Earnings call transcript: PostNL Q4 2024 sees unsatisfactory EBIT

PostNL (AS:PTNL)’s earnings call for the fourth quarter of 2024 revealed a mixed financial performance, with a normalized EBIT of €53 million, which the company described as unsatisfactory. The stock price saw a slight decline of 0.37%, reflecting investor concerns over ongoing challenges in the postal and parcel sectors. According to InvestingPro data, the company maintains notably low price volatility with a beta of 0.19, and analysis suggests the stock is currently undervalued. The company announced a free cash flow of €12 million for the year and proposed a dividend of €7 cents, continuing its 33-year streak of consistent dividend payments.

Key Takeaways

• PostNL’s normalized EBIT for 2024 was €53 million, deemed unsatisfactory by the company.
• Free cash flow for the year was €12 million, with a proposed dividend of €7 cents.
• The company faces margin pressure in parcels and a decline in mail volume.
• Strategic initiatives for 2025 include expanding parcel lockers and cross-border e-commerce services.

Company Performance

PostNL’s overall performance in 2024 was marked by challenges in both the parcels and mail divisions. The company reported a normalized EBIT of €53 million, which fell short of expectations. The mail division continues to struggle with declining volumes, while the parcels division faces margin pressures. Despite these challenges, PostNL is focusing on strategic initiatives to improve its competitive position in the e-commerce market.

Financial Highlights

• Normalized EBIT: €53 million for 2024
• Free Cash Flow: €12 million for the full year
• Proposed Dividend: €7 cents
• Leverage Ratio: Below 2

Outlook & Guidance

Looking ahead to 2025, PostNL expects normalized EBIT to remain in line with 2024 levels. The company anticipates volume growth of 1-2%, compared to the market growth projection of 4-5%. Organic cost increases are expected to be around €125 million, with parcels volume growth projected at 1-3%. The company plans to invest €15 million in strategic initiatives aimed at boosting long-term revenue and EBIT. InvestingPro analysis rates PostNL’s overall financial health as "GREAT" with a score of 3.01 out of 4, suggesting strong fundamentals despite near-term challenges.

Executive Commentary

Pim Bierse, CFO of PostNL, stated, "The current business model of postal services is unsustainable," highlighting the need for strategic adjustments. He also emphasized the importance of achieving a balance between volume and value, stating, "We need to get to a better balance between volume and value for PostNL."

Risks and Challenges

• Margin pressure in the parcels division
• Continued decline in mail volume
• Increasing client concentration
• Structural decline in postal services
• Potential market share loss due to yield management strategies

PostNL is addressing these challenges through initiatives focused on efficiency improvements and expanding its e-commerce services. The company aims to leverage its strong out-of-home delivery network to maintain competitiveness in a rapidly evolving market.

Full transcript - Personal Assets Trust PLC (LON:PNL) Q4 2024:

Conference Operator: Good morning, ladies and gentlemen. Welcome to the PostNL Q4 Full Year twenty twenty four Results Call. At this moment, all participants are in a listen only mode. And after the presentation, there will be an opportunity to ask questions. Now I would like to hand over the conference call to Ms.

Inge Laude, Manager, Investor Relations. Please go ahead, madam.

Inge Laude, Manager, Investor Relations, PostNL: Thank you, and welcome to all of you. This morning, we have published our Q4 and full year results, and we will now explain these to all of you. With me in the room are Herna Verhaer, our CEO and Pim Bierse, our CFO. Herna will present the ’24 results to you. And after that, Pim will take over, and he will elaborate on a strategy and outlook for ’25.

Afterwards, Pim and Herna will answer your questions. Herne, over to you for your last full year results.

Herna Verhaer, CEO, PostNL: Thanks Inge and welcome to you all. Let’s start with the key takeaways for 2024. A few elements on which we are very proud for the year 2024 and achieved with relentless efforts is the favorable NPS, where we score strong have a strong position versus competition, of course, well executed cash and balance sheet management. And I think with all the changes we saw in trends, we improved our efficiency and our capacity, delivering 41,000,000 of cost saving within our mail division and 35,000,000 within parcels. Of course, organic costs kept increasing.

But with the smallest gap in recent year, it’s mitigated by higher prices, and we even further improve in the year 2025. Our leverage ratio is below two, meaning we propose a dividend of €7 cents in in the AGM. Of course, €53,000,000 of normalized EBIT is unsatisfactory. The main driver within Parcels is the shortfall of the shortfall result is the margin pressure due to the acceleration in client concentration. Our top 20 customers in Q4 twenty twenty four did 60% of our volume, where a year earlier it was, lower than 50%.

So that is increasing rapidly. Within that, of course, international customers grew much faster than the domestic customers. That’s a trend we saw also in the other quarters. A second big change is consumer behavior. People are ordering much later than they did in the past.

So they wait, of course, for the big discounts and then they start ordering. In mail in The Netherlands, not that much news under the sun, meaning that volume decline continued 8% over the year. And what we did see over there is we still have, of course, difficulty in filling in all the vacancies, although we’ve put lots of extra people and extra money into that together with still high sickness leave had impact on the results of mail in The Netherlands. If we look to the normalized EBIT of 2024 and compare that to our outlook, what are then the main drivers for difference? Already shortly mentioned when we discussed key takeaways.

Within parcels, we see, 25,000,000, which is mainly because of the negative mix effect due to concentration, with customers. And secondly, a less favorable volume distribution in the short peak period. We’re only able to deliver in such a short period the peak volumes if we do the ramp up earlier. And that is, of course, less efficient and therefore costly. The impact with mail in The Netherlands is also there because of mix effect.

That meaning that twenty four hour mill, we had less, and and therefore, we got in, of course, non twenty four hour mill, which has a lower margin, and we saw higher cost because of because of the related absenteeism. Coming in at €53,000,000 for the full year. If we then give you, PostNL at a glance, and I think I will mainly look into the non financial KPIs. We saw, of course, our first CSRD report published today. We’re proud on it, proud that we, of course, made all the guidelines and have, in our view, a readable report.

