Good morning, Welcome to the PostNL Quarter 2 2021 Analyst Call. During this call, all participants are on 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. Jochem van de Laarschot for introduction. Go ahead please, sir.
Thank you very much. Good morning, everyone. We're here with Herna Verhagen, our CEO, and Pim Berendsen, our CFO. They will take you through the second quarter numbers and a number of other topics. 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 two, then of course, looking forward to the end of the year in 2024. I think quarter two 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 million-EUR 310 million. To be sure that we can deliver as expected, of course, the growth in parcels, we increased our investments to an amount of EUR 950 million, we will use that for the expansion of capacity, digitization, and ESG. Please be aware that the extra EUR 450 million will be a step-by-step investment. For the full-year 2022, we expect to come in below full-year 2021 because of the non-recurring impact. The underlying business performance continues to improve.
Based, of course, on our results 2021 and also the expectations for the next coming years, we raised our ambition for 2024 to EUR 330 million-EUR 370 million, which is an increase of EUR 60 million-EUR 80 million. Let's look to Q2 2021. Our normalized EBIT is up 17% to a number of EUR 63 million. That of course, also goes together with the results of Q1, an increase in the full year expectation to EUR 280 million-EUR 310 million. We do have still non-recurring COVID, which is in this quarter, EUR 26 million. 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 EUR 0.10 per share.
We did see in the second quarter an improvement into our Q2 efficiency of 13%, and as said, we increased our normalized EBIT for the full year. Looking into the COVID effects, around EUR 26 million is assumed to be non-recurring and relates to COVID. Part of that comes from parcels, EUR 7 million, more or less from parcels in the Netherlands. There we did see that after the reopening of the stores in May, parcel volume came relatively quickly to our normal expected levels, although of course higher than the levels of 2019. We see EUR 7 million in Spring and Logistics as well. EUR 12 million mail 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.
That means that the underlying normalized EBIT or the normalized EBIT without the non-recurring result is EUR 37 million for the second 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 a strong revenue growth. That revenue growth is partly because of the transition from offline to online, where we do see and think that part of that sticks also towards the future. The underlying volume growth for parcels is around 10%. We saw a slightly negative price mix effect, which is partly better pricing at customers and customer level. What we did see is that large customers did grow faster than the smaller ones.
That's also what we communicated last year, Q2, when 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 EUR 6 million when you exclude the non-recurring COVID effect. We saw increased costs, and they were in line with our expectations. 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. 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. Of course, we're fully ahead and in the right pace to open our first sorting and distribution center in Belgium beginning of 2022. Mail in the Netherlands showed a strong performance. The underlying trend in volume decline is still around 7%. Volume growth of 4.2% 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%. We did see one additional working day and some other effects, which is around 2%. That 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. Please remember that last year at the beginning of the COVID crisis, we had lots of single mail items. Sale of non-core activities, the revenue of Cendris is, of course, out of the numbers in 2021. The normalized EBIT excluding COVID is EUR 11 million up. We saw a decline in other costs, mainly explained by the non-recurring integration cost 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 non-recurring addressed mail volume. March 1, we communicated on our strategy. That strategy remains the same as is shown on slide 10.
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 three important parts in ESG. 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 has 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 one 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 2030. 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. At this moment in time, we have around 1,300 electrical vehicles. We are preparing our electric infrastructure. At eight of our sorting centers, we have huge charging stations, and that's what we want to expand to the other sorting centers as well. Of course, we use renewable fuels. HVO100 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. It will help us to deliver on our targets to have a last-mile emission-free delivery in the inner cities by 2025 and a last-mile emission-free delivery for the whole by 2030. 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%-13% growth we expect as of 2022, dependent, of course, on the level of stickiness and also driven by market developments. In the second quarter, we did see an increase in online buyers, which is of course underpinning our view on volume development for the next coming years. 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 non-recurring parcels we had in 2020, and we did have in the first half year of 2021. 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. Therefore, we announced today to, of course, increase our investment with EUR 450 million.
