PostNL NV
AEX:PNL
PostNL NV
AEX:PNL
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Go ahead.
Good morning, everyone. Thank you for joining the PostNL conference call for the Q4 and full year 2019 results. With us here today, Herna Verhagen, our CEO; Pim Berendsen, our CFO. We will have an introduction by both, after which there is ample time to ask questions. Herna, over to you, please.
Thanks, Jochem. And I would like to start on Slide #4, which is a slide with the key takeaways for 2019. When we think about 2019, we did see very strong business performance in the fourth quarter, which gave a boost to revenue but also to cash for the year. The e-commerce now represents more than 50% of our revenue and is ahead of schedule, which is an important element in our strategy going forward. The underlying cash operating income came in at EUR 167 million (sic) [ EUR 176 million ], which is at the high end of our outlook. And I think especially worth mentioning is the fact that the full year net cash from operating and investing activities was up EUR 188 million from minus EUR 19 million in 2018 to EUR 196 million (sic) [ EUR 169 million ] in 2019. Also, cost savings were at the guided range, EUR 48 million, which is within the range of EUR 45 million to EUR 65 million. And important, of course, that next to preparations for the integration, Mail Netherlands also did their cost-saving programs. If you think about our strategy, being the e-commerce logistics player in the Benelux, there were a few very important steps taken in 2019. The first one is, of course, the acquisition of Sandd, and I will come to that in a minute, but the network is fully integrated as of February 1 this year. The second one is, of course, the improvements that we made and the efficiency measures we took within Parcels when it comes to creating the leverage between volume, cash and, of course, EBIT. And then the divestment of our noncore activities: Postcon last year; today announced also the sale of Nexive, which is underpinning our focus on -- in our home market. Last but not least, ranked in the top 3 sustainable companies worldwide in the Dow Jones Sustainability Index and already 19% of our last mile delivered emission-free and, in our view, a very important element going forward. If you look into financials, and that's on Slide #5, then you'll find the most important financials over there. We saw a revenue increase of EUR 72 million to EUR 2.844 billion, and the underlying cash operating income asset came in at the upper part of the bandwidth. And net cash already mentioned at EUR 196 million (sic) [ EUR 169 million ]. Our proposed dividend for the full year is the same as our interim dividend, which is EUR 0.08. The underlying cash operating margin within Parcels was 7.2%, within Mail in the Netherlands, 4.7% and the average of group was 6.2%. And cash conversion in 2019, 79%; a free cash flow of EUR 107 million on a normalized EBIT of EUR 135 million, which is a cash conversion of 79%. All by all the way we look into 2019, it's a good year. It's financially, a good year, very strong when it comes to net cash and cash conversion, and important steps taken when it comes to a sustainable future of PostNL. Stepping into our strategy, and that's what you find on Slide #6. Of course, the ambition is to be your favorite deliverer and be the preferred logistics and postal solution provider in the Benelux region. Importantly, that element is help customers grow their business; but also having reliable and accessible postal service; attracting and retain motivated employees, and in 2019, 88% of our employees were loyal employees, which means that they say, we want to stay with PostNL; reduce the environmental impact, I already gave you an example of 2019; and of course, very important, deliver profitable growth and generate sustainable cash. For the profitable growth and sustainable cash, there are 2 strategic elements of importance. The first one, and that's the one you find on Slide #7 is, of course, leverage between volume, EBIT and cash within Parcels. What you find on Slide #7 are initiatives we've taken in 2019 to execute on that better balance, and which, of course, will start to pay off as of 2020, and I'll come in a minute -- I'll come to 2020 in a minute. So what did we do in 2019? What are the milestones important for that better leverage? I think important was the fact that we opened 3 new depots in 2019 to be able to handle the peak, which we did see by the end of 2019, but also which gives us capacity for the year 2020. We improved the utilization of the network by, for example, adding extra shutes to our sorting belt, which gives us a better efficiency of the sorting centers and sorting belts. And we are preparing for the new small parcel sorting center. That's what is mentioned on this slide on the left side as design SPS, small parcel sorting center. We designed, finalized the building leased. First pilots -- we're doing first pilots in the building with partly robotized sorting, and want to open the sorting center in 2021 and an important part of the efficiency going forward. We also, of course, expanded the amount of electrical and green gas fleet in 2019, and are rolling out our city logistics program because by 2025, we want to have 25 city centers in the Netherlands, which we will deliver emission-free. The growth rate -- and also now I'll give you a little bit more detail in a minute. Growth rate we did see in 2019 was 12.4%. In the last quarter, it was 10%, and we see that e-commerce market -- growth rate of the e-commerce market is slowing down. Important element in creating the leverage in Parcels is also, of course, the commercial part or yield management, where we did contract renewals, where we took up in our contract peak pricing, where we did an increase in single parcels price, we had indexation, and we did price adjustments for parcels above 23 kilos. So the initiatives mentioned and, of course, mentioned at the Capital Markets Day in May are indeed implemented or started to implement. They will partly pay off in 2020. And when it comes to small parcel sorting center, also will pay off in 2021 and further on, one important part of our strategy going forward. The second important part when it comes to profitable growth and, of course, the generation of sustainable cash, is what you find on Slide #8, and that is the integration of PostNL and Sandd into one postal network. The acquisition of Sandd took place October 22 last year. There were lots of preparations already taken before October 22. And as of October 22, more than 30,000 calls and meetings have been taking place with employees. We had more than 180 openings of our depots to introduce people to do work with PostNL. We did lots of markets where people could find jobs within PostNL. In the end, 4,300 new colleagues are welcomed last February 1. We added around 30% more mail volumes to our network, and we added more or less 4,000 new customers. I think important in the integration is the fact that as of February 1, we have one strong nationwide postal network. The volumes are integrated, and the people are integrated on the PostNL network. And that means -- also means that as of February 1, we started to close down the network of Sandd, meaning the buildings, the cars, the bikes, et cetera, et cetera. Current network is 20,000 mail deliverers who work for PostNL. We deliver, of course, 5 days a week. We have, on average, 7 million letters per day. We have 3,400 retail locations and more than 11,000 mailboxes in the Netherlands. So a quite successful integration in the first weeks of the integrated network and the integration of people works out very well. A little bit more information on our Q4 results. And therefore, I move to Slide #9, starting with Parcels. Parcels improved results compared to the fourth quarter in 2018 with EUR 6 million. Volume growth was 10% over the fourth quarter and the average of the full year was 12.4%. Of course, the effect -- the growth also had a positive impact on revenue, which increased, and there was a slight negative effect of -- negative price/mix effect, which is mainly due to a shift in the international Parcels. Also results of Parcels improved in the last quarter, partly within our Parcels Benelux network, which was a positive effect of efficiency, a slightly negative effect on price/mix. We had an organic cost increase and, of course, as said, better operational efficiency. We had a good performance within logistics and Spring; they were up as well when it comes to results, and I think we had a positive cash flow. It was up EUR 10 million compared to Q4 2008 (sic) [ 2018 ] despite a higher CapEx, and very much supported by a positive development of working capital, which we did see in general over PostNL in 2019. So volume growth a little bit below our expectation, improvement in results -- good improvement in results and also a very good performance on cash flow. When we come to Mail in the Netherlands, and that's on Slide #10, we did see good business performance, partly because of the strong sales in peak season, so a good sale of the December stamp. Volume declined in the fourth quarter, 9.6%; over the full year, 9.7%, and that is within the band we've given to the market. And what we did see is that the delivery quality for the full year was 94%, a bit lower than we expected it to be and where it needs to be, which is mainly caused by, first of all, the fact that we had to adjust our sorting mechanisms to be ready for the volume of Sandd; secondly, first volumes of Sandd came in, in the last quarter of 2019, while the 4,300 people only came in as of February 1, 2020. The results were partly, of course, impacted by the acquisition of Sandd, partly impacted, again, by substitution, which is not different from the other years. Cost savings, EUR 10 million in the last quarter, and the cost saving in total, EUR 48 million over the year, and also they are within the bandwidth we've given, EUR 45 million to EUR 65 million. Also, cash, up EUR 13 million, also here mainly due to positive development in working capital and less cash out for pensions and provisions. When we summarize the year 2019, we do think very important steps made in the fulfillment of our strategy to become the e-commerce logistics player in the Benelux, around the integration