Good morning, ladies and gentlemen. Welcome to the PostNL Q3 2023 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 Laudy, Manager Investor Relations. Please go ahead, madam.
Thank you. Well, good morning, everyone, and thank you for joining us today in our Q3 2023 analyst call. With me here in the room are Herna Verhagen, our CEO, and Pim Berendsen, our CFO. As usual, we start with our presentation, which you can find on the website and on your screen, when you're logged in to our webcast. After the presentation, we will open up for Q&A. Pim, over to you.
Yeah. Thank you, Inge, and good morning to all. Thanks for joining us. Let's start by looking at the key takeaways of this third quarter, on slide three. The results came in above those of last year, but below our own expectations. It was a tough quarter for us. Volumes at parcels did still grow, albeit at a lower rate than we anticipated. We saw growth of 1.6%, predominantly driven by strong growth from international customers, while domestic volumes were slightly below last year's levels, in line with slowdown in consumer spending. In other words, we do, do really see this as a market development. We have not seen any material changes in the competitive landscape or in our market share.
Overall, this resulted in that and domestic volumes in an unfavorable shift in mix of parcels that also had an impact on margin. At Mail in the Netherlands, as expected, performance was lower than last year as a result of continued volume decline, but also due to increase in organic costs. And next to those elements, within Mail in the Netherlands, we also saw a less favorable product mix. In other words, more expensive products were substituted by cheaper products. Of course, we've continued our strong focus on yield and other measures to mitigate the impact of cost inflation, and these unfavorable mix effects. This contributed to our results also in this quarter but could not fully offset the cost increases.
We have worked hard to prepare ourselves for the peak season and are ready to operate at max capacity, both at parcels and mail, so we can serve the people that count on us at the best possible quality. But we also know that particularly this year, the ramp-up will be very steep. I'll come back to that a little later. At the same time, we need to recognize that economic uncertainty, and particularly the consumer spending, remains in a volatile market environment. Taking all this into account, we now expect the full year Normalized EBIT to come in at the low end of the guided range of EUR 100-130 million.
Next to the press release on the announcement of our Q3 numbers, you also have seen a press release announcing our intention to buy back EUR 160 million of the 1% Eurobond due 2024 that is outstanding, and obviously, we do this to optimize our balance sheet and financial position. If we then move over to slide four for the financials, you see the revenue in the quarter at EUR 722 million, which is 2% higher than last year. We see a Normalized EBIT at -EUR 11 million, also an improvement in comparison to last year, when we reported a loss of Normalized EBIT of EUR 14 million, and this performance includes a high organic cost increases of EUR 38 million in the quarter, adding up to EUR 130 million year to date.
Obviously, this also includes the positive impact from the pension agreement, visible in our segment, PostNL Other, of EUR 19 million. Overall, better results than last year, but obviously, with business performance, lower than expected. Before going into Q3 a bit deeper, I would like to repeat our strategy and highlight some non-financial developments that are noteworthy in this quarter. Our aim is to continue to be your favorite deliverer with an unchanged strategy to be the leading logistics and postal service provider into and from the Benelux. You know, that is built on the three pillars: parcels, mail... We have continued to make progress in the areas of digitalization and ESG. We now have 8.6 million consumers, an increase of almost 1 million compared to last year.
We also have continued the rollout of our automated parcel lockers, and we currently have 900 APLs up and running. And finally, we also have made steady progress in our environmental goals, where we are delivering on our SBTi target and have further improved our carbon efficiency with an 11% improvement in efficiency year to date. Then let's look at the market environment in which we are operating. We continue to see long-term growth potential in e-commerce, driven obviously by the drivers that we discussed before, consumer spending and the back of GDP growth, as well as online penetration. However, in the shorter term, the macroeconomic developments continue to be volatile and uncertain. And on the slide, you see consumer spending of households on products not yet really showing the growth we were looking for.
