PostNL NV
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PostNL NV
AEX:PNL
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Good morning, ladies and gentlemen. Welcome to the PostNL Q2 2024 Results Call. [Operator Instructions]
Now, I would like to hand over the conference call to Ms. Inge Laudy, Manager, Investor Relations. Please go ahead, madam.
Thank you, operator, and thank you all for joining today in our analyst call.
We have published our Q2 and half-year results early this good morning. And with me in the room are Herna Verhagen, our CEO; and Pim Berendsen, our CFO, to present these results to you.
Herna, would you please start?
Thank you, Inge.
And of course, I'll start with Slide #4, which is on the highlights of the second quarter. In our view, a good quarter as expected. Parcel volumes up with 6%, modestly domestic, but high growth when it comes to international customers. And of course, on most of these topics, we'll come back in the further slides. Mail volumes were down 1.3%. That's because of the elections in Europe. It's 5.9%, almost 6% when you adjust for that.
We saw a continued rise of our organic costs, EUR 38 million in the second quarter, still expected to be around EUR 155 million for the full year. We had good cash flow, strong improvement compared to last year. Of course, a further improvement of our carbon efficiency, a successful issuance of a sustainability-linked note and Pim, of course, will highlight that in his part of the presentation. And we're very happy with the outcome of the court case in Belgium, where we are fully free from all the things they said we did do wrong. And most importantly, also the management in Belgium is totally free from that and there is no appeal. And of course, we'll pay a dividend, which is EUR 0.03.
For Mail in the Netherlands, we once again, of course, highlighted the urgent need for transformation. That's a transformation in the postal law, where we want to change Universal Service Obligation to get mail within 2 days and overtime within 3 days. And what we added today to that is that in the bridging measures, which were already by the minister, of course, communicated to Parliament that together with those bridging measures, we would like to have a financial substitution or a financial contribution as well that should be, in our view, included.
In Parcels, the growth we saw in the second quarter is trending to our full-year anticipated level. I'm happy with a slightly higher market share in the quarter. What we do see, of course, is that the product and customer mix is less favorable and that impacts margin. Still with full confidence for further growth of our e-commerce going forward. That translates into the results you find on Slide #5. What you see over there is that the normalized EBIT for the second quarter is the same as last year, while revenue grows slowly with 3% and of course, as such a much better free cash flow.
I think important to highlight here and not yet said in the other highlights is the fact that the mail volume development is strongly, positively impacted by the election-related mail and we did see a further shift to non-24 hour mail, which impacts margins. Organic cost increases continued EUR 38 million in the second quarter and largely mitigated by yield measures. And we'll come back to the measures we've taken and still also the measures we see going forward till the end of the year on a later slide when we talk about strategic drivers and development within Parcels.
I think this is the moment for me to go to that strategy, which is on Slide 7. And of course, earlier laid out and also explained to you, our strategy, of course, is still the same. We have a strong strategic foundation in which we say Parcels are managed for sustainable growth. In Mail, we manage for value and we want to accelerate our digitization. That's next to the fact that we have a few important strategic objectives, which are around our customers and consumers and for example, is on our net promoter score, which is on environment where we want to improve our carbon efficiency, and which is on social value, where we want to be a good employer, able to pay the wages as expected in the market we operate in. And again, very happy with the outcome of the court case in Belgium. 225 years does this company exist. And hopefully, it will be there for the next 225 years.
Let's dive a little bit into the measures taken within Parcels and Mail in the Netherlands, which create that sustainable growth and which create that manage for value. First of all, start with Parcels. And that's what you find on Slide 8. This is a combination of what are the important strategic drivers and actions set into motion in the beginning of the year, together with some of the results at the end of the second quarter.
The first important element in managing for sustainable growth is, of course, balancing volume and value. We've taken quite some actions when it comes to our revenue management, meaning that we have tailored pricing policies to balance our portfolio and also attract the favorable parcels, together with the fact that we have very active capacity management, which is necessary, talking about -- of course, talking about the volumes coming in.
We have a targeted approach in the direction of the small and medium accounts. And especially in this segment, we're scaling our digital initiatives and are working quite well and are highly appreciated by those customers. And we find new customers in that SME segment, which is important for us as well. Simplifying products and services is what we do in 2024, but especially also in the direction of 2025 needs to bring in further rationalization. When you talk about managing capacity versus volume, you also talk about network rationalization and cost control. These are important actions to underpin, also the EUR 35 million of cost savings we took into account, and still is, of course, in our latest estimate and outlook.