We saw again, of course, carbon efficiency improvement and also an improvement in the share of our emission free last mile delivery. We saw growth in the amount of personnel accounts, very important because that’s our possibility to reach those consumers and get their information. For example, when it comes to delivery preferences, and we expanded the amount of parcel lockers. And what we did see is that the utilization of those lockers is growing and especially in the last quarters, accelerated in growth. Also, where there is a separate slide on cash, I would like to, of course, focus on our free cash flow.

We had a very strong fourth quarter and therefore also a positive year end result of 12,000,000 in cash. Looking into Parcels and then of course our Q4, we saw a revenue growth together with normalized EBIT growth and we saw strong volume growth 10.5%. That 10.5% did deliver, of course, margin extra normalized EBIT but did not deliver the margin increase we expected. And that is mainly because of that client concentration. And to give you a feeling what the impact is, we did quite some price increases over the year 2024, ’1 point ’4 and on the other hand, we saw a shift in mix, meaning bigger customers becoming bigger and that was a negative of And that I think is the translation or the explanation why we do see pressure on margins.

Secondly, we achieved our targets when it comes to efficiency, efficiency improvements and therefore also, of course, cost reduction of EUR 35,000,000 in the year 2024. Overall, when you look into volume increase, a good quarter, when you look into where volume comes from together with the fact that consumer behavior is changing, we saw pressures on margins in Q4 and therefore also over the full year. The bridge explains you where we the bridge, of course, from Q4 twenty twenty three to Q4 twenty twenty four, up from 23,000,000 in 2023 to 31,000,000 in 2024. What are the main parts, within? Of course, volume growth that delivered extra revenue, we lost because of the unfavorable product mix, bigger customers as explained.

Then when you have more volume, of course, you have more costs to deliver those, parcels. We also see organic cost increases mainly because of wage increases. And then we saw again the positive of our tariff increases and the positive in Q4 of the operational efficiency improvements. The ladder was SEK 11,000,000 in Q4 and for the full year, it was SEK 35,000,000. Let’s do the same for Mail and The Netherlands.

In Mail in The Netherlands, we see a large step down in result from 54 quarter for 2023 to ’38 in the fourth quarter of twenty twenty four. We see we see, of course, that volume decline was 10.5% over the full year, around 8%, but it also includes, of course, last year’s election mail. So real substitution is eight and that is still within the bandwidth we’ve given in the beginning of the year 2024. To keep revenue up, we increased stem prices twice in the year 2024, per January 1, seven 0.9% and then again 4.6 per July 1. Reason for, of course, the step down is, first of all, the shift from 24 to non-twenty four hour mill and secondly, also a higher illness rates in a tight labor market, which makes that we have less efficiency and slightly more cost because we have to hire external people to fill in as much as possible the empty people spaces.

On cost saving side, MailNetherlands did very well, SEK 41,000,000 over the full year of 2024. Also for MailNetherlands, the bridge, the 54,000,000 Q4 20 20 3 to the 38,000,000 in 2024. Here, of course, you see a revenue decrease because of the volume decline. We have a slight revenue mix. Then, of course, volume dependent cost and organic costs, which are wage increases and other inflationary pressures.

Also here, tariff increases that did have quite some positive impact. And here, 5,000,000 for cost savings and asset. A total year result on cost savings is SEK 41,000,000 and that brings us to the SEK 38,000,000 in the fourth quarter of twenty twenty four. On cash flow, we had a very strong fourth quarter. As already said, we brought in EUR106 million in Q4.

Obviously, normalized EBIT was down in Q4 compared to last year’s number and lower than we expected. But thanks to the well executed cash and balance sheet management, the free cash flow performance in the quarter was solid, resulting in 12,000,000 for full 2024 and well above our outlook. Looking a bit deeper into the cash flow components in Q4, the CapEx, which is mainly related to Parcels, was less than, of course, the year before and we did a good job on working capital. This winds up the 2024 financials, but obviously, these were realized in an environment where market dynamics keep on changing. And then the last slide before I hand over to Pim.

Those market dynamics already mentioned, of course, when we discussed the numbers of 2024, within the e commerce market, we see evolving consumer behavior, meaning that on the one hand, they order their parcels later mainly based on discounts. And secondly, we see that they order more and more with the big partners and that creates, of course, client concentration. In postal services in The Netherlands, and we said a lot about it last Friday, we keep on seeing a structural decline due to substitution. Also here, consumers say there is no need for urgent mail. It’s fine for us if we can get it within two days.

So predictability is much more important than speed. We see further cost increases, mainly labor related. And we did see in 2024 that the decision on postal regulation is postponed. That means, that for Parcels, we think that we’re keeping, of course, our commitment to further investments and innovation. We also do think that it is important to start a dialogue with the whole value chain to come to a fairer distribution of value in the sector.

And we start as a leading player and of course, as a leading player in the market, we want to start that discussion. Some of the consequences of that discussion you will also find in our plans for 2025. For Mail and the Netherlands, we’re committed to, of course, a future proof and a financially viable postal service. The business model is unsustainable and requires urgent action. That’s what we already said more than a year ago.

That’s why we presented our plan in February 2024, how to make meal services in The Netherlands reliable and financially viable. And that’s also the reason because there is no view at this moment in time for changes in the postal law, while we submitted our request for a financial contribution to government for the year 2025 in amount of NOK 30,000,000 and for the year 2026 in amount of SEK 36,000,000, I think SEK 38,000,000, sorry, pinpointing that action from Dutch government is needed and in our view, urgent. And that, I think, concludes 2024, If you, in our few, good view on what what happened in 2024, what we also did say in our trading update, is that the outcome of 2024 together with some of the markets trends we see means that we’re looking into certain elements adjusting certain elements of our strategy. That together with the outlook for 2024 will be the story of Pim. And I hand over to Pim.

Pim Bierse, CFO, PostNL: Thank you very much, Herna. And first and foremost, I’ll look at our group strategy. And subsequently, I’ll dive into the adjustments on strategic themes in both our segments. I’m at Slide fifteen to start off with. We’re focused on delivering distinctive customer and consumer experiences with the aim to be the leading e commerce and postal service provider into and from the Van Nuks.