Consumers are cautious to spend money on goods and products, and we also see a shift from more expensive products to cheaper products, and a shift from domestic clients to Asian clients, which obviously also relate to the mix effect that we talked about. Obviously, the uncertain environment results in an increasing volatile volume projection, both at our customers and at ourselves. Nevertheless, we truly believe that we're still very well positioned to capture that future growth. Let's look into the segments one by one, and let's start with parcels first. At parcels, revenues came in at EUR 535 million, an increase of roughly 6% compared to the same quarter last year. As a result, that is obviously as a result of the volume growth of 1.6% and price increases that we've put through.
So we do see growth, but predominantly due to the development of domestic volumes. Those were slightly below last year, following the slowdown in consumer spending. The volumes from international customers continued to show very strong growth, and that means a shift in our customer and product mix becoming less favorable. The impact of the mix effect is fully offsetting the price increases of EUR 12 million in the quarter, resulting in an overall flat price mix effect. Also keep in mind that the unfavorable mix development going forward, at least for the remainder of this year. Our cross-border activities continue the positive trend we have been seeing for several quarters, with revenues at Spring up, most strongly in Asia. Logistics Solutions was EUR 1 million lower than last year, and normalized EBIT for the segment came in at EUR 1 million, compared to minus EUR 1 million last year.
Driven by volume growth, higher results at Spring and operational efficiency measures. While on the other hand, organic costs continue to be significantly higher than last year. We also incurred additional costs to be ready for the steep ramp-up towards our peak season, relating or resulting into a largely fixed cost operating environment in the fourth quarter of this year. If we then look to the bridge of the parcel segment, you see basically the numbers that relate to the elements we just discussed. A EUR 10 million improvement on revenue driven by volume, a 0 price mix, in which EUR 12 million of price increases are fully offset by less favorable product mix.
Then an EUR 18 million higher organic costs and volume-dependent costs and other costs that are impacted by operational efficiencies, and then other results, an improvement from Spring, an improvement in Belgium, and slightly lower results at logistics. Then let's move over to the Mail in the Netherlands segment. Their revenue came in at close to EUR 300 million, EUR 299 million, to be precise, a decline compared with the EUR 308 million last year, obviously driven by the volume decline of 8.7% in the quarter. If we exclude the COVID-19 impact of last year, volumes were down 6.9%. The price mix effect was positive, reflecting our moderate price policy, but this was partly offset by the changed composition of the volume due to, for example, shifts from 24-hour mail towards lower service levels.
Normalized EBIT came in at EUR -14 million, compared to EUR -1 million last year. Next to volume decline, we had significantly higher organic costs and higher costs related to sick leave and staff shortages, resulting in a challenging operating environment that does impact our quality and cost levels, as just discussed. Additional cost savings, however, partly offset the impact on these cost increases, and by now, we've already saved more costs than in the entire year of 2022.
The detailed segment bridge on stage, the EUR 17 million volume effect in revenues, a positive price mix, of which EUR 13 million is price increases and EUR 4 million is negative mix effects, a EUR 12 million additional organic cost increase, then the volume dependent cost and other costs that do relate to the cost savings of EUR 10 million within the quarter, but also there are the additional costs related to higher sick leave rates and staff shortages. Other results are small elements, including international mail. Then on slide 11, you'll find the cash flow for the quarter. Free cash flow was minus EUR 26 million in the quarter, compared to minus EUR 49 million in the same quarter last year. So roughly a EUR 23 million improvement there, driven by better normalized EBIT and higher depreciation and amortization.
With EUR 26 million, we spent less cash on CapEx than in, than in the third quarter of last year. For the full year, we pencil in roughly EUR 125-EUR 130 million of CapEx. Year to date is roughly EUR 90 million. A less negative change in working capital, which throughout the year includes phasing effects. Year to date, we're at -EUR 47 million, whilst we would expect that to improve towards Q4, towards, I would say, roughly EUR 20 million to -EUR 25 million within for the full year. This brings us to the next slide, where you'll find our balance sheet and the development of the adjusted net debt position. Before looking at those, I would like to say that we've announced our intention to buy back EUR 160 million of the 1% Eurobond due in November 2024.