To reach that cost reduction, we're, for example, working on a more efficient first and middle mile where we integrated certain networks. We do smart route design by algorithms, and at this moment in time, more than 60% of the routes are automatically planned. But we also focus on our parcel lockers and broader than that on our out-of-home strategy. We placed more than 1,000 parcel lockers by the midst of this year, and we want to grow to around 1,200 by the end of the year. And that is, of course, next to or together with all the retail stores we currently have.
Focus on consumers and customers' space out, when you look into our net promoter score where we have a very strong #1 position in the market. We slightly gained market share in the second quarter, also important. And what we do see is that we have a growing amount of consumers making use of our parcel lockers. That then translates into second quarter numbers, which you find on Slide #9.
Here, you see that revenue increased. Normalized EBIT slightly declined, and we saw a volume growth of 6%. And that is on trend for our full-year outlook, which is on 7% to 10%. The 6% consists out of a growth of almost 30% from our international customers and 0.3% for our domestic customers. And important to say with that is that, that growth then also mainly comes from the larger customers. We did see that the weather conditions in the Netherlands impacted the e-commerce market and especially in fashion.
When it comes to the customer mix, it impacts our tariffs and it impacts, of course, our average price per parcel. And Pim will come back to that in his presentation to show you a bit of the effect it has on our business. As said, significant cost increases also within Parcels, not only mail, also Parcels, and many efficiency improvements to balance that. And I already discussed most of these efficiency improvements on the slide I just presented.
So, that's a good moment to go to Slide 10, where we talk about Mail in the Netherlands. In Mail in the Netherlands, we manage for value. And as we did say when we presented our Q4 numbers in February, there is an urgent need for transformation. And why is that? First of all, of course, the ongoing decline of mail, also this year expected to be between 7% to 9%, together with the fact that we see a shift from 24-hour to non 24-hours mail. So already in our volumes, we do see that there is less need for urgent mail.
Together with the organic cost increases which continue to rise, they have a big impact, especially in an organization where, of course, which is mainly people dominated and that is what the mail business in the Netherlands is. The result over the first half year was EUR 1 million. And I think that underpins the urgent need for transformation. In our view, when we talk about transformation, there are 2 important elements. The first one is, of course, what we said in February, and that is the postal law needs to change. And in our view, the best way forward to change the USO into -- when you post it today, we'll deliver within 2 days and over time within 3 days. That's in our view the best way forward, together with, as already said by the minister that bridging measures deemed necessary. And in our view, a financial contribution in those bridging measures is crucially important to maintain the mail services as they are today.
That, of course, asks for political process. That's what you see on Slide 11. So far, we had, of course, the letter from the minister, which went to Parliament in May. There was a roundtable that took place in June. In that roundtable, many members of Parliament were informed by all sorts of market parties about their views on the mill market. We expect a first debate in parliament in October. Before that debate, there will be a letter from the minister in which we expect that there will be an exploration around the bridging measures. And in the meantime, ACM needs to assess the requirements of postal service users.
Also important is, of course, the real amendment of the Postal Act. Hopefully, that will also be discussed in October. And also here ACM is asked to assess the feasibility of that and to give a view on post in the future or mail in the future. And that part needs to be ready somewhere in spring 2025. In 2025, in our view, it will be a year of discussions in parliament. Hopefully, the first bridging measures will be in place in the year 2025. When it comes to the amendment to the Postal Act, we do not expect that these will be in place in 2025. We expect that there will be a discussion on these elements in Parliament starting in 2024, but also walking into 2025 to hopefully come to a finalization.
If you then look to the numbers of Mail in the Netherlands, which are on Slide 12, you see that the second quarter had a relatively good normalized EBIT, also a relatively good volume decline, but as said, caused by the fact that we had the European elections and therefore, had lots of mail. Underlying, we see that substitution is ongoing. We increased the revenue price to mitigate, of course, the cost increases we see in our Mail businesses as well. And that's what we did on January 2024, but again on July 1, 2024. And as already said in revenue, you find also the unfavorable shift in mix. We see more customers moving from 24-hour mail to non-24 hours mail.
The costs are continuing to be high, which is partly because of labor costs and organic cost increases, which is partly because of higher sick leave and in a tight labor market, in a tight labor market, which results also in higher-related costs, including a higher provision. And to offset that as much as possible, as said, stamp prices are increased and we continue to save as much cost as possible. Cost savings over the first half year were EUR 20 million, and we expect to be around EUR 40 million by the end of the year. The graph also shows an indication of the split in bulk mail, the non-24 hour and 24-hour mail. And you see here the slight decline from non-24 hour -- sorry, from 24-hour to non-24 hour.
