Earnings Call: Q2 2021

Aug 9, 2021

Good morning, and welcome to the PostNL Quarter 2 2021 Analyst Call. During this call, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. I would now like to hand the call over to Mr. Joakim from Bellarsco, Investor Relations. Go ahead please, sir. Thank you very much. Good morning, everyone. We're here with Herna Verhagen, our CEO and Finn Birenacher, our CFO. They will take you through the Q2 numbers and a number of other topics. And after that, we will go into Q and A. Herna, over to you. Thanks a lot. Let's start with the key takeaways of quarter 2 and then, of course, looking forward to the end of the year and 2024. I think quarter 2 was another solid quarter, which contributes to a very strong half year performance in which we do see a significant improvement if you compare that to 2020. Based on the first half year results, we did raise our full year outlook to EUR 280,000,000 to EUR 310,000,000 To be sure that we can deliver as expected, of course, the growth in Parcels, We increased our investments to an amount of €950,000,000 and we will use that for the expansion of capacity, digitization and ESG. Please be aware that the extra €450,000,000 will be a step by step investment. For the full year 2022, we expect to come in below full year 2021 because of the nonrecurring impact. For the next coming years. We raised our ambition for 2024 to EUR 330,000,000 to EUR 370,000,000 which is an increase of €60,000,000 to €80,000,000 Let's look to Q2, Q2 2021. Our normalized EBIT is up 17% to a number of €63,000,000 That, of course, also Of course, together with the results of Q1, an increase in the full year expectation to EUR 280,000,000 to EUR 310,000,000 We do have still nonrecurring COVID, which is in this quarter EUR 26,000,000 Free cash flow is when you look into the first half year positive, and of course, that also then counts for normalized comprehensive income. The interim dividend for 2021 is set at €0.10 per share. We did see in the Q2 an improvement into our CO2 efficiency of 13%, and as said, we increased our normalized EBIT for the full year. Looking into the COVID effects, around EUR 26,000,000 is assumed to be nonrecurring and relates to COVID. Part of that comes from Parcels, euros 7,000,000 more or less from Parcels in the Netherlands. And there, we did levels, although, of course, higher than the levels of 2019, and we see EUR 7,000,000 in Spring and Logistics as well. 12,000,000 meal in the Netherlands, and that is due to, for example, the vaccination program of the Dutch government, together with The fact that we did see that the reopened stores did send lots of direct mail to attract customers to their stores. It means that the underlying normalized EBIT or the normalized EBIT without the nonrecurring result is €37,000,000 for the 2nd quarter. Let's dive a little bit into the details of our business performance and Start with Parcels. Parcels benefits from the e commerce growth and the volume is up 11.4%. That, of course, translates into strong revenue growth. And that revenue growth is partly because of the transition from offline to online, Well, we do see and think that part of that sticks also towards the future. The underlying volume growth for Parcels is around But what we did see is that large customers did grow faster than the smaller ones. And that's also what we communicated last year Q2 Gwen, because of the start of COVID, of course, lots of small companies and individuals starting to send parcels. A very strong performance of Spring, same for Logistics. Looking into the normalized EBIT. That normalized EBIT was up $6,000,000 when you exclude the nonrecurring COVID effect. We saw increased costs, And they were in line with our expectations. We added, of course, we added operational measures to accommodate the volume growth within our current infrastructure. We added also cost to new capacity. We saw an ongoing good performance and particularly at Logistics. If you compare margin, Q2 2021 to 2020 and especially when you compare it to 2019, we See a very strong margin improvement at Parcels. Our scheduled expansion of capacity is on track, And that is very important also in our preparations, of course, for the busy season, which is coming. We opened a 26th Sorting center in the Netherlands. We have very successful pilots in our small parcel sorting center, which will be operational in Q3, And the official opening is planned in October. And of course, we're fully ahead and in the right pace to open our 1st sorting and distribution center in Belgium beginning of 2022. Meal in the Netherlands showed a strong performance. The underlying trend in volume decline is still around 7%. Volume growth of 4.2 percent as explained, especially because of the letters coming from government, because of the vaccination program and the recovery of direct mail. That's around 9%. And we did see one additional working day and some other which is around 2%. It means that volume growth underlying is still a substitution trend of 7%. The moderate price increases were almost fully offset by a less favorable mix effect compared with last year. And please remember that last year, at the beginning of the COVID crisis, we had lots of single mail items. And sale of non core activities to revenue of Sandres is, of course, out of the numbers in 2021. The normalized EBIT, excluding COVID, is €11,000,000 up. We saw a decline in other costs, mainly Explained by the non recurring integration costs for Sandd and of course, cost savings, for example, in the efficiency improvements in our preparation processes. A very good quarter for Mail in the Netherlands, supported by a large nonrecurring addressed mail volume. March 1, we communicated on our strategy. That strategy remains the same as is shown on Slide 10. And that means that we focus on our purpose, Delivering special moments that we want to be the favorite deliverer in the Benelux and that our strategy is to be the leading logistics and postal service provider to, in and from the Benelux region. Focus on ESG is In that, of course, crucial. That is what, for example, is also shown in the fact that we increase our investments in environment. There are 3 important parts in ESG. Of course, be your favorite deliverer, enhance our customers' business but also create smart solutions for customers and create a sustainable mail business going forward. The social part is important to be A socially responsible employer, which had to do with workforce optimization but also capacity management, strengthening our employee engagement, of which we did see over the last few years a strong improvement and, of course, staying safe and healthy, priority number 1 in this COVID crisis. Delivering on emission free last mile delivery. There, we want to speed up and increase, of course, the investment and therefore also increase our emission free last miles towards 2,030. In our view, an important part of our strategy going forward. On Slide number 12, We give you a few examples of what we do to speed up the reduction of our carbon footprint. For example, the expansion of our electrical fleet. And at this moment in time, we have around 1300 electrical vehicles. We are preparing our electric infrastructure. At 8 of our sorting centers, we have huge charging stations, and that's what we want to And to the other sorting centers as well. And