That has an outlay to use the cash position of the balance sheet to buy back the bonds that are on the long-term debt side of the balance sheet. That will have a slightly positive effect because you'll buy back the bonds below nominal. Of course, you lose the interest income on the cash that you would have had, but also don't have to pay the interest expense on the bond anymore. So that in combination, will lead to a slightly positive transaction. Financially, it will reduce our capital employed, and as such, will then improve our return on invested capital. Likewise, we would expect it to be positive from a credit rating point of view, and we still have and remain to have the flexibility to determine throughout 2024, how we wanna handle the bonds that indeed are expiring at November 2024.
Back to the numbers. As per the end of Q3, our adjusted net debt position was EUR 604 million, which is an increase of roughly EUR 130 million compared to the end of last year, and is obviously largely driven by dividends paid in May and August on top of the development of the free cash flow that we just discussed. Obviously, we continue to manage our cash flow balance sheet and net debt position carefully with the aim and the expectation to end up in 2023 at an adjusted net debt over EBITDA below two. Then to the outlook. Taking into account our Q3 performance, we expect the full year normalized EBIT to come in at the low end of the guided range that we've communicated on August 7, and the same goes for the other financial metrics.
We continue to operate in challenging environment with ongoing uncertainties around macroeconomic developments. Market volatility limits clear visibility on the short-term development of the e-commerce market, predominantly the consumer, impacting the accuracy of volume projections, both for our customers and for ourselves. On the slide, you see the underlying assumptions for 2023, and as you know, organic cost increases at EUR 185 million for the year are extremely high. Historically, organic cost increases were roughly around about the EUR 40 million to EUR 60 million per year mark. Going forward, we expect further wage inflation in the Netherlands, and combined with scarcity in the labor market, this will bring additional pressure on labor. This, together with a continued unfavorable shift in mix, both at parcels and Mail in the Netherlands, is expecting to weigh on our results.
While we continue our strong focus on yield and tight cost control, but it clearly becomes more challenging to mitigate the full impact of these developments I just mentioned. As usual, we provide you with a full outlook for 2024 at our full year 2023 publication in February. As you know, our fourth quarter results are crucial for our full year business performance. We are looking forward to a very busy peak season, particularly between Black Friday, Sinterklaas, but also towards Christmas. To make this all happen and to be able to deliver the best possible quality, we are prepared for and already in execution of a very steep ramp-up plan from Q3 to Q4. This really does ask a lot from us operationally.
Already in Q3, we have taken all possible measures to be ready to operate at max capacity, both at mail and parcel site, which resulted in some additional cost where we are limited in balancing volumes and capacity in fourth quarter. Capacity and thus, related costs are fixed, so to say, obviously not on the longer run, but they are relatively fixed in fourth quarter. The final sheet with our closing remarks. All in all, we are looking at results that are better than Q3 2023 too, and also our outlook for the remaining of the year is still better than the outlook that was in place in the beginning of the year, but our figures are also below our expectations.
Taking this into account, we expect now a Normalized EBIT that will come in at the low end of the guided range of EUR 100-130 million. We remain to operate in a highly volatile e-commerce market with limited visibility on the short term. At the same time, we are fully prepared for a steep ramp-up towards Peak Season. All in all, we continue to have full confidence in our strategy, underpinning the long-term growth potential of the e-commerce market. For now, thank you for your attention, and welcome any questions during the Q&A that is next.
Okay. Thank you, Pim. Then I would now like to open the floor for Q&A. Operator, can you please open the lines?
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Our first question comes from the line of David Kerstens from Jefferies. Please go ahead. Your line is open.
