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Edited Transcript of POST.VA earnings conference call or presentation 9-Aug-19 1:00pm GMT

Half Year 2019 Oesterreichische Post AG Earnings Call

Vienna Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Oesterreichische Post AG earnings conference call or presentation Friday, August 9, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Harald Hagenauer

Österreichische Post AG - Head of IR, Group Auditing & Compliance

* Walter Oblin

Österreichische Post AG - CFO & Deputy Chairman of the Management Board

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Conference Call Participants

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* Andre F. M. Mulder

Kepler Cheuvreux, Research Division - Analyst

* Bernd Maurer

Raiffeisen CENTROBANK AG, Research Division - Head of Company Research & Chief Analyst

* David Kerstens

Jefferies LLC, Research Division - Equity Analyst

* Lello Della Ragione

One Investments S.A.G.L. - Equity Analyst

* Mark John McVicar

Barclays Bank PLC, Research Division - Head of European Transportation Research

* Matija Gergolet

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Ruairi Cullinane

RBC Capital Markets, LLC, Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I'm Stuart, your chorus call operator. Welcome and thank you for joining Austrian Post Results Q2 2019. (Operator Instructions)

I would now like to turn the conference over to Harald Hagenauer, Head of Investor Relations. Please go ahead.

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Harald Hagenauer, Österreichische Post AG - Head of IR, Group Auditing & Compliance [2]

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Good afternoon, ladies and gentlemen. Welcome to this conference call of Austrian Post. We want to like to discuss the second quarter and the half year figures of the company 2019.

I would like to hand over now to Walter Oblin, our CFO and Head of Mail Division. Go on, Walter.

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [3]

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Good afternoon, ladies and gentlemen, also from my side. I'm pleased to have the opportunity to present to you our results for the first 6 months of 2019. As a summary upfront, Austrian Post had a very good first half year, in particular a very good Q2 that showed the resilience of our mail business. And moreover, a strong and growing part of business that is well positioned to benefit from future e-commerce-driven parcel growth.

Let me start the presentation on Page 3, summarizing the highlights of our first half year results. Revenue was up 2.7%, coming both -- driven both by a good part of business and the resilient mail business. This good top line development translated into an EBIT increase of 2.5% to EUR 107.7 million. Our CapEx program to expand capacity in the parcel business is well underway, with one new logistic center North of Vienna coming online actually these days and the second one very advanced already in construction. And finally, we confirm our outlook for 2019 and actually not only confirmed, but slightly improved our outlook with the target of a slight rise in revenues in 2019 and a stable EBIT.

Page 4 shows you the summary of our revenue development, group revenue up 2.7%. This is coming from a very robust mail and branch network revenue development where revenues have been up 1.3%, driven by both a tariff effect from our product reform effective July 1 last year, a resilient volume trend where the structural decline was relatively moderate. And in addition, we had European elections that also added revenues to our mail revenues. On the parcel side, group growth of 7.8%, coming both from Austria as well as our Eastern European network.

Page 5 summarizes the EBIT development. For the first 6 months, we present -- we show an EBIT development. Total EBIT -- group EBIT of EUR 107.7 million, which is up 2.5%. Q2 alone, 50.3% after 48.4%. The -- this good EBIT development is coming from an EBIT growth from a very high level in our mail and branch network, a stable EBIT in our Parcel & Logistics network and pretty much also stable development in our corporate segment.

Let me proceed giving you an update on the implementation of our strategy. Page 7 summarizes the well-known 4 strategic pillars. Point one, defending market leadership in our Austrian core business, Mail & Parcel. Strategy pillar number two, profitable growth in selected markets, particularly in our Eastern European parcel networks in value-added steps in Austria and in selected value chain value slots in Germany. Pillar number three, working on costs, efficiency and capacity in our logistics network. And pillar number four, putting the customer first, improving customer service and innovating our product offering.

Let me start with Pillar number one, our core business in Austria. Page 8 summarizes the development of Letter Mail. We have been on the moderate end of European mail decline with an average mail decline of a little bit more than 4% over the last 7 years. 2019 showed no substantial difference in this trend. We had an operating decline of about 3.5%. So slightly below this 4.3%. Our new product structure that we implemented July 1, 2018, where for the first time we implemented an economy product with a run time of 2 to 3 days under the universal service obligation has been well received. And on top of that, we had some one-off effects, among others, from the European elections in May.