of Sandd and around creating the initiatives which will create a better leverage between volume and Parcels, cash and, of course, EBIT. And secondly, good results over the full year when it comes to underlying cash operating income and very good results when it comes to net cash from operating and investing activities. That, of course, raises the question of what does that mean for 2020. And what we would like to do is give you some insight in how we look into our potential in 2020 and what it does mean for the outlook. Starting with Parcels. Of course, the main aim for Parcels in 2020 is improving the balance between volume and value and improving the balance between volume, cash and EBIT. What we do see is that the e-commerce market is slowing down. Still, a market which is growing around actually a little bit above the 7% to 9%, which is our volume growth in 2020, so still a very strong, growing market. The 7% to 9% with PostNL is mainly because of the slowdown we see in the e-commerce market, and it has to do with the fact that we do see that some of our customers start to have multi-vendorship, and that is a step down you see in the beginning of 2020. And we expect that in the next coming period, we will follow market growth when it comes to Parcels. The expectations when it comes to e-commerce, market growth, as said, a little bit down compared to what we expected, but still very strong growth numbers. Important in improving that balance is yield management because what we try to do is, of course, although we do see a little bit lower number in growth, we do want to create the leverage, as we earlier discussed. How can we create a better leverage? That's, first of all, via yield management. Yield management means an improved pricing, which we do, for example, by the implementation of peak pricing, which will be implemented in Q4 2020. And that is on every parcel in the last 6 to 8 weeks of the year, we will add a certain amount for every customer delivering parcels to PostNL. It also means a price increase for single parcels, which we did already January 1, 2020. It means adjusted pricing for parcels above 23 kilos, and it also means indexation in our normal contracts. So part of creating the better balance is via yield management. The second important part for why we do think that although we do see a little bit lower market growth and growth within PostNL, we do expect to increase our margins is via creating a better balance between volume and capacity. Volume and capacity means that if we think about the network we have in the Netherlands, we think it will be possible to phase the opening of a new depot from 2020 to 2021. So we adjust the network to the volume growth we see. That's, of course, a positive effect on the cash conversion in Parcels. Second thing we do is when it comes to the small parcel sorting center, which will help us, of course, to create efficiencies, is we're testing in 2020 for the small parcel sorting center to open it in 2021. It's not only phasing in the opening of our depots, it's also measures to improve the efficiency. And what do we do to improve efficiency? First of all, we improve the hit rate. And that means, when we come to your door, that you open the door, and we're not in front of a closed door. Hit rate improvements can be done, for example, via the app, in which we already have 5.3 million consumers, but also drop duplication. A growth of 7% to 9% on 283 million parcels, which was the amount of volume by the end of 2019, also means that you have more parcels per household. Secondly, we opened 3 new sorting centers in 2019. That means when you add volume in 2020, you make, of course, the sorting centers we have today more efficient. Better peak balancing. It's what we did together with the branch by the end of 2019 in an advertisement campaign in which we asked consumers to, of course, order earlier. But it's what we do daily, it's what we do weekly and it's what we do in seasons. We invest in the digitization to serve customer needs further and to create a digital supply chain, which allows us to have better supply chain management, but also to be better able to understand when you are at home, when you are not at home. And I'll come back to that in a minute because we will do in 2020 some extra investments above the normal investment plan we have in digitization. And we improved, as already said, the utilization of the current depots, of course, by smarter use of our sorters, but also by adding shutes to our sorters, and efficiency will go up because we have more parcels through the same amount of parcel sorting centers. So everything is focused on improving the balance between volume, cash and EBIT. And that's also what translates in the end in the normalized EBIT of Parcels in 2020, which shows an increase compared to 2019, same for, of course, cash. That's Parcels. I think that's an important element. On Slide #14, you'll find a picture of the new small parcels sorting center, as I said, we will open it in Nieuwegein, will be opened in 2021. It will be more efficient, partially because it's only a sorting center, which means that you can use it 24 hours a day, 7 days a week. It's not connected to delivery. Secondly, it's also more efficient because it's highly automated, and we're testing robots already to make this a partly automated and partly robotized process. It will be used for the small parcels, and small parcels is everything which is no bigger than a shoebox, and 40% of the volume we currently have in our network is already smaller than shoebox size, which is an example of how we create efficiency. Then over to Mail Netherlands, which is on Slide #15. Also for Mail in the Netherlands, focus on getting the efficiencies out of the integration of the 2 networks, that's one. And secondly, of course, move forward with our cost-saving plans. The assumed volume decline for 2020 is 8% to 10%. I think important to understand that there is an impact of almost 1% of no elections scheduled in 2020. So that's what you have to deduct when it comes -- if you want to make it comparable to 2019. We start with a higher base, and that is what you find -- sorry, in the graph, you find the volume of PostNL, added, of course, the volume to Sandd. So our starting point beginning of '20 -- end of 2019, beginning of 2020 is a higher level. Sandd adds 30% of volume to the volume we have. Of course, as of that point, substitution will go on, and substitution in 2020 is expected to be, as said, between 8% to 10%. If you want to offset volume decline, it's the way we do it, and we did it also over the last few years, is by moderate price increases. So single mail is increased 4.6% as of January 1, 2020; bulk mail is also well above inflation and moderate; and of course, we start gradually integrating the products of Sandd, and we will respect the existing client contracts. This is part of how we offset volume declines. The second part of offsetting volume declines is, of course, via further implementation of cost savings, and that's what you find on Slide #16. So as said, our starting point as of February 1 is 30% plus in volume. We've added and welcomed 4,300 employees of Sandd. We added 4,000 new customers, and it will be delivered via one network. So how are we going to create cost savings going forward? Partly, of course, because what we already did: overhead reduction, we will continue overhead reduction in line with our volume decline; centralization of locations, and so we will move forward on the trajectory we're already in for many years to combine more and more locations and create scale; and of course, also by closing down the network of Sandd, which means that the buildings of Sandd are already closed, vehicles are set apart, the same for their IT systems, et cetera, et cetera. So that's also part of the synergies. Another important step in 2020 is the next phase of our New mail route. In the next stage of our New mail route, we are going to optimize our sorting and processes by automation. We will expand the route. We will create larger contracts for our mail deliverers. And part of the delivery will be done by e-bikes, which enables people to take up more volume in their mail route. It's an important part of cost saving or an important underpinning of the cost savings of 2021 and forward. So integration successfully managed. First weeks are to at least our satisfaction, very much okay, on plan to deliver on the KPIs, as said last year, February 2019, and of course, already active with the implementation of further cost-saving plans. The third important pillar under 2020 is the acceleration in digitization and innovation with extra investments, and it's an extra investment above the amount we already invest in 2020. The acceleration of digitalization, there, we will capitalize on the value of our growth platform and our app in which we have 5.3 million users. How can we do that? For example, by having even better receiver preferences than we have today, so that we know exactly when you want to have your parcel, at what time and where. Consumer in control, it improves our hit rate, which is an efficiency measure. And on the other hand, it improves customer satisfaction because you do have your parcel at the moment you would like to have it. But also tracking, for example, your deliverer, so that you have precise information on the delivery, but also understand how many stops drivers still have to do before he's at your door. It reduces, and that's what we've seen in pilots, it reduces time at the door, which is again an efficiency measure. And it, of course, again, also increases customer satisfaction because the feeling of being in control becomes bigger than it was. And we use digitization to further optimize our supply chain, for example, via, of course, adding our platform to the platform of others, but also creating a better supply chain in our own organization, creating more efficiency. With all the data we have, with all the parcels we have, combining those data can deliver, for example, a more efficient transport chain than we currently have. So the acceleration of digitization in our view is crucial when it comes to, on one hand, gaining in -- further gaining in efficiency, and on the other hand, also gaining in customer satisfaction. And we will, of course, speed up the investments