Thank you. Good morning, Pim. Maybe a question on your outlook for parcel volume growth in the fourth quarter. You're still expecting low single digits for the year. What do you see for the fourth quarter in October so far? And also in this current environment, is normal e-commerce growth or normal parcel volume growth for 2024 still expected to be in the high single digits range? Then my next question is, can you give us an update on the cost increases you were flagging for 2024 in terms of labor costs? I think a minimum wage increase.
I think you earlier also indicated potentially the union is asking for a 5%-14% pay rise. And how will that impact your earlier margin guidance? I think you said at least 200 basis points margin improvement for 2024, based on the parcel restructuring. Some of that now coming into the fourth quarter, what do you see in terms of potential for margin improvement going into next year? And I think you said also 100 basis points in mail and 300 basis points in parcels, if I recall correctly.
Thank you, David, for your questions. On the first point, volume forecast, we still do expect for the full year, volumes of parcels of a positive single-digit number. We see a continuation of the high growth, which is double-digit, in the international side, and we do expect also on the domestic side, volume growth in the fourth quarter. If you look at Q3, then the September month was not a great month in comparison to the other two of the month. And coming into October, we saw, in comparison to last year, in the weeklies, so far, the growth that we need to get to, to get to the full year number we just talked about. So in the last weeks, we do see the domestic volume growth back.
Obviously, that needs to ramp up to roughly, well, somewhere around about the 1.8-2 million mark in the busiest days of the period. But first signs in October are looking in the direction that we have, have estimated it would. On 2024, I'm not gonna be too precise because as I said, there's a, a lot of moving parts that currently impact 2024, margin expectations. Predominantly, also the related product mix developments that are currently very difficult, yet to determine how they will impact 2024. On the organic cost increases, what has been new since 7 August , is that the CPB increased its wage inflation expectations in the macroeconomic forecasting. I'm not quite sure how to say that in English.
In their latest update, and next to that, in parliament, obviously, as part of the election process, an additional increase in minimum wage has been agreed. The element. Those two elements together, you're already talking about, roughly speaking, EUR 20 million more labor-related cost increases. So all other things being equal, that's in any event, the pressure on labor are gonna cost us extra in 2024. It's too early to indicate volume development. We do still expect volume growth as a function of consumer spending growth and online penetration to continue. And more details, I'm afraid you have to wait on those until we've finished the fourth quarter.
Okay. Thank you very much.
Thank you. We'll now move on to our next question. Our next question comes from the line of Marco Limite from Barclays. Please go ahead. Your line is open.
Hi, good morning. Thanks for taking my question. The first question I have is about the PostNL-Sandd deal. Over the summer, there were some headlines about a court ruling against it. Can you just remind us what all this is about really, and what are the next steps? I mean, I remember that the competition authorities approved the deal at the beginning, then you went to the parliament, you got approval. So what can happen next? My second question is on price increases in letters. You announced recently an 8% price increase, which is incrementally higher compared to last year, 5%, and the previous year, 0%. Can you remind us how the price increase formula works for the letters, please? Thank you.
To your first question, about the PostNL Sandd deal. The PostNL Sandd deal is done when we received approval from the Ministry of Economic Affairs, and that remains to be our legal standpoint, that it is a deal done under the approval. So for us, the outcome of court, the court doesn't mean anything at this moment in time. The next step is that we are able to appeal. That is probably what we will do, and then it will take another year to two years before we expect an outcome on that appeal. As you do know, that after the acquisition, we quickly integrated Sandd into our operations, and that means that nothing of Sandd is left, and that's already almost four years ago. So, for us, it's an outcome of a legal process, which is much more a discussion, besides or behind the real things happening at this moment in time.