And this overarching strategy fully embeds our environmental, social and governance ambitions, which will enable us to drive towards a sustainable future. Obviously, the dynamic nature of the markets we’re in will require us to every now and then respond to external developments and collaborate with customers to introduce new increasingly digital solutions. If we then move over to our Parcels segment on Slide 17, let’s first look at the addressable market and how we believe that will develop. We have strong confidence in the growth potential of the Dutch and Belgium e commerce markets, which is driven by growth of Dutch retail market spending as well as the development of online penetration. For the Dutch retail market growth, the general view is that we will see growth for the years to come.

The pace at which the market will grow is, of course, partially dependent on economic conditions, and these are and will remain to be volatile. When it comes to online penetration, we see an upward trend both in The Netherlands as also in Belgium. The blue line on the graph, a small graph, shows the online penetration as a worldwide basis. So in our countries, there should still be room to catch up towards this level, which is a very important driver behind the overall market growth. Based on these two fundamental drivers, a mid single digit growth for the Dutch e commerce market in the medium term is expected.

Our assumption for 2025 is a growth rate of between 45% based on the increase in online penetration and the growth of the retail market. However, as the e commerce market matures, factors beyond growth potential become increasingly important. That is the bridge towards Slide 18. The e commerce market is changing in very many dynamics. Obviously, also this e commerce market is impacted by increasing costs, more requirements on labor conditions but an more unequal split of volumes over the days of the week and over the periods in the year.

So even more spiky consumer pattern putting pressure on networks in the market. And that, of course, requires some adjustments. We obviously remain committed to further investments and innovation to support sustainable growth in this market. But given the market dynamics that have clearly impacted our financial performance, we believe it’s necessary to adopt some of the elements of our strategy. In this presentation, we’ll discuss five elements of this strategy, where we will respond to the changing market dynamics.

Speaker 4: I

Pim Bierse, CFO, PostNL: will present them in more detail one by one in the slides that follow, so only the high level strategic initiatives are discussed here. There’s increasing awareness for decent working conditions in our labor market that is very tight. Consumers buy an increasing amount of Parcels Online. We also see an increased focus on reducing the company’s carbon footprint. And in response, we will further step up our investments in health and well-being of our people as well as the investment base for sustainability.

We’ve seen consumer behavior change as you and I tend to buy products more often at large market players and platforms instead of medium and smaller sized web shops. This change in behavior impacts Fostenel and resulted in an acceleration of client concentration that has put pressure on our margins. With targeted yield measures specifically aimed at our largest customers, we will enhance the value of our customers. We’ve also experienced an increasing demand from web shops and consumers to be able to send and receive parcels from countries within Europe. To support our customers in this, we will expand our spring proposition in Europe and our presence in Belgium.

Lastly, we will accelerate the rollout of our parcel lockers in response of the growing adoption of consumers and customers for our out of home options. We truly see that the flywheel has been accelerated in 2024. And as such, the time is right to step up those investments even more. So these are our five high level strategic initiatives that I will subsequently discuss in a bit more detail. The first one is targeted yield measures to enhance customer value.

We see an increasing level of client concentration since large market players and platform are outgrowing the other client categories. In just two years’ time, the share of our top 20 customers increased from 49% to close to 60% in fourth quarter of this year. That top 20 consists of both domestic, international and platform players and the internationally are mainly Asian based customers. The accelerated client concentration put pressure on our margins. Also as you’ve seen in the bridges, Herna explained, the average price per parcel went down, irrespective of the increase of $0.13 on price points that we’ve put through.

So those negative mix impacts have been the most important factor explaining the gap with our outlook. All in all, only the mix factor accounted for roughly million of the difference between outlook and the million. Having said that, this is clearly an area where we need to seek a better balance between volume growth and value. We will need a fairer contribution from large web shops and platforms to fixed costs, to pay for sustainability, improving labor conditions and labor remuneration. And if we want to maintain in a position to keep on innovating this broader e commerce market as well as create facilities with capacity to facilitate their future growth ambitions, we need to get to a better balance and a fairer contribution of margin within the chain.

We will further accelerate the utilization and number of customers that have locker delivery in their checkout processes, which will be an efficiency improvement in itself. And we will further build upon our SME propositions to support the growth of that client category as well. Next (LON:NXT) to that, we’ll focus on more efficient flow of parcels to increase the utilization of our network. Examples are to increase the number of first time ride deliveries and to encourage our customers to set delivery preferences right in order for us to increase the first time ride delivery, utilize the existing infrastructure and create slightly more equal flow in the network. We expect these measures to impact our volume growth and anticipate on slower growth relative to the e commerce market and, as such, expect a slight loss in market share.

Next to that, we see great organic growth opportunities that are now ready to be captured. We see possibilities both in the international growth domain as well as in Belgium. And the international growth domain, we think we can leverage our existing spring infrastructure that is an asset light business model reported within the Parcel segment. So we don’t have own deliveries, we don’t have to own networks nor are we going to invest in those. But Spring’s platform is very well equipped to align customer demand and supply to mix to combine various trade lanes and have customers grow those Europe trade lanes.

As you know, the European market is a very big cross border e commerce market, And we have performed very strongly over the past years in this area, 16% growth. We already have a strong market position in Europe. And we believe that from that asset light network, we were able to boost organic growth. And let’s mention some of the actions we will initiate to make this happen. We intend to expand and optimize our asset light network, aiming to reach all top destinations within forty eight hours.

It differs per country of origin what the key trade lanes are for export out of The Netherlands. For instance, Germany, Belgium, France and The U. K. Are most important, but out of Spain, it’s different. So it does make sense to build a EU network linking these lanes together to create scale effect and further growth opportunities.

We will intensify commercial efforts and improve the sales force targeted at European and Dutch market to grow the number of customers and invest in tools and commercial intelligence, whilst introducing new services and offerings, for instance, fulfillment and additional customs capabilities. Then next, we see also great opportunities for further growth in Belgium, where we are clearly the number two in the market, very good performance since 2022 and also here a market with growth potential. Good to mention that the Belgium e commerce has some characteristics that differ from the Dutch market. For example, as you can see on the graph, the part of import is relatively high due to historic factors. Our actions there, we want to expand our position on export Belgium into Europe through spring, targeted yield management to achieve a better volume mix there as well and we have existing infrastructure and capacity in place in which we can accommodate additional volume without further investments.

