PostNL NV

AEX:PNL

Earnings Call Transcript

[Karen Berg]

[Audio Gap] to the investor call for the Q1 results 2018 of PostNL. My name is Karen Berg. I'm here together with our CEO, Herna Verhagen, and our CFO, Pim Berendsen. Today Pim will kick off with an introduction of our numbers. He will give some more background to the business and financial developments and afterwards there will be room for questions from your end.So with that I would like to hand over to Pim.

[Pim Berendsen]

Thank you, Karen. I will first start with an operational overview of the quarter and then elaborate a bit more on the financials. Our performance in the first quarter was below last year, as we expected, yet at the same time, the acceleration of our transformation continued. Revenue slightly increased to EUR 875 million. 42% of revenue now comes from ecommerce activities compared to 34% in the first 3 months of 2017. So good progress has been made here.Underlying cash operating income was EUR 29 million. Our financial position is solid. Consolidated equity further improved to EUR 58 million and net cash used for operating and investment activities was slightly better than last year.On April the 18th the AGM approved a dividend of EUR 0.23 per share for the year 2017. The final dividend of EUR 0.17 per share will be paid tomorrow. We published the conversion ratio this morning and announced that approximately 60% preferred a dividend in cash.Based on the year-to-date performance, we confirm our outlook for 2018 underlying cash operating income of between EUR 160 million to EUR 200 million. Regulation continues to require a lot of management attention. We repeat our message that political intervention is required to safeguard a sustainable Dutch postal market. Our opinion is that consolidation of postal market players is inevitable.Mail in the Netherlands delivered results below last year. Volume declined more or less continued on the trend seen in 2017 and was 10.3%. Revenue was down to EUR 424 million. The adjusted volume decline was 9.6%, driven by ongoing high substitution but also continued loss to competition. Just to remind you, supported by the implementation of the decision on significant market power, other postal operators deliver more items through their own networks. Additionally, network access results in pressure on our average price. Cost savings for the quarter were at EUR 8 million, of which EUR 3 million in Mail in the Netherlands. I'll explain a bit more on this on the next slide.Underlying cash operating income amounted to EUR 17 million. The impact of the volume/price mix effect, including the effect from regulation and autonomous cost increases was not fully compensated by cost savings and less cash out for provisions and pensions.Delivery quality was 95% this quarter. We have reached agreement for a new collective labor agreement for our postal deliverers. Salary will increase in 5 steps of 1%. Also the postal deliverers will be entitled to a one-time bonus.Cost savings in this quarter were EUR 8 million. So the run rate was more or less in line with Q4 last year when cost savings were EUR 9 million. The cost savings project require a careful planning process to speed up realization of savings in a controlled way but also at the same time to secure quality. During the first quarter, savings were realized, for example, in the centralization of locations where we are preparing for further migration later this year and the optimization of our retail network. Also in head office we've achieved savings in IT and centralization of HR departments. We expect increasing savings from head office projects in the course of the year.We are implementing our plans to simplify our portfolio step-by-step and have integrated our sorting locations for international mail, which will contribute to the realization of savings as of now. We will further implement the new coding process later this year. As indicated before, we have some delay in this project, which is an important explanation for the savings being more back-end loaded in 2018. Our target is to realize EUR 50 million to 70 million cost savings this year.As you'll remember, ACM decided that PostNL has significant market power in the 24-hour bulk mail segment and must grant postal operators in this segment network access. New tariffs and conditions were implemented as of the 1st of December, 2017 and still have to be approved by ACM. As earlier indicated, the financial impact of ACM measures is expected to be between EUR 50 million and EUR 70 million on an annualized basis, subject to final implementation.At the same time, the changing Dutch postal market impacts our operations and results. The market has changed fundamentally and volume will continue to decline. Combined with increasing impact of the ACM measures, this endangers the quality of postal delivery and reliability and accessibility of the postal network. To safeguard reliability and accessibility of the postal service and preserve decent labor conditions in a shrinking market, in our view consolidation of players is inevitable.Recently the postal dialogue started, initiated by the Dutch government. It is a stakeholder process to develop a shared view on the future of the Dutch postal market, including evaluation of the USO. PostNL is actively participating in this postal dialogue. Recommendations to the State Secretary are expected before summer. Political intervention