Can I just follow up to your answer? So
not give approval at that moment in time. What we did do, immediately, is to put an appeal into that outcome, ACM outcome or ACM decision. And of course, that appeal waited till all the other legal procedures were ended. That, of course, happened a year ago, a year and a half ago, then this appeal came into place. So that's the real content of, the legal procedure. It is our appeal against the decision of ACM four years ago, that they, refused to give us approval on the acquisition.
Okay, and there could be a scenario where clearly the merger is done, but there could be a scenario where you have to pay a fine or, yes, some sort of financial penalty?
No. So whatever the outcome will be, it will never have any consequence for the past. And as I already said, to be honest, before we expect an outcome on this procedure, it's 1-2 years from now, then we're already 6 years behind the acquisition and full integration of Sandd. So it's a little bit water under the bridge, but it's an important legal process.
Okay. Clear.
Thank you.
We still have one question to go.
Sorry, yeah, there was one related to the price increase. Yeah, you referred to the 8% increases of the single items. Of course, we do increase prices. We continue to do that also on the business mail side, where, of course, there are regulatory elements, but let's say the room we have for those price increases is enough to do what we believe we should do from a price elasticity point of view. Because quite clearly, if you increase the prices too much, you will lose and accelerate the substitution to other channels quicker. And that's a careful balance that we always try to strike.
Given the fact that inflation rates are higher, inflation plus roughly half of volume decline also leads to higher price increases that we're obviously putting through to the market and to, you know, offset a big part of organic cost increases. But obviously, in the past, and that has been a debate that we had before, price increases in mail also helped to contribute to offset half of volume decline and organic cost increases. And this year, price increases are only enough to offset organic cost increases and not half of volume anymore. So that is, that is the way we look at price increases.
So can you just quickly confirm if I mean, it's all about your decision, by how much you increase that price, of course, within a certain limit, and therefore it's just your decision this year to increase by 8% versus last year?
That's on single items. On single items, that's based on the process where ACM determines whether or not the increase is within the bandwidth of the room, the tariff room, that we have to improve. So there it is a different process than for business mail.
Yes, yes, yeah. Talking about, yeah, USO products. Okay, thank you.
Thank you. We'll now move on to our next question. Our next question comes from the line of Henk Slotboom, from The Idea. Please go ahead. Your line is open.
Good morning. Thanks for taking my questions. I've got a few, shall we take them one by one, or do you want them all at the same time?
Whatever, whatever you prefer, Henk.
Now, let's take them one by one, because then it gets a lot clearer. First of all, Pim, I'm a bit confused about what you said about the labor cost increase for next year. If I do the math correctly, and I take a look at the mail deliverers alone, I believe you said in the past that the costs, the labor cost of the mail deliverers are anywhere between EUR 180 million-EUR 190 million. We have a change in the minimum wage system in as of first of January. There's a standard working week of 36, sorry, 38 hours at mail. That will be changed to 36 hours. That gives you an hourly wage increase of around 5-5.5%.
On top of that, there's an indexation of 3.75%. And if I do the math correctly, and I see where the mail deliverers are nowadays in terms of the hourly rate, then this alone is already adding up quite steeply towards the EUR 20 million you just referred to. And then the CLA ends on the thirty-first of December. The CLA for PostNL as a whole, for the big PostNL CLA, ends on the thirty-first of March of next year. What am I missing here? The twenty million, in my view, is only part of the labor cost increase you're going to face next year.
Yes, absolutely. But the question was related to the development, and the development since the last time we talked in August. Obviously in August, we did know that we'll go from 38 to 36 hours. We did know already roughly the normal indexation that was gonna happen in January. So I only talked about elements that were new to us since August 7, and those elements alone already impact the development from 2023 to 2024, with another EUR 20 million increase in labor-related costs.
Okay, so it's on top of that, that makes sense.
On top of our earlier expectations, yes.
Okay.
If you were to look at the total labor cost developments, from 2022 to 2023 and 2023 to 2024, we do expect an increase in labor costs that is significantly higher than the increase from 2022 to 2023.
