Good morning, ladies and gentlemen. Welcome to the PostNL Second Quarter and Half Year 2022 Analyst Call. At this moment, all participants are in listen-only mode, and after the presentation, there will be the opportunity to ask questions. Now, I would like to hand the conference over to Mr. Jochem van de Laarschot, Director Communications and Investor Relations, PostNL. Please go ahead, sir.
Thank you, operator, and thank you everyone for joining us this morning. We have presented our second quarter results this morning. You have seen the press release, and you can also download the presentation on our website. It's also visible on your screen if you're logged in that way. We will follow the usual pattern. We will go through the presentation with Herna Verhagen, our CEO, and Pim Berendsen, our CFO, after which we will open up the floor for your questions. Herna, over to you.
Thanks, Jochem, let's start with the key takeaways of the second quarter. Our normalized EBIT came in at EUR 10 million. We saw high inflation and pressure on consumer spending, which impacted our cost development, but also e-commerce volumes. That's what we, of course, saw in the volumes at parcels. The domestic volume growth was still 3%, excluding non-recurring impact related to COVID-19. Overall volume decline was 12.6%, and this of course reflects the COVID-19 impact and development in cross-border activities. Volume at mail in the Netherlands was down 7.4%, and that is slightly better than expected. The cash flow reflects the step down in normalized EBIT and also some working capital phasing. I think important also is of course progress on our important strategic items under which ESG.
There are especially attention for the 20% carbon efficiency improvement and the acceleration of our digital transformation, on which I will give a few examples later on in the presentation. We also announced the interim dividend, which is set at EUR 0.14 per share. With the developments, of course, in volume and development in inflation and pressure on consumer spending, we've changed our outlook for the full year to EUR 145 million-EUR 175 million and of course, Pim will give more highlights on that change. Secondly, we keep the free cash flow at EUR 110 million-EUR 140 million at the lower end of this already initially guided range. Let's move into the numbers.
Of course, the external headwind of inflation cost rising, for example, labor costs impacted results. What you find over here is that revenue came down compared to the second quarter of 2021 with 11%, which is due to the change in COVID, no COVID impact anymore in the second quarter of 2022. Our normalized EBIT came down to EUR 10 million. Part of that is of course non-recurring COVID, which was 26 million, and part of that is business impact. We'll give you details on that business impact in later slides. Our free cash flow in the second quarter was negative. As already said, due to our normalized EBIT decrease and of course phasing of working capital, we had a normalized comprehensive income which was positive of EUR 19 million.
Share buyback, the share buyback for 2022 is fully completed, and Pim will give details on one of the slides which will come in a few minutes. I think important to start the presentation on business with our strategy. Nothing changed in the strategy, and what you find over here is that we create value for in the end, of course, attractive total shareholder return, and in that value creation are three important propositions. The first one is in parcels, which we manage for profitable growth. Important in that is of course the customer interaction, the capture of future e-commerce growth, and we'll give you an overview of how online penetration, online spending is still growing, but also managing our network capacity. Within mail in the Netherlands, we manage for value.
Mail in the Netherlands had a strong and a solid second quarter, where we reinforced the value of mail, where we saw more volume coming from direct mail, for example. Here you also see that price, the cost-saving programs are well managed and are delivering the results we expect. Digital Next, an important program, for the digitization of our propositions, but also our back office services. We're investing in Digital Next because we do think it's crucial for our future, and we remain to do that going forward. Three important value creation propositions in our portfolio, which will lead going forward to attractive shareholder returns. I think in that strategy in which we highlight, of course, parcels, mail, and digital, also we highlight ESG.
Because one of our strategic aims is to decrease the amount of CO2 emission, that's one, and that's what you find in the above part of the slide in environmental. We saw a 20% carbon efficiency improvement versus full year of 2021. Important to say over here is that we received a platinum rating from EcoVadis, and that means that we're in the top 1% of 75,000 companies which are surveyed on several aspects on ESG. Social remains at the heart of our organization. We were happy to see that our workforce is still highly motivated. That's what we saw in the strong engagement scores.
Together with, of course, the fact that we reached an agreement on the CLA for mail deliverers, where we agreed 2x 4% increase on their base salary. You probably did read the news of last week that we're now offering our mail deliverers an indefinite employment contract per direct. On governance, as already said, an important platinum rating in EcoVadis, but also ranked at the highest ESG performing AEX and mid-cap companies. On ESG, fortunately, we did see progress also in the second quarter. One of the important value creation propositions is, of course, the digital transformation. To follow the speed of the digital transformation, we are using a few KPIs which you'll find on slide number seven. Here you see that what is important to us, for example, is the PostNL consumer accounts.
We saw an increase to 7.2 million consumers using the account of PostNL compared to 6.4 last year, first half year of 2021. An important increase because that's the outreach we have to consumers. I think also important to mention is the speed of our APL implementation. We have by now 315 APLs in the Netherlands, which was last year 214. We agreed with two retail organizations to place 200 APLs in the year 2022 and 2023, bringing the total to around 500. Of course, still working for further implementation to reach our 2024 goal. Already mentioned is the PostNL app, where we now have 7.2 million users. We've upgraded the app.