is required to safeguard a sustainable postal market.The trend in Parcels continues to be strong, and to give you a bit of extra flavor, stronger than expected. Volume growth was 25% driven by domestic parcels, and this does include Belgium. Also our international volumes increased. Strong growth in our domestic [indiscernible] volume followed the continued positive trend of the ecommerce development. Revenue increased to EUR 306 million. The growth was 23% for this quarter. Volume growth was only slightly offset by a negative price/mix effect. Demand for additional services increased again. Also in logistics revenue increased organically as well as through the 2 acquisitions that were done in 2017.Performance in Parcels was impacted by additional capacity cost necessary to accommodate the volumes, and the cash out related to pensions and provisions was higher than last year. We also see impact from the planned investments in growth. To remind you, in February we indicated that for the full year 2018, we expect a step up in the cost level of Parcels. Part of that is visible in our Q1 numbers. In the next quarters this will also play a role.As a result, underlying cash operating income in Parcels was EUR 23 million, which is EUR 5 million below last year's result. By now the construction of 3 new sorting centers in the Netherlands is in full progress. It is expected that these centers will become operational towards the end of 2018 in due time for peak season, and by then will contribute to improving efficiency. Each quarter we highlight 1 or more engines for our transformation, which prove that we're truly transforming into a company that provides postal and logistics solutions in the Benelux.Today I want to focus on our time-definite delivery services. With these services the objective is to meet the wishes of consumers, so that people that receive the parcels. Research and surveys recognize the trend that consumers want to control the time of delivery or pickup. Developing services that meet these customers wishes will definitely support ecommerce growth and will further solidify our position as a leading ecommerce company in the Benelux. The easier it becomes for consumers to have their demands fulfilled online, the more they will make use of the options the ecommerce market offers. Consumers using these extra options will buy more and more frequently online.So what kind of new services are we offering and developing? We have delivery on demand, which means that we offer the possibility for consumers to choose the day and time on which they want to have their goods delivered at their home or at any other place requested by them. We introduced this service with a well-known retail store in the Netherlands. We also offer pickup parcels on demand, a nationwide return service that we've developed together with another large customer. Surveys indicate that a smooth return process is very important for consumers in choosing their preferred webshops.Hence we are piloting instant delivery in urban areas. If successful, this will result in further growth of the share of ecommerce. We developed these services in close cooperation with our customers. By smartly using our current networks, we're able to introduce these services rapidly. Webshops that are actively offering time-definite services show better results and satisfaction and loyalty and thus a better growth rate than the market. Graph on the right side of the slide shows that revenue from time-definite services is expected to increase rapidly.Now if we then look at international, the revenue decreased to EUR 270 million. An a like basis adjusted for a foreign exchange effects, revenue decreased by 3%. Fierce competition continued to impact performance.Let me dive into the business performance. Firstly, revenue for Spring, adjusted for foreign exchange, was slightly above last year; growth from global ecommerce customers continued; Mail volumes in Spring continued decline as expected. Given the competitive landscape, it was decided to postpone the implementation of rate increases to March. At the same time, the margin was negatively impacted by cost increases from other national postal operators as of the start of the year.In Germany, revenue was down by 8% to EUR 142 million. Revenue and productivity in our final mile activities improved, but this was more than offset by developments in our consolidation activities driven by volume decline and price pressure. We secured a large contract that will be implemented – that we are implementing step-by-step as of the first quarter.In Italy, revenue was stable. We see strong growth in our Parcel activities. In the Mail activities, we saw overall volume decline and price competition remains to be fierce. At the same time, we're able to expand our customer portfolio. In the first quarter UCOI in international was minus EUR 4 million compared to EUR 5 million positive last year, which is unsatisfactory.Now let's have a closer look at the financials. First the financial highlights showing our main KPIs. Revenue was a bit higher, explained by strong growth in Parcels that more than compensated for the revenue decline in Mail in the Netherlands and international. Our main performance indicator, underlying cash operating income, was EUR 29 million in Q1 2018, EUR 21 million below last year, as I just explained when discussing the developments per segment. Net cash used in