Next to that, we’ll focus on improving our Net Promoter Scores as well and roll out our out of home strategy to Belgium. That brings us to the third pillar of the changes to the e commerce strategy and which is the acceleration of the rollout of out of home strategy. Here you see the flywheel that is now clearly working and that’s why we believe we should accelerate it. In the last year, we have seen growing adoption of out of home delivery from our customers as well as from our consumers. Large customers have now added delivery to APLs in their checkout and we’ve delivered 97% more parcels to APLs than in the year before, receiving very, very favorable, very high actually NPS scores of 51 from our consumers using this delivery option.

This has made us decide that there is sufficient adoption now to accelerate the rollout of Parcel Lockers. This out of home delivery strategy has many advantages for our customers, but also for ourselves. Our customers receive higher NPS scores as consumers tend to return to web shops after experiencing a smooth checkout and delivery process, which in return generates more revenue for our customers. With delivery lockers delivery to lockers, we can reduce our costs. The cost for delivery to an APL are roughly 30% lower than for home delivery as we have fewer stops in routes and can drop off more parcels in a stop.

Also the utilization of our network can be increased and retail locations have less handling as consumers can pick up their parcels without interaction with personnel working at their retail location. We’ve assigned a CapEx budget of around 10,000,000 for 2025 for the rollout of lockers that is a couple of million more than assumed before. So for lockers and also the expectation of utilization currently at 36% that will rapidly increase to 100% in the years to come. So we plan for the additional investments to roughly add 500 parcel lockers and to improve the utilization even more, capturing the scale effects and efficiency gains we just talked about. The fourth element relates to our role as large employer, both in The Netherlands as well as in Belgium.

And as large employer, we are committed to decent labor conditions to enhance employer employee engagements and the health and well-being of our people. Increasing online purchases have resulted not only in growth in volume, but also in different type of products. We see more parcels that weigh more requiring tools to support the process for our people. The health and well-being of our people in the operations in both our Parcels and Mail division is of great importance to us. With long term absenteeism remaining high, we take a lot of effort to reduce these rates and support reintegration.

We have a dedicated team that supports employees in tailoring the best possible way to return back to work. And also, we do invest in prevention. With the accelerated rollout of tools like, for example, tilters that support in placing parcels on the sorting bands, but also a move act that helps you to transport roll cages next to frequent rotation of tasks supports to minimize the physical strain for our people. With people coaches at our depot, we keep a close eye on work pressure and job satisfaction. And in this year, we also have introduced a centralized Health and Safety department that has expertise in one central place and will build on uniform guidelines and safe working practices.

And the last part relates to our role in the environment and we determine we are determined to remain at the forefront of sustainability and have set an ambitious path towards net zero emissions. We are on track to reach our recently validated SBTI targets. We decided to further step up our investments in sustainability of which I will name a few. We will expand our electric fleet and increase the utilization of our fleet through improved fast charging efficiency and will expand our zero emission network to increase the amount of city centers that we deliver with zero emissions. We currently do this already in 27 cities.

We will also expand the use of renewable HVO 100 fuel for our large trucks and last mile vehicles. And besides our own fleet, we financially support our delivery partners in electrification of their fleets in The Netherlands and in Belgium. Next to making our fleet more sustainable, we also invest in building stronger algorithms to optimize routes and minimize air in parcels we collect and deliver. To summarize the effects of these five strategic initiatives, Slide 24 is there. In 2025, we will invest an additional 15,000,000 related to the initiatives and both revenue and normalized EBIT will see impact from this when we compare to the base case.

So on normalized EBIT, we expect a hit of million to million in this first year with 15,000,000 additional CapEx. Over time, those five initiatives, so this should not be confused by a midterm guidance, only those initiatives will over time lead to roughly NOK300 million to NOK400 million revenue increase and a positive EBIT contribution of NOK25 million to NOK35 million. For us, it clearly made sense to take those steps right now. They are clearly in the interest of the enterprise and are directly related to the market dynamics in e commerce that we’ve seen in 2024. Obviously, next to those strategic initiatives, we will continue our efforts to reduce costs.

We keep on doing what we can to improve efficiencies. To mention a couple of main projects that will contribute to margin improvement over time, direct and indirect cost savings in First and Middle Mile, collection and transport by integrating networks, reduce kilometers including in Last Mile by further developing our planning algorithms and digital supply chain solutions, improve the management structure in depots to further accelerate efficiency measures, improve capacity utilization during off peak periods, reduce our customer care queue, implementing our conversational AI platform to capture part of context with consumers. And then as always, there are some very many smaller initiatives to reduce costs. All in all, we anticipate on saving between 40,000,000 and 50,000,000 in costs with the efficiency measures that we just discussed in 2025 within the Parcels segment. On that, now let’s move to Mail in The Netherlands.

Let me start by repeating our message that the current business model of postal services is unsustainable, which is again underpinned by the financial performance that Herne explained a little while ago. In 2024, despite 40,000,000 in cost savings, we’ve experienced a large step down in result as a result of structural decline in mail volumes, shift in mix, rising cost in tight labor markets and continued high illness rates. We fully acknowledge that Dutch government needs to assess the future of postal services, but there is an urgent need for change in postal regulation. While we await further decision, we are continuing to make every effort to address this situation and have started to mitigate migrate a large part of Business Mail to D plus two delivery. By the end of the year, all Business Mail will be at a service level of D plus two.

As of this month, we have amended the collection processes of our mailboxes and will collect mail partially during the day to save costs and increase our network efficiency. All measures are taken in the transformation towards a future proof and financially viable postal service. On the next slide, we have laid down our roadmap towards a service level for Standard Mail to be delivered within two days moving towards three days over time in line with consumer needs and in line with customer expectations. And yes, for that, postal regulation needs to be adjusted urgently. Given the discussions that we had on the roadmap earlier on, we thought it wise to explain the different steps and how they do relate to cost savings.

We show a roadmap that assumes that The US oil mill can migrate to DeepREST two at the 01/01/2026. On the next slide, we see the projections when taking into account that this is not the case. We continue with the measures that are within our control and anticipated cost savings between 40,000,000 and 45,000,000 in 2025. Part of these savings relate to the migration of business mail and mailbox collection during the day. On top of this, we continue our efforts to optimize our network.