For example, that also in Belgium, consumers can use the app, that's one. Secondly, that it has a better accuracy and reduced time to market when it comes, for example, to new technical infrastructure. We keep working on the digital transformation because we do think that it is a crucial element in the realization of the strategy we set out. Dive into a little bit into the development in our businesses and come back to parcels, of course, and mail. In parcels, we did see lower volumes and increasing costs. Unprecedented inflation impacts our margin, and that's literally, of course, what you see when you look into the numbers. Our revenue came down from EUR 589 - EUR 590, and also normalized EBIT down from EUR 56 million- EUR 14 million. Volumes, 12.6% down.
All in all, we see a few important developments within parcels. I think the first one is that the domestic volumes, if you exclude the COVID effect, so do show a volume up of 3%. That means that there is still underlying growth in the e-commerce market. Of course, it is less than we expected it to be, but that's a positive development. Overall, 12.6% decline, which is reflecting COVID impact and reflecting the development in cross-border activities. Important to mention is that market share of PostNL in the e-commerce market is stable. The impact in revenue is caused, of course, by a lesser volume decline, but also by a volume decline we did see in Spring and logistics. Within Spring, of course, it has to do with the high second quarter of 2021 just before the VAT implementation.
Within logistics, for example, we did not have a peak in the second quarter, which we do see in their volumes. Fortunately, we do have a positive price mix effect where we see price increases and a favorable change in the mix. Of course, cost. As already said, the inflation results in an increase in fuel and labor cost. We continuously scale our operations to align the operation with the volume developments and of course, to manage daily and weekly volume fluctuations. I think it's also important to say over here that we're not scaling down the operations to the level where we could do looking into volumes, and that has to do with the tight labor market.
We want to keep our employees employed, one, and secondly, be prepared for a peak season, which we still expect in the fourth quarter. The network expansion in Belgium is on track. We will come to, of course, measures we've taken to reduce the increase of our costs, but in the end, it will not level the increase we did see because of inflation. On slide nine, you find some of those measures. Parcels is, as said in our strategy, managed for profitable growth. That means that we're scaling our network as far as we can without risking quality and without risking, of course, peak season. We're taking actions to reduce the indirect costs.
For example, when you think about strict cost control, and that's what you find in the column Balance of Volume and Value, we have focused on our overhead costs, but we also reduce costs by phasing certain projects. As we did say in the press release, we're looking into new propositions, but also looking into additional price adjustments where we do think they are necessary in the e-commerce value chain, because to address the inflationary pressure we do see. So far, and Pim will come back to the numbers, so far, we took up in our numbers most of those organic costs. When we see the increase, we do think it's necessary to have additional price adjustments in the market.
Of course, we keep putting customers first, and that means that we're still investing in service offering, like for example, Consumer in Control with additional delivery options, with extra options of the APLs, but also for our customers with Morning Infeed, and that means that they can have same-day delivery. They can order till late in the morning, and it still is delivered that day. When we think about the cost increase, we have to take into account that we're already continuously scaling our operations to the volume we have at that moment in time. That's what we do by, for example, the optimization of routes, staffing, and fleets, and as already said, also taking into account that our network is still able to deliver high quality and is able to do peak season, which we expect in the fourth quarter.
That efficient and future-proof infrastructure remains part of our strategy going forward. Although we do think that looking into volume growth, we do think that further flexibilization of the investment, but also phasing of investments can be done also in the infrastructure of parcels. We're still positive when it comes to parcels, when it comes to the e-commerce market, and that's what we showed you on slide 10. When we think about e-commerce growth, then it is mainly driven by two important factors. The most important one is e-commerce penetration, and secondly, by online retail spend. In both occasions, we still do see growth in the e-commerce penetration, and we do see growth in retail spend. It also means that underlying, we expect a positive trend in e-commerce and e-commerce markets.
Although visibility is limited in the shorter term, we've seen structural growth over the past years and continue to see an upward trend. We are therefore convinced that the parcel market is an attractive market to be in. That gives you a first view on parcels. Then let's move to mail. In mail, second quarter did see a solid performance, which successfully mitigated the volume decline through a moderate pricing policy, but also, of course, cost savings initiatives. Revenue was down in the second quarter, 2022, caused by volume decline of 7.4%, which is an improvement in substitution rate. Excluding COVID effect, the mail volumes were down 3.3%. Second reason why revenue is down is because of the international mail. Normalized EBIT came from EUR 23 million last year, second quarter to EUR 13 million this year, second quarter.
I think important to understand that when you exclude COVID effect in the second quarter, 2021, we saw an improvement in normalized EBIT of EUR 2 million. That is partly caused, of course, by a positive or better than expected volume development, that's one. Secondly, cost saving plans are in line with expectation. We also do see here increasing labor costs. Following the CLA, of course, we agreed for mail deliverers, which includes a pay raise of 4% in the year 2022, and again, at 4% in 2023. Further cost savings will come from, of course, our normal cost saving plans, which are on track to deliver. That's what you see on slide number 12.