in the digitization. The fourth pillar underpinning our strategy 2020 is our environmental, social and governance road map, where, of course, we want to improve on the percentage of green delivered emission-free last-mile kilometers, which we will do, for example, by adding more electrical vehicles, but also adding biogas vehicles where possible. We want to improve the employee engagement. We're very happy with the fact that 88% of our people are very much willing to stay within PostNL, and having that stable workforce is crucial going forward because part of the efficiency also comes from the knowledge parcel and mail deliverers have. And highly satisfied customers, hopefully also, the extra investment in digitization will help to improve the number of highly satisfied customers. And on Slide #19, you find an example of how we improve our environmental footprint. By 2025, we want to have emission-free delivery in 25 cities in the Netherlands. And in 2019, we added Nijmegen in December 2019. We added The Hague in January 2020, and we were already active in Groningen and Leeuwarden. But in our view, crucial for -- it's a license to operate going forward as well. If we think about 2020, and that's what you find on Slide #20, we see an improvement in normalized EBIT within Parcels from EUR 120 million in 2019 to like-for-like EUR 125 million to EUR 145 million in 2020, mainly underpinned by the efficiency measures we're taking and the yield management. Of course, we do have an impact of the new labor regulation, Wet arbeidsmarkt in balans, that's an impact of around EUR 10 million. That means that the indication for Parcels normalized EBIT 2020 is EUR 115 million to EUR 135 million, still an increase compared to 2019. Also within Mail in the Netherlands, we expect to increase our normalized EBIT. EUR 52 million was the result of 2019. We expect it to be, in 2020, EUR 50 million to EUR 70 million. And there, you see the first positive effect of the synergies created by the integration of the Sandd network. In PostNL Other, we have an impact because of pension expenses, which is EUR 25 million higher than it was in 2019. Normalized EBIT for the group, EUR 135 million in 2019. If you make it like-for-like, also there, an improvement for 2020. And if you add the extra cost we have because of pension expense and the new labor market regulation, the outlook we give for 2020 is EUR 110 million to EUR 130 million. And as said, the underlying business performance for Parcels and Mail in the Netherlands improves compared to 2019. In free cash flow, you do see a number, EUR 315 million to EUR 285 million negative. That includes a final payment we have to do to the pension fund on transitional plans of maximum EUR 300 million. And you find the word maximum over here because we're in discussion with the pension fund to find a different solution to this payment. That can mean that payment in total will be lower than what you see over here, it also can be -- that it will be differently phased. So in year 2020, where we do feel comfortable when we think about what we have to do within Parcels and Mail in the Netherlands, and an outlook which like-for-like improves on group level for PostNL. And I'll give over to Pim for the financials.
Yes, thank you, Herna. Yes, first and foremost, we'll look at our Q4 performance, full year '19 with the key takeaways on that, and then look forward towards the 2020 key metrics. But first, to begin on Slide 22, the key financial takeaways. I think important to note is the real improvement in net cash from operating and investment activities in the fourth quarter, up EUR 32 million to EUR 89 million. And if you look at the overall improvement on cash flow in the year, it's an improvement of EUR 188 million, which is very, very significant and driven by an even better focus on working capital management, which will also continue going forward to ensure that we get the most cash conversion out of the profit we make. If you look at the revenue in the fourth quarter, revenue was up EUR 49 million, and the underlying cash operating income ended at 97 -- EUR 79 million, I should say, EUR 21 million below last year, of course, impacted also by the negative running results of Sandd and the initial costs related to that. All in all, ending the year at EUR 176 million of underlying cash operating income is at the high end of the bandwidth and something we are very, very happy about. You know that we've decided to change the financial metrics on which we will report. We'll go from UCOI to normalized EBIT to make the comparison to peers and the reconciliation between the different product -- profit metrics easier to follow. And of course, you need to look at both in terms of profit and in cash flow conversion, so we have included a free cash flow metric. And particularly in the slides that will follow, I'll take you through the reconciliation of those elements to ensure that all of us understand how you get from EBIT to cash flow and how we look at the drivers going forward influencing that. Sandd transaction completed, on track. We're really comfortable that it will give us the synergy potential that we've communicated, the EUR 50 million to EUR 60 million year-over-year synergies. Integration has started very well. And as said, we're really convinced that we'll get to the synergies quickly. And as Herna already said, let's say, in the outlook, if you look at the guidance for the Mail business going forward, you already see there that from EUR 52 million, we expect to get to EUR 50 million to EUR 70 million. And of course, in the past, we've always seen deterioration of profit in the Mail business over the last years, particularly in the second part of 2020, we'll see those synergies contributing to Mail's results. We've issued a Green Bond of EUR 300 million, also an important financial highlight in 2019. If we then look towards the key financial metrics in 2019, in line with the outlook we've presented. All the numbers on Slide 23 include the Sandd acquisition. And there, we ended the year at EUR 176 million UCOI, of which EUR 121 million of Parcels, EUR 76 million in Mail in the Netherlands, and that particularly means an improvement in the Parcels segment and a deterioration in the Mail segment, where we just talked about. Then maybe important to spend a few words on the normalized EBIT definition; the difference between UCOI and normalized EBIT is particularly visible in Mail in the Netherlands because there remains, of course, the difference between when you create a provision for restructuring and the cash out in relation to that restructuring. All normalization items are -- furthermore are the same. So there's no other difference in the items that we normalize, but of course, cash versus when you take a provision is a deviation from the 2 profit metrics. If we then go to the free cash flow for 2019, we have created EUR 107 million of free cash flow for the year, which is a cash flow before acquisitions and before dividends and redemption of bonds or other financial activities, but it's after payment of lease payments. So going from UCOI to cash flow, let's look at all the components of that bridge. First, you have a reversal of one-offs of EUR 52 million, which basically falls into 2 buckets, one is the normalizations of approximately EUR 16 million, and then on top of that, you've got a EUR 32 million reversal of the final installment of the top-up payments to be made, and then there's a few other millions in there as well. Then you've got the depreciation and amortization at EUR 180 million, which is up by close to EUR 100 million, which is predominantly impacted by the IFRS 16 changes as well as acceleration of depreciation on Sandd assets of roughly EUR 25 million. Then CapEx was at EUR 66 million, in comparison to 2018, lower because in 2018, we opened 2 new depots of Parcels through CapEx lines. Important to note is the strong improvement on working capital. It's a EUR 35 million investment in the year in comparison to significantly more than EUR 100 million in 2018; strong improvement on working capital management, which we expect to continue. Interest and taxes paid, it's nothing important to note there. Disposals and other, EUR 14 million, sale of buildings and a partial sell-down of the Whistl stake, for which we got a considerable cash amount. That brings the net cash from operating and investment activities to EUR 169 million. Deduct the lease payments of EUR 62 million, and basically, countering the increase in depreciation in -- at the top part of the graph, that gives you the free cash flow for the year of EUR 107 million. Then let's look at the impact of pensions on our financial statements, that's on Slide 25. And there, I think it's important to -- there you see kind of the provision for pension liabilities being EUR 283 million, pension expense of the year EUR 119 million and the regular pension cash out at EUR 111 million. Two important elements to understand. First, talk about transitional pensions. On the back of the agreement that was made in the past, the final payment for transitional pension is roughly EUR 300 million. That is based on coverage ratio and interest rates on an average in Q3 2019. Of course, those interest rates were at a very low figure, which impacted the size of this liability. We have initiated discussions with the pension fund to see if there's different ways to structure this final payment and to see if we could lower the absolute amount without impacting the entitlements of individual employees that are entitled to this soft pension arrangement. And basically, what we're seeking is an absolute decline of that number by, for instance, looking at using the interest rate of today and the ability to include expected returns that the fund will make on this payment as part of the way we calculate the base. And at the same time, we see whether or not we can phase the payment slightly differently. That should also have a beneficial effect on kind of the liquidity of this on the balance sheet. So basically 2 components. We want to -- it's capped at EUR 300 million. It will never be more than that. We seek ways to limit it to a number lower than EUR 300 million. If we were, for instance, looking at the calculation on the back of the interest rate at the 1st of January, 2020, you would already