PostNL NV
AEX:PNL
PostNL NV
AEX:PNL
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Good morning, ladies and gentlemen. Thank you for holding, and welcome to the PostNL Q3 2021 Results Call. [Operator Instructions] I would now like to hand over the conference to Mr. Jochem van de Laarschot. Please go ahead, sir.
Thank you, and good morning. Thank you for joining us in the third quarter results presentation, which will be given by Pim Berendsen, our CFO. And afterwards, we will open Q&A with Herna Verhagen, our CEO, and Pim, as well, of course. Pim, over to you.
Yes. Thanks, Jochem, and welcome to you all. Thank you for joining us today. Let's start with the key takeaways. First and foremost, the full year 2021 outlook has been confirmed with normalized EBIT at EUR 280 million to EUR 310 million and a free cash flow of EUR 250 million to EUR 280 million. If we then look at the third quarter, normalized EBIT came in at EUR 23 million, and that's driven by a few key points.Volume growth at Parcels was 1.6%. If we correct that for the nonrecurring COVID effect in Q3 2020, that is actually 6.4%. And if we exclude the negative consequences partly temporarily of the change in value-added tax, that would have been actually around 9%. If we stretch the horizon and look at the growth from Q3 2019 towards Q3 2021, we're looking at a, roughly speaking, 19% growth. So still attractive growth in our Parcels segment.If we then go to Mail, volume growth at Mail was 0.5%, obviously supported by nonrecurring items related to COVID, but also with an improvement of the underlying substitution rate. As said, stronger-than-expected temporarily negative impact from change in value-added tax regulation for small non-EU goods and other regulations in China. We'll come back to that later on. Happy with the cash flow performance and also very positive about our ESG and transformation acceleration programs, and all of those are progressing well. So positive on the pace of our transformation.Before we go into the business development and financial performance, I want to spend a few words on a few of our strategic business drivers. And you'll find them on Slide 4. Let's start by repeating our value creation model, which aims to generate attractive total shareholder returns. Our mission is to be the leading logistics and postal solutions provider into and from the Benelux. And in order to live up to that ambition, we've defined 5 strategic objectives. We help our customers grow their business. We aim to secure sustainable Mail business. Our objective is to attract and to retain motivated people. And we set ambitious targets to improve our environmental impact. And last but not least, we intend to generate profitable growth and a sustainable cash flow. We aim to reach these objectives through our business segments. And as you know, we'll manage Parcels for profitable growth and Mail in the Netherlands for value. Furthermore, we accelerate our digital transformation, which is aimed to strengthen our competitive position by further building on our platform and connecting customers, consumers and solutions through simple and smart digital journeys.Let's move to our ESG driver. That's on Slide 5. We focus on all 3 factors of ESG and have embedded these fully in our strategy. We aim to improve our environmental impact and deliver all parcels and letters in the Benelux emission-free in the last mile by 2030, to be a socially responsible employer and to act in transparent, aligned and an accountable manner. In the third quarter, we've improved our carbon efficiency by 17% compared with the end of 2020. What we've also announced is that we will fully electrified our fleet -- until we've fully electrified our fleet, we'll offset any remaining carbon emissions from both our own transport as well as that of our delivery partners. We'll be doing this as of the 1st of January 2022 and as such, cutting our footprint to net zero as of then. Clearly, and without any doubt, our people are a key factor -- key success factor actually in our success.Health and safety continues to be a top priority in these days of pandemic. We also continue to focus on strengthening employee engagement as well as workforce optimization and capacity management. This includes having the right people in our overall delivery model. We closely monitor and where we can, anticipate on developments in the labor market, ensuring we continue to offer our customers the necessary capacity in high-quality servers, particularly moving into the important fourth quarter of the year. Furthermore, negotiations on the new collective labor agreement for our postal deliveries have recently been starting.From ESG towards our digital transformation, and as you know, within our Digital Next program, we'll further digitalize our commercial engine, transform our core logistics operations and scale platforms and find new business models. All of that is supported by a strong IT and a data foundation and driven by our Digital DNA. We continuously look to enhance our services and information in the supply chain.Two important examples of that in the third quarter of this year. By now, we've outfitted 90% of our locations with digital trackers. And obviously, that leads to a lot of data and insights that we can use to optimize our networks and operations on a real-time basis that will enable us to improve the quality of service even more. Next to that, we're very proud and happy that we've opened a robotic small parcel sorting center early October in Nieuwegein, which is highly innovative, equipped with very many different robots, and is in Nieuwegein's nature, which creates more capacity in our other regular parcel sorting centers.Now let's look into our business development and financial performance, and we're at Slide 8. Let's