The Supervisory Board believes that focus is key to achieving PostNL's strategy and to creating long-term value. This includes addressing the principal risks and opportunities related to PostNL's strategy. In exercising its task in 2019, the following topics in particular were discussed extensively.
As one of the largest employers in the Netherlands, PostNL offers thousands of people the certainty of having a job, a stable income, security and opportunities for personal development and growth. We aim to offer more people a contract based on PostNL’s solid working terms and conditions. The people working with and for PostNL can rely on a safe, healthy and diverse work environment where they are respected and enjoy a positive and cooperative culture. A lot of attention is given to creating an atmosphere where people are passionate and proud to be part of PostNL.
OUR ROLE. The Supervisory Board and the Board of Management have had regular discussions on this topic. The new PostNL collective labour agreement and collective labour agreement for Saturday deliverers were discussed, as well as the phasing out of our contracting model to hiring temporary workers. Extensive discussions were held on the integration plan for the people of Sandd, as further mentioned below. Further items discussed were the tight labour market and organisational changes within the company, employee engagement and diversity and inclusion, and PostNL's culture. Furthermore, during 2019 several members of the Supervisory Board met with the daily management of the Central Works Council.
On 27 September 2019 the Deputy Minister of Economic Affairs and Climate Policy approved the merger of the PostNL and Sandd postal networks, paving the way for the full completion of the transaction between PostNL and Sandd as announced on 25 February 2019. Approval was granted under Article 47 of Dutch competition law, following a special request to this effect by PostNL and Sandd. The combination of both postal networks is necessary to ensure continuity. As a result, postal services throughout the Netherlands will continue to be reliable, accessible and affordable, while also benefiting the job security of thousands of mail deliverers. On 1 October 2019 the transaction was announced, including the expected financial consequences. In addition to the business case, PostNL has also drawn up a solid plan to help it complete the integration of both networks in the first six months of 2020.
OUR ROLE. Throughout the year the Supervisory Board extensively discussed the need for consolidation and the acquisition of Sandd with the Board of Management. A dedicated Supervisory Board committee was formed to regularly discuss the status of the process in relation to consolidation, the acquisition of Sandd and also the integration plan. The outcome of such discussions were subsequently discussed with the Board of Management, Executive Committee, project leaders and management from our Mail in the Netherlands segment during the full Supervisory Board. This has led to the Supervisory Board fully supporting consolidation, the deal terms for the acquisition of Sandd and the integration plan.
Our Parcels business aims to capture value through yield management and several other commercial and operational initiatives, as highlighted during the capital markets day held in May 2019. These initiatives will result in a better balance between volume growth, profitability and sustainable cash generation, as a basis for value creation. During 2019 we were faced with lower volume growth rate within some customer segments. This impacted margin development at Parcels, and capacity optimisation and operational efficiency were temporarily impacted by the lower than expected volume growth. In 2019 we continued to further expand Parcels' infrastructure in order to cope with the growing volumes, and the opening of a new dedicated sorting centre for small parcels in 2021 was announced. Execution of our strategy to improve the balance between volume growth, profitability and cash conversion announced during the capital markets day is underway.
OUR ROLE. The Supervisory Board has held thorough discussions and deep-dive sessions with the Board of Management, Executive Committee and Parcels management on the strategy to improve the balance between volume growth, profitability and cash conversion presented during the capital markets day. This was discussed in conjunction with the lower than expected volume growth and competition, as well as the necessity for further expansion of the Parcels' infrastructure taking the developments into account. The Parcels' strategy has the full support of the Supervisory Board. Other important topics for discussion with the Board of Management were customer satisfaction and quality levels.
At Spring, the competitive landscape, especially in Asia, remained fierce and was impacted by global macroeconomic pressures such as the US-China trade war and the (uncertainty in relation to ) Brexit. It proved to be difficult to stabilise the Asia business, leading to lower than expected results, although during the last few months of 2019 performance of Spring improved.
OUR ROLE. The Supervisory Board discussed the developments with Spring on numerous occasions. Deep-dive sessions were held with the Board of Management, Executive Committee members and Cross Border management, providing further background on the business model, the competitive landscape in which Spring operates and the added value for PostNL.