I think important to know and to say. The 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 million 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, which we can do because of our scalability of assets. The fact that we can scale our assets, I think, has been proven in the year 2020. Next to adding capacity, we also want to add capacity where people can pick up 24 hours a day their parcel or bring it back. That's why we want to expand to 1,500 parcel lockers by 2024. It helps, of course, to support our retail stores because we will keep our 4,000 retail stores in the Netherlands, and we will expand 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. 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. 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 first and second quarter of 2021, something we have not seen over the last years, and that is volume growth. The underlying trend, although, is still substitution.
That means that big part of the volume, which of course, caused the growth over the first and second quarter, we will not see back in 2022. The volume decline we forecast for 2022 is around 8%. The trends 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 third important pillar under our strategy is, of course, our ambitions plan to accelerate the digital transformation. Phase by phase, we are implementing the examples we already discussed with you on March 1. In the orange parts of slide 17, we give you a few examples of what we did in the second quarter to fill in our digital transformation strategy. The ambition is still the same.
The investment we have to do in 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 customers, which is the lower part of the slide. We show you, of course, the improvements we did see compared to the half year 2020. There you can see that the shift to digital channels and products continues, and that with all products and services we implement, we further, of course, enhance this improvement.
That brings me, before Pim takes over and walk you through lots of the bridges and, of course, details on Q2 2021, 2022, and 2024, to give you a summary that we do deliver on our strategy and want to be the logistics and postal service provider to, in, and from the Benelux. We saw a strong performance in Q2 2021. Normalized EBIT was up 17%, supported by non-recurring impact related to COVID-19 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. 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 EUR 280 million and EUR 310 million.
Of course, with these improvements we did see in the business in mail and parcels, we looked 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 month and 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 EUR 330 million-EUR 370 million, which is a step up of EUR 60 million-EUR 80 million compared with our earlier ambition.
To underpin the growth, we do additional investments in capacity, but also in network IT infrastructure. That is EUR 450 million. As said, it will be a step-by-step investment approach. What we said over the last 18 months is what we repeat, the exact consequences of the pandemic remain uncertain going forward. I would like to hand over to Pim.
Thank you, Herna. Let's dive into a little bit more detail on the financials per segment, both in terms of 2021, 2022, and 2024. First and foremost, at slide 21, the parcels bridge, excluding a delta of around about EUR 10 million on non-recurring COVID impact in this segment, normalized EBIT increased by EUR 6 million compared to last year. In this bridge, you see a volume effect driven by the 11.4% 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 going online last year trying to salvage part of their business. Organic cost increases in line with previous quarters, volume-dependent costs, likewise.
Another cost bucket with EUR 18 million of additional costs, and that can be easily explained by a couple of elements that I would like to spend a few minutes on. I think if you look back at the last six quarters, we've done everything we could to stretch the network to accommodate the growth of our customers as best as possible. 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. 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's additional cost in relation to preparation of new capacity coming online also, prior to Q4 2021. There's also a three working days difference in comparison to last year.
All in all, that drives the other cost bucket here. The other results is a EUR 12 million plus, driven by very good performance by Spring and Logistics. If you look at the non-recurring part, in this year, we've seen, as Herna already indicated, EUR 14 million of non-recurring impact. If we, like we've done that in the first quarter, look at also the impact of logistics and Spring in relation to non-recurring volume streams, the comparison to 2020 would be EUR 16 million in parcels and EUR 9 million in Spring and Logistics, predominantly driven by non-recurring positive effects in the time definite networks and the e-commerce fulfillment part.
If you look at that quarter result of parcels, you could say, yeah, it's a deterioration of the margin in comparison to the first quarter of the year, which is true, but still turns a 9.5% margin and a half year result at 11.8%. Expectations for full year are still around about the 10% margin mark, which is 3% points more than the margin in 2019. All in all, if you look at a slightly longer timeframe, 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, and you see the EUR 5 million of 2020 turning into EUR 23 million, and there is a positive EUR 8 million additional non-recurring COVID impact within the mail segment, driven of course by the vaccination campaigns that Herna already talked about.