look at a number which is roughly EUR 20 million lower than the EUR 300 million. And the agreement that we're seeking will potentially have the option that if interest rates improve, in this case, meaning increase, you'll see a further improvement on that [ 22 ] as being possible. We seek to conclude those discussions in the first quarter of this year. And next to seeking ways to limit the overall number, as said, we're also looking at ways to maybe phase the payments slightly differently from 2020 onwards. Next to that, another important element is the pension expense. That will be EUR 25 million higher at 2020. Herna already talked about it when discussing the outlook. The pension expense is based on IFRS accounting, based on the interest rate at the end of the year, the pension expenses being determined for the next year. That EUR 25 million additional pension expense does not lead to additional pension cash out. So it does hit your normalized EBIT, but it will not hit your cash flow statement. I think important to understand. If we then go to Slide 26, spend a few words on the outlook there. We look at a normalized EBIT of the year 2019 of EUR 135 million, and on a like-for-like basis, we see that improving to EUR 145 million, EUR 165 million. And that basically is driven by improvements, both in Parcels and in Mail segments on a like-for-like basis. So from EUR 145 million, EUR 165 million, you'll get on a like-for-like basis to a free cash flow of minus EUR 15 million to plus EUR 15 million, of course, to a large extent, impacted by the Sandd acquisition and an increase in CapEx on the Parcels side, as we also communicated before. Now to get from the like-for-like towards the outlook of EUR 110 million to EUR 130 million, there's only 2 components that are in between those. One is the increase of pension expense I just talked about, so the EUR 25 million negative impact on EBIT not hitting the cash flow statement; and another one is EUR 10 million impact as a consequence of change of labor regulation. The law WAB, difficult to explain in English, but it basically means a higher cost for temporary workers that we need in our processes, particularly around peak and around night shifts in our Parcels business. So that impact of new labor regulation is only visible in the Parcels segment. So that brings us to EUR 110 million to EUR 130 million EUR outlook for the year on normalized EBIT. And as said, minus EUR 315 million to minus EUR 285 million on free cash flow, including soft pension payments to the fund based on the current agreements for which we seek to find an improvement, and we expect to be able to announce more on that before the end of Q1. What is important to note, if we talk about phasing of the 2020 numbers, is that particularly in the first part of 2020, we still have more of the negative components of the Sandd acquisition visible in results, meaning the integration cost. The volume will gradually come in, but there are still costs going to be made to wind down also Sandd network. So particularly, the contribution and the synergy effects of that acquisition will be visible in the second part of 2020, which means that the biggest part of the normalized EBIT certainly will be created in the second part. And as you always know, Q4 will be the biggest quarter in any year and also in 2020. Then moving towards the Parcel segment on Slide 27 and what we've done, both in terms of EBIT '19 to '20 as well as cash flow. We've provided you with a better reconciliation, which is the same both for a Parcel and the Mail segment. So if we look at the normalized EBIT from 2019 to 2020, there you see the key components: the revenue -- the volume effect as a consequence of increase of revenue, which is driven by the 7% to 9% volume growth; a positive price/mix effect as a consequence of the yield measures that we have introduced and said we would introduce; slightly offset by a negative mix effect, bigger customers are still growing faster than smaller ones. The organic cost increase here is related to the indexation towards our partners, collective labor agreement increases as well as the impact of the new labor regulation we just talked about. The volume-dependent cost are, of course, related to the increase in volume. And the other cost development, you see it as the combination of higher efficiency and other cost developments. And the improvement of Spring and logistics together, which brings us to the indication of normalized EBIT of EUR 115 million to EUR 135 million. And then on a like-for-like basis, we add back the EUR 10 million as a consequence of new labor regulation, which basically shows the improvement of the underlying Parcel business from EUR 120 million to EUR 125 million to EUR 145 million. The same bridge on Slide 25 (sic) [ 28 ] for the Mail business, where we go from the EUR 52 million to EUR 50 million to EUR 70 million in the cash for normalized EBIT for 2020. There, you see the volume effect, EUR 35 million to EUR 55 million additionally, which is based on an 8% to 10% volume decline and, of course, that revenue number being impacted by the consolidation of Sandd. Revenue, price/mix, the moderate pricing policy will continue. Then organic costs are driven by the collective labor increases, volume dependent cost, of course, influenced also by the additional volumes that we get from the Sandd acquisition. And the other cost component here is the combination of cost savings and other efficiency-related results as well as restructuring charges of Sandd and other costs. What is important to note that within that other cost bucket, we still include EUR 35 million of cost savings, which is the cost savings that we originally had, net of the delay on some of the implementations on these cost savings as a consequence of the Sandd acquisition. If you remember, the way we presented the business case, we said initially, there would be a delay of the implementation of certain cost-saving initiatives because of the fact that we add all the Sandd volume to our network that leads to a different phasing of those plans. So net of that delay, this EUR 35 million included in the other cost development as cost savings for Mail in the Netherlands. And for your view the kind of delay is roughly between EUR 15 million and EUR 20 million on the cost saving side. Then the other results is impacted by the sale of PostNL Communications Services, the sale of Spotta and the results of other services, including the termination of our -- the unaddressed activities of the PostNL brand, the unaddressed businesses in 2019. Then on Slide 29, we make a reconciliation of 2019 and 2020 normalized EBIT to adjusted free cash flow numbers to give you all the components that are relevant between EBIT and free cash flow. Reversal one-offs, depreciation and amortization, slightly down, given the fact that the 2019 number includes acceleration of depreciation on Sandd, some of the Sandd assets. CapEx, as we already said before, will increase predominantly through a step-up in Parcels related to the preparations of the small parcels sorting center. We've phased one of the depots to 2021. And also on the Mail side, there's additional investments required for the New mail route phase 2 process that will subsequently allow us to take cost out and to improve the efficiency in the Mail network going forward. In the change of working capital, the underlying working capital performance is continued. The deterioration that you see here is completely because of above-average settlements of terminal dues, a topic that we've discussed a couple of times before. So underlying development, no change. We stick and continue to focus on improving that. The deterioration is wholly as a consequence of old terminal due positions that need to be settled in 2020. So let's say, if you were to look at 2021 and beyond, that number will come down significantly, back towards the 2019 change in working capital ranges. Then change in pensions. Here, you see a plus EUR 20 million in 2019, the final payment of unconditional funding obligation was included and, of 2021, larger positive impact. Only the main pension plan will be a cash out going forward. Change in provisions is a negative EUR 30 million for 2020. We have created that provision in 2019. That's, of course, one of the elements of the change from UCOI to normalized EBIT that you see here. The provision got created particularly for restructuring and the social plan in relation to Sandd in 2019, and the cash will subsequently go out in 2020 when we now have integrated the businesses or the volumes into PostNL's network. Then sale of buildings and other divestments, approximately EUR 15 million. Interest paid and income tax, EUR 15 million, which brings us to the adjusted free cash flow of minus EUR 15 million to plus EUR 15 million; and then the final payment of transitional plans of EUR 300 million. Then just to make sure, particularly this year, where we make that change to normalized EBIT and free cash flow, that there's a proper understanding of the cash conversion in the -- cash conversion, cash generation in the segments, we've included bridges from normalized EBIT to cash flow for the segments as well. And there you see the EUR 115 million to EUR 135 million of normalized EBIT for Parcels, turning to an adjusted free cash flow of EUR 40 million to EUR 60 million for the year, before final payment of transitional plans. And that is driven by higher CapExs, slightly higher depreciation/amortizations and lease payments that are up as well on the back of the increased investments in capacity. So EUR 40 million to EUR 60 million out of EUR 115 million to EUR 135 million in normalized EBIT will be the free cash flow in 2020. Looking at the cash generation at Mail in the Netherlands. Of course, those are impacted by the Sandd integration and the final payment of the transitional plans. The EUR 50 million to EUR 70 million leads to a minus EUR 75 million to EUR minus 55 million adjusted free cash flow, where, of course, the biggest component relates to the cash out on the restructuring of Sandd and the acceleration of settlement of big terminal due positions that, out of the delta working capital we just talked about, was kind of the majority of it. Roughly EUR 60 million to EUR 65 million of that delta working capital relates