operating and investment activity slightly improved explained by lower tax payments and a favorable development in working capital.This Slide explains the development of the underlying operating income and underlying cash operating income in Q1. First, we look at the underlying operating income, the second and third orange bar, a decrease of EUR 30 million. Volume/price mix effect was negative, impacted by the volume decline of 10.3%, price effect, and of course the impact of the ACM measures. This effect, combined with autonomous cost increases was only partly compensated by cost savings of EUR 8 million. As explained, also Parcels and international were below last year.The line other is a mix of some positive but more negative results, for example, less bilaterals and a higher pension expense. Change in pensions and provisions showed an improvement of EUR 9 million. In total, the decrease in underlying cash operating income was EUR 21 million.Now a more detailed look at the results per segments. Revenue Mail in the Netherlands in the quarter was down by 6%. Underlying cash operating income decreased from EUR 28 million to EUR 17 million. The negative volume/price mix effect, including the impact of ACM measures and autonomous cost increases, were only partly compensated by cost savings. Parcels revenue increased by 23%. Underlying cash operating income in the first quarter was EUR 23 million, impacted by additional capacity cost, planned investments in growth, and a higher cash out for pensions and provisions. International revenue decreased by 5% to EUR 270 million, mainly driven by Germany, the negative FX effect. Underlying cash operating income was minus EUR 4 million. Underlying cash operating income in PostNL Other improved by EUR 4 million mainly explained by cost savings.This slide shows the development of our net profit. Profit for the period was EUR 27 million lower than last year. The declining operating income was partly offset by less income taxes and lower financial expenses. Our net cash from operating and investment activities was minus EUR 18 million, which is EUR 2 million better than last year. Cash generated from operations included a favorable development in working capital. CapEx was a bit lower than last year. Half of the CapEx in Q1 2018 was related to investments in new sorting centers in Parcels; all in all resulting in net cash of minus EUR 18 million. Then to pensions. given the interest rate development and the asset performance of the pension fund, the actual coverage ratio end of March was around 115%, which brings the 12-month average ratio to 114.8%, which is well above the minimum required level.As just explained, pension expense was EUR 5 million higher than last year, impacting our underlying operating income. The increase in expense is mainly explained by a higher rate of expected benefit increases reflecting the development of the coverage ratio of the funds. Within equity, the higher expense is more than compensated by an actuarial gain recorded in other comprehensive income. This effect will also be visible in the next coming quarters.When translating this quarter's performance into our balance sheet, we see the following. Our consolidated equity improved to EUR 58 million, and our net cash position now is EUR 5 million, which is EUR 22 million lower than at the end of 2017. All-in-all, a solid financial position and a BBB+ rating that was recently confirmed by S&P, although with a negative outlook.Let's then conclude with a couple of forward-looking remarks. First, some attention points for the second quarter of 2018. Please take into account the seasonal pattern will be the same as in the years before with Q2 results most likely to be below Q1. Compared to last year, there is no working day effect. I trust I was clear in explaining that cost savings are more back-end loaded in 2018. Also in Parcels, the expected improvement in efficiency will kick-in towards the end of the year when the new depots will start operations. For underlying cash operating income, development in Q2 compared to last year should be more or less the same as what we've seen in the first quarter. For the cash and equity development in Q2, these will show the impact of the distribution of the final dividend in May.Looking at our full-year outlook, I confirm the guidance given in February. Our performance in the first quarter was below last year, as expected. Our financial position is solid. Consolidated equity further improved to EUR 58 million. And as you know, Q1 is never our strongest quarter. If I combine that with our expectations to see improvement in the run rate in cost savings in the second half of the year, the 3 new sorting and delivery centers in Parcels becoming operational towards the end of the year, rate increases in Spring starting to kick in as of March, and securing large contract in Germany and the continued growth of our parcel activities in Italy, we confirm our outlook for 2018.So we expect underlying cash operating income to be between EUR 160 million and EUR 200 million for the full year 2018. Other guidance also remains unchanged. And, of course, regulation continues to require a lot of management attention; we repeat our message that political intervention is required to safeguard a sustainable Dutch postal market. Our opinion is that consolidation of postal market players is inevitable. Next steps in regulation will be important.