start with the overall results. Revenue came in at EUR 729 million, which is a 2% decline in comparison to last year, but there's a few important elements to note there. Within that comparison, we -- obviously, last year, we've sold Ascendis. There is a negative impact also on the revenue side of value-added tax and less nonrecurring COVID impact. So roughly speaking, EUR 50 million is caused by those 3 elements together. And then as a consequence, the underlying business developed positively with EUR 37 million revenue up. The normalized EBIT came in at EUR 23 million, of which EUR 5 million is assumed to be nonrecurring and related to COVID. The impact of value-added tax regulation, the changes thereof is minus EUR 8 million which is both visible at Parcels and Mail segments, EUR 3 million in the Parcel segment and EUR 5 million within the Mail in the Netherlands segment.On Slide 9, we've made a comparison with the normalized EBIT reported in the third quarter of 2020 of EUR 36 million and the realized EBIT of EUR 23 million in this quarter. There's 3 main buckets that I want to talk about. The first one is the nonrecurring impact of COVID, which is EUR 3 million in the quarter positively, but the split between the segments is quite different. So in comparison to last year, Parcels did not have any positive nonrecurring COVID implications and last year, there was a positive of EUR 11 million. The change within Mail is EUR 14 million more favorable within this quarter.If we then talk about the value-added tax impact of the changes in regulation, that has had a negative impact of EUR 8 million, as said, EUR 3 million within Parcels -- EUR 1 million in Parcels, EUR 2 million in Spring and EUR 5 million within Mail in Netherlands. We believe that is partially temporarily because, let's say, what we see quite clearly is that both consumers and selling web shops have to adopt their way of ordering and their connections with customs after the 1st of July. We see them making the changes throughout the period from July onwards to the end of the third quarter, we gradually saw an improvement in the volumes. Partially, it will be structural because also the regulation in China in relation to fake goods, intellectual property will lead to shake out on some of the volume. But what we do expect is a gradual improvement of the cross-border volume. But certainly, in the fourth quarter, we still do expect a slightly slower volume contribution than before.Then we move to the Parcels segment. Continued growth in the third quarter 2021, EUR 505 million revenue in comparison to EUR 490 million last year, and that also includes EUR 25 million less revenue from cross-border, driven by the same topics we just discussed. Normalized EBIT came in at EUR 27 million in comparison to EUR 49 million. And if you want to discuss the breakout of those elements, it's basically EUR 11 million related to nonrecurring COVID in 2020, EUR 3 million negative consequences of the value-added tax change in regulation and EUR 5 million less driven by other business effects. The most important ones relate to our step-up in costs and step-up in capacity to prepare for the very important peak period in the fourth quarter.If we then go back to the volume growth, 1.6% growth, 6.4%, excluding the nonrecurring COVID impact and around 9% when we exclude the international volumes impacted by adjusted value-added tax regulation. The stronger-than-expected negative impact from adjusted value-added tax regulation, we did expect volume decline, but it was roughly speaking 2x bigger than our own expectations. Positive price effects offset by less favorable mix, growth in Spring in Europe and logistics offset by lower revenues in Spring Asia, which basically accounts for EUR 17 million less revenue, which is part of the EUR 25 million in total less revenue from cross-border. The normalized EBIT and the key components of the bridge I've just disclosed. The increase in costs are in line with expectations. It's all about rebalancing our network to accommodate the volumes within the current infrastructure. You know that we've added new capacity, including the small parcel sorting center and a regular depot in West Ham. In preparation of our peak season, we've increased the number of people, increased the costs to offer the necessary sorting and delivery capacity in order to accommodate our clients to grow, obviously, with high-quality service, and there's other indirect cost developments. The most important ones driven by a step-up in IT and Digital Next cost also in line with expectations. Better result at Logistics, offset by Spring of which minus EUR 2 million relate to the value-added tax changes as well.On Slide 11, you'll find our regular Parcels bridge from Q3 2020 towards Q3 2021, EUR 49 million towards EUR 27 million with the buckets that you certainly will recognize. EUR 7 million volume effect. Minus EUR 6 million on organic costs driven by sector CLA and indexation for delivery partners. Volume-dependent cost of minus EUR 2 million. And then the big cost development that has influenced margin in this particular quarter, driven by the changes in the network: addition of new capacity, EUR 6 million; rebalancing the network of EUR 3 million; preparations for our peak season, another EUR 3 million; as well as other indirect cost developments, including EUR 5 million for IT and Digital Next. In other results, a minus EUR 5 million positive performance in logistics, offset by cross-border decline also driven by the value-added tax regulation.Then let's dive into 2 main drivers under Parcels performance. And the first one is the growth trend on Slide 12. And then we basically see the reconciliation of the growth numbers we already discussed. So 1.6% growth, 81 million parcels delivered in