Page 9 shows you the development in our Direct Mail and Media Post business in Austria. We have also here a quite robust, strong direct mail business, which however is also under structural pressure similar to developments in addressed mail -- addressed letter mail. In the first half year, we saw a decline of 3.4%. The headwinds that we face here is on one hand GDPR that causes uncertainty among advertisers, who to send -- to which customers addressed direct mails can be sent at all. And secondly, there is of course also a trend towards digital advertising. And third, the customer segment, nonfood, stationary retail continues to be under pressure. And these headwinds continue to exist and continue to exert pressure on our volumes and revenues.

Page 10. Let me move now to our parcel business, the growth driver within our group. You see here the long-term development of parcel volumes in our Austrian parcel business, average growth of 8.8%. 2009 (sic) [2019] again showed very strong growth of around 8%. This despite the market entry of a large customer in Vienna. And this before, and this -- just let me move to Page 11. This before the renewed cooperation with DHL, which has become effective a few days ago on August 1. To remind you, earlier this year, we signed a cooperation agreement between Austrian Post and Deutsche Post DHL, where Austrian Post will once again serve as the delivery partner for parcel volumes of Deutsche Post DHL in Austria. In the context of this cooperation, we have taken over roughly 150 employees and selected sites, in particular 3 midsized logistic centers and delivery bases, including some actually quite new and modern sorting equipment. We think this is a very important strategic cornerstone, where both groups will benefit from and which of course will provide further growth in our parcel business in Austria.

Page 12 shows you what this means for the future. We previously communicated a mid-term volume target of 150 million parcels. With this cooperation, we have been able to pull forward the expected year where we will achieve these 150 million parcels. We expect this now roughly for 2021. We are in the midst of a major capacity improvement, capacity expansion program, where the target is to double volumes and peak sorting capacity and to provide for almost all our customers and most of our volumes, next-day delivery service throughout Austria. I will come later to some more details on this capacity expansion program.

Let me proceed to pillar number 2 of our strategy, growth in selected markets, and come to our international portfolio. As already mentioned, our parcel growth in Eastern Europe was quite strong in the first 6 months, good volume development actually across all geographies. To support this growth and to enhance our cooperation with Deutsche Post DHL Group, we will also begin cooperation in Slovakia and in the Czech Republic. In Slovakia, the target is that Austrian -- the Austrian Post subsidiary will deliver -- will service delivery partner for DHL parcels and vice versa in Czech Republic. In Germany, we have seen a solid development of Austrian Post International, our sales company, our mail sales company in Germany, and we have seen actually a very good growth and profit development of AEP. To remind you, AEP is a pharmaceutical wholesale discount business model, a joint venture with other partners in the first 6 months. This company had wholesale revenues of EUR 233 million, and -- which was a growth of almost 13% compared to previous year. And we had the first half year where the company was EBIT breakeven.

In Austria, we continue to grow in value-added steps beyond Mail & Parcel. Good development, for example, of our subsidiary, ACL, Advanced Commerce Labs, where we provide e-commerce and software solutions to online retailers.

Page 14 gives you an update on our retail network and in particular on the financial service business within the retail network. As most of you will be aware, we are in the process of disintegrating with our PSK where our cooperation will end over the next 12 months. And we are well underway in developing a new financial service offering. To remind you, we signed an agreement with the Austrian Financial Services Group, Grazer Wechselseitigen, GRAWE Banking Group, to take over the majority, 80% of a small Austrian bank called Brüll Kallmus, which most probably will be rebranded some time later. And we have -- we are now well underway with the relevant approval, procedures with the relevant financial market authorities in Austria and on a European level. And currently, we expect a decision and respectively, a closing by the end of the current year. The target launch date for the new financial service offering in our retail network with this bank is planned for Q2 2020. The aim is to pursue a very focused commission-based business model with a low-risk profile where the proprietary offering will include payment transactions, current account and savings products and where, on a commission-base, partner products such as consumer finance or insurance products will be offered.