[Karen Berg]

Thank you, Pim. It's now time for questions. So if you have any questions, please press *, 1. Ruben Devos has a question.

[Ruben Devos, Equity Analyst]

The first one on Parcel. So I was somewhat surprised by the increasing cost in Q1. Press release mentions you had additional capacity costs, you expect an impact from plan adjustment, and higher cashouts. Would it be possible to provide some additional color on these elements please? And then I was wondering as well how should we look at interim personnel and work contracted out going forward to let's say accommodate a strong growth in Parcel volumes or what degree could that be absorbed by existing personnel? Second question on working capital. So the working capital evolution was significantly better than last year in Q1. I think delta of about EUR 60 million. At the full year results, it was said that PostNL would require additional investments in working capital being around 2% of the group revenues, if I'm not mistaken. So has that changed at all since late February? And if not, could you give an indication of the intra-year phasing of these investments?

[Hendrika W. P. M. A. Verhagen]

To start with your first question, the increasing cost, the capacity cost, the higher cash outs, and additional color to this, I think when we look into Parcels, we expect an improvement towards the end of the year, which is mainly due to expected higher efficiency, partly because for opening 3 new sorting and delivery centers, which will help us, of course, to make our operational system more efficient. And secondly, we're implementing some, for example, IT tools as well, which will help us in our hit rate and helping us in our hit rate also has an positive impact on operational efficiency. Do we have more interim personnel or work contracted out in Parcels, part of the growth can of course be absorbed by our current people, but partly because of the growth of 25% also means that we have to make new routes and that requires [indiscernible]. But, of course, firstly we'll always try to put the extra volume into the contracts we already have. And then your last question on working capital.

[Pim Berendsen]

Yes. On the working capital, which is better than expected in Q1, the full-year view hasn't changed materially. So it's predominantly phasing and how it's going to be phased over the next quarters. I can't give you much more guidance than this.

[Ruben Devos, Equity Analyst]

All right. And just 1 additional question if I may. So on the labor conditions in Dutch mail market, it appears now that one of your competitors is now compliant with the 80/20 rule. Yes, in the meantime, in Q1 I was wondering whether anything had changed in terms of competitive pressure in Q1. For instance, have they sort of taken the foot off the gas during Q1 on the mail market or haven't you seen any impact really from their compliance with the labor rule?

[Hendrika W. P. M. A. Verhagen]

We didn't see any impact of the compliance with the labor law. Did competition change in the mail market? Not really. What we do see is that there is more pressure from postal operators, and they are delivering more mail volume via their own networks. And that has, of course, an impact on our volume decline. But that's not a change compared to the last quarter of last year, but it's a continuation as expected.

[Karen Berg]

Thank you, Ruben. Then off to Marc Zwartsenburg, ING Groep N.V.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Got a few questions. Can I take them one by one please, to start with, you mentioned the impact in Parcels from some one-offs and phasing, and you mentioned double running costs and the provisions and the pension cash out. Can you give me details on the impact on those separate items on the cash EBIT please?

[Pim Berendsen]

I'm afraid, I can't give you much more guidance than the explanation I've given on these points during the presentation, Marc.

[Marc Zwartsenburg, Head of Benelux Equity Research]

You can't give me a number say for the double running costs you have from the 3 parcel centers?

[Pim Berendsen]

No, I can't give you a number, but let's say, it's a 50-50 impact, if you look at the delta.

[Marc Zwartsenburg, Head of Benelux Equity Research]

What is 50-50 for what delta then to be precise?

[Pim Berendsen]

In the delta of performance. So if you look at the – compared to last year, you could compare the decline in results and let's say 50-50 means, 50-50 is phasing and real investment development of costs in relation to the volume growth.

[Marc Zwartsenburg, Head of Benelux Equity Research]

So basically implied you're saying that the additional 23% revenue growth would not have led to any additional ratio leverage. Is it correct?