of course, we use renewable fuels. HV-one hundred is an important fossil free diesel fuel, which we will use for larger vehicles. All by all, It will speed up the reduction of our carbon footprint, and it will help us to deliver on our targets to have a last mile emission free delivery in the inner by 2025 and the last mile emission free delivery for the whole of by 2,030. The strategy of Parcels to manage for growth, of course, did not change. The volume projections towards 2024 are higher than earlier expected. That is the 11% to 13% growth we as of 2022, dependent of course on the level of stickiness and also driven by market developments. In the Q2, we did see an increase in online buyers, which is, of course, underpinning our view on volume development for the next coming years. But also the amount of online purchases increased, same as, of course, the retail market, which is at this moment in time online. The graph and Pim will come to the graph as well, does show you the step up we see in growth rate and also shows you the projections We made pre COVID together with the nonrecurring parcels we had in 2020 and we did have in the first half year of twenty twenty one. An important value driver, of course, manage for growth is what we will do for the next coming years as well. If we want to manage for growth, an expansion of our capacity is crucial. And therefore, we announced today to, of course, increase our investment with EUR 450,000,000 I think important to know and to say This will be a step by step investment. When there is sufficient possibility in the market To invest, of course, and to expand capacity, but also with the possibility to adjust when necessary. Those EUR 450,000,000 will not only be invested in new sorting and delivery centers. We're also looking into Expanding current sorting and delivery centers, expanding our small parcel sorting center, and we will expand, of course, also the other Materials necessary to add capacity. That comes together with a better network utilization with a better network utilization, which we can do because of our scalability of assets. And the fact that we can capacity where people can pick up 24 hours a day their parcel or bring it back. That's why we want to expand to 1500 parcel lockers by 2020 4. It helps, of course, to support our retail stores because we will keep our 4,000 retail stores in the Netherlands, and we will And our retail stores in Belgium. It helps them when they have high volumes to, of course, have a place to bring their volumes to. That's one. Secondly, It helps customers to have much more flexibility in when and where they want to pick up their parcel. It is consumer in control and for us an important part of the extension of our retail network. The strategy for Mail in the Netherlands is manage that company for growth. And that means that via moderate pricing policy together, of course, with further cost Savings, we want to offset the impact of continuing volume decline. We saw in the first And Q2 of 2021, something we have not seen over the last years, and that is volume growth. The underlying trend, although, is still substitution. And that means that big part of the volume, which, Of course, caused the growth over the 1st and second quarter, we will not see back in 2022. And the volume decline we forecast for 2020 is around 8%. So a trend in substitution to continue, which Means that further cost savings and moderate price increases remains to be of utmost importance for that part of our company. The 3rd important pillar under our strategy is, of course, our ambitious plan to accelerate the digital transformation. Phase by phase, we are implementing the examples we already discussed with you on March 1. And on the orange parts In the orange parts of Slide 17, we give you a few examples of what we did in the Q2 to fill in our digital transformation strategy. The ambition is still the same. The investment we have to do in digital and our digital strategy is also still the same. To underpin the importance, but also, of course, the success of our strategy, we gave you some KPIs on Slide 18. There you find consumers, which is the upper part of the slide, and you find business which is the lower part of the slide, and we show you, of course, the improvements we did see compared to the half year twenty twenty. And there you can see that the shift to digital channels and products continues and that with all products and services that we implement, We further, of course, enhance this improvement. It brings me before Pim takes over and walk you through lots of the bridges and of course details on Q2 2020 1, 2022 and 2024 to give you a summary that we do deliver on our strategy. I want to be the logistics and postal service provider to, in and from the Benelux. Supported by nonrecurring impact related to COVID-nineteen that is fading out because of the easing of the lockdown and measures. We had a very strong first half year with a strongly improved underlying business performance when you compare that to 2020. We expect continued growth in e commerce. And of course, we improved our carbon efficiency. The good results of the first half year means that we raised our outlook for the full year 2021 to between €280,000,000 310,000,000 And of course, with these improvements we did see in the business in Mail And Parcels, we look forward to 2024 and expect that the step up in e commerce trends will lead to higher Parcel volume projections also for the next coming years. The level of stickiness will become visible in the next coming months year. We accelerate, of course, progress towards achieving our environmental targets, which we do think is crucial to remain The favorite deliverer. We increased our ambition in 2024 to €330,000,000 to €370,000,000 which is a And as said, it will be a step by step investment approach. And what we said over the last 18 months is what we repeat, The exact consequences of the pandemic remain uncertain going forward. And I would like to hand over to Pim. Thank you, Hannah. And let's dive into a little bit more detail on the financials per segment, both in terms of 2021, 2022 and Excluding a delta of around about €10,000,000 on non recurring COVID impact in this segment, normalized EBIT increased by EUR 6,000,000 compared to last year. In this bridge, you see a volume effect Driven by the 11.4 percent volume growth, a big negative price mix effect, which was exactly as we expected, Given the very favorable mix last year, as Herna already said, driven by a lot of single items and Smaller customers coming online last year trying to salvage part of their business. Organic cost increases, in line with Previous quarters, volume dependent costs, likewise. Then another cost bucket With €80,000,000 of additional costs, and that can be easily explained by a couple of elements that I would like to I'll spend a few minutes on. I think if you look back at the last 6 quarters, we've done everything we could to the network to accommodate the growth of our customers as best as possible, but it's also a bit of time now to rebase The network to accommodate the future growth that is ahead of us in the next peak period. So we've added a bit of cost To ensure that we can stretch the network once more in the outer part of the year. Next to that, There is additional cost in relation to preparation of new capacity coming online