Coming to our third pillar, cost reduction and capacity expansion. Page 15 gives you an update on our capacity expansion program and on CapEx guidance for 2019 and a little bit beyond. As previously communicated, we do expect for the current year, a maintenance CapEx level of around EUR 70 million. And on top of that, growth CapEx of more than EUR 50 million. In addition to that, we have and are in the process of requiring (sic) [acquiring] land for expanding existing sites and adding new -- 1 or 2 new sites in our Austrian network and there will be another roughly EUR 15 million of one-off spendings related to our cooperation with DHL.

Page 16 shows you what these -- what this is spent for. We are basically in the ramp-up of a sorting center north of Vienna called Hagenbrunn Logistics Center. This will provide relief to our current bottleneck or our biggest sorting center in the south of Austria, Logistics and Logistics Center South Vienna. So this will -- this is already a very important step that this logistics center is up and running. The second big project which is underway is a new sorting center in the Southeast of Austria. Logistic center in the village of Kalsdorf, close to the city of Graz. There, we expect to go online mid-2020. Also, this project is underway according to plan. Beyond that, we have expansion projects running in the West of Austria in Vorarlberg and Tyrol, we'll erect a new midsized center in the area of Salzburg, where we have acquired land, and a little bit down the road, we will expand our big sorting center in the south of -- in the south of Vienna. And with that, we will then have doubled our capacity. So well on the way, this construction project. The other topic which is well underway and providing relief to our cost structure is the continued transformation of our staff structure.

Page 17. You see here that the change from expensive civil servant and old collective wage agreement contracts to market level based new collective wage agreement contract is well underway. Over the last 12 months, roughly 1,000 employees from the civil servant part of our workforce and old collective wage agreement have left us and have been replaced by employees under the new collective wage agreement. This will -- this trend will continue. Total staff wise, we have seen a rather flat development, given the strong growth in parcels over the last 18 months. And I think this is also what we expect going forward.

Page 18 gives you an update on the usage numbers of our self-service opportunities. We see these as a very important source, very important source of competitive differentiation vis-à-vis the consumer continue invest in self-service facilities, including our pickup boxes and drop-off boxes. These are well received by consumers and increasing share of parcels is flowing through these self-service facilities, which provides both improved customer experience as well as cost relief through process efficiency.

Page 19 I think gives you an example of a nice innovation in our collectors business or filetele business. We launched the first world -- the world's first blockchain stamp, a so-called crypto stamp. This was a nice success, I would say. 150,000 stamps with a stamp value of EUR 6.90 was sold. Some of these stamps were then on the second market sold at much higher values, nice press coverage and also nice revenue from this crypto stamp.

Let me now continue on chapter 3 with an overview of our group results for the first 6 months. Page 21 summarizes the core financial indicators. Revenue up 2.7%, EUR 981 million. EBITDA margin at a record high of 16.5%. Most of the increase, to be fair, comes from an IFRS 16 effect, which in general, substantially -- a substantial impact on both our P&L and our balance sheet. EBIT margin stable at 11%. There, net not much IFRS 16 impact. Earnings per share up EUR 0.05 per share, with almost EUR 100 million, a strong operating free cash flow and a solid equity ratio, the decrease from 39% to 33% is also almost fully due to IFRS 16.

Page 22 gives you more details on our group P&L. I have already commented on revenues, other operating income down a few million. We had a one-off operating income from the disintegrations with BAWAG last year, resulting from a onetime payment from BAWAG P.S.K. I think very important to highlight staff cost development, a few million below last year with operating staff costs pretty much flat, so the factor cost increase resulting from yearly wage negotiation impact and civil servant increase is compensated by the change in the staff structure. And we had somewhat lower provisioning needs this year compared to last year, where we provisioned most of the restructuring needs in our retail network resulting from the disintegration with BAWAG P.S.K.

Moving down the P&L statement. As I mentioned, EBITDA margin up mostly due to the relief in other operating income. Other operating costs as IFRS 16 requires a different allocation of renting expenses. These are now shown both on the depreciation and, to some extent, in the financial result. So on an EBIT level, we are now up EUR 2.6 million. Here, there is some IFRS 16, but it is minor, so there is a real operational EBIT improvement and total profit for the period of EUR 79.4 million, EUR 3.5 million up from last year.

Let me continue with some highlights of the operational segments, starting with the mail and branch network. In the addressed letter mail part of this segment, we saw a very strong revenue development, 4.6% growth compared to last year. This is the result of a structural trend where we saw mail volumes decline at a rate of around 3.5%. And compensating this and overcompensating this -- the impact of our product reform that we implemented last year and some already commented one-offs.