[Pim Berendsen]

If you look at the volume or the revenue growth, obviously that revenue growth is comprised by several elements. There is also logistical solutions growth in there. There is acquisition effects for the acquisitions that we've acquired last year that contribute lower margins than our domestic parcel business does. So those are elements to take into account as well. And clearly as said, let's say the growth was slightly higher than anticipated, which results in higher costs in making sure that we deliver those volumes properly within also the quality standards that we adhere to.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Fair enough. And it's volume growth [indiscernible] and basically you're now saying that probably we'll not see any operational leverage from the additional growth because of the cost that are related to make sure the service levels are up to standard or should–.

[Pim Berendsen]

No. I think certainly towards the end of the year if the 3 parcel delivery and sorting centers will be live, we'll see the improvement in efficiency there. Next to those big sorting centers, there are several initiatives improving hit rates, improving planning, and the likes of that that will improve efficiency for the next quarters.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Then on the cost savings, you mentioned in the presentation there were some delays in the coding machines. Does it imply that also in terms of cost savings targets for the full year, the EUR 50 million to EUR 70 million that we were more looking towards the lower end of that range?

[Pim Berendsen]

We still anticipate the EUR 50 million to EUR 70 million number to be the number. If you look at the first quarter delay is indeed being caused by coding process, yet at the same time also higher operational costs in the Mail division, also partly through workforce issues. Obviously the influenza did have impact there. Over the next quarters, we'll anticipate further migration and centralization of locations, and also towards the end of the year or the second half of the year, I should say, implementation of those coding machines – coding process, new coding process. So we still anticipate to be able to save EUR 50 million to EUR 70 million in 2018.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Yes. Because on the workforce issues, you mentioned on one of the questions, sickness. I didn't see it in the press release, but your competitor for instance in Belgium mentioned it to have quite an impact. Can you give us an indication what the impact was with your company?

[Pim Berendsen]

No, I can't give you an indication, but it is an argument on the slightly lower level of cost savings in this quarter.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Okay. Then maybe one for Herna. Do you have any indication of the timing of the outcome on the tariff decision from the ACM?

[Hendrika W. P. M. A. Verhagen]

To be honest not. We do expect it before summer, but there will be first, of course – not of course, but there will be first a concept final tariff decision and that concept can be, of course, reviewed by all market parties and that will lead to final tariff decision. But it's still expected in summer.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Then on the dividend, coverage of the dividend from the free cash flow, should I see this [indiscernible] development also of your cash position or your net debt, if you will. Can you give me a bit more indication how are you planning to pay for the dividend for this year?

[Pim Berendsen]

Well, the future business performance is expected to generate sufficient profit and cash flow to finance the progress of the dividend policy that we have.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Then this year will you still leverage up then?

[Hendrika W. P. M. A. Verhagen]

I think if you look into this year and that's what we already did say to make sure that we can pay a progressive dividend, we have to increase our payout. That's what we will do. And, of course, expectation is as already said that we can keep a positive consolidated equity to make sure at the end of the year. So that's our expectation for this year. When it comes to free cash flow or to cash flow, we expect to be able to pay it of course out of our free cash flow, but be aware that therefore we have to increase our pay ratio.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Maybe the final one on the postal dialogue, what is a better timeline of the sessions that are planned and how certain are you Herna that we can get some relaxation of the current rulings or consolidation?

[Hendrika W. P. M. A. Verhagen]

A timeline is that the report is expected to be finalized by the end of June. And then, of course, it is a report or it's an advice to the Ministry or the State Secretary of Economic Affairs. She will come up with her conclusions. Those will be sent to parliament and the timing of that is unknown. But that's what I expect in summer or after summer. And then, of course, political process takes place for the discussions. I think the postal dialogue is currently of course running and discussions take place and in my view that postal dialogue is best served to keep the content of those discussions in the postal dialogue.

[Marc Zwartsenburg, Head of Benelux Equity Research]

But it will probably last all year?

[Hendrika W. P. M. A. Verhagen]

Postal dialog, of course, not. That will be finalized or finished by the end of June and then the process will start with the Ministry of Economic Affairs.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Got you. Your view on the chances that we will see any relaxations or–?

[Hendrika W. P. M. A. Verhagen]

I said in my view, it's best served to have that discussion at this moment in time in the postal dialogue and to not speculate about it externally.