also prior to Q4 2021. There is also a 3 days working days difference in comparison to last year. So all in all, that drives the other cost bucket here. The other results is a €12,000,000 plus driven by very good performance by Spring and Logistics. If you look at the non recurring part, then in this year we've seen, as Jan already indicated, EUR 14,000,000 Of non recurring impact, if we like, we've done that in the Q1, look at also the impact of logistics and the Spring in relation to non recurring volume streams. The comparison to 2020 would be EUR 16,000,000 in Parcels and EUR 9,000,000 in Spring and Logistics, predominantly driven by nonrecurring positive effects in the time definite networks and the e commerce fulfillment part. If you look at that quarter, the result of Parcels, you could say, yes, it's a deterioration of the margin to the Q1 of the year, which is true, but still turns a 9.5% margin And the half year result at 11.8%. Expectations for full year are still around about 10% margin mark, Which is 3% points more than the margin in 2019. So all in all, if you look at a slightly longer time frame, Significant improvements in marginality in the Parcels business that makes this business extremely valuable. If we now look to the bridge of mail in the Netherlands, you see the €5,000,000 of 2020 turning into €23,000,000 And there is a positive EUR 8,000,000 additional nonrecurring COVID impact within the Mail segment, Driven, of course, by the vaccination campaigns that Eren already talked about. So without it, An increase of normalized EBIT of EUR 11,000,000 driven by 4.2% volume growth, A slight positive pricemix effect where the price impact being positive was almost fully offset by less favorable mix. And remember, in Q2 in 2020, there was a lot of single items, greeting cards sent In the first period of COVID-nineteen, where people were refrained from visiting their friends and family. Organic costs, a reflection of the CLA increases, volume dependent cost in line with normal developments And then a huge improvement in other costs of EUR 22,000,000 of which EUR 6,000,000 is driven by the non recurring Sandd integration Savings on indirects and some other effects that are part of this on a cost bucket as well. On the international side, we see a deterioration of the profit, and that's predominantly driven by lower import flows in the cross border environment. All in all, a very good performance of the Mail business. Then we turn to the cash flow on Slide 23. From an annualized EBIT of 60 €3,000,000 we get to an adjusted free cash flow of €70,000,000 What you see is quite clearly in comparison to last year is tap up in CapEx, Which is from €11,000,000 to €26,000,000 In the working capital, there is a negative in this Period in time that's partially, I should say, to the largest part of it is phasing, which we expect to see back in the 2nd part of the year. And we've paid the First of 5 annual installments for the transitional plans already in the Q2 of this year, just to optimize the financing cost and negative interest rates. So also on cash flow, an important performance that we're happy with. Looking back now then, how does that reflect to the balance sheet, and that's on Slide 24. Adjusted net debt up EUR 15,000,000 to EUR 239,000,000, obviously impacted by the cash dividends that were paid. Total comprehensive income on €56,000,000 normalized comprehensive income for the Quarter at €57,000,000 which means that year to date, we are at a normalized comprehensive income from Of EUR 169,000,000, obviously the basis of our 70% to 90% dividend payout policy. Today, we've also announced a 2020 interim dividend of €0.10 which in accordance So the policy is 1 third of our 2020 dividend. On dividend expectations, full year 2021, I'll get back when I discuss The 2024 year outlook, and let's turn to that straight away on Slide 26. So we've raised our outlook from at least €250,000,000 to €280,000,000 to €310,000,000 Which includes a negative of €30,000,000 to €35,000,000 for Digital Next and an increase in non cash pension expenses The step up in normalized EBIT in comparison to the previous outlook will also impact the free cash flow positively And we'll turn into cash in the same way towards €250,000,000 to €280,000,000 for the full year. CapEx is expected to increase to EUR 160,000,000 within the bandwidth, but the higher end of the bandwidth That we previously communicated, there's no change in pension liabilities and normalized comprehensive income will be Up to EUR 2.50 to EUR 2.80 as a consequence of higher normalized EBIT. And if you take that EUR 2.50 to EUR 2.80 and apply the dividend policy you'll get to a dividend per share of around about $0.40 a level at which we believe We'll be able to pay out sustainably, and I think a very, very nice dividend return on the back a couple of share price around about the $4.50 mark. And even with a bit of dilution, I would say that is an attractive Return. Then let's look at the expectations of the 2nd part of the year on Slide 27. Half year result at €193,000,000 which is, and Anne already talked about it, Roughly €90,000,000 more underlying business wise than in 2020. We'll have additional cost In the 2nd part of the year, for new facilities, EUR 10,000,000 higher pension expenses, EUR 10,000,000 Step up in digital next cost of EUR 15,000,000 and then EUR 120,000,000 to EUR 150,000,000 business performance to be added on top of the 193,000,000. We do not For the first half year, there might be a little bit of additional volume in mail driven by vaccination campaigns for the younger people, But that will not be materially more than the roughly EUR 70,000,000 in total that we've guided for. We do expect some impact of the value added tax changes for International Parcels and Mail, driven by the exemption Of low threshold value added tax that's now been gone as of July 1. A key question is, of course, the level of stickiness in relation to the Christmas cards and the exceptional performance on those that we've seen in the last quarter of 2020. And that's, of course, less easy to predict In comparison to our parcel volume developments. And yes, as Eiran already said, it's Of course, doubtful what will happen in the 2nd part of the year in relation to the pandemic. But all in all, a quite a Good business performance as we see it for the 2nd part of the year. Now let's dive into that segment by segment. That's a new slide that tries to explain how the different segments will Evolve from half year to last year to half year to this year. And 1st and foremost, let's look at Parcels from EUR 124,000,000,000. There's a change in non recurring COVID impact in the second half of the year of EUR 37,000,000 And an improvement of business performance of EUR 5,000,000 to EUR 25,000,000 which brings the normalized EBIT for the 2nd part of the year to between €90,000,000 and €110,000,000 For MEO, it is a €9,000,000 change Negative and a deterioration of the business performance in comparison to last year of EUR 15,000,000 to EUR 35,000,000 And the €15,000,000 to €35,000,000 can be explained by a couple of components. I think if you look at the domestic business, Volume decline and organic costs are compensated by cost savings, but we've seen a temporarily deterioration of our Cross border import flows, lower results from terminal dues and as said, 3 working days