the third quarter, excluding international, that accounts for 9% of growth. And if we take the horizon from Q3 2019 towards 2021, we see a growth of roughly speaking, 20%, excluding the international volumes impacted by value-add tax.Within the quarter, we saw a slow start in July. Clearly, as part of, let's say, going back slightly to more normal circumstances, people went on holiday which has caused, let's say, the volume to drop in July but was picking up later on in the quarter, particularly in August and September and continuing in the first weeks of October. We are not insensitive to global supply chain. So we do see some impact on shortages of raw material. We also see that our clients are sometimes impacted by those, and that impacts the -- well, there are robustness if it talks about volume developments and volume expectations, which creates a bit more uncertainty about the volume growth. Nevertheless, we stick to our assumed growth rate expectations of 11% to 13% CAGR that is starting point on reported volumes 2020.After we've discussed the growth driver within the Parcels segment, I think it's good to spend a few words on the margin development. We're looking at, let's say, 3 periods on this graph on Slide 13. We've talked about on the margins pre-COVID around about 7%. From there on, we've launched very many initiatives that are improving the margins in our Parcels business. Think about the peak pricing and the pricing metrics on the back of volume and size of parcels. At the same time, we're creating operational efficiencies by trying to get to a more equal flow within the days of the week. All of those contribute to improving margins. Above and beyond that, lockdown led to even more equal flow and more efficiency in our network that brought margin towards the 11% mark of which we've said that it's not feasible to assume that those margins will continue. And then within 2021, you see a decline in margins, particularly in the third quarter which is driven by the step-up in costs for the fourth quarter and obviously, the addition of the new facilities that will allow us to accommodate the growth of our partners and clients in the important fourth quarter. Towards the end of the year and also from there on onwards, we still believe we'll end up with a margin around about the 9% mark that we discussed before, which is somewhere in between the 7% and 11% of pre-COVID and partial lockdown.Then we move towards the Mail segment. Solid performance at Mail. Improvement in the underlying substitution rate. If we talk about the normalized EBIT, normalized EBIT is up EUR 8 million. There is, let's say, EUR 14 million improvement on COVID, EUR 6 million down on other business elements of which EUR 5 million is driven by value-added tax regulation. Revenue is down, and that is driven by EUR 29 million. Other revenue, mainly explained by the sale of Cendris, around EUR 14 million and less export cross-border Mail as well. If we talk about the EBIT. Decline in other costs was mainly explained by the integration cost for Sandd and additional payments to people both in the third quarter of 2020 and an improvement driven by cost savings and efficiency improvements in the preparation processes and route optimization.Stamp prices are unchanged in 2022. That was no surprise to us. Our projections before 2022 did not include any stamp price increase. At the same time, we'll continue with moderate price policy for our business mail also in 2022. The reason why there is no price increase in 2022 is the way the regulation works is based on costs. And then based on 2020 and 2021, 2020 actuals, 2021 forecast on volume developments. And there, clearly, in 2020, we've been benefiting from additional nonrecurring COVID volume. That basically is a different trend. The system works well if, let's say, we continue down the road year-over-year, quarter-over-quarter volume decline, but clearly incidental volumes impacted the system. And that's why we're positive about the change in the draft postal regulation that accounts for this change, which will allow us to continue with our pricing strategy from 2023 onwards also on stamp prices.If we then go to the Mail in the Netherlands, normalized EBIT bridge on Slide 15. We see the EUR 4 million compared with the EUR 12 million in this year. No volume effect. A positive price/mix effect of EUR 4 million. Even bigger positive price impact, partially offset by less favorable mix, EUR 5 million increase in organic costs. Volume-dependent costs, EUR 4 million down, it's also partly mix driven as a consequence of the cross-border Mail developments. And other cost development, which is EUR 16 million, 1-6, positive, driven by lower Sandd integration costs; last year, we made additional payments to our staff of EUR 5 million; and, at the same time, cost savings step up and some positive incidentals in the third quarter of 2021. Other results, EUR 3 million down, which is well explained by the lower result of International Mail of EUR 4 million.Then moving on to cash flow. Positive cash flow development, EUR 5 million free cash flow in the quarter last year, EUR 10 million in this year. What we clearly have stated is a step-up in CapEx, which you can also see from EUR 17 million investments towards EUR 41 million. And that includes, obviously, capacity-related investments as well as acceleration of digitalization. More positive working capital development based on strict working capital management and some phasing effects. All in all, a strong cash flow performance. That, together with the profit, leads to a strong financial position with an adjusted net debt at EUR 266 million, a total comprehensive income of EUR 26 million in the third quarter and a total normalized comprehensive income of EUR 27 million, resulting in