[Karen Berg]

Then I would like to handover to Henk Slotboom.

[Henk Slotboom, Research Analyst]

I have got a couple of questions, which I would like to take one by one. First of all with regard to the growing pains in Parcels. Could you give me some more comfort as to what is what exactly? We've been asking about granularity and those kinds of things. On the one hand it's elevated OpEx because of the extra hours you have to put in, the extra hands you have to make available. It's partly the one-off preparation cost, but there is also the pressure on gross margin, which has been lingering around for the past what is it 10 years or so. Could you – just to give a global figure, could you indicate what is what? And to what extent the NLIs could provide comfort? It's in fact my second question, how much capacity is being added by the 3 depots you plan to open this year? If the first quarter is already a problem with rather subdued volumes in ecommerce than the fourth quarter, which is the peak season in parcels, then how should I look at that? Are you comfortable enough the 3 NLIs analyze will solve the problems here? Well, I may continue with the question straightaway then we've had it. The second thing is with regard to Mail, the delivery quality. I noted that it has fallen to 95%, which is the bottom level you need to comply with according to the USO. Is this mainly a coding problem or is there more? Are we seeing the borders of the -- the frontiers of the cost savings being within the – putting on some restraints there because you expect elevated – more elevated level of cost savings, actually exploration of cost savings in the next couple of years. And then my final question is on the acquisition of CheapCargo and Shops United, and it's basically twofold: 1, both are parcel consolidators and both target the small and medium-sized enterprises whereas we all know prices are a little bit higher for senders of bulk mail. And to what extent has that contributed to the margin pressure? That's the first question. And secondly, isn't this part of the reason why the volume went up so much here? So how much of the volume increase in parcels is caused by the CheapCargo and the Shops United acquisitions?

[Pim Berendsen]

Let's try to take them one at the time. Looking at the Q1 performance of Parcels, as I said also on the answer on the questions of Marc, let's say the delta compared to last year, half of it was related to phasing pension cashouts and the other half related to let's say real business drivers. And those did relate to the extra - well let's say operational costs to handle the volume and to prepare for further growth. So those are the elements that come into play there. The growth comes obviously in a mix – the growth in revenue is roughly speaking EUR 20 million of that EUR 57 million is related to logistical services and acquisition effects. Those contribute a lower profitability margin than our core parcel delivery business does. So that's one. If you look at the remaining quarters of the year and why do we believe that we'll see there's operational efficiencies increase is not only because of the 3 NLIs that will come live before let's say peak season, [indiscernible] flows, but also related to other improvement measures that we're currently undertaking. So our improvement of hit rates, improving the planning of our delivery routes, and other elements will contribute to that efficiency improvement that we seek. We still anticipate the margins that we've said before to be realized for the full year 2018. And I think your second question–

[Hendrika W. P. M. A. Verhagen]

The second question on delivery quality. The 95%, is there an issue? Is that because of coding? The answer is no. Is it because we reached the borders of cost savings? The answer is also no. When it comes to delivery quality, it's mainly what we also did say around New Year is that we had vacancies in certain areas in the Netherlands. Those vacancies are filled. And that also means that over the last few months, you do see again an increase in quality which is good. And then on your question around acquisitions of CheapCargo and Shops United, are they contributing to margin pressure? The answer is no. Margin pressure or the decrease in the average price per parcel is caused by the fact that the big senders in the Netherlands, so the big ecommerce companies are growing much faster than the smaller ones does, and that's the main reason for volume growth. That's one. And that's also the main reason for the decrease in average price per parcel you did see over the last I think already 12 or 14 quarters. And that has nothing to do with the CheapCargo and Shops United.

[Henk Slotboom, Research Analyst]

Can I add one more question about the NLIs? How much capacity does that add in terms of millions of items or is that a wrong way of expressing it?