Yeah. Okay, clear. Then, on pricing, you already alluded about the USO increases we've seen. That part of it is non-USO as well, the mixed consignments, for example. And there's of course the business, the parcels and that sort of things. If I look at the USO, and I look at the parcels segment, then I see that the parcels, the standard parcel remains unchanged in price, and that the letterbox parcels increased by anywhere between 1.2%-2.4%. I've seen that the NEA Index is 4% for next year. What can we expect in terms of pricing for quality the other parcels, the larger clients, the SMEs, those kinds of things?
Is it, is it going to be anywhere near the NEA Index? And is that sufficient to offset the higher labor costs, which undoubtedly will occur there as well?
Well, as said, let's say, of course, we're trying to offset as much of the organic increases in through price increases and yield management measures, but clearly, we need to take account of the fact that on the e-commerce side, there are very competitive markets. So we differentiate our approach in different product and market segments, trying to get back as much of the NEA Index through price increases. You remember that this year we'll have a gap between organic cost increases of and price increases of EUR 30 million.
Mm-hmm.
We will try to improve on that from 2023 to 2024. We're currently in the middle of the renegotiation of terms with our clients heading into 2024.
Okay. With the risk of stealing the whole meeting, I've got two questions left. One is on you already indicate the tariff increases alone will not be enough to offset the damage in margins. In your comment on the second quarter results, there was a lot of talk about cost savings, and especially in mail, cost savings getting more and more complicated. What else can you do to basically support the margins in 2024?
That's a very broad question. Look, on the mail side, we have stepped up our cost savings from last year, already now reaching the same number of cost savings that we realized in 2022. And we're making good progress towards, roughly speaking, that EUR 40 million of cost savings that we talked about before for 2023. That's also gonna be the objective, more or less, for next year. And then it's all about the combination of volume development, mix effects, and our ability to offset as much as possible organic cost increases with price increases.
Mm.
On the parcel side, of course, margins are also a function of the level of investments required. The level of investments required and the phasing thereof is a function of market expectations on volume growth, so there's more parts that impact the margins there. But what we clearly wanted to indicate, also by using the examples leading up to EUR 20 million, is that of course, we already have used a lot of the room to maneuver in terms of measures. And this less consumer spending and higher labor-related costs, yeah, does actually put significantly more pressure on 2024 results than originally expected. That is the case, and we'll see how far we can get to get to the margin improvement we're longer term looking for.
But I'm afraid you have to wait a bit longer, for me to be more precise on how much the different measures will actually contribute.
Okay.
As we did say, last time, Henk, on the cost savings in Mail Netherlands, we cannot save such big amounts of costs overnight. So those plans are already well underway and well prepared to bring in the necessary cost savings for the year 2024. So that would—that, of course, our yearly cycle, which we already discussed many times, but that's not different for the year 2024.
Okay. And then my final question, Anna, Pim, the last time we met face-to-face, we were talking about the SME segment in parcels and initiatives like launched by bol. I have to say nowadays to lure away clients to basically have parcels sent via them. In your annual report in over 2022, you announced some initiatives regarding SMEs and regarding platforms you have like MyParcel, et cetera. What are the developments there? You already said we're beginning to see we're not losing market share anymore. What kind of initiatives have you taken, and where do you see the progression there?
Yeah, again, a pretty broad question, so I'm gonna try to break it down in a few elements. Indeed, we don't see a material deviation from our market share expectations, but that's not to say that bigger clients are not growing faster than SME segment. So that is one of the elements that impact product mix or client mix, if you want. And in that SME segment, you do indeed see that volume goes through platforms, bol, but also MyParcel and Sendcloud, and the platforms are gaining in terms of market segmentation, market share, and that also leads to a slightly negative price mix consequences.
At the same time, we're very happy with the progress we're making on the development of our own platform that is now a multi-carrier approach. It is growing. Likewise, the SME strategy that we've defined, we're implementing in these contract renewals that we're currently engaging on. So good progress has been made on those, but too early to share numbers on them.