Without it, an increase of normalized EBIT of EUR 11 million, driven by 4.2% volume growth, a slight positive price mix effect, where the price impact being positive was almost fully offset by less favorable mix. Remember, in Q2 in 2020, there was a lot of single items, greeting cards sent in the first period of COVID-19, 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 million, of which EUR 6 million is driven by the non-recurring Sandd integration cost in the second quarter last year, EUR 6 million additional cost savings in the operational processes, EUR 4 million additional cost savings on indirects, and some other effects that are part of this other cost bucket as well.
On the international side, we see a deterioration of the profit. That's predominantly driven by lower import flows in the cross-border environment. All in all, a very good performance of the mail business. We turn to the cash flow on slide 23. From a normalized EBIT of EUR 63 million, we get to an adjusted free cash flow of EUR 70 million. What you see here is quite clearly in comparison to last year, a step-up in CapEx, which is from EUR 11 million-EUR 26 million. 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 second part of the year.
We've paid the first of five annual installments for the transitional plans already in the second quarter of this year, just to optimize the financing cost and negative interest rates. Also on cash flow, an important performance that we're happy with. Looking back now then, how does that reflect to the balance sheet? That's on slide 24. Adjusted net debt up EUR 15 million to EUR 239 million, obviously impacted by the cash dividends that were paid. Total comprehensive income on EUR 56 million. Normalized comprehensive income for the quarter at EUR 57 million, which means that year to date, we are at a normalized comprehensive income of EUR 169 million. Obviously, the basis of our 70%-90% dividend payout policy. Today, we've also announced a 2020 interim dividend of EUR 0.10, which in accordance to the policy is 1/3 of our 2020 dividend.
On dividend expectations full year 2021, I'll get back when I discuss the 2020 full year outlook. Let's turn to that straight away on slide 26. We raised our outlook from at least EUR 250 million to EUR 280 million-EUR 310 million, which includes a negative of EUR 30 million-EUR 35 million 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 will turn into cash in the same way towards EUR 250 million-EUR 280 million for the full year. CapEx is expected to increase to EUR 160 million within the bandwidth, but the higher end of the bandwidth that we previously communicated. There's no change in pension liabilities, normalized comprehensive income will be up to EUR 250 million-EUR 280 million as a consequence of higher normalized EBIT.
If you take that EUR 250 million-EUR 280 million and apply the dividend policy, you'll get to a dividend per share of around about EUR 0.40, a level at which we believe we'll be able to pay out sustainably. I think a very nice dividend return on the back of a share price around about the EUR 450 million mark. Even with a bit of dilution, I would say that is an attractive return. Let's look at the expectations of the second part of the year on slide 27. Half year result at EUR 193 million, which is, Herna already talked about it, roughly EUR 90 million more underlying business wise than in 2020. We'll have additional costs in the second part of the year for new facilities, EUR 10 million. Higher pension expenses, EUR 10 million.
Step-up in Digital Next cost of EUR 15 million, EUR 120 million-EUR 150 million business performance to be added on top of EUR 193 million. We do not expect materially impact from non-recurring COVID impact in the second part of the year. We're now at EUR 69 million for the first half year. There might be a little bit of additional volume in Mail driven by vaccination campaigns for the younger people, that will not be materially more than the roughly EUR 70 million 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 1st.
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. That's, of course, less easy to predict in comparison to our parcel volume developments. Yeah, as Herna already said, it's of course doubtful what will happen in the second part of the year in relation to the pandemic.
All in all, quite a good business performance as we see it for the second 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. First and foremost, let's look at parcels from EUR 124 million. There's a change in non-recurring COVID impact in the second half of the year of EUR 37 million and a improvement of business performance of EUR 5 million-EUR 25 million, which brings the normalized EBIT for the second part of the year to between EUR 90 million and EUR 110 million.