In Phase one of our roadmap, we assume that USO (NYSE:USO) mail can also be migrated to a service level delivery within two days. Then we will be able to eliminate off peak routes and have delivery concentrated on three days at every address. This allows us to make further optimizations in our network and in the mailbox collection process. It will still be possible to send items within twenty four hours, so called priority mail and at different price levels. These items will then be delivered via the parcel infrastructure.

That steps are expected to bring in roughly 40,000,000 to 50,000,000 in cost savings. In Phase two of our roadmap, we transform the service framework to delivery within three days. With that, we can further achieve cost savings and anticipated further decline in volume will justify to bring down the amount of delivery days within the meal network. And with one delivery day less, we have sufficient time to be able to sort all meal during the day and we’ll need fewer locations to carry out all our processes. In other words, we won’t need night work anymore.

In total, we expect that this will result in cost savings in the range of SEK 80,000,000 to SEK 100,000,000 as well. Please note that amending the service level for Euzo meal will be dependent on the outcome and timing of the political decisions on postal regulation. Slide 29 compares the development of normalized EBIT in the Mail segment in different scenarios. It is also where EBIT should be to cover the cost of capital at the level of the WACC of the group. Without interventions, the loss will become larger by the year.

Our roadmap, as explained on the previous slide, we expect to be able to limit the anticipated loss for the Postal Service in the next year and then turn back to positive results. These projections clearly show that the USO obligations need to be reformed urgently. We stress the importance of including a service level for Standard Mail to deliver within two days and over time to within three days. Also taking into sensitivities, a financial safety net should be incorporated in regulation. These changes are in line with regulation in other European countries.

While we are awaiting parliamentary decisions, last week, we submitted an application to the Dutch government for a financial contribution of NOK 30,000,000 in 2025 and NOK 38,000,000 in 2026. This is to cover the costs of the universal service obligation that we have. So it’s a cost coverage of loss making activities that we have to do as part of the universal service obligation that we have. We’ve asked the Ministry of Economic Affairs to take a decision at short notice. So let’s move to our outlook.

So after explaining you about the strategic initiatives in Parcels, the roadmap for Mill, I would like to show you our main assumptions for 2025 and how they will translate in our outlook for the year. We expect organic cost increases of around NOK125 million, of which 7075% is labor related. We expect within this year those costs to be fully absorbed by price adjustments, another improvement. At Parcels, we expect volume growth between 13%. That total volume growth is lower than we expect the Dutch e commerce market to grow mainly related to the yield measures that we will take, which will result in a slight loss of market share mainly on international.

Positive pricemix effects are expected roughly around NOK 55,000,000 to NOK 60,000,000, almost fully explained by pricing. And we will continue our efforts to take adaptive measures of which we expect a contribution of in between million and million. At Mail and Netherlands, we expect between 8% to 10% volume decline and between 40,000,000 to 50,000,000 in cost savings. All these factors taking into account, including the strategic initiatives we will focus on this year, we expect a normalized EBIT for 2025 in line with 2024. As showed earlier in the presentation, the EBIT impact, negative impact in this case of the initiatives is between NOK 5,000,000 and NOK 10,000,000.

Lastly, and maybe you’re not fond of it, but for us it’s important that there will be a change in segment reporting. As of January 1, we will report our real estate activities in the Parcel segment in order for us to be as close in the Mail segment of the result of the Mail business in itself and not making the distinction between Mail and Mail in The Netherlands anymore. I know that will result in a bit of extra work for you, but we kindly ask you to augment your models accordingly. To help you, you will find a full reconciliation of quarterly results in the appendix to this presentation. On ’32, we present the development per segment to help you understand the expected deltas compared to last year.

And what you clearly see is that, let’s say, the results in Parcel segment will grow and the mill in The Netherlands result will diminish from a positive of three towards a negative results. For Parcel, the main developments are additional revenue from volume growth, organic cost increases are expected to be mitigated by price adjustments, the impact of cost saving and efficiency programs partly offset by higher costs and the strategic initiatives we discussed will result in a step down visible in other results. At Mail and Netherlands, the impact from volume decline is clearly visible. Furthermore, we anticipate to be able to mitigate organic cost increases fully by price adjustments. Then over to the split of normalized EBIT over the quarters.

Even more than in 2024, normalized EBIT will have to be earned in fourth quarter. The impact of pricing will be larger in Q4 than in any other quarter. Overall, working day distribution over the quarters is slightly different than in 2024 also impacting the quarterly split. For Parcels, you should take into account that the announced yield measures will start to come into effect as of Q2. And for me, please remember that in 2024, we had elections in the second quarter and for this year, no elections are scheduled.

To wrap up the outlook on Slide 34, normalized EBIT is expected to be in line with performance of 2024. Due to those balanced strategic decisions, CapEx will be slightly above the level of 2025 and will include NOK 50,000,000 related to the strategic initiatives. We expect that economic conditions over time will improve. But for 2025, we assume that the external environment remains challenging. And we stress that pace of client concentration due to changing consumer behavior is difficult to predict.

Having said this, I emphasize our intention to pay it evident over 2025. We hold on to our aim to be properly financed, taking into consideration the anticipated improvement in performance going forward and the progress towards a future proof Postal Service. Good to add that nonetheless comprehensive income, which is of course less is of course the base for dividend is expected to follow a pattern which is more or less in line in terms of step down compared to EBIT than the 20 in of the 2023 year. And lastly, before we close and open up for questions, I would like to announce that in September of this year, we will host the Capital Markets update and will elaborate on how we see the e commerce market going forward based on market dynamics that we’ve seen and will continue to see. We will provide you further details on the elements that we will adjust our strategies on.

Also, the progress made towards a future proof postal Service will be discussed at that point in time. Based on all of that, we will provide a market and medium term financial guidance for PostNL. Looking forward to have that discussion with you at that point in time. And for now, I would like to conclude the presentation and hand it back to Inge, and she will then subsequently open up for Q and A.

Inge Laude, Manager, Investor Relations, PostNL: Yes. Thank you, Bing. So operator, please open the lines for Q and A, please.

Conference Operator: Thank you. And your first question comes from the line of Michel de Clerc from KBC Securities. Please go ahead.