On the Direct Mail side, slight revenue decline of 1.6%. Again here, the headwinds I already mentioned, weakness of the advertising volumes in the retail sector and uncertainty among advertisers resulting from GDPR.

Our Mail & Branch Network income statement on Page 24 shows you the resilience of our mail business. Revenue up 1.3%. Total EBIT up EUR 142.3 million, pretty much a record first half year due to the strong revenue development, but also due to a continued cost discipline in our operations.

Page 25, our Parcel & Logistics division revenue development. As mentioned, revenue up 7.8%, coming almost exactly at this growth level, both from Austria as well as from our Eastern European network. In Austria, we saw the market entry as already mentioned from a large customer. Not yet included in these growth figures is the cooperation with DHL that only started in the second half of the year.

Page 26 shows you our parcel and logistics division. We are still suffering from the fact on a margin level that we are operating beyond efficient capacity utilization, but relief is coming with our new sorting centers coming online this year and next year. Still good -- I would say good absolute margin level at 7.2%, though somewhat smaller than -- somewhat lower than last year. But if you look at the Q2 column on this page, you see that Q2 was already better than Q1, where we were in absolute levels below last year. So this was now compensated in Q2. And we look forward now to a strong -- hopefully strong second half of the year.

Page 27 gives you an update on our balance sheet. Quite substantial changes, which are mostly due to IFRS 16. We have a large rented real estate portfolio, which means that we had to book the carrying amount of right-of-use as well as the liability from leases over the run time of contracts, which leads to a strong balance sheet extension. Substance wise, I would say there is not much change. Austrian Post continues to operate on a very strong, healthy and risk-averse balance sheet, strong equity ratio, almost no financial liabilities, strong cash position and lower amount of intangibles.

Page 28 gives you an update on our cash flow development, good cash flow from operating activities at EUR 123.6 million. Free operating cash flow, as we call it here, so this is the cash flow before growth CapEx and CapEx related to property acquisitions of almost EUR 100 million. And with that, I think we're in a good way to generating a full year cash flow, which should provide the base for a good dividend.

Let me close on Page 30 with the outlook for 2019. I think trend-wise, we confirm what we have said 3 months ago. The major market trends continued to be quite pronounced. We expect letter mail and also direct mail to decrease; letter mail, at a rate of around 5%. We expect parcel to continue to benefit from a strong e-commerce development in Austria and in addition, we will see additional parcel volumes from the cooperation with Deutsche Post DHL in the second half of the year. This means that we have slightly upgraded our revenue guidance for the full year, now guiding for slightly higher revenue compared to last year, pretty much unchanged guidance on the CapEx side, with maintenance CapEx of around EUR 70 million, growth CapEx in excess of EUR 50 million, property purchases in the order of magnitude of EUR 25 million and an additional out -- cash out of around EUR 50 million as a result of the cooperation with DHL. And on an earnings level, we target stable operating results. This operating result should include the start-up costs to develop our financial service business for 2019.

So let me close with that. I think overall, a very strong Q2, a very good first half year. And we look optimistic into the second half of the year, expecting a quite good full year in 2019. Thank you very much, and we are now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Mark McVicar from Barclays.

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Mark John McVicar, Barclays Bank PLC, Research Division - Head of European Transportation Research [2]

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Two questions, please. First of all, could you just remind us -- and I can sort of work it out from the chart, what kind of volumes you expect -- parcel volumes this is from Deutsche Post from August on -- August 1 onwards this year and what you think the run rate of volume will be from 2020 onwards?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [3]

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I would say we expect roughly an order of magnitude of 20 million parcels per year, a few million plus-minus. This is a full year amount. So for the remaining 5 months of the year, I would say take half of that and with some upside, and that's the order of magnitude we're looking for.