For Mail, it is a EUR 9 million negative change and a deterioration of the business performance in comparison to last year of EUR 15 million-EUR 35 million. The EUR 15 million-EUR 35 million can be explained by a couple of components. If you look at the domestic business, volume decline and organic costs are compensated by cost savings. We've seen a temporary deterioration of our cross-border import flows, lower result from terminal dues, and as said, three working days less that also come into play here. Then we go to slide 29 to show the quarter-by-quarter comparison.
As said, on normalized EBIT, we do not expect within parcels any non-recurring COVID anymore for the remainder of the year, and only very limited COVID-19 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 non-recurring COVID part. Important to note that here we've explained the 2020 non-recurring COVID impact at EUR 77 million, applying the same methodology on the non-recurring COVID impact that we've seen in Spring and Logistics as we talked about it in the first quarter of this year. On cash flow, we look at an outlook of EUR 250 million-EUR 280 million, where, let's say the first half year, of course, had a very strong contribution to that full year number.
What changes in the second part of the year is, of course, we will not have the impact of the sale of Cendris anymore. We'll see a step up in CapEx for the second year, quite considerably in comparison to the first half year. There are some more tax effects in the second part of the year. All in all, a very good cash flow for the full year is expected. Let's look at how that outlook for 2021 brings us further. 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%-30% will accelerate our level of investments with EUR 450 million.
That is driven, as I said, by carrying significantly more volume over the next three years than originally anticipated, which is good news because that additional volume will bring additional results. 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 2/3 is CapEx. What is really important to understand that this is not a one-time investment decision. Here are multiple investment decisions that all in all, accumulate to this number that we can take. There's a lot of flexibility in it in terms of timing. We can see where we end up with volume growth expectations to balance the level of investments to it accordingly.
Another important point is that that step up in investments will not lead to 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-EUR 310. The first step is going to be a step down from 2021 to 2022. Take out, roughly speaking, the EUR 70 million non-recurring COVID, but then add back improvement of business performance of roughly half of that, and that's going to be the starting point for 2022.
The trajectory of growth will remain the same or comparable to the trajectory that we've discussed earlier, but starting from a higher starting point. That will grow towards EUR 330 million-EUR 370 million of normalized EBIT by 2024, which is EUR 60million-EUR 80 million higher than earlier indicated. If you talk about the EUR 60million-EUR 80 million more, then roughly speaking, EUR 40million-EUR 45 million will be driven by improved performance of parcels and around about EUR 20million-EUR 25 million will be driven by better performance of mail. Remember that the original EUR 80million-EUR 100 million step-up was driven 50/50 Digital Next initiatives and business performance offsetting a negative on pension expenses.
You will end up with a profit of EUR 330million-EUR 370 million. If you assume more than EUR 200 million of depreciation and amortization, you are talking about a business that turns more than EUR 550 million 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%-13% CAGR growth expectations for parcels, an assumed around 8% volume decline for mail. It does include the speed up of our investments, both in terms of CapEx, but as well in OpEx on our ESG targets. That, I think is a very attractive perspective going forward. Back to the concluding remarks, 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 EUR 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 non-recurring COVID part, with a big step-up towards 2024 in terms of normalized EBIT, EBITDA, which for us is a very attractive perspective. The additional investments don't come at 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. 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 one will be the equivalent of raising your hand. Operator?
Thank you, sir. We are starting the question and answer session now. If you have a question or remark, please press star one now on your telephone. Star one for your questions or remarks. 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, Pim. A couple of questions, please. 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 EUR 295 million based on the increased guidance. Are you saying now that you need to invest EUR 950 million in addition to increase that level further to EUR 330 million-EUR 370 million? That seems quite a large investment compared to a relatively smaller increase in your EBIT expectation. How should we see that? Should we look at the expansion CapEx of EUR 450 million? I think that's adding about 30% to your invested capital. I'm assuming that's even larger in parcels if you exclude the mail side of invested capital. That was my first question.
Secondly, the 2022 guidance for mail volume and parcels, 11%-13% for parcels. I understand that's from an elevated basis, including positive COVID impacts. What would be the underlying growth? Is that the new normal growth rate that you see in the market? Same for mail, I think -8% does include the strong impact in the second quarter this year. What would be the underlying rate of substitution? Is it now materially lower going forward at -6%? Maybe finally, a question on your parcel locker strategy, an increase by a factor 10 to 1,500 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 5x the size. How much parcel volume do you expect to go to these lockers once you have 1,500 lockers in place?