Performance at Mail in the Netherlands was marked by volume decline, price increases and cost savings. Volume decline continued to be driven by substitution and loss of volumes to competition, mainly Sandd. Total cost savings ended up within the communicated bandwidth. It remains vital to combine the ongoing strategy of offsetting volume decline with balanced pricing and cost savings. As such, the transformation of our mail activities by implementing a more flexible model for mail collection, sorting and delivery (the New mail route) was an important step taken in 2019. With this model, we create synergies and cut costs in parallel with the volume decline. And this will help us better integrate the additional volumes that result from the acquisition of Sandd.
OUR ROLE. The Supervisory Board had regular discussions with the Board of Management on the mail volume decline and the execution of the cost saving plans throughout the year. A deep-dive session was held with the Board of Management, the Executive Committee and Mail in the Netherlands' management on the implementation of the New mail route to understand the new model and its impact on the business organisation. Further points of attention were the quality of delivery, and the developments in the regulatory environment as well as consolidation, such as in relation to the consultation on a new Postal Act. Other important topics for discussion with the Board of Management were customer satisfaction and quality levels.
Value creation for our shareholders remains a key priority. Our share price in 2019 did not develop as we had hoped, with large short positions putting it under pressure. Towards the end of the year this normalised again. We focused on improving our cash flow, since this is the basis for our dividend. This included, amongst others, improvements in our net working capital. Furthermore, it is also important to focus on long-term prospects for value creation, in addition to delivering on outlook.
While our aim continues to be to offer shareholders a sustainable dividend based on the performance of our business, the acquisition of Sandd led to the announcement that PostNL will not pay dividends during the integration period, as long as the leverage ratio exceeds the 2.0x figure. We aim to reduce the leverage figure below the 2.0x target in 12 to 24 months and to resume paying dividends thereafter. The Supervisory Board firmly believes that PostNL will continue to find a good balance between adjusting the mail operations in the challenging Dutch postal market, while expanding its footprint as an e-commerce solutions provider and creating long-term value for the company’s stakeholders. In line with the strategy to be the postal and logistics solution provider in the Benelux, we divested our mail business in Germany, Postcon, and during 2019 good progress has been made with the divestment process of Nexive, our mail and parcels business in Italy, in February 2020 leading to the signing of an agreement for the divestment. Furthermore, PostNL issued a Green Bond covering our medium-term financing needs.
OUR ROLE. In depth and thorough discussions took place during the year between the Supervisory Board and the Board of Management, in particular on the strategic priorities and the development of the share price during 2019. We also regularly discussed the financial performance, the plan for improvement of working capital and subsequent results, and payment of (interim) dividend.
The issuance of the Green Bond was also discussed and the divestment of Postcon and the progress on the divestment process of Nexive were recurring items.
We have to deal with continuously changing markets, with technology developing rapidly. Digitalisation and the growth in e-commerce, which are driving the transformation of our company, can be considered consequences of changing technology. Technological development is one of the key market trends that are shaping the lives of our customers and are impacting our strategy. At the same time, growing digitalisation and technical developments simultaneously lead to an increase in cyber threats. This requires continual improvement of our service proposition by developing innovative services, while ensuring our IT backbone is constantly updated and improved. Due to the attention paid to IT, further digitalisation and cyber security is required to adjust to or stay ahead of technological changes.
OUR ROLE. PostNL's IT strategy, the speed of digitalisation, online strategy, service propositions and innovation, and cyber security were discussed regularly between the Supervisory Board, the Board of Management, the Executive Committee and management. The further digitalisation of the company, and possibilities for acceleration of such digitalisation, were recurring items in the discussions, in conjunction with compliance with the GDPR. Additionally, an informal dinner was held with the Supervisory Board, the Board of Management, and the Executive Committee to further discuss digitalisation within PostNL.
We believe sustainability is our license to operate. As such we continue to invest in activities that make our business more environmentally sustainable. We have identified Sustainable Development Goals (SDGs) which we consider most relevant for PostNL and which are outlined in the Business Report of this Annual Report. PostNL has set ambitious goals of emission-free delivery in 25 Dutch city centres by 2025, and emission-free last-mile delivery across the Benelux by 2030. Highlighting PostNL's commitment to being a sustainable e-commerce logistics provider, we have announced the successful offering of our first Green Bond in September. The net proceeds of the offering will be used to finance and/or refinance new and existing green projects.
OUR ROLE. The Supervisory Board fully supports the commitment to being a sustainable e-commerce logistics provider, and the steps towards becoming this, including the goals set by the company, have been items of discussion with the Board of Management. We have also extensively discussed the financing needs through the issuance of a bond, and are happy this was done via a Green Bond.