less That also come into play here. Then we go to Slide 29 To show the quarter by quarter comparison And as said on normalized EBIT, we do not expect within Parcel any non recurring COVID anymore for the remainder of the year And only very limited COVID-nineteen impact at Mail in the Netherlands, a little bit in Q3 And a very strong Q4 2020 that was, of course, driven by a very big nonrecurring COVID part. Important to note that here we've explained the 2020 nonrecurring COVID impact at That we've seen in SpringHill Logistics as we talked about it in the Q1 of this year. On cash flow, We look at an outlook of €250,000,000 to €280,000,000 where, let's say, the first half year, of course, A very strong contribution to that full year number. And what changes in the 2nd part of the year is, of course, we'll not have the impact Considerably in comparison to our first half year, and there are some more tax effects in the Then let's look at how that outlook for 2021 brings us Further, and a key component of the messaging today is that driven by the higher volume That we've been distributing and the higher volume expectations in the Parcels business Of 11% to 30%, we'll accelerate our level of investments with EUR 450,000,000. Now that is driven, as I said, by carrying significantly more volume over the next 3 years than originally anticipated, Which is good news because that initial volume will bring additional results, but it does take a step up in our investment levels. If we talk about investments, it's always a combination of CapEx and lease additions. Roughly speaking, a third of that amount is lease additions and 2 thirds is CapEx. And what is really important to understand that this is not a one time investment decision. Here are multiple investment decisions that all in all, simulate to this number that we can take, And there's a lot of flexibility in it in terms of timing, and we can see where we end up with volume growth expectations to balance the level of investments to bid accordingly. Another important point is that, that step up in investments will not lead a deterioration of the leverage ratio. In other words, we're able to fund this additional investment from the cash flow that we generate And as such, actually contributes to the value of the company because leverage ratio will remain unchanged, profit will be significantly up, which will also lead to higher dividend payouts. On Slide 32, we look at the development from 2021 towards 2024. The EUR 280,000,000 to EUR 310,000,000,000, the first step is going to be a step down from 2021 to 2020 To take out, roughly speaking, the EUR 70,000,000 non recurring COVID, but then add back improvement of business performance Roughly half of that, and that's going to be the starting point for 2022. Then the trajectory of growth will remain the Same, comparable to the trajectory that we've discussed earlier, but starting from a higher starting point. That will grow towards €30,000,000 to €370,000,000 of normalized EBIT by 2024, which is €60,000,000 to €80,000,000 higher than earlier indicated. If you talk about The EUR 60,000,000 to EUR 80,000,000 more than roughly speaking EUR 45,000,000 EUR 40,000,000 to EUR 45,000,000 will be driven by improved performance Parcels, around about €20,000,000 to €25,000,000 will be driven by better performance of Mail. And remember that the original €80,000,000 to €100,000,000 step up was driven, fifty-fifty digital next initiatives and business performance, offsetting a negative on pension expenses. So you'll end up with a profit of €3.30 to €3.70 If you then assume more than EUR 200,000,000 of depreciation and amortization, You are talking about a business that turns more than €550,000,000 EBITDA by the end of 2024. Whatever multiple you want to apply to that leads to quite a lot of growth potential if you talk about valuation. Those are the key components of this graph, obviously driven by 11% The 13% CAGR growth expectations for Parcels and assumed Around 8% volume decline for Mule, and it does include the speed up of Our investments, both in terms of CapEx, but as well in OpEx on our ESG targets, And that, I think, is a very attractive perspective going forward. Now back to the concluding remarks, And I'm going to try to simplify this in my own words. We're looking at a very strong half year result, We're looking at a step up of profit for the full year, which turns into a higher comprehensive income and as such Leads to a dividend around about $0.40 per share. Underlying improvement of performance very significantly if you compare that With 2020 from 2021 towards 2022, there will be a small step down, Basically, half the size of the nonrecurring COVID part with a big step up towards 2024 in terms of normalized EBIT, EBITDA, which for us is a very, very attractive perspective. The additional investments Don't comment once. We are flexible in the way we will take those investment decisions, and those will not have a significant impact on the leverage ratio. And on that note, I'll hand back to Jochem. Thank you very much, Pim. I think this starts the Q and A, and I'm pretty sure that star 1 will be the equivalent of raising your hand. Operator? Thank you, sir. We are starting the question and answer session now. Go ahead please. Our first question is from Mr. David Kerstens of Jefferies. Go ahead. Your line is open. Hi. Good morning, Herna. Good morning, Tim. A couple of questions, please. First of all, on the expansion strategy, can you give an indication how much Capacity, are you now adding? I understand you did stretch the network last year and this year in the pandemic, which enables you to realize an EBIT of €295,000,000 based on the increased guidance. And are you saying now that you need to invest €950,000,000 in addition To increase that level further to EUR 330,000,000 to EUR 350,000,000 that seems quite a large investment compared to a relatively smaller increase in your EBIT expectation. How should we see that? And should we look at the expansion CapEx €450,000,000 I think that's adding about 30% to your invested capital. I'm assuming that's even larger and partial if you exclude the mill side of Capital. That's my first question. Then secondly, the 2022 guidance for mail volume and Parcels, 11% to 13% for Parcels. I understand that's from an elevated basis, including positive COVID impacts. What would be the underlying growth? And is that the normal new normal growth rate that you see in the market? And same for Mail, I think minus 8% does include the strong Impact in the Q2 this year, what would be the underlying rate of substitution? Is it now materially lower going forward at minus 6%? And maybe finally, a question on your parcel locker strategy, an increase by affected 10 to 1500 lockers. Is that the end game? Or is there still potential for further increase? I think in Germany, they announced 12,500 lockers for a population 5 times the size. How much parcel volume do you expect to go through these lockers once you have 15 hundred lockers in place? Thank you very much. All right. Maybe let's start with the first question on the if we talk about the additional investments, we talk about €450,000,000 more than in our previous plan. That €450,000,000 is driven not only, but to a large And by the higher volume that we already carry partially in 2021 and the improved perspectives on growth going forward. But