conference. You may now disconnect your handsets.