There we give you an overview why we successfully delivered stable and predictable normalized EBIT and cash flow, and think we can do that over the next coming periods as well. Looking into the mail market, of course, the integration of Sandd is fully completed already in February 2020. There is one strong nationwide network which cooperates, for example, with social welfare companies. For many, many years, we are using a moderate pricing policy, and therefore we also resume pricing increases for the euro in 2023 within our legal boundaries. Volume development expected to be 8%-10% down in the year 2022, but at the lower end of the bandwidth, which means around the 8%. Increased relevance for customers. Mail, especially in COVID times, was a need to have.
There we did see that there is some rediscovery of the strengths of mail, for example, in direct mail. We did see more direct mail volumes in the second quarter than expected. We have strong focus on the sustainable delivery of mail. As you do understand, most of the mail in the Netherlands is delivered by foot or by bike. That already the biggest part of our mail delivery is CO2 emission-free. Also the parts we do by cars or by scooters, we electrify those as much as possible. Adapting the organization is a way to live for mail already for many years, and that means that they, of course, are further developing their cost-saving programs for the next coming years.
An important approval is received from the works council for a further optimization of delivery routes, which leads to a further improvement of efficiency. Important element last week was, of course, the announcement that we offer everyone an indefinite employment contract for all mail deliverers, which hopefully will help us to fill in the vacancies we still have. What we did see in the first days after the announcement is that we did receive times the amount of CVs compared to before the announcement. Slide 13, our focus is to deliver on our strategy and together with adaptive measures which can mitigate our external headwinds. We're living in a challenging macroeconomic environment where, of course, there is still ongoing inflationary pressure and impact on e-commerce volumes, which leads, on our side, to tight cost control and other adaptive measures.
For example, adjusting our CapEx to align with volume projections and applying strict working capital. Mail in the Netherlands keeps on delivering its solid performance. It will be a combination of further cost saving measures taken within parcels and then especially on the indirect side of parcels together with keeping up the strong performance of mail. We don't see yet clear signs of recovery, and that means that stronger headwinds and consumer behaviors remain to be a source of uncertainty, especially for the peak quarter. We adjusted our full year outlook to a normalized EBIT between EUR 145 and EUR 175, with still a strong cash conversion where we expected free cash flow comes in within the initially given outlook range of EUR 110-EUR 140 at the lower end of this range.
I would like to hand over to Pim to go with you into the financial performance and some of the other details.
Thank you, Herna. Yeah, let's go into more financial details. Before I do, just wanted to remind you that in the back pocket you will see the reconciliations on key financial drivers to help you understand the comparisons on all relevant financial drivers properly. Let's go to slide 15, and there you'll find the overview of the normalized EBIT comparison, EUR 63 million last year compared to EUR 10 million this year. Basically, 50/50 split. Half is driven by the non-recurring COVID reduction in comparison to last year, EUR 40 million of which is at parcels, EUR 12 million of that is within mail in the Netherlands. Basically, the remainder of the gap is explained by EUR 28 million parcels down, EUR 2 million mail up, as Herna already indicated, on the back of a very strong mail performance.
If we zoom into the parcels performance on slide 16, and there we'll have the bridge of EUR 56 million Q2 2021 towards EUR 14 million of this quarter. A big revenue volume effect, obviously driven by the 12.6% volume decline, driven by lower consumer spending at the same market share as before. Positive price mix as a consequence of price measures already taken in the beginning of the year and a bigger organic cost down than originally anticipated. EUR 16 million additional organic cost in comparison to last year. Obviously, we're scaling down the operations in line with lower volumes, particularly in this quarter. And also in other results, you see the lower contribution of Spring and logistics.
As Herna already said, in the logistics business, there was not much of a home and garden peak season this quarter, also driven by higher inflation rates impacting consumer spending, also driven by supply chain issues. Overall, a tough quarter for parcels. If we then go to mail on slide 17, there's a reconciliation of EUR 23 million towards EUR 13 million. As said, the biggest driver between those is actually the non-recurring COVID of last year. EUR 12 million of that delta, and the volume developments here is driven on a 7.4% volume decline, which indicates a slight improvement in the substitution rate. Organic costs slightly higher there as well, obviously on the back of the new collective labor agreement that has been concluded.
Other costs here reflect the strong performance on cost savings as well as positive results on bilaterals. If we then from profit go to cash, slide 18 provides reconciliation of the cash flow. For the quarter, a negative free cash flow of EUR 43 million. Obviously, the most important driver behind it is the step down in normalized EBIT. Next to that, we see an investment in working capital within the quarter, which to a large extent is phasing and related to cutoffs of Q2 2022 and between Q2 and Q3. No reason that should be the profile going forward. All in all, negative EUR 43 million of cash flow for the quarter. Then on slide 19, we've completed our first tranche of the share buyback program.
51 million shares were bought back for a total consideration, including cost of EUR 164 million. That concludes the first tranche. We plan to execute the second tranche of around about 90 million in 2023. Also today, in line with our dividend policy, we today announce our interim dividend for 2022 set at EUR 0.14 per share, which is 1/3 of the dividend of previous year in line with dividend policy. Obviously, the dividend will always be paid by the shareholder's election, either in cash or in ordinary shares. If it's dividend to shares, obviously we'll use the shares that were repurchased through the first tranche of our share buyback program. When we've discussed profit cash, we'll end up with the balance sheet on slide 20.