Michel de Clerc, Analyst, KBC Securities: Yes. Hi, Herna, Tim, thanks for the presentation and

Speaker 4: the

Michel de Clerc, Analyst, KBC Securities: extra call on the strategic measures that we’ll be taking. Maybe first question on that. I was just wondering of these five strategic measures, you will, of course, have some revenue impact and some EBIT impact into 2025. I was just wondering what is this revenue loss related to? Is it like that you assume maybe some customer losses on some more aggressive pricing pass through?

And then maybe following up on that as well, looking towards that target that you have by 2028, how should we see the benefits from that coming through in the P and L in terms of the phasing effects between 2528%? And then the second question would be, and you mentioned it a couple of times on the decision of the amendment of the change in the postal regulation. Can you maybe remind us now what the timeline is at this point in time and how you are looking at it? And yes, because based on your presentation and what you show on Slide 29, I would expect that you officially start a shift towards the D plus two also for the USO mill as from January 2027 based on that graph that you showed. So just wondering if you can give a bit of an update on that front.

Where do you or when do you expect this change to finally happen if it happens?

Pim Bierse, CFO, PostNL: Thank you for your questions. Let me start in the sequence of how you’ve raised them. I think on the revenue loss element there, yes, we do expect that the yield measures aimed at our biggest and at our biggest clients will most likely also result in some loss of volume. It’s definitely much more than just price increases. The most important elements are related to efficiency improvements and creating more equal flow.

But we do expect that in some cases, that could lead to slight loss of share of wallet on those clients and that will lead to the negative on revenue that we indicated. And that’s also the reason why our volume growth is behind the expected market growth. So we do expect a slight loss of market share. But that’s by choice because at the end of the day, we believe that we need to get to a better balance between volume and value for PostNL. So that was one.

Then the target to 2028, yes, clearly, this is only aimed at the initiatives we talked about. So they will gradually mature towards that level. How exactly that phasing will go will be a element that will certainly guide you on more detail on in September when we do have that Capital Markets Day and will also make it as part of the overall revenue and EBIT contribution for a midterm period. So I’m not going to say too much about the phasing right now. We truly believe those initiatives are robust and we believe it’s the right moment in time to accelerate those growth opportunities and will have the in year effects that we also indicated.

So a 5,000,000 to SEK 10,000,000 loss related to those initiatives. Then on postal regulation, maybe, Hannah, you can share the latest there?

Herna Verhaer, CEO, PostNL: Yes. So I think two processes in the sense that, of course, the discussion in Parliament on changes of the post law are still going on. They’re waiting at this moment in time for a review of ACM that will be there somewhere in spring, not exactly known when. And that of course is the basis also for the minister to give his view on how he think postal regulation should be changed. Because the change in postal regulation will take at least one and a half year to two years, so it will be, at the earliest, January 27, that that postal regulation will be in place.

That’s the reason why we’ve asked for financial compensation and that was the press release we issued last Friday. When is USO when are we able to bring USO to D plus two, so delivery within two days is that from January 27, that depends on the changes in the postal law. So depending on what is the outcome of the political debate and of course, the decision to be taken by the minister in the end, that is decisive for the moment we can start changing the universal service obligation into a D plus two service level.

Michel de Clerc, Analyst, KBC Securities: Okay. That’s clear. So if I understand it correctly, the discussion department will be in the spring of this year. If all goes well, they will be or they will approve the change in regulation and then it will take one to one point five years. So that’s the earliest would then be one January twenty twenty seven.

Herna Verhaer, CEO, PostNL: Yes. If they speed up, it could be mid-twenty twenty six, but the expectation is that it will take at at least the year 2025 and probably 2026. And that’s also the reason why we asked financial contribution for 2025 and 2026.

Pim Bierse, CFO, PostNL: Obviously, that can change if there’s a willingness to create transitional arrangements prior to the postal law to become in place. Mike was the intent in October.

Michel de Clerc, Analyst, KBC Securities: Okay. That’s clear. Thank you. Looking forward to the Capital Markets Day.

Pim Bierse, CFO, PostNL: Thank you. Thank you.

Conference Operator: Thank you. Your next question comes from the line of Mark Swartzberg from ING. Please go ahead.

Speaker 4: Yes, good morning, and I’m Pim. I would like to go back to the slides twenty eight and twenty nine just to get a bit smaller there and also to see if I’m reading it correctly. If I read Slide number 28 with the related cost savings, that’s an annual number. So in 2025, obviously, the $40,000,000 40 5 million dollars is there. And then Phase I, Phase II, $40,000,000 40 5 million dollars and $80,000,000 to $100,000,000 that’s is that conditional on indeed the changes coming through to the USO?

And is that an annual number on top of each other? Should I read it like that?

Pim Bierse, CFO, PostNL: What you need to do, Marc, is to basically add the amounts from Phase I and Phase II and those will be divided over the years that we here discussed. So it will be dependent on the phasing. Also the Phase two step will be a function of how volume will develop. So it’s not all on a yearly basis. Obviously, the 2025 number is.

This is the absolute amount of cost that we can take out in this horizon.

Speaker 4: Right. So and these numbers then add up to the orange line on Slide 29. Is that correct?

Pim Bierse, CFO, PostNL: Yes. So if we and that assumes the phasing that we just discussed. So if you then go to ’29, then what we will say is if we’re able to realize our plan that in a transition period up to the point that we are at d plus three, the mill business will be loss making. Only after the step towards d plus three, we’re able to get back to positive numbers again. That is what the orange line says.

And still, we believe that is the best possible plan for a postal delivery in The Netherlands as we felt it was. That’s also why we believe that also in the postal law, a financial safety net needs to be there in case sensitivities push that orange line down or government policies like minimum wage increases put those numbers down need to be offset in order for us to at least create a mill business that can function not at a loss making level that we’re currently looking at.

Speaker 4: Yes. And if I look at the orange line, and that 2027, it’s still more negative than the 2026. So you’re only asking for compensation for ’25, ’20 ’6. But wouldn’t it also be logical to ask for compensation also for ’27 when you have an even bigger loss still?