Okay. May I ask, squeeze in a very brief one? The yo u mentioned the, how do you call it? The sickness rate. Where's the sickness rate at this point in time? Is it higher or is it lower than the figure you reported last year over the full year?
It's more or less the same as last year, but it's higher than what we see in the on market average, and that's more or less always the what we aim for. So that's the reason why we say higher than expected, because we do have lots of actions in place to improve our sickness rate. And we see some slight positives, but it's not paying off yet as we would like it to be. And that's more what we what we put forward, and that also means that in the way, of course, we've looked at the full year numbers and the Q3 numbers, we took into account a certain sickness rate, and we're a bit above that percentage. And with the amount of people we have, that does have an impact. That's the reason why you find it in the press release and also in the summary we gave around the presentation.
Okay, well, I've taken enough of your time. Thank you very much. Much appreciated, and success.
Thank you, Henk.
Thank you.
Thank you. Once again, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We'll now move on to our next question. Our next question comes from the line of Marc Zwartsenburg from ING. Please go ahead. Your line is open.
Yeah, good morning, everybody. A couple of questions left. First of all, Pim, can you help me a bit in clarifying what you mentioned on the parcel volume trend? You mentioned July, August, still quite okay, but September was worse. But if I look at the trend, it seems that it was the opposite, that July and August were basically flat year-on-year, as you mentioned, and that September must have been, say, around mid-single digit growth. Can you help me a bit with that, what the real trend was?
The real trend, let's say, was last July, August, slightly better than last year on the domestic side, and in September, it was worse than last year on the domestic volume side, but obviously, international continued to growth, the double-digit growth in all three months of the quarter.
. So, if I but if we include international, because that's basically the number we're looking at.
Yeah.
What was the trend? Then it was, say, flat, flat, and up, say, mid-single digits. Is that correct?
No, it's slightly up, slightly up, two times up, and one time, slightly below.
Okay. I thought it said that July, August were flat. But that is, still, then it, it's different from what we heard at Q2, right? That we were trending a bit in line with Q, Q2's volumes, which was implying a mid-size 7% growth, and but now you're telling that, that's, that you have visibility on October.
No, what I said is, in August, of course, we were looking at the Q2 numbers and the developments throughout the first parts of July, and there were kind of still indicating the same trend line that we talked about, and that's why the September result was a disappointment, because there it was a little bit of a break of that trend line, and that's what we now have addressed in this Q3 report. And on the question that we've got earlier, I indicated that from that point onwards, we now see in October an improvement on the domestic volume development, coming back to single digit, sometimes higher, a single-digit growth in the weeks that I've seen, where there is still a continuation of the international growth, indicating that the step up that we need to see so far is there. But I also said that obviously it still need to ramp up further to get to the max cap numbers of somewhere around about 1.8-2 million, around, Black Friday and Sinterklaas.
Yeah. Okay. Okay, clear. And then maybe on the margin, you know, I think David also already asked about it, your margin improvement that you expected for parcels, but also for mail. For parcels, it got trimmed a bit by the different phasing in of these cost savings, but nevertheless, it was still suggesting, I think, more than 200 basis points. But hearing you talk about what happened since August in terms of wage inflation, the EUR 20 million you mentioned, and the effect of the price mixer element, is it fair to assume that we, despite the cost savings, that we might be looking more at a flat year-on-year development in terms of margin for parcels? Is that b ecause I haven't heard you reiterating that target for next year.
Can you maybe comment on that, what you now currently foresee in terms of margins? Because you provided some guidance on the margin for mail and parcels. Can you maybe update us on that one?