a year-to-date normalized comprehensive income of EUR 196 million and that is, as you know, the basis for our dividend policy.Then let's move towards our full year outlook and guidance. The outlook is confirmed. And if we look at the different components on normalized EBIT, we do expect EUR 280 million to EUR 310 million result, which includes EUR 30 million to EUR 35 million costs for Digital Next and an increase in noncash pension expenses, no changes there. Free cash flow, EUR 250 million to EUR 280 million, which includes the cash out on Digital Next. And if you talk about the CapExes, we've assumed EUR 160 million, that now has been slightly adjusted downward to EUR 150 million, EUR 160 million also slightly depending on how supply chains work. It is basically also a function of can we get the assets in time delivered to us. An example is roll cages that, for instance, are still in Chinese harbors waiting to be shipped through the Netherlands, so that could be a slight phasing element there. No change in delta pension expenses and normalized comprehensive income also unchanged at EUR 250 million to EUR 280 million and developing in line with normalized EBIT.Then let's look at the phasing over the quarters on Slide 20. There, clearly, you see the comparison in fourth quarter 2020, we have an extraordinary large impact driven by nonrecurring COVID, which was in that quarter, roughly speaking, EUR 46 million, EUR 26 million, of which at Parcels and EUR 20 million at Mail. We've got 3 working days less than in 2020. Obviously, still an acceleration of Digital Next and some additional costs for start-up of new facilities that is already in Q3 and obviously will continue into fourth quarter. Higher pension costs and additional cost inflation in comparison to last year. But as said, also an expected step-up in volumes from Q3 to Q4 on the back of, let's say, the expectations of both our clients and ourselves. Still a bit of uncertainty around the impact of the value-added tax changes as to the level of the growth. And obviously, we need to monitor closely whether or not COVID-19 has implications on the last quarter as well. The outlook for the free cash flow of EUR 250 million to EUR 280 million, taking into account tax effects, change in trade-offs, CapEx leases and acceleration of CapEx in relation to digitalization. That is basically the key takeouts for the fourth quarter.Then we move to the last slide. We are very positive about the transformation. We're looking at a strong business that is positioned well for further growth to be the leading logistics and postal service provider into and from the Benelux. We're building on a solid performance year-to-date 2021. We're anticipating a very busy peak season. We've seen continued positive trends in e-commerce growth, and we're accelerating our digital transformation to strengthen our competitive position. We're progressing well towards achieving our ambitious environmental targets. We're not unsensible. And let's say, insensitive for, let's say, global supply chain implications that could have an impact on value-added tax regulation and overall global market developments. And at the same time, we are confident to be able to confirm our outlook on normalized EBIT and on cash flow as well. And that concludes the presentation on Q3 at least for now before we move over to Jochem to Q&A.
Thank you, Pim. Operator, can you open the floor for questions, please?
[Operator Instructions] And the first question is coming from Frank Claassen, Degroof Petercam.
Yes. First of all, on your outlook, do you still anticipate positive nonrecurring COVID impact for Q4? That's a bit unclear to me. And what could be the drivers behind these effects, possible effects? And then secondly, on the Parcels business, of course, quite a bit of upward cost pressure on labor fuel. Do you see room to pass these on via price increases? And what kind of price increases or cost inflation are we talking about?
First question, we, at the moment, do not assume any nonrecurring COVID impact anymore in the fourth quarter. So if we talk about the roughly EUR 74 million nonrecurring COVID, that is also what we expect full year. On the second point, yes, on some of the elements there is a cost pressure and through our regular ways that is used to -- for indexation of our pricing points in the customer contracts that we have. That's not to say that we will always -- we'll be able to pass on 100% of those cost increases directly. But over time, certainly, there's ways to, let's say, index -- use indexation in our commercial prices as well. At the same time, on some of these cost drivers, we've secured our position before. And so on energy, for instance, we've hedged that risk for a longer period in time. Yes, there is some upward pressure on fuel prices, but that is not that big and definitely not that big in our full year expectations.
And then could you roughly quantify what kind of price increases across the board are we talking about?
It's difficult to say. So there is normal indexation in our contractors based on -- quite often on EMEA indexation metrics, and that follows the outcome of that index. That is kind of regular indexation agreements with our customers, and still, obviously, when contracts are, let's say, ended, there are renegotiation of terms. And as we've said before, that is a moment in time where we can adjust prices and all in all, individual price points are still moving up. So if I talked about, let's say, the margin development of Parcels on the specific slide that we've included for that purpose in this deck, I said that we do expect a margin of Parcels at around about the 9% mark of the segment, which is also what we've assumed to continue. And it's also in line with what we said when we talked in August.