If we look into the developments of our businesses, we reconfirmed the outlook and that's what you find on Slide 13. In Parcels, we are well positioned for the anticipated pickup in volume growth towards the end of the year. And Q1 and Q2 gave us the trends we expected to see, to be indeed around the 7% to 10% by the end of the year, with consistent focus on customer excellence and strict cost control and capacity management to make sure that we reach the margin level we want to reach within Parcels. For Mail in the Netherlands, focused on, of course, further cost savings and decrease the sickness rates. Together with, of course, an important half year in politics, with the first discussions we will have on the changes in Postal Law and hopefully the bridging measures, further underpinning the urgent need for transformation.
I hand over to Pim to go through the numbers and also a little bit of the insights behind those numbers. And I hand over.
Thank you, Herna.
And indeed, let's look at the financial performance in a bit more detail. First on Slide 15, where we have the reconciliation of the normalized EBIT bridge of Parcels from EUR 17 million last year to EUR 15 million this quarter. Clearly, in the beginning of the bridge, you see the contribution of 6% of volume growth, clearly contributed to the results, but was almost fully offset by the impact of product and customer mix effects.
On the next slide, I will talk in a bit more detail about the composition of those mix effects. Organic cost increases amounted to EUR 18 million in the quarter, mainly related to labor and the tariff increase was EUR 12 million this quarter, which again leaves a gap between organic cost increases and prices that we could put forward. The other costs were EUR 8 million better. That is clearly a result of all the operational measures and efficiency measures that Herna just talked about, that supported the development within the quarter and will continue to do so in the quarters to come. Other result is positive, obviously, driven by a very large extent by the performance of spring and our cross-border business.
If we then go to the next slide, there we spend a bit more words on the composition of the volume. We talked about that clearly already at the beginning of the year. On the left low-end side of the slide, you can see that gradually the composition of our volume is changing and we've got now roughly 22% of total volume coming from cross-border clients. And there's basically 2 main developments that define mix. Within domestic, we see still that bigger clients are growing and outgrowing the SME customers and at the same time, platforms are also growing faster than direct customers. So that in and by itself already leads to a mix effect within domestic. And next to that effect, obviously, the fact that international volume continues to outpace domestic in terms of growth, leading to the higher relative share of cross border is another negative mix effect that impacts the average price per parcel.
And if we go to that, then you can quite clearly see that the shift in product mix basically is costing us EUR 0.21 per parcel within the quarter. Obviously, percentage-wise, that is not even a very big difference, but term times 92 million pieces. Of course, it is material, and you also see that tariff and price increases offset a part of that. But of course, then you are stuck with the organic cost increases as well. So all in all, EUR 0.08 per parcel, down on average price driven by the mix effects we just talked about. And of course, that has played a big impact in the margin profile for the first half of the year, which we still expect also to partially continue to the next quarters.
Then on Slide 17, we go and talk about Mail in the Netherlands, from EUR 2 million profit last year to EUR 6 million this year. The biggest driver, of course, is the EUR 11 million cost savings during the quarter that we talked about. But also here, you can see a negative mix effect and Herna already talked about it, that we see a shift from 24-hour to non-24 hour mail, obviously, bringing a lower average price per item also on the mail side. Organic costs are up with EUR 11 million. Price increases within mail exceeds the organic costs increases within mail, and compensate for that.
In other costs, there is clearly the benefit of the EUR 11 million cost savings there, but also high sick leave rates and additions to the provision for long-term illness have offset part of the cost savings we realized within the quarter. Other results positive with EUR 3 million, includes smaller items, including the international mail services that did slightly better than last year.
Next slide covers the cash flow. Cash flow negative for the quarter, but improved in comparison to last year. A bit of phasing in working capital, but all in all, we tightly managed the cash flow, the working capital and the CapEx as strongly as we can. Full-year expectation on CapEx is around EUR 110 million for the year.
Then to the balance sheet quite quickly. As said, we manage the balance sheet quite tightly to ensure that we keep a leverage ratio that is going to be below the 2x adjusted net debt. Interim dividend is set in accordance with the dividend policy at 1/3 of the dividends over the full book year 2023, which leads to a EUR 0.03 per share interim dividend for August to be paid on the 26.
Then a deep dive on the adjusted net debt levels. Currently at EUR 514 million compared with year-end 2024. Obviously, impacted by the negative free cash flow in the first half of the year. We're really happy and satisfied about the issuance of the new sustainability-linked bond of EUR 300 million, very good debt investors in it. The EUR 300 million. 4.750% annual coupon with 100 basis point step-up on the final coupon only if targets are not met and those targets are tied to our ESG strategy with 3 drivers; 90% reduction in Scope 1 and 2, 45% reduction in Scope 3 greenhouse gas emissions by 2030 and 36% women in senior management positions also in 2030.