Pim Bierse, CFO, PostNL: That depends. So we need to make the distinction between the two different elements here. We’ve got a period up to and including up to the new postal law being in place and the mechanisms of the postal law. So assuming that postal law is in place in the January 1, then within the postal law, we intend to have that financial contribution described in the law that makes a separate request for financial contribution not necessary. Of course, if timelines move, we at some point could consider if there is no post law yet to do for ’twenty seven what we’re now doing for ’twenty five and ’twenty six.

But we’ve taken the years because we expect or at least we are prepared for the fact that it could take until the end of twenty twenty six, beginning 2027 before there is a postal law. For now, that financial contribution is aimed at those two years, preempting that.

Speaker 4: Yes, I understand. Yes, exactly. So that is laid out in the postal law. Yes. And this scenario, does it because this morning was also news about DHL going into the postal market and increasing capacity, etcetera.

Did you take that into account in driving this scenario? I’m sorry, it didn’t come as a surprise this morning as well.

Pim Bierse, CFO, PostNL: Well, we are never surprised that they communicate something on the day before our results announcement, Mark. So, but at the same time, we didn’t take this into account. And let’s be frank, Intra Post is a very, very small male player. So no, I don’t see any impact on that news on our numbers nor on our strategy as we’ve presented it this morning.

Speaker 4: And I

Herna Verhaer, CEO, PostNL: think the relevance of out of home is of course also underpinned with what they say and that’s what you see back in our strategy. I think you when you think about out of home for PostNL, we do have 3,600 retail stores. We do have 1,100. We do have 1,100 parcel loggers. We will add quite a lot of parcel loggers in the year 2025.

So the total will be, of course, around the 5,000 numbers of retailparcel local locations you can do your parcel business. So that’s quite an impressive number and it shows, I think, the importance of out of home.

Speaker 4: Yes. No, that’s absolutely clear. Maybe a final one. So I’m just curious about the scenarios you put into your model for the larger accounts where you try to increase your yield management? How much market share loss or lower volumes did you pencil in for those clients where you’re really taking action to improve the yield with, for example, price increases?

Pim Bierse, CFO, PostNL: Yes. Basically, the gap between 4% to 5% and the growth of 1% to 2% that we forecast ourselves, and that is a market share loss. And as you know, we’ve managed to keep the market share stable also throughout 2024. But now when looking at those bigger accounts, we believe we need to get a better return out of those clients. And if the consequence is that they are not willing to move on our efficiency measures or on price points, at some point, you are better off without certain volumes of certain clients, not all but some.

And then we’re okay to surrender part of market share to whomever wants to do that below full cost numbers. We’re not going to go that way, and that’s why there’s a gap between market growth and our expected growth.

Speaker 4: So if I take that gap and I assume that 60% of all investment logic clients, then I should take that as an average over the 60% to explain the gap of, say, 3% is, let’s say, 5% or

Marco Lomita, Analyst, Barclays (LON:BARC): so. Is

Pim Bierse, CFO, PostNL: that Yes. But we also said that it will mainly be in international, which is not the included in the market share definition that we every time put on paper talking about the 58%. So it will only have a limited impact on the not cross border volumes as least as we see it in 2025, but will have an impact on our cross border volume flow. Also for that flow, we don’t expect a grow to grow, but a slight decline in volume, whilst our domestic volume growth will be there.

Speaker 4: Okay. So I need to know then a bit of what the patient flows are to get a bit of a feel for and that explains a large part of that gap. So then we’re talking about more than 10% volume loss at those lines. Is that a correct assumption? Or am I wrong here?

Pim Bierse, CFO, PostNL: Well, I don’t want to be too specific, Marc, because as you also heard me say, those elements will kick in as of Q2. That is also related to contract end dates that are at the end of first quarter. So we’re in the middle of those conversations right now. But I would say roughly you’re right in the expected decline on those flows. But I’m not going to be more specific on which clients and how much exactly since that doesn’t help our commercial position here.

Speaker 4: Yes, I know. That’s logical. But it means that it still needs to be implemented. So the first quarter is then trending above it. That year guidance and then you expect the market share also to be more skewed to the second half.

Is that how I should read it?

Pim Bierse, CFO, PostNL: Absolutely.

Speaker 4: Okay. Clear. Thank you very much.

Pim Bierse, CFO, PostNL: Thank you for your questions, Mark.

Conference Operator: Thank you. Your next question comes from the line of Marco Lomita from Barclays. Please go ahead.

Marco Lomita, Analyst, Barclays: Hi, good morning. Thanks for taking my question. So the first one is on your request for compensation in 2025 and 2026. We saw on the press on Friday that the minister has somehow already said no to your request, but you still look, let’s say, hopeful that, yes, that comes through. So if you could really clarify what’s yes, how the conversations are going on.

I thought that was already a no from the minister. Second question is on the USO cost savings opportunity. So just to be very clear on the question from Mark. The million to million is the absolute aggregate number. So we should not do million in Phase one plus million, so let’s say EUR 150,000,000, EUR 1 hundred million, the absolute amount of cost savings aggregated.

And also on this one, I mean, in the past, we’ve been able to achieve about EUR 40,000,000 of cost savings in mail per annum. Shall we expect a meaningful amount of additional cost savings on top of the U. S. O change? Or let’s say, you I mean, overall, you’re still kind of thinking about EUR 40,000,000 of cost savings per annum, including the USO changes?

And the third question, my final thought thinking about EUR 40,000,000 of cost savings per annum, including the USO changes. And the third question my final question is on the $25,000,000 dividend to be paid in $26,000,000. So your leverage is already quite close to two times. You expect free cash flow burn in 2025 plus dividend payment from the 2024 dividend. So shall we think about Posada not paying a dividend in 2025 dividend for 2025 to be paid in 2026?

Herna Verhaer, CEO, PostNL: Thank you. I think on your first point, I can imagine when you read the news and the newspapers that you think that the Minister said no. But that is not the case. What he did say he is not what he did say is that he thinks that commercial companies that need to deliver a task from government, which is, of course, laid down in regulation should not be loss making. That’s a very important quote from

Michel de Clerc, Analyst, KBC Securities: the

Herna Verhaer, CEO, PostNL: minister. And he will look into our request of course for financial compensation very thoroughly. The way we’ve built it up is via, of course, via principles that are laid down in that same regulation. It’s a document of many pages. They will go through it thoroughly.