next to expansion in Parcels in terms of sorting capacity, it's also roll cages, Advanced and what have you is the step up in ESG investments roughly speaking Also, I would say around about €50,000,000 of investments there to ensure that we deliver upon our ESG targets accelerate the trajectory towards them. We believe that's very important. Next to that is the step up and that you talked about in parcel lockers, Which basically is also a €30,000,000 to €35,000,000 investment. So it's a couple of components that drive that step up of investments. And well, I think a €60,000,000 to €80,000,000 additional profit coming from those additional investments in itself It's a pretty attractive return. If we look at our return on invested capital, that will still easily exceed Significantly, our WACC, so we'll still be beyond the 10% to 11%, 12% 40 years. So all in all, I think the fact that it is flexible and we can determine based on The volume expectations to do a bit more or to face it differently is actually a very attractive way to utilize The room that we have on our balance sheet to invest, since all of those investments will actually contribute to the bottom line and make our proposition as the favorite deliverer in the Benelux even stronger. Do you have a small part number how much capacity is being expound? Recall, when you announced the small parcel sorting center, you talked about 40% additional capacity that would come online this year and next year. So how much Capacity will come online after this investor. Yes. I think let's make sure that we are not mixing up capacity with volume Because let's say the volume is not evenly distributed over the months and periods of the year. So roughly speaking, capacity, you could say it's on average over this time frame around about The EUR 100,000,000 capacity per year that is added, if you talk about volume, I would say, as how we look at it from the 11% to 13% CAGR, so that's over the average of the next 3 years, We'll add around about, I would say, EUR 125,000,000 to EUR 175,000,000 of volume. And to add to your point around the small parcel sorting center, what we've said over there, David, is that More or less 40% of our volume could be sorted in the small parcel sorting center. That's not the amount of volume we expect to do. What we said by then, that's more around 15% to 20% of our volume that will be sorted in our small passing sorting center. But it gives us because that more a bigger percentage, of course, is applicable to that sorting center. It gives us the opportunity to bring more to the small parcel sourcing center than the 15% to 20%, which we communicated earlier. And if you think about the expansion strategy as explained by Pim, part of that investment money will also be used for the expansion of our small parcel sorting center. Then coming back to your question around volume. The volume forecast we give for Parcels, the 11% to 13% is does not include COVID effect. So this is the expectation we have going forward and take into mind that the stickiness, of course, It's important for the next coming period, but 11% to 13% is the percentage which we expect for the next coming years. For Mail in the Netherlands, we only gave a view on 2022. And that's also An effect which is keen for all COVID effects, so we expect a substitution in 2022 Around 8%. All right. So you should take volume excluding the COVID effects. Yes. But let's go back. The underlying substitution for 2021 So from there on, you could say it is a slight improvement, but still around about the 8% Underlying substitution is what we do expect for 2022. Then your room for Panching parcel lockers after 2024. I think our first ambition is, of course, to make sure that those To Germany that the size of the country and therefore also the size of the rural areas in the Netherlands is a bit different from Germany. Is there, of course, opportunity for expansion after 2024? I would say, in general, the answer is yes. But let's see by that time how market has developed, what consumer preferences are, how they have developed And then take a decision on that. Okay. Understood. And what percentage of volume do you expect to go through these lockers When you have 1500 lockers in place? We did not forecast the exact percentage of volume which goes Through the lockers, what we did do and that's how we came, of course, to the 1500,000,000 but also the buildup over the next coming years. For this important, if you want to use those lockers' efficiency, you have to have the opportunity to fill them to certain rate. And that's how we calculate the amount of lockers, but that's also how we will, of course, in the end position those lockers over the Netherlands that we can reach a Our next question is from Mr. Frank Claassen, Degroof, Citi. Yes, good morning all. Two questions, please. First of all, on your medium term, the 2024 increase, €60,000,000 to €80,000,000 Part of that will be driven by mail, I understood. But I'm trying to understand the drivers. Is it particularly the lower mill volume decline you anticipate, 8% instead of the 8% to 10% Are there also more cost savings? Or what is driving this robot with you on mail? That's the first question. And then secondly, on the Parcels growth for 2021 this year, the remaining of this year, what do you expect for second half? Is this also In line with this 11% to 13% or do you expect more? And the price mix effect, it was rather negative in Q2. Do you expect that Continue. Or can we expect some easing there? Thank you. Okay. Sorry. Hey, Nomad. On the first question, Frank, The improvement in Mail is driven by basically indeed partially a lower Substitution rate that we just discussed from 8% to 10% to around 10%, which drives the important and partially a change in the mix Of the products we carry with a positive average price component that also In revenue terms, we'll be contributing a bit more than originally anticipated. So that is the first Question? Do you expect difference in the savings you've targeted the synergies with Sandd? Or No. The synergy is unchanged. The synergies are at maximum run rate. What we Are currently seeing in the 2021 cost savings and that we're realizing our cost saving ambitions for 2021. That does take a step From 2021 to 2022 that we previously talked about, but there's no changes in those assumptions That drives the step up in business performance that we just talked about. So the improvement is driven by volume and The product mix component within Mail. Okay. Your second question was around parcel growth by the second half year of twenty twenty one, what our expectations are for the second half year. It is more or less in line with our growth forecast we, of course, already gave. But I think important to understand in the second half year is what the exact stickiness is of behavior of consumers after COVID. Then back to the pricemix effect. What you did see, of course, in the Q2 is that Q2 last year, as said, we did have quite some small customers with Parcels and Consumers. That's what we did not see to come back in the second not expect, to be honest, to come back in the Q2 of 2021. Also for the remainder of the year, we expect that big customers are growing a bit faster than the smaller ones. So is it fair to assume a small negative price mix effect still to continue in the second half? Yes. The answer is