In the meantime, of course, we've done this to have enough liquidity to redeem our 2024 bond due in November. In the meantime, obviously, the excess cash will be prudently invested to limit the cost of carry and all in all, very happy with that result. New in this setup of net debt is the addition of the WGA provision, that is a provision for future costs, future entitlements for long-term illness people. In 2021, we moved away from a social security premium structure in which you actually pay monthly fees to your social security agency to go to a self-insured method, which means that we're gradually building up the provision. And within the quarter, the addition to the provision was EUR 3 million within mail and EUR 2 million within Parcels. Why we've included here is basically that we want to be as close as possible to the Standard & Poor's global definitions of net debt. And that's why we add the provision to the composition of the elements that collectively form at the adjusted net debt level for PostNL.
Then let's move to the outlook. Clearly, a couple of points have been discussed. But based on the business performance in second quarter and under the assumption of gradual improvements in market conditions, we have reconfirmed our outlook. The graphs on this slide show the indicative development of some of the important drivers over the year. If we go and look at Parcels first, we're leveraging on the infrastructure that is in place, is well positioned to anticipate the pickup of volume growth in the second half of the year and we expect to realize further efficiency gains and we expect measures that we already have taken to grow to full run rate contribution in the third, but predominantly in the fourth quarter of the year.
As said, domestic parcel volume was up 0.3%, the growth rate is trending towards the anticipated 2% to 4% for full year. At the same time, volumes from international customers are expected to outpace the already strong growth realized so far. And that also means that the mix effects will continue to be there. So, those mix effects will continue to put pressure on the margin. All in all, expecting growth to come in between 7% and 10% for the year, depending on economic circumstances.
Next to that, plans to rationalize services and networks, strict cost control, will contribute to around EUR 35 million of cost savings to normalize the EBIT in 2024, that will gradually mature in the quarters to come. Within Mail in the Netherlands, the EUR 1 million result of Mail in the Netherlands as a segment, so that also includes other than our mail businesses results. And so EUR 1 million in the first half of the year underpins the urgent need for transformation. Volumes for the year are assumed to continue its decline by 7% to 9%. Year-to-date number is 7.2%. Obviously, due to ongoing substitution, volume development is not evenly split over the quarters, mainly due to the timing and number of elections in the Netherlands. Obviously in this year, in the second quarter and last year in first and fourth quarter, there were elections. And the faster shift towards non-24 hour mail puts additional pressure on margin.
Halfway through the year, we've saved EUR 20 million of costs. We do anticipate to get to the full EUR 40 million by the end of the year based on further adjustments to the processes in the current business model. And as Herna said, the stamp price will increase to EUR 1.14 as per July 1, which is clearly necessary to absorb rising costs and to maintain the existing service level. All in all, still significantly hit by organic cost increases. Full year expected to be 135 -- sorry, EUR 155 million. That will be mitigated by around EUR 135 million from yield management activities both at parcels and mail. And additionally, we should achieve EUR 20 million cost savings from earlier measures to reduce indirect cost and to improve efficiency.
Then to summarize the outlook. Based on the Q2 results, and the environment that remains very volatile, even if we look at the news today, we can reconfirm our outlook for 2024. Normalized EBIT is expected to come in between EUR 80 million and EUR 100 million, and free cash flow to be expected around EUR 0 million to EUR 40 million, with normalized comprehensive income between EUR 40 million and EUR 70 million, which is obviously the baseline for our dividend. CapEx expected to be around EUR 110 million, continuing a clear focus on strategy whilst staying disciplined on cash flow management. And as you can see on the right-hand side, given the gradual step up in domestic growth, given the step-up in maturity of the measures that we've taken throughout the year, the year is a bit more back-end loaded than normally is the case, with the biggest contribution to the result clearly in the fourth quarter of this year.
Then to the closing remarks. We aim to remain in a leading e-commerce and postal service position in, to and from the Benelux area. Very glad that we've managed to successfully issue the EUR 300 million sustainability-linked notes. Clearly, very positive about the developments in the Belgian court case where there's nothing [ picked ] from all all the complaints and all the things that were thrown at us. Very happy also for our staff involved. And our parcels were well positioned for the anticipated pickup, for volume growth. And for mail, we once again do emphasize the urgent need for transformation and the service level for standard mail will transition towards delivery within 2 days and over time moving towards 3 days. Adjustments in regulations are necessary and bridging measures are needed because of the regulatory process that will obviously take time. In the meantime, we are and will stay to be committed to keep the postal network in the Netherlands accessible, reliable and affordable.
So far, thank you for your attention. Inge, back to you.
Thank you, Herna and Pim for your explanations. And let's now open the floor for Q&A. Operator, can you please explain the procedure?
[Operator Instructions] Our first question comes from the line of Michiel Declercq from KBC Securities.