to the final settlement on these terminal dues, which is a key component of the reconciliation to the minus EUR 75 million to minus EUR 55 million. Going forward, as said, that settlement level on terminal dues will be significantly lower and of course, after 2020, we've done all the one-off cash outs in relation to the integration of Sandd, and you would expect a big improvement on adjusted cash flow generation from 2020 to 2021 onwards, bringing it to positive cash flows. And as we said, one of the key components of doing the Sandd acquisition is getting to a stable profit and cash flow for Mail business going forward, which we'll be able to show as of 2021 onwards. We have decided to adjust our dividend policy to align it with normalized EBIT. The current dividend policy was based on a net profit number on the back of the UCOI profit metric. So the profit that was required or relevant for dividend calculation was based on the underlying net cash income. But if you move to a normalized EBIT metric, you also need to change the net profit metric on which you will base your dividend payments, and we've changed it to a normalized comprehensive metric, which is basically defined as the profit attributable to equity holders of the parent, adjusted for significant one-offs and special items, including fair value adjustments, net of tax. So it basically follows the same normalizations that we include in EBIT, but then just net of tax. Then a few other elements noteworthy. In our financial framework, we clearly make the statement that we want a leverage ratio of not exceeding 2.0x. We strive to get to a credit rating BBB/BBB+ that is part of our financial framework. And we've amended the formulation of the dividend policy by referring to that financial policy in relation to the condition of distribution of dividends. So it's less black and white, 2.0x in the dividend policy. It refers back to the financial framework, where we still strive towards that same credit rating as ever before. We aim to pay dividends that develop substantially in line with operational performance, and the payout ratio on the back of the normalized comprehensive income metric will be roughly between 70% and 90%. If we were to apply this dividend policy to the previous years, you will get the same dividend payout as we've had before. So it doesn't lead to a fundamental change in dividend payouts. We stick to the choice of cash or share of dividends, and the interim dividend is set at approximately 1/3 of the dividend of the prior year. We expect to restore dividend payments within the 12 to 24 months after closing of the Sandd transaction, as we said before. Then to conclude the presentation on Q4 numbers. There is clear -- clearly, they're what our key priorities are. We want to capture the growth potential in the e-commerce development. We want to create a better balance between volume growth, profit growth and scale of conversion from Parcels, meaning that we'll seek to improve our operational leverage. We need to capitalize now on the synergy potential of the Sandd acquisition, where we're very comfortable that we'll realize the EUR 50 million to EUR 60 million structural synergies that we said before. And well, as said, we aim to resume dividend payments within 12 to 24 months after closing of the Sandd transaction. We keep on focusing on increasing the customer satisfaction and our employee engagement. And as we clearly stated before, we want to get to 0 carbon emission last-mile delivery in 2025 for the 25 biggest cities of the Netherlands and get completely emission-free for the last-mile in 2030. And we want to do that by being the preferred logistics and postal solution provider in the Benelux region. That concludes the presentation from both Herna and myself, and we can now open up for Q&A.
Yes. Thank you, Pim, and we have a number of analysts here in the room and a number of people on the line. [Operator Instructions] But let us start here in the room, looking around at the table, who would like to go for the first question, please?
Okay. Lotte Timmermans, ABN AMRO. First of all, your 2020 guidance in Parcels, the volume growth was 7% to 9%. Do you also incorporate Amazon stepping into the Netherlands, and what's your view on that for 2020?
The -- in the guidance we gave for 2020 to 7% to 9%, it includes every market development, and that means also including Amazon. Of course, we did look into the other European countries to see what the impact of Amazon is in -- has been in those markets because there are, of course, 3 to 4 years ahead of the Dutch market. What we see in most of those markets when Amazon comes in, they also have a positive impact on the growth in e-commerce. So Amazon is a customers of us, and they're part of -- of course, when we think about future, they're part of our future as well.
Okay. And if you think about those splits, what I figured out was that the splits are of volume between DHL and PostNL. Is that still the case? And can you indicate about how much is divided between the 2?
No, no. Of course, many of our customers do split the volumes over several distributors. And we're not giving information on specific customers.
And on corona, do you see any impacts from that? And what do you think is going to happen for 2020?
Yes. We're following, of course, corona very closely. It does have an impact on international parcel streams from and to Asia. With Spring, we're active in those areas as well. We do not expect that will have a material impact in 2020 on the numbers of PostNL.
Okay. And on this New mail prices, they haven't risen significantly since 2014 due to the competition of Sandd. Of course, this is now solved. Transferring this contract to your own contracts, what kind of implications is it going to have? And is this going to be significant to 2020?
As said, we will follow moderate pricing increases going forward as well. So no change in that. And we will, of course, adhere to the contracts customers had with Sandd in the past. So in the overview Pim gave, you can see what the price impact is in 2020. And we do not expect to do something different than we did do over the last few years, and we did say before. Thank you.Ready? Okay, Henk?
First of all, let's start with an issue one. The delivery quality of mail dropped to 94%. Does that have any implications on the side of ACM?
Yes, we don't know, of course. We'll come up with our formal evaluation in May. What we do see, of course, is that the quality in 2019 was impacted by 2 reasons. We changed our sorting systems, our sorting -- the way we sort to be prepared for the volume coming in of Sandd. So that's one reason. And secondly, we did see, in the last quarter, that already volume of Sandd came into our own network without the people who were only added as of February 1. What we do see is that from the moment that we have those 4,300 extra people, we do see, of course, increase in quality numbers in 2020. Now what the impact will be, I don't know. But we do have, of course, good, in my view, expectations on quality levers in 2020. That's one. And secondly, everything is focused on getting above the 95%. And 2019 was an extraordinary year.
94% is over the full year?
Yes.
So it means that in the last quarter, you were well below that.
As said, we were just around 95% when we did our Q3 numbers. Those numbers were published as well. In the fourth quarter, we did see, of course, the impact of changing our sorting system. And we did see the impact of the volume added percent to it.
Okay. So let's switch to Parcels. I am looking at Slide #27. Now a couple of things that puzzle. First of all, if I take a look at your revenue expectation and the delta of revenue on normalized EBIT, so it says EUR 75 million to EUR 95 million, which is the equivalent of 4.4% to 5.6%, if I calculate it right. That means that the balance will further shift towards larger clients, I assume, of the mix.
That is included in the price/mix effect. That's in the 5% to 15% -- EUR 5 million to EUR 50 million -- EUR 15 million combined price/mix components.
If I take the 7% to 9% volume growth, and I relate it to -- I assume all other things being equal, and I assume -- I relate it to the EUR 60 million and EUR 72 million you realized in 2019, I don't -- I mean, it doesn't add up.
It does because it -- that relates to the entire Parcels segment, of course, and the 7% to 9% growth is related to the domestic Parcels business.
Oh got it. Okay.
And there, the revenue growth is even slightly higher than the 7% to 9%. And there, you see the implications or the effect gradually kicking in of that better balance between volume growth and revenue growth.
Clear. I remember, let's go back to May of last year. Then you gave a CAGR of 14% for the period 2018, 2022. Is that correctly?
Yes. Yes.
And now we see 7% to 9%. What has changed so dramatically in 9 months' time?
A couple of things have changed, and the biggest component of that change is a slight slowdown of the overall market growth. And we've ended the year at 12.4% growth last quarter. And 2019 was 10% growth. That's predominantly driven by a lower market growth, where you see certain categories becoming gradually more and more mature. So the split between offline and online sales get to a level that those categories are getting closer to maturity. Let's not forget that a 12% growth or 7% to 9% growth is still very, very significant growth, as you see a slowdown in market growth, where new categories, which are much more -- are growing faster, but they are significantly smaller than the bigger categories, like fashion, like toys and electronics. So that is one component. And particularly in 2020, the 7% to 9% volume growth is impacted by the fact that some of our customers go to a multi-vendor strategy. And that, kind of, has its impact where we, kind of, lose a little bit of market share, which is also something that we did guide towards in Capital Markets Day because of that. So the 7% to 9% is also impacted to a little bit loss of market share because of that dual vendorship, which we subsequently expect. So basically, the growth go like this, step down because of dual vendorship to come to -- subsequently follow the trajectory of the market growth again.
And the multi-vendorship, you mean people going to the bol marketplace, selling through marketplace or...