yes. Okay. That's helpful. Thank you very much. Our next question is from Mr. Marc Wachsemberg, go ahead. Your line is open. Thank you. Thank you for taking my questions. Just a quick follow-up on the parcel volume, just so I get the numbers right. Were you guiding for A slight acceleration then in parcel volume for the second half, if you refer to the 11% to 13%, is that correct? And does the Was 20% to 23% guidance that we had at Q1 still stands for full year? That's my first question. Yes. It's still around about 23% underlying volume growth within Parcels, More or less, around about that mark indeed. And for the Mail to get that also Clear. So the 8% substitution for next year, that is excluding the positive impact you currently have from the COVID volumes. So we should add an additional decline for heavier comps, is that correct or not? No, it's the other way around. So what we do expect is a just a substitution effect of around 8% for 2022. Of course, 2021 performance and the volume growth that we've seen is impacted by non recurring COVID effect, but the underlying Yes. No, correct. But for 2022, we have a substitution effect, and you have tougher comes from the COVID tailwind that you have in 2021. Or am I now thinking in the wrong direction? Because you had plus 4, for instance, now in Q2. Yes. But yes, we need to be careful that we're not taking half years And annualizing that, so for the full year, we do still expect a volume decline for Miel Because as said, in Q3 and Q4, we won't have that much of a non recurring COVID effect anymore and substitution will continue. And as Tuition will continue. And as said, there's 3 working days less in the 2nd part of the year as well. So Let's say full year volume development in Mail, I would say, is expected to be around about the 4% to 5% Volume declined, Mark, which is then still based on the substitution level of around 8%. Yes. Okay. Well, I'll get to this offline then later on. Then on the news today, with the government looking at sending mail letters For people to so that they can opt for self test to be delivered at their houses for 2, 3. I can assume that it's one letter. And if you opt in, you get another letter or 1 or 2. That could be, say, €15,000,000 in volumes added to the second half. But actually, you're saying we have a limited impact build in In the Mail Division for COVID support in the second half. But is this news then new to you as well? And should we add that the second half? Because that could be quite a tailwind. Indeed, no, it's not new to us, of course. So we did Build it in, I think you're too positive about the response rate on mailings. So that we do not take into account that 100% of the households That's what we also will distribute over the next coming weeks. And that, I think, relates also to what Pim said when he talked about The COVID effect in over the full year 2021, he did say that the by far biggest part It's seen or was seen in the first half year of twenty twenty one and a very small part Still to be seen within mail in the Q3 and then he meant, of course, dis mailing. Okay. But that could be a bit bigger than being just small because it's every household gets this notification, then you have to react, You do know Mark, of course, what the average revenue per letter is. That's one. And secondly, small, when you think about the $70,000,000 or $68,000,000 $69,000,000 we had in the first two quarters. So you have to relate it to the 68% to 69% we already have seen as a COVID effect. And for the rest, I fully agree, let's stimulate people to receive positively to this mailing because That's helpful. So Yes, if the district gets something for free, maybe the response rate is high. Let's see. Okay. Thanks for your questions. But it brings me to the guidance for Q3 because you're basically guiding for a lower result in Q3. But last year, Q3 was also not that impacted by COVID because the lockdown has ended. So can you explain me why the results should be lower than in Q3? Additional pension expense, preparation cost of the new facilities and parcels coming live and additional digital €30,000,000 to €35,000,000 OpEx this year. Wasn't that number initially a little bit lower for this year? So is that the 2022 into 2021? No, the 32,235 is the combination of Digital Next And the Delta pension expense. So there's no change in Digital Next, nor in terms of OpEx, nor in terms of CapEx In 2021, in comparison to our earlier guidance. Okay. Very clear. Our next question is from Mr. Iba Thierry of Bank of America. Go ahead. Your line is open. Hi. Firstly, on the near term, you talk a little bit about what you've seen in July so far, both on the parcels and mail side and what your customers are saying about peak season this year? And then secondly, just on your 2024 guidance, you've talked about parcel volume growth. How should we be thinking about kind of pricemix Impact going forward, are you thinking about price increases? And then how should we think about margin on the parcel side of things? And similarly on Mail, you've talked about volumes. How should we be thinking about pricing and margins, please? Thank you. When you talk about customers and how they look into peak season, They expect, of course, for Black Friday, Santa Claus and Christmas again peak season in the Netherlands as well as in Belgium. That's also the reason we are preparing for that. And as highlighted by Pim, some of those costs are seen in Q2 and will be seen in Q3 as well. So we expect a normal peak season in, of course, this year. When it comes to July, The way we look into July or we always say you have to look into July August to have a good feeling around volume development over summer Because how volume is spread over the weeks very much depends on holidays in the Netherlands and Belgium. And as you maybe do know, we do have spread holidays in the Netherlands. So it's not like in France or in Italy, everyone is on holiday. In August, that's not the case in the Netherlands, so it's much more Fred, so difficult to say at this moment in time. When it comes to mail, same answer, except of the fact, as we just discussed, that we expect in the next coming weeks the mailing to households in the Netherlands in which they can ask for free self testers. When it comes to price increases, for Mail as well as for Parcels, we do forecast price increases, of course. For Mail, those are crucial together with cost savings to remain or to keep the margins stable. So that gives also an answer to your margins. When it comes to Parcels, we do, of course, forecast price increases, which was an important part of our Capital Markets Day strategy, which we presented in 2019. And when it comes to margins, I think Pim already gave quite a concrete answer on what we expect on margins This year and going forward? Yes, around the 10% mark also for 2024. Our next question is from Ms. Luka I have one question on local targets and the potential financial impact. We note that on another company, its costs can be significantly reduced due to some knockers. Of course, it's based on completely different country, but have you looked into that? And could you give the Both of estimates and is this included in your 2024 guidance? Lotte, you were really quick with I think I got the context talking about the parcel lockers, but maybe Just repeat the question 1 by 1, if I can ask you. Sure. It