Still a strong balance sheet, positive consolidated equity. Obviously, adjusted net debt has increased in comparison to the balance per the end of 2021, driven by the lower cash flow of the quarter, as well as obviously the final dividend over 2021, as well as the share buyback program that resulted overall in an adjusted net debt by the end of the quarter being EUR 494 million. Important to spend a bit more detail words on the full year expectation for this year, and we'll do that on the back of slide 22 to start off with. Obviously, Herna talked about the macroeconomic circumstances, impact of inflation on cost base, on fuel, on energy, and also more in particular on labor.
This slide provides our latest view on it, and I think it's important to note that normally, difficult word in these days, but let's say from the past years, a roughly EUR 45-EUR 50 million step-up in organic cost base year-over-year has been the norm. You can see at the bottom of the graph that is also regularly approximately the level that through price increases we can get back. As of March this year, we've seen an acceleration of inflation leading to higher costs, particularly on labor, fuel, and that basically drives up the organic cost developments from the roughly EUR 45 million to around about EUR 100 million, which is more than of roughly EUR 20 million more than what we anticipated by the end of the first quarter.
Obviously, that additional step up in organic costs cannot be absorbed within year by efficiency improvements or price measures. Clearly, I think it's clear that, let's say, the entire industry cannot absorb these type of organic costs, and this should then also lead to over time increasing of price points to offset these higher organic costs throughout the supply chain. If we go to our outlook for 2022, we've revised the outlook on normalized EBIT to EUR 145 million-EUR 175 million. We still believe that we can get to the lower end of the free cash flow range of EUR 110 million-EUR 140 million. On the profit, the expectation is that originally in the beginning of the year, you will remember that we expected growth at parcels of 3%-5%.
At the end of Q1, we've adjusted that to more or less flat, and by now, given the pressure on consumer spending, we expect a decline of a couple of percentage points. On the back of the inflationary macroeconomic circumstances, we do expect a step-up in organic cost increases. We just explained that it's around EUR 20 million more than what we originally thought by Q1. The volume expectations at nil are unchanged, albeit at the lower end of the 8%-10% decline range.
In order to end up with the free cash flow at the lower end of the range, as we discussed before, we'll adjust the level of our investments roughly by EUR 25 million to get to a comparable number at the investment levels of 2021 and keep on managing the working capital in order to get to the lower end of the EUR 110 million-EUR 140 million range. Normalized comprehensive income follows the same trend and will develop in line with normalized EBIT. On slide 24, we'll get to the quarterly split of the normalized EBIT and, as you know, we are getting back to a normal pre-COVID seasonal pattern for our business, which indicates a very strong Q4.
That's also why we've said that there are still obviously limited visibility on the impact of consumer spending and the uncertainty around that, particularly, for Q4. That's the phasing Q3, Q4, back-end loaded on Q4, which is the normal pattern. I think in relation to comparability of last year, it's important to note that in the first two quarters last year, we had very strong e-commerce driven cross-border growth. Those comparisons will ease, in Q3 and Q4, given the fact that the low value thresholds, on value-added tax has been abandoned as per July first of last year.
To wrap it up, as Herna already said, we obviously will continue delivering upon our strategy, but at the same time, we do not turn a blind eye to the changing and very demanding macroeconomic environment. That's why we've applied tight cost control. We're phasing projects. We're adjusting our capital base by reducing the level of investments, both in terms of CapEx, but also in lease additions, and align the investments to volume projections. By applying strict working capital, we'll get to the free cash flow lower end than the strong performance in mail. We need to obviously recognize that there are strong headwinds in this market, but fundamentally, we do expect the e-commerce market to grow and to continue to grow from here onwards. That concludes my part of the presentation.
I'll hand it back to Jochem, and then to you for questions, I guess.
Thank you, Pim. Operator, please open the floor for Q&A.
Thank you. Ladies and gentlemen, we will start the question and answer session now. If you have a question, please press star one one on your telephone. So star one one for questions. The first question comes from the line of Henk Slotboom from The IDEA!. Your line is open. Please ask your question.
Good morning. Thanks for taking my questions, and thanks for the presentation. I've got a number of questions. Pim, you already said we're phasing the speed of investments in parcels among others. Last year, you presented a program, a step-up, of in total EUR 450 million. Could you roughly indicate on the basis of what you know today, how that is going to phase out going forward? That's one thing. The second thing is the EUR 450 million was obviously linked to a certain growth model.
Looking at the outlook, and I respect that, I can fully understand it because of the market circumstances that you can't say anything about 2024, but how realistic, given where we are today, is the ambition level you guided for 2024? Shall I take the rest of the questions at the same time? Do I take-
Yes, please do.
That's okay, Henk.
Yeah.
Yeah.
On mail, two questions. One is, your guidance is still pointing towards the lower end of the 8%-10% decline mark. But we'll have a boosted campaign again in the fall of this year. Shouldn't that help you to basically do a bit better than the 8% or 10%? Or alternatively, what is causing this to be offset by other factors? Is that direct mail, for example, which could come under pressure if the economy turns sour? Secondly, on mail, is the pricing going forward? This year you couldn't raise your USO tariffs.