Thank you very much.
All right. Maybe let's start with the first question. If we talk about the additional investments, we talk about EUR 450 million more than in our previous plan. That EUR 450 million is driven not only, but to a large extent by the higher volume that we already carry partially in 2021 and the improved perspectives on growth going forward. Next to expansion in parcels in terms of sorting capacity, it's also roll cages, vans, and what have you, is the step-up in ESG investments, roughly speaking. Also, I would say around about EUR 50 million of investments there to ensure that we deliver upon our ESG targets and 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 EUR 30 million-EUR 35 million investment.
It's a couple of components that drive that step-up of investments. What I think a EUR 60 million-EUR 80 million additional profit coming from those additional investments in itself is a pretty attractive return. If we look at our return on invested capital. That will still easily exceed significantly our WACC. We'll still be beyond the 10%-11%, 12% for the years. 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 phase 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 ballpark number how much capacity is being expanded? I recall when you announced the small parcel sorting center, you talked about 40% additional capacity that would come online this year and next year. How much capacity will come online after this investment?
Yeah. 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. Roughly speaking, capacity, you could say it's on average over this timeframe, around about the 100 million capacity per year that is added. If you talk about volume, I would say, as how we look at it from the 11%-13% CAGR, that's over the average of the next three years, we'll add around about, I would say, 125 million-175 million of volume.
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%-20% of our volume that will be sorted in our small parcel sorting center. It gives us, because a bigger percentage, of course, is applicable to that sorting center, it gives us the opportunity to bring more to the small parcel sorting center than the 15%-20%, which we communicated earlier. 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. Coming back to your question around volume.
The volume forecast we give for parcels, the 11%-13%, does not include COVID effect. This is the expectation we have going forward, and take into mind that the stickiness, of course, is important for the next coming period, but 11%-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 cleaned for all COVID effects. We expect a substitution in 2022 of around 8%.
Right. You should take the volume excluding the COVID effects?
Yeah. Let's correct. The underlying substitution for 2021 second quarter at what Herna explained, is around about the 7% substitution rate. We expect for 2022 a substitution of around 8%. Originally, we had set an 8%-10% substitution expectation. 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.
Your room for expansion in parcel lockers after 2024. I think our first ambition is, of course, to make sure that those 1,500 parcel lockers are placed by the end of 2024. Take into account before you compare the Netherlands 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. 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. What percent of volume do you expect to go through these lockers when you have 1,500 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 1,500, but also the build up over the next coming years. For this important, if you want to use those lockers efficiently, you have to have the opportunity to fill them to a certain rate. That's how we calculated 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 certain efficiency rate with the lockers.
Okay. Understood. Thank you very much.
Our next question is from Mr. Frank Claassen, Degroof Petercam. Go ahead, your line is open.
Yes, good morning, all. Two questions, please. First of all, on your medium term, the 2024 increase, EUR 60 million-80 million, part of that will be driven by mail, I understood. I'm trying to understand the drivers. Is it particularly the lower mail volume decline you anticipate, the 8% instead of the 8%-10%? Are there also more cost savings, or what is driving this more positive view on mail? That's the first question. Secondly, on the parcels growth for 2021, the remaining of this year, what do you expect for the second half? Is this also in line with this 11%-13%, or do you expect more? The price mix effect, it was rather negative in Q2. Do you expect that to continue, or can we expect some easing there? Thank you.
Okay. Oh, sorry. 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%- 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 will be contributing a bit more than originally anticipated. That is the first question.
Do you expect difference in the savings you've targeted, the synergies with Sandd, or is there any change there?