And the next question is coming from Mr. David Kerstens, Jefferies.
I've got 3 questions, please. First of all, you highlighted the Parcel volume growth of 19% versus 3Q '19. I think your largest competitor in the Netherlands recently called out 38% growth over the same period. What was driving that big difference in volume momentum? Is it due to the launch of Amazon in March 2020? Or were you impacted by capacity constraints? And now with the small parcel sorting center open, do you expect to regain some of that share?Second question is around the Parcel volume growth outlook for the fourth quarter. I think some of your customers have talked about product shortages due to the global supply chain disruptions. As a result, volumes could be down in the fourth quarter. What is your expectation in terms of volume growth? And will you still see also that impact from the higher VAT impacting volume?And then a final question on the mail side. You highlighted labor negotiations have started. To what extent will you be able to mitigate potential significant step-up in wage inflation in light of relatively more limited stamp price headroom?
The parcel volume growth in comparison to DHL, I think a few ways to explain it. As we did present our Capital Markets Day in 2019 with the -- of course, the increases in costs ratio or the increases in tariffs, which we announced at that moment in time, we did see an effect from that, which we expected. And that effect was a small shift in market share between us and our competitors. That's also what we presented first quarter 2020. As of that moment in time, we don't see shifts in market share between us and the others. And of course, when you have small volumes, growth percentages are different when you compare it to ours. But as I said, the big difference was because of the Capital Markets Day and [indiscernible] result of that, which we already discussed in the first quarter of 2021.
Okay. So it just means share has been more stable?
Sorry. Sorry, David.
Sorry. I understand you indicated that recently, the market shares have been more stable, so that shift mainly took place during the second half of '19 and the first quarter of 2020?
Correct. Yes. correct.
Yes. On the second question, the pace of growth in the fourth quarter potentially impacted by product shortages. Well, if we talk about, let's say, growth, let's say, not corrected for nonrecurring COVID in 2020, we do not expect growth. We more or less expect the same volume than last year, including COVID. If you then take out the fourth quarter, the nonrecurring COVID element, you're looking at a growth pace which is small. I would say, roughly speaking, 15% to 17% within the fourth quarter. And well, the way we look at it is, let's say, there is -- there are a few customers, and there's also a few product categories that are impacted by potentially raw material shortages as per broadly so in the electronics branch. And therefore, we've included, obviously, on the numbers that I just talked about. And our growth expectations are based on, let's say, our broad customer base and the conversations that we've had. What we do feel is that our clients are slightly more cautious or uncertain on the level of volume development and that somehow obviously plays into our own expectations as well. Within those growth rates, it's a few percentage points decline of cross-border driven by value-added tax that we've taken into account.
So that's in the flat volume assumption for Q4?
Uncorrected, I would say, flat in comparison to last year.
When it comes to Mail, of course, CLA negotiations just started. So let's not give away too much about the mandate we've given our team. Of course, we -- when we look into the market, when we look into price -- sorry, tariff increases or increases in CLAs, we do see the differences in the Netherlands. So it's not everywhere the same, to be honest. There could be a potential step up, as you do know, in our strategic plans and therefore, also in our forecast. We do take into account step-ups in cost because of inflation or CLA negotiations like we did this time. So for now, I would say when it comes to our cost savings, when it comes to a normal CLA negotiation, which we expect it is doable for the year 2022. But as I said, let's not walk too much ahead of the negotiations at this moment in time.
Maybe can I ask a quick follow-up on the pricing side? What type of pricing headroom do you have on the mail, on the business mail side?
On the business mail side, there is -- it's not regulated, so it's not a case of headroom. That means that we expect normal tariff increases on our business side. And as said by Pim, end of the year 2023, we expect modest increases on stamps again.
And what is the normal rate for business mail?
What we did in the last few years was well above inflation. Looking into the enormous high inflation we currently have, I would say, more or less on inflation.
And the next question is coming from Mr. Mark Zwartsenburg, ING.
First, I would like to come back on the guidance that you gave on the 9% margin for Parcels going forward. That's a bit in line with the guidance towards '24. But I thought there was also some additional uplift in the margin coming from the digital investments and the extra -- we get new depots, small parts exports, et cetera, et cetera. So just in your 11% to 13% volume growth and the fact that you have some digital investments that at some point should yield a return, half of it should come back into EBIT, I would expect then also the margin to see some progression. Can you explain a bit the path towards 2024?