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Mark John McVicar, Barclays Bank PLC, Research Division - Head of European Transportation Research [4]

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Okay. And then the other question was just on the financial services build-out. What sort of costs are you absorbing in the guidance this year? And when do you think you'll be in a position to give us some sense of the buildup of revenues and costs from sort of 2020 onwards?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [5]

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Yes. I think this year, we expect to absorb a low double-digit million number. So somewhere, I would say, order of magnitude of roughly EUR 10 million to EUR 15 million. Beyond 2019, we expect around EUR 35 million to EUR 40 million ramp-up costs to be distributed over 2 to 3 years. This will include -- I mean there have been some analyst reports out there saying we will lose EUR 50 million historic revenue with BAWAG P.S.K. And on top of that, incur ramp-up costs. I think you should not add these 2 figures or these 2 developments. Let me comment on the EUR 50 million. The EUR 50 million is the number from last year. This year, we're already down somewhat. Out of the EUR 50 million, roughly EUR 10 million of revenues will remain as a revenue that will still be remaining in our retail network, out of the remaining roughly EUR 40 million. We expect to have taken out roughly half the cost, the other half will be allocated now to our new financial service business, and that is included in the guidance for the ramp-up costs that I've just given you.

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Mark John McVicar, Barclays Bank PLC, Research Division - Head of European Transportation Research [6]

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Right. Got it, okay. That's fine. And then the -- but you're -- you'll be able to give us more detail, I guess, around the end of the year or early part of next year?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [7]

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Q3 we'll give more -- we'll give first more guidance on next year for the group as a whole and more guidance for the midterm targets for our financial service business.

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Mark John McVicar, Barclays Bank PLC, Research Division - Head of European Transportation Research [8]

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Okay. That'll be great. And then my final question was, is there any meaningful update or movement on the Aras Kargo situation?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [9]

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Yes, thanks for that question. We continue to be in discussions with the owners, with our partners, with the family owners of Aras Kargo. At the same time, we continue to be in arbitration proceedings. I would say no major news at this point in time. Let me also remind you of the value of Aras Kargo in our balance sheet. We are somewhere in the order of magnitude of EUR 20 million to EUR 22 million. So I would say that importance of the business for the group in its current setup is already -- is limited. Yes. That's the point.

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Mark John McVicar, Barclays Bank PLC, Research Division - Head of European Transportation Research [10]

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Yes. There'll be no need for me to ask any more questions about it probably.

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [11]

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[I'm glad there was not]. I think as we discussed and said in previous calls, there are different options on the table and different options discussed, and -- but not much news that are worth to talk about in this group.

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Operator [12]

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Next question is from David Kerstens with Jefferies.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [13]

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I've got 3 questions, please. Maybe first a follow-up question on the start-up cost for the financial services, how much of that amount that you mentioned was already booked in the first half of this year? And did you book that in corporate costs or in the EBIT for the Mail & Branch Network? Then maybe second question on parcel prices, your new partner, DHL has been quite successful, increasing parcel prices in Germany in a competitive market with Amazon in-sourcing just like in Austria.

Is that something you are planning to do as well and to bring the DHL parcel prices up to the general market level? I understand there's about 10%, 15% discount? Or are there any antitrust restrictions following the recent approval of the takeover? And then the third question, more general question. Besides potentially increasing parcel prices, what other measures can you implement to mitigate the start-up losses that you just highlighted of the new financial service offering in 2020 in order to reach your objective for a stable operating result? Those are my questions.

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [14]

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Thank you for your questions. For -- the first question was on the share of financial service ramp-up costs, this is a mid-single-digit million figure, so slightly up EUR 5 million, I would say, mostly booked in corporate. Second parcel prices, I would say there is across Europe a margin pressure in the parcel industry as a whole resulting from different drivers, factor cost increase, capacity constraints, increasing demands from customers on speed, et cetera. At this point, there are no immediate and specific plans on parcel price developments. And at the same time, no former restrictions from our antitrust or competition authority approval process.

Point -- question 3, just to avoid misunderstandings that the guidance of full year stable operating result was for 2019, we will give guidance on 2020 in our Q3 conference call in November. And by then, we will also have better clarity on our expectations for mail revenues; parcel growth; parcel price development; and most importantly, cost development and also financial service; full ramp-up costs for next year to be able to answer your question.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [15]

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Okay. Fair enough. Understood. Maybe too early for to talk about 2020. With regards to the antitrust conditions, what were the most restrictive points that were brought forward, and that could impact your business going forward?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [16]

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I think that the detailed results of the discussion with the Austrian competition authority are pretty much available at the website of the competition authority. I think overall we would say we came to a result that we can live with. It provides for an access to our network for third-party logistics providers, I think that has been the most important result. However, we do expect a limited impact of this measure (multiple speakers)

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [17]

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(inaudible) impact your price levels? Sorry.