Yes. The first one, you mentioned already is that, that the phasing of the EBIT will be a bit more skewed towards the fourth quarter as can also be seen in the graph. I'm just wondering, why would it be a bit lower in Q3 and why do you expect it to then exceed your original expectations in Q4? Is it a bit more top line and volume driven, or more cost-saving initiatives driven? Just trying to understand that a bit more clearly.
And then the second question is just on the parcel volume developments, where it looks like you're trending a bit below for domestic and the opposite for international. Can you give a bit more color on the evolution throughout Q2 and the exit rates that you have seen there? As I recall that your exit in the first quarter was around 7% and you mentioned that this continued also in April. So, that would imply a bit of a step down in the summer months, I would assume mainly domestic related. So if you just can clarify that a bit, the evolution throughout the quarter.
Michiel, thank you for your questions. First one on the phasing. Yes, indeed, little bit in comparison to what we said in the first quarter, Q3 looks a bit slower. I don't think that's going to be a lot to do with volume development. Maybe a bit with the volume mix being in the third quarter still a bit more reliant on cross-border. But the most important driver there is, I think the phasing of the maturity of the measures that we've taken. So it's a bit of phasing between the quarters. I'm quite frankly not concerned about the full-year numbers on the cost-saving initiatives that are part of the outlook. So, that is one.
On the second question, yes, you're right when discussing Q1, indeed, the exit ratio rates on domestic were around the 7% in March. That actually continued into April and May, maybe even at a higher level than the exit rate of March. But that also implies that June was significantly worse. And that is also why we make a reference in the press release to the difficulties that the fashion segment as a market has. I think the quite volatile weather in June didn't favor people spending money on fashion, whilst normally June is a very big month for fashion, for people running up to the summer and their summer holidays. So, June was particularly compressed because of the low fashion volumes, whilst April and May did definitely trend somewhere in between 7% to 8% domestic growth that we're also looking for the step-up towards the 2% to 4% of domestic growth full year.
Okay. Clear. But is it correct to understand then that, yes, 7% to 8% in April and May? It's quite a steep step down in June. Can you say something about July? Has this been normalizing or...
No. No, that much I cannot say a lot about July. The step down in June was, I said, driven by fashion and June is normally the biggest fashion month, apart from really the year-end peak and that drives that step down.
Our next question comes from the line of Amy Li from UBS.
First question is just a follow-up on the full-year guidance. So with the achieved EBIT in the first half of EUR 9 million and the indication of an EBIT loss of EUR 10 million or more in Q3, can you maybe give some color on the building blocks of how you might achieve more than EUR 80 million of profit in the fourth quarter? What are your assumptions around volume growth needed to get there? And also what gives you confidence that there would be an improvement in the economic conditions towards the fourth quarter?
And maybe a second question on the USO changes. Can you maybe give some indications on what potential bridging measures are being explored? How should we think about the magnitude of cost savings from there? And how soon might the cost savings be realized once the bridging measures are in place?
Yes. Thank you, Amy. First one I'll probably take, and the second one probably Herna will answer. Look, what does it take? Nothing wrong with your math. So, indeed, to end up with the full-year guidance, there's a fair amount of profit to be made. That still requires a step-up in growth. So, we're very happy to see that the growth in first quarter somewhere between 4.5% and 5% has grown towards 6%. We do expect that to grow even further and we do expect gradually, based on also the conversations with our clients, but also when the Chinese platforms really started to grow in last year, gradually, the domestic growth rates will pick up, again, also set by the positive trends, at least that we saw in March, April, May. We do expect that room is really there. So, that's one.
Secondly, to anticipate these pretty tough market conditions, we're doing everything we can to derisk the volume development, the mix effects by taking additional measures. Those additional measures relate to improving the efficiency, making sure we utilize the network with the best possible yields up to and including our peak period, and also taking additional cost measures on the indirect side, and those will gradually mature. Some of those cost savings are also partially volume related. So obviously, then also the biggest contribution to those efficiencies measures will be there when you've got the highest volumes, which is clearly also in the fourth quarter.
Maybe, Herna, you can take the USO bridging measures question from Amy.
Yes. I think the real indication or a good guidance on what the ministry is aiming for or thinking about when it comes to the bridging measures is probably the letter, which will be sent by the minister to Parliament just before their debate in October. So at this moment in time, no guidance from our side. We made our view very clear, meaning that we want to have changed the Universal Service Obligation to a 2 days delivery window and overtime to 3 days delivery window we added today, which were already set, of course, when we had the analyst presentation in February, but we added today very explicitly the financial contribution to those bridging measures. But let's see what in the end is put on paper by the ministry. I think important to add over here is that we're preparing to bring our business mail to a service level of -- within 2 days starting from January 1, 2025. And that's an important cost-saving measure for coming year.