But also because of peak constraints. So what we said, we strive to get to a better balance of volume growth and cash flow conversion. We cannot just increase capacity for the peak in the year-end period only, which basically means that some of our customers decided, okay, but then we need to ensure that we've got enough capacity to fulfill our growth, and then they seek alternative distributors as well. And because of that, they basically take a part of that market share because of that strategy change.
Now, the first part of the multi-vendor, you're clear what you say about choosing for somebody else next to PostNL to do the last mile. But let's go to the marketplaces of bol. The bol is now selling more than 50% of its sales, is done in third-party products. How much grip do you have on this other 50% -- on this 50% plus that is now a third-party product because if it was bol, it would almost automatically land at PostNL because you have a well-established relationship with them. Same with Amazon, they also sell more than 50%. What they -- what is sold via Amazon is sold via the marketplace. How do you get any grip on it? Because this is the large volume, that's just the SME volume on which you can fetch better pricing.
I think the grip you have on volume is, of course, via the services you deliver. It's partly the quality you can offer. It's partly the extra services you can deliver, for example, via the app. So there is, of course, lots why people want -- still want to choose for PostNL. And that's no different from platform customers as it is to other customers. Part of the effect from platforms is, of course, in the price/mix effect, as already said by Pim. So it does have an impact on your price/mix, but it is included. But I think the impact we do have on ascending customers is because of the fact that we deliver highest quality, that we have lots of extra services, that we can reach consumers better than everyone else in the Dutch or Benelux market. I think those are reasons why people still want to choose for delivering via PostNL.
Last, on the price/mix effect. Amazon coming in, everybody is looking at it. Lots has been written about it. And you see 2 different developments currently in the market. One is bol, which is, I think, more defensive in terms of pricing and seeking all sorts of arrangements for clients selling via its marketplace. And the other one is Coolblue, adding more people in 2-manns handling, those kinds of things. Is it fair to assume that the pricing element from the large clients like bol, like Coolblue, you mentioned it, will toughen if -- now that Amazon is knocking on the door here?
I think the -- there is already -- or there has been already, for many years, lots of competition in the Dutch market with the other distributors in the Dutch market. So I don't think there will much change with Amazon arriving into this market. What, of course, will change is there will be a third player in the market, assuming that they will step in, et cetera, et cetera. And so there will be a third player in the market that will have, of course, its impact on who is going to be in which platform, who is going to sell via whom. So that, of course, will have an impact. What you did see in the other European countries that it had a positive impact on the amount of e-commerce parcels. So in that sense, it could be -- it could have a positive impact in the Dutch market when it comes to the amount of to-be-delivered parcels as well.
Two questions, then I will let the floor to other people. One is, if I look at Amazon coming in, the bol has entered into the fashion segment. They have really opened up its marketplace. Amazon, fashion is one of their key -- their group of 25 groups they labeled. There is a competitor of yours, and they realize at least 20% of the volume in a large former catalog seller. We've seen a lot of publicity about that one, and not only that the results were not doing very well, but also about the call center, there was a very interesting article. What happens if one of your client -- your competitors' biggest clients goes out of business? How can that affect the market? Because if somebody loses 20% of the volume, they have to, yes, fight for a lot of volume elsewhere. How do you look at that?
Yes. But the assumption you take is the assumption that Amazon will win that volume. So in that sense...
But is that illogical?
I'm not -- I don't know. I think there are lots of scenarios written in newspapers, et cetera, what could the impact be of Amazon stepping into the Dutch market? As far as we can see, and that's the reason for saying in other European markets, it had a positive effect on the amount of e-commerce. And maybe there will be changes in the market, but I think when -- we are not the ones who are going to forecast those changes. That's what we will see. And the only thing what we assume is that we will be able, with the services and prices we have, the people we have, the density of our network is to -- we assume that we will be able to keep the market share in the market as we have it today.
Final question is I had a look at the Coolblue annual report last week, and if I see how many people they are adding in terms of delivery, in terms of the 2-manns handling as a service component, what you have as well, they expect to deliver at least 1 million items CO2-free this year, which is triple the amount -- the number they did last year. How -- does this illustrate -- and I know that 1 million parcels is peanuts when you compare it with the 300 million or so that you're doing, but isn't this illustrating that the competition on the last mile could toughen? And that you get a -- whereas in the past, you were, and you still are, the biggest one, and you should be able to deliver in the most efficient way. What does this tell us about Amazon? Because Amazon does a lot of last mile. Look at Austria, for example. They've taken on the last mile themselves to deliver in Vienna, and I believe they are about to do it in Salzburg as well. Aren't you afraid that something like that could happen in the Netherlands as well? And how are you going to arm yourself against it?
Yes, I think the -- if you think about PostNL and the presence we have in the Netherlands, but also in Belgium, we already are quite armed in the sense that we do have very efficient last-mile operations. And we do come every street, every day, every door; that's what we already do. With an app in which you have 5.3 million consumers in the Netherlands, you add, of course, also lots of convenience to consumers as well. So never underestimate your competitors. That's not what I'm saying. But what I'm saying is that we already have quite some competencies to do the last-mile delivery best in Netherlands and in, of course, Belgium. The -- I think -- so in my view, there are lots of opportunities for PostNL as well. It's not only for us seeing the risk. There's also lots of opportunities in what will change in the market. And take into account that if you think about the other European countries, before Amazon steps into last-mile delivery, they do need quite some volume to create some density. And in the Netherlands, they start at a certain point this year.
In a much more fragmented market than I think the market in the U.K., Italy or Austria is.
Or Germany.
Or Germany, yes.
We also take the differences into account.
Okay. Operator, can you move to the first one in line?
Yes, sir. The next question is from Marc Zwartsenburg, ING.
First, on Parcels, we saw quite a negative, well, mix effect in Parcels in Q4. But if I look to your guidance going forward, you expect quite a strong positive price impact. So I think also, that Pim was mentioning, to see revenue growth of both the 7% to 9% volume growth. Is that correct? And can you give us a bit of an indication of those 2 building blocks, please?
Yes. What I said is, on the back of a question of Henk, the 7% to 9% volume growth in relation to the overall revenue growth, on the Parcel side, revenue and volume growth are coming closer and closer together, exactly as we pointed out before, and that is on the back of yield management measures that we have taken. And they relate to several different elements. One is a different pricing structure for the bigger parcels in the network that take, relatively speaking, too much cost capacity in sorting and delivery. They will only get delivered at surcharges. Next to that, we have introduced peak pricing in peak levels for 2020. And also on the back of a point that Henk made earlier, individual price points are moving up. So when contracts expire, we seek to get indexation above and beyond, if possible, the inflation levels to improve the individual price points in these contracts to get us to the better balance of volume growth and profit growth. That price effect, in itself, is then still subsequently impacted by the negative mix effect because of bigger customers growing faster and/or smaller customers moving to platforms. And the combination of the 2 leads to the EUR 5 million to EUR 15 million improvement from '19 to 2020.
And the -- all the initiatives that were taken or we have taken are in line with what we also communicated at Capital Markets Day in May. So what we did say, by then, is implemented by now and will have its effect in 2020.
And you say the balance leads to the EBIT increase. But how does it look on revenue levels? So I'm thinking now that we have a positive impact here.
Correct. That's correct.
Is that correct?
Yes, that's correct. Yes.
And so the revenue growth in Parcels balance will be above 7% to 9% plus, so to speak?
Yes, slightly above.
Yes.
Okay. And then your expectation for market growth in '20, do you have any number for us to give a feel for how the e-commerce is developing in the...
Slightly above the 7% to 9%. That's what we expect in 2020. And as already said, the 7% to 9% growth within PostNL is caused by the fact that we see a multi-vendorship, which we expected already when we did our presentation at Capital Markets Day, but you see it coming in beginning of 2020. So after that, our expectation is that growth will -- volume growth within PostNL will be in line with market growth.
And that's accelerating from these levels again? Or...
At a certain point in time, yes.
But you say slightly above...
Above.
So you only expect a small impact from all your price increases, market share losses from your vendor, et cetera?
Yes.
Is that cautious enough do you think, given what Henk was just alluding to?