For next year, you make a couple of remarks on slide 12 that you will increase the prices in line with what has been agreed upon legally, yeah. What is allowed on the basis of the postal regulation. If I look at inflation and if I look at the decrease in volumes, those are the two main components in the formula that is being used. How do you think your clients will react if you confront them with a double-digit tariff increase, if that is possible at all? Will that accelerate or will it increase the rate of substitution? The last question is what are your expectations in terms of volumes for this year?
You already said the headwinds are bigger in the second half for parcels than in the first half. You cited quite correctly the fact that the Dutch consumers are getting a little bit more cautious in their spending. Could you give us any hint as to where you expect parcel volumes to be at the end of this year? What kind of range? Those are my questions. Thank you.
Thank you, Henk. Shall I start, Herna?
Yeah.
Maybe on some you can add.
Yeah.
If you don't mind, I'll take question one and two together because let's say the level of long-term investments is a function of our growth expectations and they go together. Obviously what is difficult right now, Henk, what we indicated the limited visibility in this specific day and age in relation to our Q4 expectations on consumer spending. It's very difficult to even prolong that horizon to 2024 because it will be a function of how macroeconomic developments will continue and what will happen geopolitically speaking and the implications of energy shortages on the entire economy.
I cannot be specific on 2024, but if we just take the big drivers of business that are gonna cause the step up, then obviously we have to know that we're expecting to end the year 2022 at lower volumes at parcel than originally planned. We do see higher organic cost increases, and at the same time, we do expect benefits on the pension expense side knowing that interest rates will be up. There is definitely a change in market circumstances. At this point in time, I don't dare to be specific on 2024.
What I meant to indicate for 2022 is that we'll reduce the level of CapEx back to the from the EUR 160 million-EUR 170 million towards the 2021 number, roughly around about EUR 140 million, which is a EUR 25 million reduction given the fact that we are aiming for lower volumes and have adjusted our investment base accordingly. On top of that EUR 25 million, roughly speaking on the lease additions, a reduction of also around about EUR 50 million should be expected. Roughly speaking, EUR 75 million lower capital employed by the end of the year balancing the lower volume expectations in comparison to where we started off the year. The volume development mail in the Netherlands, we're cautious. We were cautious in the beginning of the year.
We already indicated that there could be slight improvement in underlying volume development, but still early days to determine whether or not they are actually structural. We've not taken into account massive COVID volumes for the second half of the year. If they are there, and if that would be the case, then that could be a improvement in comparison to the guidance on volume development that we've just given.
As you do know, Henk, so far what they expect to do with the booster campaign is only a very limited amount of people. It's free for everyone below 60, but only above 60 probably will be invited.
Okay.
That's one. I think pricing, if you think about the universal service obligation room we have, then that fits within our moderate pricing policy, which means that is what we expect to do in 2023. That fits within the regulatory framework we have. As you probably do remember what we did say when we could not increase prices in 2022, that there was some sort of a special ruling which gives us the opportunity to increase in 2023. It also of course indicates that the room we have to stay below the 9% return on sales is not unlimited. The moderate pricing increase, as we've indicated also in our presentation, is what we think we can do over the year 2023.
It's just-
You do know, of course, that when you come up with much higher price increases than the 3%-4%, 4%-5%, that they do have a significant impact on volume development. We're not planning to do that. That's one. Secondly, if you would do so, you do know that you have to take into account additional volume decreases.
It's either you get bitten by the dog or the cat, to put it in those phrases. If you moderate your tariff increase, then probably you won't be able to offset the rate of inflation other than by announcing cost cuts. If you do raise it by more than the, say, traditional increase, you risk a decrease in volumes, an acceleration of the decrease in volumes.
Of course, that's not new to us, Henk. It's already the case for 10 years. If you think about creating extra substitution, there is, of course, a certain limit or a certain elasticity to where we can go with price increases. In that sense, it's what we already live with for many, many years.
Sorry to react again. The difference this time is the rate of inflation. The last figure we saw last week was 10.3% in the Netherlands, and we haven't seen that since the 1970s.
No, that's true, but I think, Henk, the bigger element of organic cost pressure is in the e-commerce segment rather than in the mail segment. That's where we quite clearly say that we believe industry-wide, those organic cost increases cannot be offset by productivity gains and should lead to higher price increases.
Okay.
Well, I'm not the macroeconomic expert here, but obviously it's not the case that everybody predicts 8%-10% inflation to remain at that point, going forward. At least that's not what the most recent scenarios look like. I think we need to distinguish the organic cost pressure in mail and in parcels and the relevant pricing mechanisms that we can apply in both segments.
Okay.
Maybe back to your last question, which, if I'm not mistaken, related to the volume expectations at parcels for the second part of actually full year. At the beginning of the year, we did expect reported a volume growth of 3%-5%. By Q1, we had to adjust that on the back of the March numbers to close to zero. Now we've adjusted to a couple of percentage points decline in comparison to last year. Knowing where we are today, that still assumes a growth for half year two on the back of a good Q4. That's what we currently assume. Roughly speaking, you need to get to approximately double-digit growth for the remainder of the year to end up, roughly speaking, at a couple of percentage points down in comparison to last year.