Our next question comes from the line of Marco Limite from Barclays.
The first question is a follow-up on the bridge measures you're mentioning. So, I understand you are not able to, let's say, provide the financial guidance at the moment. But could you give a little bit more color on what these bridge measures consist of? I mean, you are mentioning clearly financial contribution, I suppose, from the state. So, are bridge measures more related to operational changes and improvements that you can introduce ahead of the time, ahead of the new postal law? Or is there more about financial contributions? It's the first question.
My second question is on your parcel bridge. I see that year-over-year, you have got EUR 6 million of positive contributions from Spring. As far as I remember, this was not the case in Q1. So, yes, just wondering whether -- what you are seeing in spring that is driving a nice improvement in profitability?
And the third question is on the letter mix. So, you're saying that there's been a shift towards non-24 hour products. My question is to what extent do you think that's a consequence of your second price increase of the year from 1st of July. So, was the trend also visible in June before the price increase? Or that has been triggered, yes, by the price increase?
I will give an answer to question 1 and 3, and then I'll hand over to Pim for your question on the parcel bridge. So the bridging measures, what the ministry exactly will propose as bridging measures, we don't know. What you did see in the letter, which was sent by the minister to Parliament in May, she gave the example of Universal Service Obligation, bringing the Universal Service Obligation to delivery within 2 days. But it was put into that letter as an example. What we did do today, and also by the end of February is make very explicit, what in our view is important in those bridging measures. Annexed to a change in service level of the user, we also think that a financial contribution is crucially important in the meantime, till we have a new postal law.
So it's difficult to give real color to it, except of what we think is necessary. And that's what we -- that's also the reason why we put it in the press release today, but also did so end of February to make it very explicit and open so that we can discuss it with all stakeholders. So the letter mix towards non-24 hour mail, it's a trend we already see over the last 10 years. So it doesn't have much to do with the price increase of July 1 of this year. What we do see is that over the last 10 years, we saw a volume decline, an overall volume decline of around 35%. The volume decline from 24 to non-24 hour was 65%. So it's a trend which we already see for many years, and it's a very strong trend that does not bend into the right direction for us.
On Spring, yes, also in the first quarter, Spring was doing well and doing better, slightly better as last year and that continues into the second quarter. So, we're actually very happy already the entire year with Spring's performance. Obviously, leveraging partly on more cross-border volumes, but also the transition in Spring's European business, significantly more e-commerce related than in the past. So, Spring is doing well, better quarter-after-quarter, which is also the case in the first quarter of the year.
[Operator Instructions] Our next question comes from the line of Marc Zwartsenburg from ING.
Couple of questions. Just checking the first one. Is it correct that you now take an additional cost savings measures on top of the ones that have already been announced there, the EUR 35 million in Parcels, for example, and the EUR 40 million in mail? Is that something I heard correctly or not?
No. So, these were already announced beginning of the year. We set the target for cost saving within Mail in the Netherlands of around EUR 40 million. We already included already cost savings within our parcel unit. But what we do see is that the actions taken, of course, to underpin those cost savings, as already said by Pim is leaning towards the end of the year and then you will see the positive effect of that.
So, there will not be additional cost savings?
As I said, we are consistently monitoring the development on the top line, on volume and composition and we always will look for additional opportunities just to further derisk the year-end result if need be. The current state of affairs is that we take EUR 40 million costs out of mail that we have taken out the indirect cost savings that we talked about from '23 to '24. And we do expect EUR 35 million of efficiency gains and cost savings within Parcels. But we're always trying to further derisk our year-end performance. And that means that we'll consistently look for raise to further improve because at the end of the day, you will know that we strive to get to better margins in Parcels than also the year-end number now currently implies. And that's why we will continue to look for more if we can get it.
And what you always will do -- what you always will do, Marc is, of course and that's also what we said is you try to balance capacity to volume and that's what you do on, of course, on the longer term, but also on the shorter term. And that's what you anyway will do also in the end or in the direction of the end of the year.
Yes, yes. Sure. And will there also be extra costs in Q4, for example, to prepare for the transition period in 2025 to already start going to this 2-day delivery model?
No. That change will, in any event, be gradual and there's no big one-off cost or other project-related costs in preparation of that change within 2024.
And to add to that is -- and that's also the reason why we are advocating our change so much externally as well, because we do think that we can do this change without any, or at least very little people being left over. And that's important as well because in the end, that can make reorganizations costly within PostNL. To do that, that's the reason for us also advocating this way of change instead of many others.
And do you already expect, because I did think you said at some point on the non-USO mail that you already expect a saving there. But in general, for next year, even in the transition that's currently proposed, do you expect you will have already some additional EBIT or/savings from the transition that you're foreseeing for next year even without the financial compensation that you're also targeting?