Yes. Good question, Mark. What I intended to explain first and foremost was the development from Q3 towards the end of the year. And indeed, it's around 9%. And over time, when the digital initiatives kick in, and certainly, they won't contribute a lot in 2022 and 2023 as we talked about before, because they mature towards second part of 2023 and 2024. Over time, you should expect a little bit of uplift of the margin. So that's unchanged in comparison to what we discussed in August.
Okay. Okay. That's clear. And then maybe on Q4, you had a guidance for the Parcels for the second half of EUR 90 million to EUR 110 million EBIT, that means you need at least, say, EUR 163 million in Q4. Last year, you had EUR 75 million. You tend have, to, say, flat Parcels volumes at best. But you will have still the impact from VAT in the cross-border. You will probably have the EUR 8 million that you called the Digital and IT, that will continue. Basically, that means that there will be quite a struggle, that you need to have some extra EBIT somewhere else to make that number, or am I missing something here?
I could not -- from the start, from reconciliation of your number. But the element that I at least have not heard, which could be missing is the other cost development in the bridge, which was quite high in this quarter is not at the level that you should expect in the fourth quarter. That will not be more than half of that number.
Okay. Yes, that's helpful. That was one, in the EBIT I was referring to, and the other one was the VAT impact.
Yes. So if you look at the average, that's roughly speaking, EUR 8 million to EUR 9 million normally other cost development, there is a step-up in the third quarter driven by the key elements that I've explained, so a step-up in facilities and rebalancing the network. And it will not be that big, will be half of that in the fourth quarter.
Okay. That is clear. And then maybe on the impact from the VAT, the EUR 3 million. You lose EUR 25 million of revenues and it has an impact of say, EUR 3 million on your EBIT. That seems quite a high margin for that business. I thought that the margin on that business was lower. Is it something that will be lower going forward because now you maybe have planned for more and there was a bit more extra cost in the system, or how should I look at it?
There is a couple of components and revenue is revenue, but it doesn't relate to the volume definition always. And indeed, the cross-border Mail business is relatively high margin. So if we talk about the value-added tax impact of EUR 8 million, it's partially Mail, and that's high-margin business and partially within the Parcel segment. And within the Parcel segment, it's the Spring Asia trade lane, which is also above average in margin profile and the implications at international parcels of parcels of bigger sizes, that go into the parcel network, that kind of contribute towards kind of the average margin of the Parcel segment. So you should not, let's say, apply the kind of Spring margin on the overall revenue implication because it has big components in international mail and international parcels as well.
I was referring more to the Parcel impact of EUR 3 million, and then related to the revenues that you showed on the Parcel sheet. That's okay.
Yes. But that's a combination of Spring revenue and Parcels revenue and the Spring revenue is from the trade lane Asia to Europe, which is on margin profile, the most attractive trade lane. And international parcels basically is with the same margin profile as domestic parcels, roughly speaking.
Okay. Okay. And then a final one on the Mail volumes. I'm a bit confused because I see that you have plus 1.6% growth in the quarter volumes. And you say July was a weak month, so I'm assuming that it was a negative. But if I then recocile -- sorry?
You're talking about Parcels volume share market.
You started your question on Mail, but maybe the numbers are right and you want to talk Parcels?
Sorry. No. It was on Parcels. I [ don't want ] to talk about Mail. It's about Parcel volume, and the plus 1.6%. And then July started off weak, so there was probably a negative number. But if I correctly remember at Q2 and recall that also Q3 started off quite strong and that the volume was still healthy, and that we were still looking to the 11% to 13%. And then plus 1.6% comes out and I'm a bit wondering how can there be such a big deviation? Is it that you simply don't see the volumes quickly enough to have a good possibility on those volumes? Or -- and then with [ re-disclosure ], how then we should reach 0 or flat revenues for Q4. Is that indication and better than what you had at Q2? That puzzles me there.
On Q3, let's say, on -- let's say, the 1.6%, that is the volume not corrected for nonrecurring COVID, to be clear. I'd say if we look at -- well, in any event with or without correction, July was really slow. And then a step up towards the normal kind of, roughly speaking, 8% growth in August and September and continuing into the first weeks of October. So if, let's say, corrected for nonrecurring COVID, the growth is 6%, then you know that July was actually very far off the mark from the average of the quarter. And we believe that's driven by people really moving into -- the biggest part of the country was on holiday already in July. People coming out of the COVID era and going out much more, taking holidays much more, that did have an impact on volume, clearly.