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [18]

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No, we don't see any specific impact from the results of the discussion with the competition authorities on prices, neither up nor down.

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Operator [19]

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The next question is from Matija Gergolet from Goldman Sachs.

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Matija Gergolet, Goldman Sachs Group Inc., Research Division - Equity Analyst [20]

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Quite a few questions. The first one would be on CapEx, please. So you're giving us, say some color about the growth CapEx for this year, around EUR 30 million for parcels. I think it's the first time you're also showing us more detailed years when the new sorting centers will be operational. Judging from that, it 0is like a 1, 1-to-2 sorting centers per annum coming online. Is it fair to assume more or less that now you have fairly sustained expansion CapEx now through 2022? Or will there be any way a slowdown? Or is the current CapEx like a big CapEx?

Secondly, on the BAWAG contract on financial start-up costs, can you just help us or me understand, say how they save roughly EUR 50 million of revenues from BAWAG? Is there any EBIT associated to it at the moment in your P&L? Do you make any EBIT margin on those EUR 50 million revenues at the moment in the P&L? And then lastly, just on the one-offs, could you quantify more or less what were the one-offs in the third quarter from the European elections? And presumably, you will also benefit in the third quarter from the Austrian elections, right? If not mistaken, just any quantification there.

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [21]

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Thanks, Matija. Let me maybe start with your last question, I think European election somewhere order of magnitude EUR 6 million to EUR 7 million. National parliament election to be held on I think September 30 or 29. That typically is a little bit above EU elections. We'll see the outcome depending on the share of mail voting and to the extent to which the political parties use direct mails in their campaigns. Coming to your second question, the EUR 50 million, the EBIT contribution from the past cooperation, I would say this was pretty much EBIT neutral. Of course, the question is, to what extent can the costs be reduced? And I provided some guidance on that earlier.

And on CapEx, I think directionally, the answer is yes, we will see substantial growth CapEx over the next 2 to 3 years. We are now not ready to give you detailed numbers, but I think the answer is yes. The second message is also by '22, we will pretty much have renewed or expanded every parcel center in Austria, we'll have substantially added capacity to our network, and then there should be, again, relief on growth CapEx. And maybe last point on that, we conceptually -- we ask you to look at that, that we will fund this capacity expansion from liquidity positions that we have in our balance sheet. And in no way should this impact our dividend.

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Matija Gergolet, Goldman Sachs Group Inc., Research Division - Equity Analyst [22]

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I'm sorry, just on the -- going back to the cost linked to BAWAG P.S.K., the EUR 20 million that they will be taking out, those are already provisioned, right?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [23]

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The restructuring costs that are required for potential staff reductions are already provisioned, yes.

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Operator [24]

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Next question is from Ruairi Cullinane from RBC Capital.

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Ruairi Cullinane, RBC Capital Markets, LLC, Research Division - Associate [25]

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The decline in corporate EBIT by EUR 1 million in H1 does seem quite well contained relative to the start-up expenses from the financial services business. Could you talk us through what's helping maintain corporate EBIT in H1? Then when we think ahead into H2, should we expect these start-up expenses from the banking venture to be offset within corporate EBIT or perhaps by the growth in parcel EBIT?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [26]

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I think I already provided some guidance on cash-out or P&L burden this year from our financial service business. So to repeat it, order of magnitude EUR 10 million to EUR 15 million for the full year and a little bit less than 50% of that in the first 6 months booked in corporate. The -- we had some number of measures and developments compensating that in the corporate segment. You might have noticed that we consolidated our board structure from 4 to 3 members. We streamlined the whole organization. So I think there are some sustainable cost savings coming from that.

And then the corporate segment is always impacted by the need for provisioning, in particular related to civil servant costs and it is hard -- always a little bit hard to guide and provide specific guidance on for the full year. But I think we provided guidance for the total group. And I think we are confident that the operational business will be healthy also in the second half of the year, with mail of course missing the tariff effect that was there in the first half year compared to last year. On the other hand, parcel at least revenue-wise, benefiting from additional revenues from the cooperation with DHL and the staff cost benefiting from a quite strong numbers of civil servants leaving us and being replaced by new collective wage agreement employees.