Well, the step up in margin will be more complicated than we've discussed earlier, right? So the cost-saving initiatives do contribute. They are in full implementation, contributing a little bit in 2023, with lower restructuring cash out than originally assumed. So that element of step up of margin, that if you isolate it from the rest, is still the same as what we've talked about. What is new is that there's, from seventh August onwards, even more pressure on the labor side of things, that do impact the development from 2023 to 2024 on the margin level. To what extent and how much precise, I cannot say, but it clearly is a deterioration of the margin expectations for 2024.
Clear. And then a final one on the USO and the delivery quality. Can you perhaps also update us on that? Because due to sickness and the tight labor market, you were behind, but also the previous years. What's the latest status on that in terms of potentially a fine or is it improving as well? How should we look at that? Can you update us there?
Now, when you see the Q3 numbers, you see that it's not improving. It is—I think it's still difficult for us. There is tight labor market, as I would say, almost in the whole of the Netherlands, except of the northern provinces. There, we do not see that tightness as we see it in the other parts of the Netherlands. It means that we have quite some vacancies, so we're still around 1,000 vacancies, and that also means that you sometimes are not able to fill in all the routes with people, and that causes the delay. So we're working hard to fill in those vacancies. There are more, I think, more than 20 actions ongoing to get people from the market to start as mail deliverer.
But the shortage we see is not an easy to solve shortage. So that's the status when it comes to the vacancies we have and in relation to that, the quality of delivery, and there's no further information or no new information on possible fines or no fines, Mark.
Okay, that's very clear. Thank you very much. Those were my questions.
Thank you.
Thank you.
Thank you. We have time for one more last question. Our last question comes from the line of Marco Limite from Barclays. Please go ahead. Your line is open.
... Hi, thanks for taking my follow-up question. I have a question actually on your September volume trends. Few retailers exposed to the fashion vertical have clearly said that September was a weak month because of the hot weather. So, just wondering whether your volume trends in September, especially for domestic volumes, you've seen weakness across verticals, or you also saw the majority of the weakness was coming from the fashion vertical. Thank you.
Definitely also in fashion, but not only limited to fashion, but a big component is indeed a, not the great month from the entire fashion industry, so to speak. But, but also on some other categories, there was less consumer spend in the market than, than, than expected.
Cool. If I can squeeze in another question. So you've got both the CLAs coming up for renewal during 2024. Can you just clarify when we should expect, in terms of timing, for those CLAs to be concluded? Thank you.
Somewhere in the first half year. So the first CLA we will negotiate is the CLA for mail deliverers. And of course, a little bit depending on the length of that negotiation process, that will be finalized, and then after that, we'll start with the CLA for the PostNL CLA. So if I would roughly guess it at this moment in time, it will take us at least the first half year to finalize those two CLAs, maybe a little bit longer.
Okay, and so when you talk about the additional EUR 20 million of wage cost inflation, your reasoning is basically based on the latest update from the government, I guess, on wage inflation. You're assuming that those CLAs will be more expensive. Is that basically the reasoning or?
Well, let's be more precise. What I've said is, let's say, in relation to what we knew in August, there's at least two elements new on the labor side of things. One is a higher expected, on average, wage increase in the Netherlands, based on the macroeconomic exploration of the Centraal Planbureau, CPB. And the other element is a agreement in Dutch parliament to increase minimum wage with another 1.2% by July of 2024. Those two elements together, direct and indirect effects that relate to those measures, lead to a increase in labor-related costs already of EUR 20 million. That is what we've said. Obviously, expectation is that if the expansion for the entire entirety of the Netherlands increases, that will somehow not pass us by, and that's why we are making this point.
But we did not indicate anything around the increases of our CLA, because therefore, we do need negotiations with the unions, and we do not want to give guidance upfront on that. As you understand.
Okay. Thank you very much.
Thank you.
Thank you. There are no further questions at this time, so I will hand the call back to Inge for closing remarks.
Okay. Thank you all then for participating today. If you have any questions left, please, reach out to us. You know where you can find us. For now, have a nice day, and speak to you next time. Bye.
This con-