And what we did say, when we presented Q2, Mark, is that when we look into July, we did not see much deviation from what we expected. But what we also did say is we do not know how that will translate to the rest of the quarter because it's always difficult to give an indication on only the month of July. And what we did not know by that time is if VAT would continue to be low, like it did in period [ 8 and 9 ] or not. So there was a reason for us saying that by the moment, we talked to each other beginning of August, we did say it's too early to give a view on Q3 with only the month of July behind us because of the fact that we do know that summer periods, together with the uncertainty around VAT, didn't give us enough clarity to give clear guidance at that moment in time. What we are happy with, of course, and that's what Pim just said, is that volumes came up to the normal levels in August, September, and we also see them developing beginning of October.
Yes. The [ 8 ] that was Pim was referring to, that's not an adjusted -- is it an actual number, or is it a COVID-adjusted number?
That's an adjusted number.
And the next question is coming from Ms. Muneeba Kayani, BofA Global Research.
Yes. So just wanted to follow-up, and then on October volumes, so those have continued in that 8% to 9% range? Or are they better than that rate? So just following up on that previous question. And then secondly on Slide 11, so the EUR 16 million increase in Parcel costs in 3Q. Can you help me think about which of these you would consider onetime and which will continue into 4Q? So how should we be thinking about cost in the fourth quarter? And then you also mentioned that costs were impacted by the indexation of delivery partners during the third quarter. Can you talk a little bit about that and how we should think about that going forward?
Yes. Clear questions. October basically follows the same -- more or less the same growth rates as September. So we really do expect an acceleration towards the peak level as of Black Friday. And before that, we -- they follow the same pattern and same phase, so to say, as September. If we talk about, let's say, the Slide 11 bridge on other costs, there is a minus 16% -- sorry, EUR 16 million. And let's say, that's also what I've tried to explain in one of the questions of David is that, that EUR 16 million or Mark is, let's say, you should expect roughly speaking, half of that in the Q4 bridge. That's not to say that those costs are incidental because, let's say, the network has expanded with the small parcel sorting center and has expanded with the West Ham facility. But clearly, let's say, those locations will become more efficient as more volume gets put through the network. So you should expect positive volume and volume-dependent. The balance of those 2 will be positive in the fourth quarter and a slightly less negative other cost development, basically expected to be roughly speaking, half of the minus EUR 16 million.
And then your third question on the cost impact by indexation for our delivery partners. That mainly had to do with an increase in the CLA of BGV, which is the CLA followed by our delivery partners. So it's normal CLA indexation, which took place over there but that CLA has a different rhythm than the negotiations on our own CLA.
Just a follow-up on that. Is that CLA -- what's the time frame for that? And how much was the [indiscernible]?
Yes. I don't know by heart so we'll look into it, and we'll send you an e-mail.
And the next question is coming from Mr. Henk Slotboom, The Idea.
I've got a couple of questions left. First of all, [indiscernible] of landscape, do you see any differences? You said -- Herna, you said earlier on, you don't see continued dual shifting. I can imagine with all the spikes in volume we have, but it's very -- as a center of e-commerce, glad that your stuff is being delivered, so there's no stimulus of change to another supplier. Do you expect any changes now that growth is obviously returning to a more normalized level?Second question is also related to competition. I was reading the Transport Online, the -- an interview with the sector institute for the transport and logistics industry. They noticed that in August, there were 10,400 vacancies for shelters and 15,300 vacancies for people in the logistics sector. Now you're using a lot of subcos, and you were referring to the JV increases and that sort of things. But I guess for these kinds of outages, what is the risk of competitors paying out simply to work in the capacity on the last mile? Do you see any evidence of that, and could that be an additional driver for cost?And then last question, Pim, to you. In the half year numbers presentation, you said you expected underlying growth in Parcels of around 20% to 23%. If I understand your [indiscernible] to David? Or was it -- is it fair to assume a growth rate, underlying growth rate of 13%, 14% for the full year on the back of the 0 growth, you expect a lot like based on a reported basis.