I can expect a follow-up question and what makes you confident that that is actually the case. Well, as said, it's not easy to predict, but we wanna be as transparent as we can be on our current estimations. We have reported volume growth, underlying in the second quarter. Gradually speaking, May and June were better than April. That trend continues into July. So we've done whatever we could to look at drivers to indicate that on the back of online penetration still increasing, we should expect growth, for the remainder of this year. Again, obviously, nobody knows exactly what higher inflation rates and potential risks going forward could mean to consumer spending, but it's today our best estimate.
Okay. No, I guess that's a fair point. Thanks for answering the questions.
Thank you, Henk. Now we are going to take our next question. Please stand by. The next question comes to line of Sean Goodier from Bank of America. Your line is open. Please ask your question.
Good morning. Thanks for taking my questions. Actually just two from me. So just on the Q4 details, and of course you mentioned that everything's very uncertain right now. Your guidance still assumes actually a higher EBIT than last year. What are the sort of key drivers behind this? And what are the risks to this as well, of course? And next, just on the competitive environment, what are you seeing currently sort of in terms of competition at the moment from other players? Of course, Amazon is not as much of a risk really to you in the Netherlands, but have you seen them sort of growing at all? Yeah, just some comments on that would be great. Thank you.
Well, on the Q4 question, obviously the driver there is the growth we just talked about. That is what drives this in the quarter-to-quarter bridge on slide 24, you can see that. Obviously that's driven by the reported growth that we do expect in Q4, 2022 in comparison to 2021. On Amazon, we've not seen fundamental changes to their market position in the Netherlands in the second quarter, more in the first, actually. No fundamental changes to the industry dynamics. As said, we've managed to keep our market share roughly stable.
The same counts for the other competitors we see in the Dutch market. It's a relatively stable market, so far in the Netherlands, and no big changes expected in the second half of 2022.
Thank you.
Thanks.
Thank you, Sean. Ladies and gentlemen, as a reminder, to ask a question, you will need to press star one one on your telephone. Now we're going to take our next question. Please stand by. The next question comes to the line of Marco Limite from Barclays. Your line is open. Please ask your question.
Hi, good morning all. Thanks for taking my question. My first question is on your pension expenses. I'm just wondering if your new 2022 guidance, you are factoring in a lower pension expense. If 2021, you reported personnel other EBIT of EUR -82 million, where broadly shall we expect personnel other EBIT this year? My second question is just a follow-up on the question on parcel volume growth outlook for the second half. You're now expecting 10% or double-digit volume growth in the second half.
I assume, this is because you, also expect recovery in international volumes, and I'm just wondering if you can disclose what was the underlying volume growth in Q2 excluding COVID one-off but also the international or the VAT, volume, let's say, mismatch in the base. Just understand what's the real underlying volume growth that we can expect also from the second half of the year. Finally, the third question is, can you just remind us if, in the Q4 last year you had, any sort of lockdown in Netherlands or restrictions or anything like that? Thank you very much.
Okay. Thanks, Marco, for your questions. First, on pension expense. Let's say the pension expense is driven by two accounting requirements, which means that you set the accounting and expense, for the next year at the end of the previous year. In other words, within the year, the metrics on which they are based will not change. Within 2022, there is no delta on pension expenses, nor is it as such then part of adjusted outlook. What is the case is that throughout the year, obviously we've seen, discount rates and also IAS 19 discount rates to gradually increase. If they were to end up by the end of the year, roughly speaking, around the level that we currently see, then you should expect an improvement, in other words, a lower pension expense in 2023.
That's gonna be fixed by the end of 2022 on the back of, at that moment in time, the discount rates and indexation parameters. In the back pocket slide on pension expense, you can find the reconciliation as well as the sensitivity, basically indicating that 25 basis point leads to a EUR 5 million improvement of pension expense. On the parcel growth, yes, international is expected to improve. If you break down the overall volume development in the different components, it is reported 12.6%. The impact of non-recurring COVID is 11.4%. The underlying growth is 1.2% down. The impact of international is 4.3% negative here, which brings us to a positive of 3% underlying growth for the quarter.
Your last question was, the Q4 last year, if we had any lockdown. Yes, we did have. Last year, as of December 15, there was lockdown in the Netherlands.
Thank you.
Marco, do you have any further questions?
No, I'm good. Thank you very much.
Thank you, Marco. Now we're going to take our next question.
Mark.
Please stand by. The next question comes from the line of Frank Claassen from Degroof Petercam. Your line is open. Please ask your question.
Yes. Good morning, all. I've got a question left on the parcels price mix. Can we expect an acceleration of this price mix going forward? How flexible are you in adapting your price with surcharges and in your contracts? Secondly, on your free cash flow guidance of the EUR 110, EUR 150, EUR 40, what do you assume for working capital swing? How much negative or maybe positive could it be for this year? Thank you.