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Operator [27]

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(Operator Instructions) Next question comes from Andre Mulder from Kepler.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [28]

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Three questions. First question, I noticed that your tax rate in the second quarter was quite low. Any reasons for that? And what are you guiding for the full year? Secondly, you struck some agreements with Deutsche Post, but there are some other Eastern European countries, are you still in talks with a company on cooperation in those countries as well? And then last question on fintech, what's your idea what's at stake?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [29]

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On the -- let me again start in reverse order. I think currently, we are -- we don't have a specific plan on our fintech holding. But of course, it is not strategic anymore. Second, on Eastern Europe, we continue to be open for partnerships in our Eastern European network. That was always the part of the strategy that we see ourselves as -- we see ourselves well positioned to cover the small and sometimes maybe also a little bit more difficult markets. And with the aim of operating partnerships with some of the large European or global networks, we have been doing that in the past with players like UPS. We are now entering a cooperation with DHL into markets and are -- continue to be open in other markets, but there are no specific projects now in the pipeline. And I think on the tax rate, the guidance for the whole year is pretty much the nominal tax rate of 25%. There are always some early deviations from that, but I think for the full year, the 25% that we have [gained] is a good guidance.

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Operator [30]

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Next question is from Bernd Maurer from RCB.

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Bernd Maurer, Raiffeisen CENTROBANK AG, Research Division - Head of Company Research & Chief Analyst [31]

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What's the actual state of the economy and the priority letter mail volume? And are you expecting further shifts in the next -- yes, let's say in the next 12 to 18 months? Or is the current rate now -- or the current speeds [but] expected to remain stable? And what I'm most interested in is, can you elaborate on related efficiency measures from the split of the new tariff portfolio resulting from the streamlining of sorting processes like your delivery processes? What happened already and what's more to come to be implemented as a consequence from the change of the product portfolio resulting in less or that you don't have to be every day on every go in Austria?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [32]

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Thanks, Bernd, for your questions. We are -- as I said, the economy product that we introduced effective July 1 last year was well received by our corporate customers. The current mix is around 35 to 65. We have seen increasing adoption over time, over the last 12 months. And we expect this is not yet to be the final number, but the percentages that are added every month are getting smaller and smaller. And this is actually a little bit below what we had expected in terms of economy product share. Second, the overall idea of this economy priority product was on the one hand to segment the market, depending on price elasticity. Of course, private and SMEs are probably less price-sensitive as opposed to corporate customers was large.

Mail budgets and the economy product was, on the one hand, an offering for large corporate customers in particular, although it's also open for SMEs and private consumers to give them some opportunity to compensate the increase in stamp price from EUR 0.68 to EUR 0.80 on the priority segment that we implemented last year. And secondly, and this is now coming to the answer to your question, of course it should help us to take out further costs in the operations. The idea is that we bundle these slower volumes and deliver them only every other day for a given address, which means that for -- for the other day, where we do not have these slower volumes, the touch rate, so the amount of addresses and households touched by the mailman is lower. This is something that is captured over time and we have started to capture this. And I think there is more to come with mail volumes going down in general and the share of economy going up.

Additional efficiency measures, the cost reduction that we have successfully pursued and achieved over the last 10 years has always been a portfolio of measures at any given point in time with larger and smaller projects. We continue to run very broad and substantiated portfolio of efficiency measures. This is one measure. Other measures include increasing automation, includes streamlining the overhead in our operations. As I already mentioned earlier, we have brought together parcel and mail operations in one organization, and we expect substantial savings from that. So that will continue to keep us busy, and we are coming up with new measures I think every 8 months and every quarter, and this new product portfolio is one out of many measures.

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Operator [33]

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Next question is from Lello Della Ragione from One Investment.