was indeed about the local target and the potential financial impact. We know for another company that costs can be significantly reduced because you can use more you can ship more parcels Using less drivers, of course, it's completely different country, so the estimates will be completely different. Have you estimated what the potential cost reduction could be in the Netherlands? And is this also included in your 2020 guidance? Okay. Ed and I also understand what you're referring to. I think it is difficult to compare and that has I should do, first of all, with, of course, the country and the size of the country, but I think secondly also with what consumers are used 2 in the Netherlands. And consumers in the Netherlands are used to have their parcel within 24 hours at a hugely high quality, Which was also different to the other country. So their quality was helped and also consumers could get their parcels earlier when they drove to a parcel station. That is totally different in the Netherlands. So the amount of parcel lockers we want to place in the Netherlands over the next coming years are in our view necessary to fill in consumer needs when it comes to certain flexibility When and where and how you're going to pick up your parcel. Secondly, those parcel lockers are also important Because we do have 4,000 retail locations in the Netherlands, with the growing parcel volume, we expect, of course, also a growing volume for retailers. And Sometimes you need overflow, which we can do with our parcel lockers. So the way we've calculated With those parcel lockers, it's of course that they do have a financial impact when it comes to the investments. We did not take into account that they will lead to huge savings. But at the same time, just looking at it differently, it is an investment with a positive net present value. And as such, Then, of course, leads to returns in excess of the WACC. Otherwise, you wouldn't have any positive net present value. No, of course. Thanks. Additional question, we partial Locust. You currently have 160, if I'm correct. What is the Sensifuim currently delivered in those locusts, is it still relatively small? It's very small. And as said, it's An additional option to deliver the parcels, but it's by far the smallest version. So I would say it's really, well, small. And then you talk only a few percentage points. Yes. Okay. And additional quick question. I heard you said the split on the step of the guidance, the €60,000,000 to €80,000,000,000 Milford disposals, but I missed the numbers. Could you repeat that one, Tim? Yes. But then if I I'll go back to the entire step up just to make sure that we get it right. So if we talk about We've talked about in March a step up of €80,000,000 to €100,000,000 That was driven 50% of that by Digital Next And the other 50% by parcels, offsetting a roughly €25,000,000 deterioration of pension expenses. On top of that, we'll now add €60,000,000 to €80,000,000 That €60,000,000 to €80,000,000 is roughly Split, 40,000,000 to 45,000,000 Parcels, 20,000,000 to 25,000,000. Obviously, Parcels driven by the higher volume growth, Mail driven by slightly lower substitution and product mix effects. Great. Thanks, Sherry here. Our next question is from Mr. Henk Glubboom of BIDIA. Go ahead. Your line is open. Good morning, Tim and Anna. Tim, I want to go back to Where we started this Q and A session, the question of David on the €450,000,000 And I'm not sure whether I caused The number is right. But there's a step up in ESG investments of around €50,000,000 There's a step up in Locker's investments of around €30,000,000 to €35,000,000 Did I understand it correctly that the balance of the €450,000,000 is what you spent on the capacity increase, The additional capacity increase in parcels? Yes. But that's not always leading to an increase in sorting So that's also roll cages. It's also trucks. If you add number of depots, you might need to add cross docks that will not in itself Each and every investment lead to an increase in capacity. So it's the combination of those elements that allow us To do roughly EUR 125,000,000 to EUR 175,000,000 more parcels by the end of 24 in comparison to 2021. If I do my math correctly, then it adds up to, let's say, euros 370,000,000 ish, What you are going to spend incrementally on Parcels. Now if I go back to the slides of the Capital Market presentation in 2019, At the Parcels deep dive, you were already anticipating a growth CAGR of around 14% in the period 2018, 2022. I realize that in the past, let's say, 16, 18 months, there's been an enormous step up in volumes. But the amount, the incremental amount you spent on capacity increases strikes me as relatively high In comparison to what you've been communicating before, can you perhaps give me some more color on that? Yes, that's what I tried to do just yet. There's let's say, not every investment leads to an increase in capacity. The bigger the network becomes, you need cross docking facility. That is partially also in the lease addition. Sometimes rent spaces to allow for buffering and what have you that doesn't necessarily lead to an increase in capacity. Likewise, the bigger the network, the more volume, the more IT is required to sustain that infrastructure in a way That is flexible and gives you the best customer journey experience that we also seek for our clients. So and let's not forget that we're already doing significantly more volume than assumed by 2019 in that Capital Markets Day that you alluded to, I think it's 2 years progressed in terms of volume that we carry. Well, next to that, there's also a bit of scarcity on raw materials. As I'm sure you're aware of Henk, that comes into play as well. Steel prices are up, building costs are a bit higher. So also there's a bit of inventory element In it, which basically means that you need to invest a little bit more for the same capacity at price points right now Then at price points 2019. And all of these components lead to that step up. It's not only Parcels, the vast majority is Parcels clearly. But if you then look at the step up in performance and you hear me say that This business will get to a 10% margin. We'll be at this level By the end of 2021, which is 3 basis points 300 basis points more than by the end of 2019, I will be able to continue to drive the business around about that margin level. I would say with a Significantly better top line development and a significant step up in profits is actually a very attractive Investment case. Yes. Okay. Clear. Then a couple of other questions, if I may. First of all, On Spring, it had a fantastic run-in the past, what is it, a year or so. Last time, during the analyst call, you said, I believe, 70% of it was e commerce related, And the vast majority of that comes from China. Now we've had some changes in the VAT. Nootbundenel reported last week that You encountered some problems. I assume that, that is all included in the guidance you gave. But do you expect a structural Adverse effect from imports from China, for example, or rather from non EU countries, which could affect the business model of OSPREING? Well, I think a couple of components to that question. Spring It's not only in this below the €22 threshold. That type of volume is prominently postal And it's probably driven by universal service flows. So that's much more part of also the mail