The parcel price mix, we do not expect an acceleration in comparison to Q2 of this year. There is no fundamental change, obviously, all of a sudden happening that will make that price mix effect very different than what you've seen right here. If we talk about pricing policies within year, we already indicated before it's very difficult to adjust your commercial contracts and increase prices higher than originally anticipated within the year. What we'll do is consider adjustments to our pricing policies for 2023 and beyond to offset as much as we can the organic cost increases that we've just indicated. Obviously that is a function of also when contracts terminate.
Clearly it should be clear that those organic costs need to find their way throughout the value chain and cannot be absorbed by us or mitigated through productivity gains, given the fact that the size is, well, almost twice as big as in normal years.
As indicated in earlier years, quite a big percentage of our contracts are yearly contracts, and that means that they're up for negotiation in the last quarter of 2022. There is a possibility to discuss price increases at that moment in time.
Maybe then back to the question on working capital. For the year, that's gonna be slightly lower than originally expected. We do expect an investment in working capital somewhere, I would say around about the EUR 25 million-EUR 45 million mark. Maybe, if I may, I want to get back to the answer I've given Marco on his question on the pension expense sensitivity. I made a mistake there. It's actually EUR 25 million impact on 50 basis points. That is kind of the sensitivity we talk about. For every 50 basis points increase in discount rate we earn EUR 25 million improvement on our normalized EBIT level.
Okay. Thank you very much.
Thank you. Now we're going to take our last question. Please stand by. The last question comes to line of Marc Zwartsenburg from ING. Your line is open. Please ask your question.
Yeah, thank you for taking my questions. Couple of them left. First on the EUR 20 million cost increase and more cost expected than at the Q1 stage. What is really the driver behind the EUR 20 million increase in cost expectations? 'Cause I can imagine that fuel is part of that, but yes, since fuel is currently only, say, EUR 15 million-EUR 20 million already in total, it can't be explaining the EUR 20 million versus the month of May. What is really driving that? 'Cause I think also wage inflation at the 9th of May, most of that was known, I think, 'cause the CLA negotiations were already running or finalized. Can you explain me a bit more the EUR 20 million cost increase that we are now expecting?
Yeah, no problem. Roughly speaking, EUR 5 million of that is related to fuel, Marc. I think you all remember that by Q1 we kind of indicated what, let's say, would be the expected diesel price per liter at that point in time. That assumed a certain recovery throughout the months. We're currently at higher levels than anticipated back then, which will have an impact of, roughly speaking, EUR 5 million. The other element there is related to labor cost and particularly in a tight labor market, and to ensure that we can deliver the peak period like we plan to on the quality of standards we do expect, there's gonna be more cost in relation to ensuring that we have the capacity in place to do all of that.
That is related to our own staff, that's relating to sorting capacity, and obviously there's still the collective labor agreement of PostNL, the CLA to be negotiated. Those elements are included in that step up of organic costs.
If the peak period is a little bit less robust as you currently anticipate it with the double digit volumes, could you then still scale it down in time to save a bit of the cost, or is it the cost that is already there because you have to plan for that peak period?
Well, there we make a different choice basically, Marc. Let's say based on volume expectations only, and unlike current tight labor markets, we could scale down on operations more than we're currently doing. We take a bigger workforce towards Q4 just to ensure in these tight labor markets that we have enough people in place. In any event, even if volume might slightly be lower than expected, there will be a big ramp up required towards Black Friday and Sinterklaas anyway, and we just wanna avoid the risk of having the volume and not sufficient people. That's why we accept.
Potentially a higher cost in relation to the volume than that you would in other less tight labor market circumstances.
To organize peak season Marc, for especially for parcels and to a lesser extent for mail, we already start organizing peak season April, May. That means that you start ramping up as of normally as of September. As said by Pim, we're now already keeping part of our employees to make sure that we will be able to ramp up. There is a certain flexibility, but it is not as high as you were assuming in your question.
Okay. That is clear. Thank you. That is very clear. On the EUR 50 million recovery of cost through price increases, that was put on the outlook slide. I guess that's mainly driven by price increases in the parcel division. 'Cause in mail, I assume that the price increase already necessary to offset the digitization. Can you give a bit more color on what kind of price increases we're then looking at, and how we should model that for 2023? 'Cause it's geared to 2023 as I understood. 'Cause you will also have some inflationary prices probably also going into full year 2023. What should we be thinking about price increases in parcels or just to get to that EUR 50 million number?
Yeah. To be clear, Marc, the EUR 50 million is the balance of the bridge to indicate, okay, what is kind of the normal level of organic cost increases, what do we see this year, and what can be offset by regular price policy. There remains the EUR 50 million, which is basically included in our full year adjustments because we are not in a position to within year adjust the pricing mechanisms in such a way that we'll get back part of that EUR 50 million. We're not indicating that we're able to absorb that EUR 50 million, nor within 2022 or in 2023.
What we do say is that that is such a level of organic cost pressure, obviously eating up a bit of our margins, that that cannot be offset by productivity gains and should lead, and I think not only at our end but industry-wide, on price points to increase higher than normally would be the case. At this day and age, I cannot be too specific on how we're gonna do that and to what extent we'll be able to get that into the 2023 contract negotiations, but certainly we will seek to improve those individual price points more than we would otherwise do.