As far as we can see at this moment in time, the answer is yes.
And then on Mail NL, can you give us an indication of the contribution of Sandd, excluding the restructuring charges for Q4, please?
Excluding the restructuring charges, the running performance of Sandd turned into a loss, exactly as we predicted. If you look at the Q3 quarterly presentation, we've shown the kind of normalized EBIT level, including Sandd and excluding Sandd. And we also showed a kind of a deterioration as a consequence of Sandd there. So if you compare it to that business case, there has been a loss of the Sandd business in Q4 as part of our normalized EBIT and our UCOI numbers or kind of the normal operating losses of Sandd. Above and beyond that, if you talk about EBIT, we've taken restructuring provisions on the back of the social plan that was agreed for people not joining us, so to say. And in the reversal of one-offs, you'll find acceleration of depreciation of roughly EUR 24 million on assets of, let's say, the old Sandd that we'll not use anymore because, basically, we migrate all the volumes to our network, deploying our assets to distribute that volume.
And then a few for you, Pim. On the investment, I think you mentioned also digital investments come on top of the guidance of the Capital Market Day, CapEx, is that correct? And how much is that in 2020?
Well, on top of -- I don't know if that's what I said. What I've said is that if you look at the bridge from '19 to 2020, you see an increase in CapEx levels from EUR 66 million to EUR 100 million and EUR 120 million, which is a lower increase than originally assumed in the Capital Markets Day because Herna clearly stated that we have the ability to phase those investments on the back of how growth develops. And in that level, we have included roughly EUR 10 million acceleration of digitalization that will help us in different ways. One is to make the app even more relevant to increase the customer journey of the consumers by allowing them to follow their driver, but also, allowing us to launch new service options to them. And at the same time, those digitalizations will help us in optimizing our value chains by becoming even more data-driven than they already are. And that will, of course, contribute to the efficiency improvements that we seek. And that will also lead to lower cost per parcels. The EUR 10 million additionally included for digitalization is already in.
And in the CapEx number, which is lower than what we expected at the Capital Markets Day, because of phasing of expanding our capacity.
Yes. That was actually my second question. EUR 100 million to EUR 120 million, I think it compares a bit to the -- say on the EUR 45 million at the Capital Market Day, if I'm correct. That doesn't mean that the difference between the 2, and excluding the digital, so EUR 110 million mid-point, minus the EUR 10 million. So EUR 45 million less. Is that in a phasing that goes into 2021 or should we even phase it more?
Not all of it, there's a few components. Some of the step-up in investments also relates to the mail business, where we will have additional investments in the second round of the New mail route, partially. So if we phase a depot from 2020 to 2021, yes, obviously, that investment will then subsequently move from '20 to '21. At the same time, that also means that for 2021, as we've assumed certain investment levels, we will again have the option to see whether or not those are required, given the current view on market growth.
And I think what remains of utmost important for 2021 is the opening of our small parcel sorting center because that will add to the efficiencies in our network, and then that remains to be crucial.
Yes, the question I'm asking, because I want to also get a bit of a view of the CapEx for '21, and that's because also the relation with the dividend, of course.
Yes, that's what I understand. So part of the amount will be phased to 2021. And parts of the amount not. Those are -- it's less CapEx.
So it will be roughly flattish going into '21. Is that then the best balance, just to get a bit of a feel?
In total, roughly.
In total, roughly. Yes. Sorry.
And then lastly, the lease payment going up to EUR 80 million. Is that related to the new DCs? And perhaps already preparing for small parcels? Or is that too early? And will this go up then post-2020 because of the SPSs coming live in '21?
Partly, those lease payments relate to depots that we did operate or open in 2019 that were not CapEx.
Yes, correct. So that is indeed related to that. And then going up further I presume if you open the other one?
Yes, of course, depending on the split as on the small parcel sorting center, it's a leasehold. So it's not a building that we will buy. We'll rent it. And there, the investments are in the sorters and the IT infrastructure and the robots that are required to operate a small parcel sorting center.
Switching back to table here, Andre?
Andre Mulder, Kepler Cheuvreux. Two questions. First one, in the Q3 presentation, you mentioned that the extra pension costs will be 20 -- EUR 15 million to EUR 25 million.
Yes.
So I guess it's now EUR 25 million. Is that driven by the interest rates?
Completely and only due to the fact of a deterioration of the interest rates.
Can you -- if you turn things around, can you give a bit of a sensitivity? Let's say, if that amount were to be halved, where will you end up with interest rates?
What -- it is based -- the pension expense for the year 2020 is based at the interest rate for the 31st of December, 2019. So in the year, it will not change. It has pretty big -- I'll get back to you on it, otherwise. But it was only a few basis points that changed basically from Q3 towards the end of the year. And did have, well, the roughly EUR 10 million impact. So it's -- because it's, let's say, a few basis points on an already very low interest rate, has pretty big consequences.
Yes.
The Parcel growths and the volume growths for 18' to '22 of 14%, I take it for granted that that will stay. Do you still believe that's possible?
That is the CAGR number that we've explained at Capital Markets Day. The explanation between the 7% to 9% is a predominantly slowdown of the overall market. So if there is no change to that market growth, then it will be difficult to get to the 14% CAGR, yes.
So if it stays at 7% to 9%, that's possible. If it drops further, then the 14%...
The market growth is, of course, a little bit higher than the 7% to 9% because of the reason that we see the effect in 2020 of the multi-vendorship. That's an effect, which we assume, will disappear again. And then we will move up with market growth. So market growth is higher than the 7% to 9%, but slightly higher. And that means that if market growth stays at that level, the average of 14% is difficult to reach.
But what is important, let's say, our aim to get to a better balance in that volume growth and margin development and cash flow conversion will remain the same. So we'll look at ways, even with potentially slightly lower growth, to get the revenue and cost per parcel in the right direction, improving the margin and improving the cash flow conversion from the Parcels business going forward.
Any numbers to mention on next year? How this -- the items on the balance sheet, the assets held for sale of EUR 91 million, liabilities held for sale at EUR 100 million, do these relate to next year?
No. Well, not specifically. The combination of Postcon hadn't actually led to the result of discontinued operations, of which roughly EUR 13 million, EUR 14 million was a fair value adjustment. And the balance was the kind of running loss from operating operations in those discontinued operations. And we've now valued both businesses on the back of the agreements that we've reached. So yes, that is -- yes, the trouble with this.
So if you would conclude it now, no further book losses?
No.
But what's the amount that you get in with next year?
Well, we don't specifically guide towards the individual components of it, as we said before. The biggest component of those 2 transactions is the DTA positions that we have accounted for by being able to use, let's say, the liquidation losses in those countries because it's asset deals that we've done to get those capitalized in the Dutch situation. So the biggest component of the DTA in the balance sheet relates to those 2 countries.
Then on Sandd. Those people have joined. To what extent does that lead to extra cost or possibly lower savings?
It doesn't. So what we -- what you, of course, look into is how many people joined, the amount of -- we still have vacancies, which are filled on a normal way. So we added more capacity out of the market to make sure that we have enough people to deliver the mail. So it's according to what we expected in our business case and has no negative or positive impact on it.
And last question. What do you aim to do with the Green Bond?
Spend it on green.
Yes, the Green Bond was issued on the back of our green framework. Basically says that we'll use the proceeds to further optimize or improve our premises. So a big component is making even our existing premises more green and BREEAM certified and also new ones. Second component will be used to intensify the electrification of our fleet. Those 2 are the biggest buckets of that EUR 300 million. Third bucket is improving, related to robotics, using data to further optimize the CO2 emissions. But that's only real and using innovations in that process. But the 2 biggest components are related to our depots with solar panels on top of them and fleet.
And anything you can say about phasing on that?
No, not really, other than the fact that we expect to be able to use the EUR 300 million in -- through a 7-year period with the plans we already have in place to be able to say that we'll spend that EUR 300 million on the green framework topics that we've disclosed.