Okay. Thanks, Henk. First on your competitive landscape. What I did indeed answer is that as of Q2 2020, we did not see a shift in market share between us and competitors. I think important to that is, of course, the capacity we have and the capacity we will have during Black Friday, Cyber Monday, Santa Claus and Christmas. Also important and that remains to be important going forward is to remain to be different, to remain to have a competitive advantage above our competitors. That's partly in quality. That is partly in our app. That is partly in services we deliver to customers. And you have to keep developing those. Therefore, I don't think that the importance of our Digital Next strategy as well because, of course, competition is speeding up and so we are speeding up as well. So we do not see at this moment in time that the growth we see currently is a stimulus to change. That's not the case. But as I said, remaining to keep our competitive advantage is crucial. Yes, I did read the same article in Transport Online on all the vacancies. And I was happy by that time and still am that we -- when it comes to truck drivers, we changed our approach already 2 years ago to hire more and more truck drivers ourselves. It means that at this moment in time, more than 50% of truck drivers is employed by PostNL. That helps us, of course, in general, but also during peak season.And secondly, what we did do, and that's what you heard Pim telling about Q3 is that we already started to ramp up our capacity end of Q2 and then especially in Q3, which gave us the possibility to offer the extra capacity we need to not offer it only for a few weeks, but for a relatively long time. That makes us confident that we do have enough capacity. Capacity in a sense of volume, but also capacity in the sense of transport and, of course, delivery.Then back to our deliverers. I think the fact that we have deliverers who are employed by PostNL and deliverers who are employed by our delivery partners makes us flexible. Flexible in the sense that we are able to ramp up not only in capacity but also in the amount of people, the amount of vans, et cetera, et cetera. So yes, labor market is tightening, but the fact that we have a combination of own hiring and hiring via our delivery partners makes that we have lots of pools in labor market where we can pull people from and that helps us enormously in making sure that we have enough people. So I do recognize, of course, the trends on shortage and tightening of the market, but I don't see it as an issue for our organization at this moment in time in Parcels and also not for the ramp-up we need in the direction of our Q4 peak.
Your third question was about the growth rate. And just to make sure that we're answering the same question, you are saying, is it fair to assume a 13% to 14% full year growth, right? So it's not about the fourth quarter but the full year?
Yes.
And then I would say you're a bit too low with that. Our estimation is slightly higher, I would say, roughly speaking, at least 200 basis points higher than your estimation.
And the next question is coming from Mr. Marco Limite, Barclays.
I've got 2 questions on the Mail division. So the first one is on your underlying mail volume decline. You clearly -- last time, you reduced your long-term mail volume decline from 8% to 10% to 8%, now it's 5%. So yes, just curious how you are latest thinking on that? And second, if you could please clarify what's the form of price we take into consideration? And what I'm thinking about is more what sort of price increase we should expect in 2023 and 2024? Are the one-off volumes that we have seen in 2021 going to have an impact on 2023 and 2024 pricing as well?
Okay. Yes, let's say, halfway through the year, let's say, our, let's say, previous assumption on substitution volume decline in the Mail business was 8% to 10%. Halfway in the year, we said, well, that is -- the way we look at it, around 8%. And then within the quarter, you're right, it's around 5%. And what we say is that we see a slight improvement in the underlying substitution rate, even on the -- let's say, an improvement towards the year end from the -- let's put it differently. Compared to the around 8%, we see a slight improvement. But obviously, we need to see how it plays out in the fourth quarter. We did not give a specific and clear answer on a number for 2022, and we'll refrain from doing that until we've seen the fourth quarter. But underlying it is a slight improvement of the substitution rate, which is positive for the Mail business.
And when it comes to your second question, which is the formula for price increases, it's important to make a distinction between an increase in universal service obligation and an increase in our business mail. As already said, when it comes to business mail, it's nonregulated and we follow our pricing strategy over there, which we have followed for the last, I think, 7 to 8 years. When it comes to universal service obligation, we have a maximum return on sales of 9%, that's one. And secondly, the increase cannot be higher than half of the decline of the year before plus inflation. That's the formula we have. And then, of course, it depends a little bit on where are we in the direction of the 9% together with the formula, as just said.When you think about 2020, then of course, we had a good year for the Mail division and that is shown in the fact that there is no price increase for the year 2022. With the decline, as just explained by Pim and also the underlying decline, we expect that there will be an opportunity for price increases in '23 and '24 for universal service obligation mail, but too early to exactly give you a clear point where -- what the increase will be. But as said, it will be a modest increase expected -- moderate pricing increase as expected from 2023 going forward.
And we have time for one last question. And the last question is coming from Mr. Andre Mulder, Kepler Cheuvreux.
Andre, are you by any chance on mute?
Probably, yes.
Okay, operator, I think we will contact Andre afterwards to see what his question was, and I think we're going to conclude the call. I would like to thank you all for participating today. Looking forward, we have a plan to have a deep dive as we have organized 2 in 2021. We hope to be able to invite you and welcome you to the brand new small parcel sorting center in Nieuwegein early next year. I have to add to that, that the corona numbers at this moment give a reason to pause with making the plans for that, so stay tuned for that. And of course, we will present our fourth quarter full year results at the end of February next year. I'm sure we'll be in touch beforehand. If you have any further questions, you know where to find us. Thanks again, and see you next time. Thank you. Bye-bye.
Ladies and gentlemen, this concludes this PostNL event call. You may now disconnect your lines. Thank you.