Just to be clear, for this year, obviously you can't compensate, but for what does it then mean that you can maybe get some EUR 50 million cost recovery by regular price increases? 'Cause at some point that should then compensate a bit in 2023. Or am I mistaken here?
Well, I'm not saying we'll compensate it. It needs to get to higher price points. That's clear. Because we cannot afford, let's say, to absorb that level of organic cost as an industry or as PostNL within this industry. It should lead to higher price increases in the e-commerce domain. You're right, this is focused on e-commerce. In the mail side, by the moderate pricing policies we adopt, by the combination of slightly better volume and development and the performance on cost savings, we do expect to keep the mail profit more or less stable. This is related to e-commerce. As a consequence, it's also a function of a very competitive market and how to operate within that market in relation to price points.
That's also why I can't and don't wanna be too specific at this point in time.
On the cost savings in Mail NL expected for Q4, can you give a bit of an indication of what kind of numbers we're looking at? 'Cause that's one of the big drivers, I believe, of the improvement in EBIT year-on-year.
That's part of the explanation for Q4 indeed. Full year, we do expect a cost saving of around EUR 30 million. That is what we expect, which is still a bit of a step up in comparison to where we currently are.
Most of it is Q2, Q4. That's how-
Yeah. All those projects are running in accordance with our expectations and timeline, in ways of implementation so far.
I said in the business update on mail in the Netherlands, we also received an important approval from the works council to start further centralizing our preparation centers, which also helps of course in getting up the cost savings within mail in the Netherlands. They're on track and delivering good performance in many ways, but also on cost savings.
Yeah. We need to get to roughly EUR 30 million. Just to give you the latest point there, year to date, performance on cost savings is around about the EUR 10 million mark.
A final one on bol.com. I saw some news, I think, over the last weeks that they were setting up their own parcel collection company, Ampère, to collect the parcels from the, how do you call it? Not their own web shops, to collect them. Does it have any impact on your operations that they're trying to do some of the sourcing from different web shops to the platform themselves? Does it have any impact on the volumes from bol.com for you?
No, it doesn't have real impact on the volumes we currently have from bol.com. They of course were diligent to announce it upfront to us, but it doesn't have a big impact.
Okay. No, frankly, those were my questions. Thank you very much.
Thank you, Marc.
Thank you.
Now we're going to take another question. Please stand by. The question comes to the line of Stefano Toffano from ABN AMRO-ODDO BHF. Your line is open. Please ask your question.
Yes. Hello, everybody. One question remaining from my side relates to the question that Marc asked about the labor tightness. I perfectly understand the strategy going into Q4. I was wondering how you were looking at the staffing situation versus the labor market for next year going forward, because obviously one of the main features of PostNL is its flexibility to adjust its labor force when needed, at least partially. It obviously depends on the macro situation and, you know, what the economy is going to do, but how are we supposed to look at the flexibility going forward, so as of 2023? Thank you very much.
Yeah. I think flexibility comes mostly from the fact that we within Mail in the Netherlands we have a higher attrition rate than the normal company. Attrition rate is around 15%-20%. Of course, that's what we want to reduce slightly, but we do not want to reduce it significantly. There is quite some turnover in the population, which helps us, of course, to be flexible. Within our parcels operations, there is always a certain flexibility for the same reason, and that is for attrition. Secondly, with the growing amount of parcels, of course, there you're in a different development. You more or less year-over-year expand the amount of people working for us.
Maybe more specifically also with what you mentioned regarding the labor tightness, because obviously you mentioned a couple of times that you're preparing yourself given the tight labor market. You keep some employees. You could reduce them, you could save some costs, but you don't do that because you expect a very busy Q4. Given the labor tightness, it's better to have these people on board right now, otherwise you know something you might not be prepared. Given this, should we look at it as of next year and the flexibility with this respect?
I think, Herna already indicated that also we'll expect growth in 2023. Obviously, that's the seasonality we always have from Q4 to Q1, there's always a reduction of capacity because we ramp down after Christmas period anyway, and certainly will not take the full capacity of fourth quarter into Q1, Q2 2023.
I think important to understand is that.
Kind of the normal seasonality.
Yeah, exactly. Important to understand is that the amount of people we're keeping at this moment in time to be sure that we deliver at a high quality and are ready for peak season means that we still have to add people from flexible sources to deliver the amount of parcels and mail pieces we expect in the fourth quarter. That flexible part you still have to add to be sure that there is enough capacity to deliver. That's what Pim is referring to, is what we do not take with us into the first and second quarter of 2023. That's. Maybe it gives you a perspective of how we're dealing with the tightness of the labor market, but also being sure that we have capacity and people to deliver and keep our quality at a high level.
Perfect. Thank you, Herna.
Thank you.
Thank you. There are no further questions. I would now like to hand the conference over to a speaker, Jochem van de Laarschot, for closing remarks.
Thank you, operator. I've got one final remark, which is that we are planning to host a deep dive, an investor deep dive on the 22nd of September in Nieuwegein, which is at the center of the Netherlands, where our small parcel sorting center is located. It was opened last year, and we hope to host you there to show you how it works. We will also talk about robotics. As a save the date, the 22nd of September, please note it and hope to see you then. If you have any remaining questions, please let us know. Thanks very much. See you next time.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.