performance Then only of spring. At the same time, yes, we do expect At least for the next few months, a significant step down of volume whilst customers are trying to get used To this new system, there is a working system in place. And if you look at the websites and the platforms that we work with, It functions, so you are still able to quite easily source products from China in a way that Allows you to pay the devalue added tax in the right way. But what we've seen as well is that There has been a small spike prior to July 1, and it takes a bit of time for people to get used to it. We've assumed a certain deterioration of those volumes in the second part of the year, But this is an element that is not that easy to predict how it exactly will play out. It's not the stream that we earn the most Margin on. So I would say we've made best as we can estimation that is part of our 2021 Guidance, I don't see a big risk on that full year guidance that we've given here. Okay. And then a final question, if I may. That's on the decarbonization of the last mile. Couple of years ago, you already announced that you were aiming at CO2 free delivery in 25 Cities in the Netherlands. Now a couple of months ago, there was an interview With your Dutch colleague from Utrecht working for a German firm, and he said his company wants CO2 free delivery through the entire through the whole of the Netherlands by 2025. And to what extent you had a magnificent lead over DHL, DPD because if you look at your mail network, That's almost 90% CO2 free. Have you lost the initiative here? And Couldn't you be forced couldn't you risk being forced into a position that you have to step up your 2,000 and Certainly, ambition to go to a CO2 free delivery in the whole of the Netherlands. Okay. Mike, I think if you look into reputation, if you look into surveys we do amongst Customers and consumers, we are the favorite deliverer in the Benelux, and that's what we want to remain to be. There are certain aspects crucial in remaining that favor of deliverer, and I think CO2 emission free delivery is 1. In my view, the I think the targets we've set for the next coming years are realistic targets. And with the Expansion, of course, in CapEx and OpEx, which we've now announced, we can accelerate it. It means that we can invest more in our electrical vehicles, but do know that we already have 1300 electrical vehicles in place at this moment in time. So when you start comparing, then I would say compare the apples to the apples Instead of stories to reality, and that's how I look into it. I do think and I do believe that keeping the Position we are in remains to be crucial over the next coming years, and it's one of the reasons, as we also communicated When we announced our Digital Next program, it's one of the reasons why we also will expand in digital because there we do think It's the biggest relation with consumers and our customers to stay ahead of competition in the Netherlands. Okay. Thank you. Those are my questions. Thank you. Our next question is from Mr. Ivar Bill Fowkelly of UBS. Go ahead. Your line is open. Hi, there. In Ivar, I think your investments to and to Belgium with the opening of the new center in 2022. Is any of the 11% to 13% of volume growth in parcels you're talking about, Can that be directly allocated to increased operations in Belgium? And linked to that, within The context of your EBIT improved by €330,000,000 to €370,000,000 Is it possible to quantify what proportion of that increase might be allocated to Increased activities in Belgium? That's the one I have. Thank you. Yes. A logical question, but we do not split In our investments in Belgium and the Netherlands at 1, although you can calculate it a little bit, of course, because we're opening 2 centers in Belgium. And the same is for, of Of course, the margins we earn in Belgium, margins we earn in the Netherlands. What we can say is, of course, that in the 11% to 13% Growth in Belgium is included. And we did see over the last half year, but also in 2020, that growth in Belgium was higher than we did see it in the Netherlands. Also there, of course, with a big COVID effect, which will not Which is not taken into account when we talk about the 11% to 13% and also not taken into account while we talk about The expansion in capacity. What we already did do in Belgium is we opened 7 sorting depots, so that's what we already did do. We will open a new sorting center beginning of 2022, and the expectation at this moment in time is that also the 2nd sorting and delivery center will be started to open by the end of 2022. So we expect volume growth to continue in Belgium as well. We have time for a final question. And our question comes from Andre Mulder of Kepler. Two questions. First question, on sheet 16, you're since suggest that the volume decline in 2021 It's something like 9.5%. Can you fill us in how that is going to close? Secondly, Can you give us a bit more insight in the drivers for 'twenty three and 'twenty four, despite the volumes and the price mix effect? Do we expect that the volume increase in parcels will be a similar 11% to 13%? And for mail, it will be less Then the 8% for 2022 and maybe some comments on the price mix effects as well. Andre, you have to help me with the 9.5% question, because what we're looking at is kind of a substitution rate of roundabout 7% by the end of Q2, which we say will be, roughly speaking, around 8% going into 2022. So I just don't really recognize the 9.5% mark that you use. That's what I get from the columns that you produce on sheet 16. Yes. Okay. But 9.6% is the 2020 number, right? So we see, yes, an improvement in relation to the substitution towards Around about that 8% mark. And that's also why I said that, let's say, we're looking at 8% to 10% substitution rate. And we see now a slight improvement towards around 8%, Driven by partially product mix, a combination of, let's say, single mill still declining At higher rates, but also as Anna said, direct marketing bouncing back a bit, some other product categories that are not declining As fast as they did in the past. So all in all, on average, leading towards a substitution of around the 8%. We've not explicitly said something about 23, 24, for mill. At this moment in time, this is what we're looking at. On the parcel side, let's remind everybody in the call that we're talking about a CAGR of 11% to 13% from 2021% to 2024% Onwards, pricing policy for both companies remain the same. The quite significant price mix effect in Parcels in the second quarter is not something that we expect to continue On that size, there will always be a little bit of mix effect in it because bigger customers are Expected to grow faster than smaller, but definitely not to the extent that we saw in the second quarter, given the fact that it was for a large Okay. So I understand that the 11% to 13% is not only valid for 2022, but For the whole period, let's say 2022 to 2024. Okay. Andre, I'm assuming that was your final question. Thank you very much all for joining us today. If you have any further follow-up questions, you know where to find us. On a final note, we will have a next IR deep dive at the end of September 30, September to the execs to talk about sustainability and ESG. We look forward to see you or meet with you Bye then. Thanks very much again and see you next time. Thank you. Bye bye.