I think it's good to split the several items, Marc. So, yes, we expect that our change, which we have now asked approval from the Work Councils to change to 2-days delivery service level for our business mail, which will start beginning of 2025 and then gradually will be implemented, that needs to deliver a certain cost savings in 2025. That's one. When it comes to the bridging measures, either the -- maybe earlier possibility to implement also for the USO service level within 2-days delivery or financial contribution, that's too early to say. And that's too early to say if that will contribute to 2025 or not. Postal law is not expected to contribute in 2025. That is expected as of -- hopefully as of 2026.
And then you're referring to a financial conversation from the losses in USO?
No, the -- so that's the -- so what you do have is some things we can do ourselves, and that is changing the service level of business mail. That's what we are going to do in 2025. And all actions are taken to be able to start implementing that as of 2025. Then the ministry said, we do need certain bridging measures, which fill in the period between the discussion or between now and an approved postal law. In those bridging measures, we've said we need next to a change in USO, also a financial contribution. And then the new postal law will come in and that will have more measures than only the USO. And that is then the third phase. So, you need to see it in phases, try to see it in phases, Marc.
Yes. That's very clear. That's very helpful. And then maybe a final one maybe for Pim. If I look to Parcels and you are bridging your EBIT, you see that the volumes are growing that are eaten away by the price mix. At the same time, you will have the cost inflation also in the second half, but let's say, the volume increase will be eaten largely away by a still price mix. You will have some extra savings. But will you actually then still be able to see an uplift in EBIT in the second half because inflation will be there and it might be completely eaten by the -- eaten away the EUR 35 million of savings?
I think in the half-year numbers, there's significantly less contribution from the cost-saving measures than we'll see in the second half of the year. So out of the EUR 35 million, the vast majority will materialize in Q3 and Q4. Next to that, we do expect a further step up in growth from the 6% in this quarter to higher growth percentages in the quarters to come. And we do expect gradually domestic to get back to within the 2% to 4% growth rate, which then will limit in comparison to the first 2 quarters, the size of the negative mix effects. And those elements together will lead to the step up in profitability of the e-commerce business.
Our next question comes from the line of Henk Slotboom from The Idea.
I need some clarification on the remarks that you gained market share in the Netherlands in Parcels. If I look at the data, the retail sales data that was published by the [ Centraal ] Bureau of Statistics last week. I see that webshops have done remarkably well, and there's clearly been a shift back from, call it the brick-and-mortar stores, back to e-commerce. And, yes, normally speaking, PostNL should benefit from this.
I also had contact with your eastern neighbors on the back of their earnings release last week and asked them how the volume trends developed in Benelux? And they told me that they were recording low-teens volume growth in the second quarter. If I compare that with the domestic growth, 0.3%, also in the context of the CBS data, what am I missing here? Is the rest so bad that even with 0.3%, you've been gaining market share? Or is it something else? What am I missing here?
Well, different people might apply different definitions of market and as a consequence, market share. I think that is one. Clearly, we have been very consistent over the quarters of what our definition is. And within that definition, Henk, you can clearly see that the market has not been growing for, what we call, domestic clients and that the overall growth within these quarters is de facto driven by cross-border volume. We do that consistently. We see a step-up in market share in the months May and June. That give us a clear indication that, let's say, the overall volume development is significantly driven by market circumstances and not so much by loss of market share. That is the consistent way we always use the same data points, the same analytics and the same definition of marketing. And clearly, within that number, we've actually also gained market share in Belgium. That is part of what we call domestic volumes, clearly, as well.
Sorry for being so persistent.
I don't know the definitions of others, but we apply....
I asked them specifically, what is the domestic volume trends in the Benelux? I mean, you take the Netherlands and Belgium together as well. And they told me it was in the low-teens volume growth year-on-year in the second quarter and also in the first quarter of this year. Again, it's their words, which I'm citing here. So if they are telling me something wrong, then you should forgive me. But that's...
Yes. I don't know how they define it. What is domestic? You could also say if it's received by a Dutch customer, then for some, it's already domestic. I can only say, Henk, that we apply the same definition that leads to a market share by the end of June that is significantly higher than the LTM June number of 57%, which gives us the clear indication that we're on an upward trend line, if you talk about market share.
Okay. Then about the volume growth you anticipate and the acceleration in volume growth, you anticipate for the second half year. If I look at the domestic market, I see consumer confidence coming down again. Last week's retail sales, which I referred to earlier also show a weakening of the trend. I respect the fact that fashion was one of the main reasons for June. Last year we saw exactly the opposite taking place. What makes you so optimistic about consumer spending? Or is it purely the market share growth you're referring to, making you so positive that you expect 2% to 4% volume growth in domestic market for this year?