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 up from 2021 to 2022 that we previously talked about, but there's no changes in those assumptions that drive the step up in business performance that we just talked about. 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 2021, 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. I think important to understand in the second half-year is what the exact stickiness is of behavior of consumers after COVID. Back to the price mix effect. What you did see, of course, in the second quarter is that second quarter last year, as said, we did have quite some small customers with parcels and consumers. That we did not see to come back in the second, not expect, to be honest, to come back in the second quarter of 2021. Also for the remainder of the year, we expect that big customers are growing a bit faster than the smaller ones.
Is it fair to assume a small negative price mix effect still to continue in the second half?
Yes. Answer is yes.
Okay. That's helpful. Thank you very much.
Our next question is from Mr. Marc Zwartsenburg, ING. 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 in parcel volume for the second half, if you're referring to the 11%-13%? Is that correct, does the +20%-23% guidance that we had at Q1 still stand for full year? That's my first question.
Yes, it's still around about the 23% underlying volume growth within parcels, more or less around about that mark, indeed.
For the mail, to get that also clear. The 8% substitution for next year, that is excluding the positive impact you currently have from the COVID volumes. We should add an additional decline for half year comps. Is that correct or not?
No. It is the other way around. What we do expect is 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. The underlying substitution, as Herna said, around about a half year, is around 7% for the half year.
Yeah, no, correct. For 2022, we have a substitution effect, and you have tougher comps from the COVID tailwind that you have in 2021. Am I now thinking in the wrong direction? You had +4, for instance, now in Q2.
Yeah. We need to be careful that we're not taking half years and annualizing that. For the full year, we do still expect a volume decline for mail, because as said, in Q3 and Q4, we won't have that much of a non-recurring COVID effect anymore, and substitution will continue. As said, there's three working days less in the second part of the year as well. Let's say full year volume development in mail.
Which is expected to be around about the 4%-5% volume decline mark, which is then still based on the substitution level of around 8%.
Yeah. Okay. We'll get to this offline then later on. On the news today, with the government looking at sending mail letters for people so that they can opt for self-tests to be delivered at their houses for two, free. I can assume that is one letter and if you opt in, you get another letter or one or two. That could be, say, EUR 15 million in volumes added to the second half. Actually you're saying we have a limited impact build in the mail division for COVID support in the second half. Is this news new to you as well? Should we add that to the second half? That could be quite a tailwind.
No, it's not new to us, of course. 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 in the Netherlands will start asking for those self-tests. We did take into account, of course, a mailing to the households in the Netherlands, and that's what we also will distribute over the next coming weeks. That, I think, relates also to what Pim said when he talked about the COVID effect over the full year 2021. He did say that the by far biggest part is seen or was seen in the first half year of 2021, and a very small part still to be seen within mail in the third quarter. He meant, of course, this mailing.
Okay, but that should be a bit bigger than being just small, because every household gets this notification, then you have to react, of course, but still significant.
You do know, Mark, of course, what the average revenue per letter is. That's one. Secondly, small, when you think about the EUR 70 million or EUR 68 million, EUR 69 million we had in the first two quarters. You have to relate it to the EUR 68 million-EUR 69 million we already have seen as a COVID effect. For the rest, I fully agree. Let's stimulate people to receive positively to this mailing because that's helpful.
Yeah, if the Dutch could get something for free, maybe the response rate is higher. Let's see.
True [Dutch].
Okay, next question. It brings me to the guidance for Q3, because you're basically guiding for a lower result in Q3. Last year, Q3 was also not that impacted by COVID because lockdowns ended. Can you explain to 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 Next costs that were also not there.
Yeah, that's good. Thank you. Then maybe another one on the Digital Next. EUR 30 million-EUR 35 million OpEx this year. Wasn't that number initially a little bit lower for this year? Is that replacing 2022 into 2021?
The EUR 30 million-EUR 35million is the combination of Digital Next and the delta pension expense. 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. Thank you, Pim. Herna. That's it.
Thanks.
Our next question is from Miss [Nagiba khshai] of Bank of America. Go ahead, your line is open.