Wijnand Heineken, Independent Minds. A few questions. First on Sandd. The existing contracts, could you give us some kind of indication how long that will last on average? And when you have full freedom to price the contracts, will that have a noticeable impact on your numbers? Or will that just be modest? And then 2 questions about your new metrics. Well, obviously, we knew the shift from UCOI to normalized EBIT. Now we get a new one attached to that, is a like-for-like. I appreciate that you identify a couple of specifics that have -- will have an impact this year, but what can we expect going forward? Will we see 2 separate growths or is this just an incident? And then finally, on the dividend payout ratio related to the normalized comprehensive income. Obviously, that's not something for today or tomorrow. But did I understand, Pim, correctly that in essence, it is normalized EBIT level apart from net of tax? And if so, wasn't there a more simple way to go for a dividend base than a normalized comprehensive income, which makes it all a bit complicated, I think?
Okay. Yes, you go ahead.
On the Sandd, I think we didn't -- we're not going to disclose around the customer contracts they have. They have, of course, customer contracts who are still running. And that means that we, of course, adhere to the contracts they have, although the impact on pricing, it will be moderate. So don't expect real spikes in price increases. It's moderate pricing policies, which we will continue. And that also means that we add moderate pricing when it comes to contracts, which are ended with Sandd.
And the metrics?
The metrics. We go to 2 metrics, normalized EBIT and free cash flow. And particularly this year, we felt it was very important to get you to understand how we move from one to the other, and particularly given the 2 additional components or the additional pension expense and the effect of the new labor law regulations, to be able to indicate that on a like-for-like basis, both Parcels and mail business are actually improving. But let's say, from a formal point of view, we only have the 2 metrics, normalized EBIT and free cash flow. And that will be -- we will report going forward. But to understand what happens in the underlying business, we felt it appropriate to make clear what the like-for-like number would be. Then on the dividend policy. What we try to do is relate to a easy-to-be-recognized number because we do report the total comprehensive income in each press release and in each annual report. And the reason why not to go to net profit is -- one is, given the specific pension situation in PostNL, it would be strange not to include the other comprehensive income in the base on which you define dividends, because there, you have the actuarial gains on the difference between pension expense and pension cash out. So not including that would basically lead to a too low a base for dividend distribution calculation. That is one component. And subsequently, we feel that you need to exclude the results from discontinued ops. Well, as of 2020, there won't be any. But in any event, from a structural and a logical point of view, that is an element to look at. And then the only thing that happens to the total comprehensive income is normalizations that are the same as the normalizations on EBIT. So just look at the total comprehensive income for the period line, look at the total normalizations, let's say, for the sake of argument, that they are 10. Then you take the net of tax effect of EUR 7.5 million that you adjust on the comprehensive income to get to normalized comprehensive income, which will then be the base on which you apply the 70% to 90% payout ratio.
Okay. Operator, please link us to Ruben Devos of KBC.
Just to come back on the divestment of PCS, Spotta and Nexive. Yes, I understand you don't provide guidance on the individual sales, but I was curious whether you could give a rough indication of the combined cash-in for the disposals to get a bit of an idea how we should see the changes in the balance sheet, aside from the free cash flow guidance you've given. That's the first question.
I said, we'll not make that split between Nexive, Postcon and the others. As I said, in relation to the divestitures in the countries, the cash will predominantly be as a consequence of the DTA that we have included in the balance sheet. If you look at the annual report, you will see that there is an earn-out arrangement on Postcon that can lead to a cash-in of something between 0 and EUR 12 million, what we have taken, if you will. And as you know, we've -- we will be involved in Nexive going forward as a 20% minority shareholder, which potentially gives us an upside on the back of the valuation that we just discussed. The PCS, the PostNL Communicatie Services business, that did lead to an individual cash-in as Polder was a sale also in relation to the fundamental changes in the market that we've seen there. So then, I give you a little bit of guidance on how you should look at it, but not more specifics, I'm afraid.
Okay. So quite some scope changes, let's say, in the last 12 months?
Yes.
Yes, we aim, of course, to really get us to focus on the mail business from capitalizing on the Sandd acquisition synergy effects and to focus on the Parcel e-commerce business going forward.
Okay. So going forward, you continue to see opportunities in terms of divestments to increasingly focus on your core activities? Or are you done for now?
No, I think when you look to 2020 and forward, we, of course, will keep looking into our portfolio and find out if they're adding to our core business in mail and Parcels. And if not, then we start off a discussion of the divestment. So that's what we, anyway, will do because our core business is in mail and Parcels, the networks of mail and Parcels and every adjacent market, which is adding to those mail and parcel networks.
Okay. And then just another one on the customer satisfaction. The presentation says it's improving, which is interesting, obviously. Do you take into account the competition in the parcel delivery market? I was curious, could you sort of support that with numbers like a Net Promoter Score of any kind? Or -- and how PostNL compares to competition on this end?
What we use is very satisfied customers, which is not exactly the same as an NPS score. So it's difficult to compare it to NPS scores of others. We see an increase in the amount of very satisfied customers compared to the first half of 2019, which is partly positively influenced by the quality of our delivery, it's positively influenced by the amount of the possibility people feel to get their parcel when and whenever they want to have it. So those are very important elements, when it comes to customer satisfaction.
Okay. And then just lastly on Spring, also there, an improving performance. A bit of a reversal versus the reported trends in the last 2 years. Do you have additional color on what happened in Q4 and why that improved will be helpful?
Well, I think the business improvement in Spring, partly, of course, we saw a positive impact in volume, partly because of all the actions we've put into place within Spring to get the organization right and to get the organization aligned to the volumes we received. So some of the effect of all those things we communicated in earlier quarters on changes in Spring did come into effect in Q4, and that's the reason why you did see a slight increase or improvement in revenue.
[Operator Instructions] We've got one more I think, operator?
Yes, sir. That's correct. That's David Kerstens with Jefferies.
I've got 2 questions, please. First of all, regarding the increasing rate of e-substitution that you're guiding for, what's driving that? I think you highlighted previously that you had about 2 to 3 percentage points of market share loss. And now you have taken over Sandd, but you were still at minus 10% in Q4, and you're guiding for 8% to 10% for next year. I appreciate there's a 1 point -- 1 percentage point election effect from the European elections last May. But it would still imply that your rate of substitution deteriorates by about 2 percentage points. Are there any specific customer groups that are driving that? And what are you seeing in the market? And your second question...
Let's do the calculation again, first. So we did see 8% to 10% decrease in 2019, which is 9.7% of a substitutional decrease without Sandd. That's one. The impact we said that competition did have is 1% to 2%, around 2%. What you do see is due effect in 2020. You do see, of course, the effect of around 1% because of elections. And that's what you have to deduct if you want to have it like-for-like. And secondly, I think there is still some competition in the Dutch market. So we do not see that much changes from what we did say before. We expect it to be somewhere between 8% to 10%, taking into account, as already said, for example, the elections, which do have a quite -- which are quite impactful when it comes to volume decline.
So stable rate of underlying e-substitution, you think?
Yes.
Yes.
That's what we think.
And then the second question regarding the Parcels volume growth of 7% to 9%. You said that based on experience in the other parcel markets, you see a positive impact from Amazon coming in, developing the e-commerce category further. Have you included anything in your volume guidance for this effect? Or do you also see potentially Amazon moving to a dual suppliership and offsetting that positive effect?
As said, the 7% to 9% are taking into account the effect we do expect in 2020. And Amazon already, of course, acts with a dual vendorship approach at this moment in time.
I think this concludes the call -- we've got one now, [ Mark McVicar ], in the room only.
So some time ago, you made a call for hard subsidies out of fear that high prices could cause volumes to spiral down. Has there been any reaction from politics on that?
Not yet. I didn't know. Not.
When do you expect that? Are you in talks with politicians on that? If they want to maintain the system, that's possibly the only way forward.
Yes, I think -- I'm not sure, of course, what is picked up by politicians and what is not. So the only thing what I do know is that keeping it on the agenda is important. And then, hopefully, at a certain point in time, you get some traction.
Okay. Thanks, everyone, for joining. If you have any further questions, you know where to reach us. Please don't hesitate to do so. Thanks very much. See you next time.
Thank you.
Thank you. Bye-bye.
Bye.
This concludes the PostNL event call. Thank you for attending, and you may disconnect your line now.