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Lello Della Ragione, One Investments S.A.G.L. - Equity Analyst [34]

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Just clarification on the center coming in September in the North of Vienna and the benefit related to that, because you always mentioned that this should ease the capacity utilization that is stretched only on the current footprint. What kind of benefit? And what kind of curve do we have to expect on -- from this center and coming on stream? And if that is comparable to the one that you just mentioned for the upcoming year. And the other element is on the CapEx side, since you're taking on some DHL assets and now you probably had more time to look at them, if these -- we've seen somehow your maintenance CapEx going forward or that assumption, especially in terms of overall absolute figure, remains intact at this point in time?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [35]

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Thanks for your questions. I think on the sorting center in north of Vienna, I think the most important impact that it will bring that we have additional capacity and are able to absorb the growth that we have seen already operationally. To remind you the -- in the parcel business, the second half year is typically a lot stronger than the first half year and in particular, the months pre-Christmas are the strongest and we have struggled last year, but successfully struggled this quarter to push out the parcels that we received. And we probably would have had real difficulties absorbing the operational -- the organic growth that we have seen in the first 6 months for the peak season.

On top of that, we will have DHL volumes. We've taken over some capacity, but the sorting centers that we have under construction will in the target structure. And of course, we have now a challenge to integrate 2 networks to an optimal network, and this will also take some time and Hagenbrunn will be essential also for that. I think it's hard to quantify now cost or EBIT impact. Let me answer your question in a different way. I think if you look at the parcel segment EBIT margin, I think we're currently optimistic that we will be able to maintain this margin also for the full year, despite some additional costs that we will, of course, also have absorbed with the integration of DHL and in the period of not optimal operational setup during the second half of 2019. And can you repeat your second question? For some reason, I did not fully get it because there was some noise here.

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Lello Della Ragione, One Investments S.A.G.L. - Equity Analyst [36]

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Yes, on the maintenance CapEx that you're usually referring to the slide, usually point to that EUR 70 million even going forward. And no discussion that we're -- is usually on the growth CapEx and the new center that you're opening. But just to my understanding on the growth drivers, you were quite clear on the definition. But on the maintenance side, since you took over some assets also with the DHL agreement, do you see some changes into your assumption there or the unknown from -- I mean all the variable that you can now then reduce in terms of CapEx related to growth CapEx in the coming years. So the -- let's say, the EUR 70 million number that you're giving as a maintenance is a number that we can look also for the upcoming years?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [37]

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Yes. Thanks for your question. I think the EUR 70 million is currently a robust number that should not be materially changed by the cooperation with DHL. Most of the assets that we took over are relatively new and/or rented and most of the maintenance CapEx that we spend is going into fleet, retail network, IT. And therefore I would say the EUR 70 million is a robust number also beyond 2019.

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Operator [38]

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Next question is a follow-up from Matija Gergolet from Goldman Sachs.

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Matija Gergolet, Goldman Sachs Group Inc., Research Division - Equity Analyst [39]

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One more question. Actually, one more topic for me is regarding basically your real estate, your investment in properties, which you spend every year a little bit of CapEx. You have quite sizable properties on your balance sheet. What is the, say medium-, longer-term thinking with those properties? Now would you consider, say selling them, for example, so in order to fund the -- all the CapEx requirements for the current years in parcels or not? Or you just like running them and keeping them for a few more years? And perhaps also, just if you could mention to us if there was any capital gain on any disposal booked in the first half?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [40]

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Yes. Thanks, Matija. To my knowledge, there was no substantial capital gain in the first 6 months resulting from sale of real estate assets. On the longer-term strategy, I think our strategy is to hold -- to own and hold the core logistics assets that we operate. Not necessarily every delivery base, but the core logistics centers. We think we benefit from long-term ownership. On the other hand, there is nonoperational real estate investment property, where in the past we have shown examples of developing and in various ways monetizing investment property, either by renting it, selling it as we did with the old headquarter, or achieving additional value by developing them as we did with our own new headquarter, and we will continue to do so.

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Matija Gergolet, Goldman Sachs Group Inc., Research Division - Equity Analyst [41]

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Okay. So you're holding on to them for the property?

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Walter Oblin, Österreichische Post AG - CFO & Deputy Chairman of the Management Board [42]

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On the logistics center, there is no plan to sell. But there is a plan to hold them.

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Operator [43]

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There are no further questions at this time. And I would like to hand back to Harald Hagenauer for closing comments. Please go ahead.

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Harald Hagenauer, Österreichische Post AG - Head of IR, Group Auditing & Compliance [44]

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So thanks, ladies and gentlemen, for participating in this call. For some more questions, we are of course available the next days or weeks. And we hope to see you or meet you on one of our roadshow days in the next couple of months. So have a nice weekend.

Bye-bye.

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Operator [45]

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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.

Goodbye.