Hi. Firstly, on the near term, can 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? Secondly, just on your 2024 guidance. You've talked about parcel volume growth. How should we be thinking about price mix impact going forward? Are you thinking about price increases? How should we think about margin on the parcel side of things? 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're preparing for that. As highlighted by Pim, some of those costs are seen in second quarter and will be seen in third quarter as well. We expect a normal peak season 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 and August to have a good feeling about volume development over summer, because how volume is spread over the weeks very much depends on holidays in the Netherlands and Belgium.
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 spread. 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 keep the margin stable. 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. 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.
Thank you.
Thank you.
Our next question is from Ms. Lotte Timmermans, ABN AMRO ODDO. Go ahead, your line is open.
Good morning. I have one question, the locker target and the potential financial impact. We know from another company that costs can be significantly reduced using lockers. Of course, it's based on completely different country, but have you looked into that? Could you give the ballpark estimates? 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 one by one, if I can ask you.
Sure. It was indeed about the locker targets and the potential financial impact. We know for another company that costs can be significantly reduced because you can ship more parcels using less drivers. It's a completely different country, the estimates will be completely different. Have you estimated what the potential cost reduction could be in the Netherlands? Is this also included in your 2024 guidance?
Okay. I also understand what you're referring to. I think it is difficult to compare, and that has to do, first of all, with the country and the size of the country. I think secondly also with what consumers are used to in the Netherlands. 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. 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. 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.
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. The way we've calculated with those parcel lockers is, 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 cost savings.
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 a positive net present value.
No, of course. Thanks. Additional question with parcel lockers. [audio distortion] 160, if I'm correct. What is the % of volume currently delivered in those lockers? 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. I would say it's really small. Then you talk only a few percentage points.
Yes. Okay. An additional quick question. I heard you set a split on the step of the guidance, the EUR 60 million-EUR 80million mail versus parcels, but I missed the numbers. Could you repeat that one, Pim?
Yes. If I may, I'll go back to the entire step-up just to make sure that we get it right. We've talked about in March a step-up of EUR 80 million-EUR 100 EURmillion. That was driven 50% of that by Digital Next and the other 50% by parcels offsetting a roughly EUR 25 million deterioration of pension expenses. On top of that, we'll now add EUR 60 million-EUR80 million. That EUR 60 million-EUR80 million is roughly split 40 million-45 million parcels, 20 million-25 million mail. Obviously, parcels driven by the higher volume growth, mail driven by slightly lower substitution and product mix effects.
Great. Thanks. Very clear.
Our next question is from Mr. Henk Slotboom of the IDEA. Go ahead, your line is open.
Good morning, Pim and Herna. Pim, I want to go back to where we started this Q and A session, the question of David on the EUR 450 million. I'm not sure whether I quote the numbers right, but there's a step up in ESG investments of around EUR 50 million. There's a step up in lockers investments of around EUR 30 million-EUR 35 million. Did I understand it correctly that the balance of the EUR 450 million is what you spent on the additional capacity increase in parcels?
That's not always leading to an increase in sorting capacity. 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.
Right
the combination of those elements that allow us to do roughly 125 million-175 million more parcels by the end of 2024 in comparison to 2021.
If I do my math correctly, it adds up to, let's say, EUR 370 million-ish, what you are going to spend incrementally on parcels. If I go back to the slides of the Capital Markets Day in 2019, the parcels deep dive, you were already anticipating a growth, a 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 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?
That's what I tried to do just yet. 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 additions. You sometimes rent spaces to allow for buffering and what have you, that doesn't necessarily lead to an increase in capacity. 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.
Right.
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.
Yeah.
I think it's 2 years progressed in terms of volume that we carry.
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. Also there's a bit of an inflationary element in it, which basically means that you need to invest a little bit more for the same capacity at price points right now than at price points 2019.
Okay.
All of these components lead to that step up. It's not only parcels. The vast majority is parcels, clearly. If you then look at the step up in performance, and you hear me say that this business will get to a 10% margin.
will be at this level by the end of 2021, which is 300 basis points more than by the end of 2019. We 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 pro profits is actually a very attractive investment case.