[Hendrika W. P. M. A. Verhagen]

It's partly – you cannot fully – it's partly a wrong way of expressing it. I think it helps us in reaching, of course, a higher operational efficiency because then more volume can be done automatically or more automated. That's one. And secondly the way we increase our volume within parcels. It's partly because we can better use and use in a more optimal way the current centers we have. That's one. And secondly we add new sorting centers to that, which is an expansion of our capacity. And we do think that with the add of 3 new sorting and delivery centers by the end of 2018, there will be enough volume capacity for the busiest season of the year. But as we also did say last February, we need another 8, 2 in Belgium, and therefore another 6 in the Netherlands, 3 of those in 2019 and 3 of those in 2020. So we expect volume growth to continue.

[Karen Berg]

And then I'd like to hand over to Andre Mulder of Kepler.

[Andre F. M. Mulder, Analyst]

Yes, a few questions on – let's start with international. Can you mention who's losing money there? Second question is on Italy, how fast has Parcel growth been and can you mention any splits of that sales between Mail and Parcels? You're calling the results unsatisfactory. Should we expect any short-term measures? Are you still satisfied with the strategic rationale of holding these things longer term? And on the same level, can you may be split it between the volume decline and the pricing pressure for each of 3 constituents?

[Pim Berendsen]

Yes. First and foremost, indeed we believe the performance of international was unsatisfactory. The total was a negative result compared to a EUR 5 million positive result in 2017. I'm afraid I can't give you and I won't give you a split of each separate element on that level, but I'll give you a bit more explanation on the relevant parts. If you look at Germany, we saw our revenue improving in our last mile, but it was more than offset by our consolidation activities where competition remains fierce. So we're losing volume and marginality there, particularly also compared to the first quarter of 2017. In Italy our Parcels business is growing very nicely. Certainly a higher growth numbers than we see in the growth numbers of our Parcel business in the Netherlands. So that's going well, and in Italy on the Mail side, there is a combination of substitution in the mail market as well and price pressure particularly from Poste Italiane on some segments, and the combination of those 2 lead to the result that we've just showed you. If you look at Spring, Spring is all about capturing opportunities from global ecommerce growth, and we see that transformation towards a global ecommerce player happening. Competition is fierce, particularly also in Asia and the result of this quarter is significantly impacted by our own decision to have cost increases from other national operators as of January 1st, not compensated by a rate [ card ] in the first month - a price increase from our side in the first months of the quarter. We've waited to implement that until the 1st of March to secure the volumes, so that that has had a significant impact in the first 2 months of this quarter. And the rest of the year will certainly look different.

[Andre F. M. Mulder, Analyst]

And then some further questions. You talked about some actuarial gain included in the results. Can you mention the size of that? And on the lease accounting effect, I'm sure you've looked into that. Can you give us any clue as what you see the impact on EBITDA and net profits will be?

[Pim Berendsen]

On the pensions, as part of underlying operating income, I have indicated a EUR 5 million increase and in the other comprehensive income you actually see the actuarial gain of EUR 9 million, which is also on Slide 18 of the presentation.

[Karen Berg]

And your second question on lease accounting, can you please repeat it?

[Andre F. M. Mulder, Analyst]

The lease accounting will it change next year, with the operating lease expense taken out of EBITDA and also the operating lease commitments included in net debt. Could you give us any clue as what the effects will be?

[Hendrika W. P. M. A. Verhagen]

Not at this moment.

[Pim Berendsen]

No, I can't give you any guidance right now on that. We'll do that in due time.

[Andre F. M. Mulder, Analyst]

Okay. Then last question on Parcels, you maintain the outlook for the full year, cash EBIT of EUR 160 million to EUR 200 million? Would that also hold true for all the constituents? Do you still feel that you can reach the lower limit of the 9% for the Parcels margin turnover, but on the other hand, you see they're growing mid-teens. We're now at plus 23%, although it's just the first quarter. So do you see any possibilities to move that up?

[Pim Berendsen]

Well, it's the first quarter, so we reiterate it let's say that we confirm the outlook given, and that relates to all constituencies.

[Karen Berg]

I don't have any callers on the line. If there is no one else, we will want to end. Okay. Then I would like to thank you all for joining this call. And you are probably all now heading to Deutsche Post. So enjoy there, and talk to you next quarter.

[Hendrika W. P. M. A. Verhagen]

Thank you.

[Pim Berendsen]

Thank you, everybody.