They will start up a discussion with us on it. And we expect at a certain point in time a decision from the minister and his ministry on the request we did.

Pim Bierse, CFO, PostNL: On second point, yes, you’re right. Those are cumulative we need to add on those numbers. So if you add them all up, you’re roughly at SEK 160,000,000 to SEK 200,000,000 of savings over that period, roughly divided by SEK $4.00 5, a bit depending on the phasing. As the slide already says, that gives you roughly the yearly amount of cost savings. And there can be some differences within the year.

It’s also a function on when changes can be made, can changes be made at the beginning of the year or are changes only allowed at some point when opposed to the loss there midyear. But in total, roughly speaking, net SEK160 million million to million, range to roughly million compared to a 2024, total space. Then on your third point, what we say is that we intend we still have the aim to pay dividends. We intend to pay dividends based on our dividend policy to be properly financed whilst taking into account these strategic initiatives and the progress that we make on those as well as the progress on a sustainable future mill position. There’s a bit more moving parts than the ones that you also mentioned.

EBITDA will be slightly higher, for instance, than in 2024. So we clearly have the intent to pay dividend in line with dividend policy. Also over the book year 2025, partially by an interim dividend in August and hopefully a final dividend in 2026.

Henk Slotblum, Analyst, Bordeaux: Thank you.

Pim Bierse, CFO, PostNL: Thank you, Marco.

Conference Operator: Thank you. We will now take our final question for today. And the final question comes from Henk Slotblum from Bordeaux. Please go ahead.

Henk Slotblum, Analyst, Bordeaux: Good morning, and thanks for taking my questions. I have a few. First of all, on the guidance for the current year, does that in or exclude a possible financial contribution from the Dutch state? I assume it’s excluding. Is that right?

Excluding. Okay. So if it comes, it is it will create a tailwind for you in 2025 in terms of

Pim Bierse, CFO, PostNL: Yes. But I need to correct you here, Henk. Let’s say, how this works is that this is a net cost request based on the net cost of the obligation of the universal service. Basically compares the factual cost and the counterfactual without the universal service that is currently assessed based on our own view of 2025 of NOK 30,000,000. But effectual, so our own assumptions need to be changed by an actual ultimately.

So a cash in, if at some point, will only be there after the 2025 book year. Because you need to have the actuals to determine the full and final number of those net costs. But we do expect to get a agreement or a decision in principle, clearly before that point in time. But we don’t expect in any circumstances an actual cash in in ’twenty five. That will then need to be in 2026.

Henk Slotblum, Analyst, Bordeaux: Okay. Perfect. That’s clear. Second question is on the reallocation of the real estate. I’m a bit puzzled what exactly does that mean?

Is it rental revenues? Or is it book profits? Or what is it?

Pim Bierse, CFO, PostNL: It’s both. And what we said is in order to create the least possible confusion about the results that we realized with Mail, the Mail distribution part, we wanted to clean up the segment in order for Mail in The Netherlands to be truly be the results of our Mail business. The real estate which was in this segment was a combination of the internal rent markup for economic advance length purposes as well as some remaining real estate proceeds. I would say more than two thirds or probably 75% of that is related to internal rent and not to real estate proceeds.

Speaker 4: Okay.

Henk Slotblum, Analyst, Bordeaux: That’s clear also. Then the next one on the cross border initiative you announced, Bim. I’m a bit in the dark as to what it means exactly. Are you you have an asset light model there? Is it basically bringing assisting your Dutch clients to make sure that if somebody orders a parcel in France at bol.com, for example, that you make sure that it arrives at the proper place in France.

Is it the mid mile? Let me put it in those phrases. It’s not an initiative that stretches beyond this. It’s not a last mile or so initiative.

Pim Bierse, CFO, PostNL: No, it’s an asset light model spring. And over the years, we’ve managed to transition the Spring Europe business from a traditional cross border mill to a 75% cross border e commerce market. I would say already quite mature or close to 200,000,000 of revenues. And they assist clients to create trade lanes within Europe so that they can ship and deliver their products towards consumers in different recipient countries. And we do that by leveraging our partners.

We’ve got access to very many different delivery options. And what we’re gonna do is create more dense line holes to also increase the speed in which you can get deliveries from, let’s say, Spain to Germany towards within forty eight hours. So it is to a large extent intra Europe. It could be from The Netherlands to Spain, but it also can also very well be from Italy to Germany. With our footprint in Europe and with additional services in relation to some fulfillment activities, we believe that there is great organic growth on the back of a very positive track record of spring.

We’re not going to into and you know you follow us already for a very long time. We’re not going to go back to post cone and Nexief type business models and actually final mile networks with the infrastructure, that’s not what this is. It’s an asset light business model. And also in that sense, there’s no stranded assets. There’s not an awful lot of fixed costs that you add.

So even if the plan doesn’t work out as we expect it to be, there’s no stop losses of any material kind anyway.

Henk Slotblum, Analyst, Bordeaux: Okay. And then my final question, and perhaps I should ask this question to DHL and Infra Post or whatever. Infra Post has some cooperation with dealers like Citome and Spota and Zara Topolodas as well. It makes my first impression when I read this news this morning was that it creates more body for the initiative DHL already announced, what was it, a year and a half or so ago, yes, that they opened their network for the heavier mail items as well. I was surprised by the fact that they think about a twenty four hour initiative.

What makes you think they can do it better than you can? I mean

Pim Bierse, CFO, PostNL: I don’t think they can, Henk. That’s the answer. I don’t think they can at all. That loan at scale. And as you said, you indicated that you go back to something that they announced a year and a half ago on mail.

I have not seen any impact on mail because of that. So, yeah, I think you’re better off asking them the questions. You could also maybe ask them why they’re putting this out there a few hours for our, for our own notification. And I think you will get the answer quite quickly then.

Henk Slotblum, Analyst, Bordeaux: I see what you mean. Okay. Thank you very much, and have a nice day.

Pim Bierse, CFO, PostNL: Thank you, Anne.

Conference Operator: Thank you. I will now hand the call back for closing remarks.

Inge Laude, Manager, Investor Relations, PostNL: Yes. Thank you. So that’s all for today. Thank you for joining. And if any questions left, please reach out to us.

Thank you for now.

Conference Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.

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