Yeah. Okay. Clear. Two other questions, if I may. First of all, on Spring. It had a fantastic run in the past, what is it, year or so. Last time, during the analyst call, you said, I believe 70% of it was e-commerce related. The vast majority of that comes from China. We've had some changes in the [VAT][audio distortion] and reported last week that you encountered some problems. I assume that that is all included in the guidance you gave, 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 Spring?
Well, I think a couple of components to that question. Spring is not only below the EUR 22 threshold. That type of volume is predominantly postal and is predominantly driven by universal service flows. That's much more part of also the mail performance than 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.
If you look at the websites and the platforms that we work with, it functions. You are still able to quite easily source products from China in a way that allows you to pay the value-added tax in the right way. What we've seen as well is that there's been a small spike prior to July 1st, 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. 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. I would say, we've made as 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. A final question, if I may, that's on the decarbonization of the last mile. A 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 whole of the Netherlands by 2025. 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 risk being forced into a position that you have to step up your 2030 ambition to go to a CO2-free delivery in the whole of the Netherlands?
In my view, I think if you look into reputation, if you look into surveys we do amongst customers and consumers, we are the favored deliverer in the Benelux, and that's what we want to remain to be. There are certain aspects crucial in remaining that favored deliverer, and I think CO2 emission-free delivery is one. In my view, I think the targets we've set for the next coming years are realistic targets. 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. Do know that we already have 1,300 electrical vehicles in place at this moment in time. When you start comparing, then I would say compare the apples to the apples, instead of stories to reality. 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 is 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 Billfalk-Kelly of UBS. Go ahead, your line is open.
Hi there. In relation to your investments into Belgium with the opening of the new center in 2022, is any of the 11%-13% volume growth in parcels you're talking about, can that be directly allocated to increased operations in Belgium? Linked to that, within the context of your EBIT improvement of EUR 330 million-EUR 370 million, 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.
Yeah. A logical question, but we do not split in our investments in Belgium and the Netherlands as one, although you can calculate it a little bit, of course, because we are opening two centers in Belgium, and the same is for, 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%-13% growth in Belgium, it is included. 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 is not taken into account when we talk about the 11%-13%, and also not taken into account when we talk about the expansion in capacity.
What we already did do in Belgium is we opened seven 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 second sorting and delivery center will be started to open by the end of 2022. We expect volume growth to continue in Belgium as well.
That's great. Thank you very much.
Thank you.
We have time for a final question.
That question comes from Andre Mulder of Kepler. Go ahead, your line is open.
Good afternoon. Two question, first question on Sheet 16, your since suggests that the volume decline in 2021 is something like 9.5%. Can you fill us in how that comes? Secondly, can you give us a bit more insight into the drivers for 2023 and 2024, split by the volumes and the price mix effect? Do we expect that the volume increase in parcels will be a similar 11%-13%? For mail, it will be less than the 8% for 2022? Maybe some comments on the price mix effect as well.
Andre, you have to help me with the 9.5% question, because what we're looking at is a substitution rate of around about 7% by the end of Q2, which we say will be, roughly speaking, around 8% going into 2022. I just don't really recognize the 9.5% marker you use. Can you hear?
That's what I get from the columns that you produce on sheet 16.
Sheet 16. Let's have a look. Okay, 9.6% is the 2020 number, right? We see an improvement in relation to the substitution towards around about that 8% mark. That's also why I said that, let's say, we were looking at an 8%-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 mail still declining at higher rates. Also, as Herna said, direct marketing bouncing back a bit, some other product categories that are not declining as fast as they did in the past. All in all, on average, leading towards a substitution of around the 8%. We've not explicitly said something about 2023 and 2024 for mail. At this moment in time, this is what we're looking at.
On the parcels side, let's remind everybody in the call that we're talking about a CAGR of 11%-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 extent driven by a high level of single items in the second quarter of 2020.
Okay. you understood that the 11%-13% is not only valid for 2022, but for the whole period, let's say 2022 to 2024?
Yeah.
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, 30th September, to the execs to talk about sustainability and ESG. We look forward to see you or meet with you by then. Thanks very much again. See you next time. Thank you.
Bye-bye.