Well, it's the combination of market growth and a market share that will be stable or slightly positive. If you look at the months that we just discussed, then there's been quite a lot of months where you actually did see a more than 2% to 4% domestic growth in the order of magnitude of 7% to 8% growth with the exception of June. So there's, I think, enough indication to assume the 2% to 4% growth. Yes, surely. And that's also what we say.
Everything can be influenced by economic circumstances. I don't know what will happen over the next couple of days. But based on the information that we've had over the composition of the growth over the months of the year, also the visibility that our domestic clients tend to have for the latter part of the year and also the expectation that Dutch consumers for the holiday season will spend relatively more in domestic players than at the cross-border Chinese platforms. We think the best projection that we can currently give is still aimed to be the 2% to 4% domestic growth for the year.
Then a final question, if I may. And that's on the international volume growth. You highlight specifically that Asia plays an important role in the 29% volume growth in the first half year. Now, last Friday, your colleagues from the South had a conference call, and there was a word that attracted my attention, disintermediation by the likes of [ Tianjin ] and [ Shenzhen ], rather than using content -- sorry, volume aggregators, like in their case, Landmark increasingly, Tianjin and Shenzhen used their own planes, their own capacity to fly stuff to Europe. And what remains for the Bpost's of this world is that at the end of the day, they can deliver the product to the online buyers at home or in a box, or in an out-of-home location. But that's it. Is this something we should fear for in the case of Spring as well? And I respect that Spring is more than just the China lane. But is this the new trend going forward that might affect the Spring as well?
No, this is not completely related to Spring only. This is also direct entry from those clients to our Dutch networks. And they might organize the flight themselves, either to Liege or to Schiphol. But I don't see any further disintermediation. And I just see them very satisfied with the quality performance that we deliver for them. So, I don't see them making any other strategic choices than using us for the delivery to Dutch consumers.
And what really contributes in the end, of course, Henk, is the fact that we are able to get those parcels through our network and do the delivery ourselves. That's where we can earn the contribution. It's not in flying those parcels from China to Amsterdam or wherever. So, we perceived that there is difference.
And we don't have that Landmark proposition, right? So it's a different business model, and we earn from the distribution to 2C, and we do not see them making any other choices.
Good to hear you, Henk. Good to have you.
Our final question comes from the line of Othmane Bricha from Bank of America.
So, first, I just want to confirm that the 7%, 8% that you observed in April, May, was that domestic or aggregate? Because if that was just domestic and you had 0% -- 0.3% for the whole quarter, that means that June was quite negative. And also on your fashion volumes, so just want to understand, how much does fashion represent as a percentage of your volumes? And do you think that you are more or less exposed the new competitors to fashion? And did you notice a catch-up effect for these fashion volumes in July? Or do you think that most of these volumes are definitively lost?
All right. Yes, I can confirm that. When I talked about 7% to 8% April, May, I was talking about domestic volume. So, your deduction that then June must have been negative is absolutely correct and that's also addressed by Henk's point. Last year, June was quite high on fashion, and this year, very low on fashion. And that causes that shift from a positive number in June last year to a negative one in June this year. In terms of exposure to fashion, I think we're slightly less exposed than competition, given the composition of the customers that we carry. And unfortunately, for the entire fashion industry, if a fashion season is over, the fashion season is over. You tend not to buy new dresses in fall, then you buy other stuff. So, we don't expect a catch up, but we do anticipate kind of the normal pattern on the fashion segment as well.
So, can you give us a figure of what was the June number compared to that 7% and 8%, please?
Sorry. Now, I'm mixing up stuff. So, all in all, the 7% to 8% is on the total. Clearly, with the higher growth coming in March, April, and in May coming back down a bit, driven by the delta and domestic, just to make sure that I don't mix up stuff. Sorry.
Okay. Yes. So the 7%, 8% is total aggregate. Okay. And if I can add one more question, please. It's about sick leave rates. You've been highlighting sick leave for some time now. Do you see any signs of stabilization? And do you expect a reversal of the negative effect anytime soon this year or next?
Yes. We're working hard to turn it around in the sense that to get the percentages lower than they are today. What we do see is we do see positive impact on short-term illness. We do not yet see a positive impact on the people who are longer, for a longer time or for a longer term ill. So, there is still quite some work to do. It also has to do, of course, a bit with the aging population we have within PostNL, but we are working hard on it. If it truly will contribute in 2024, too early to say, to be honest. But we're working hard to turn it around and bring the numbers into a little bit more normal territory.
This concludes today's question-and-answer session. So, I'll hand the call back to Inge for closing remarks.
Yes. Thank you all for listening. Enjoy your day. And back to you in November. Thanks.
Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.