How we connect strategy to execution

Much of our strategy is executed through our business units, where it is transformed into practical steps and developments that enable us to achieve our long-term goals. We support our business units with this strategy execution through a range of company-wide strategic programmes, which help stimulate collaboration between the business units in areas that overlap, facilitating teamwork and driving efficiency. The main programmes are outlined below.

Culture and behaviour

At PostNL, we run an Orange Compass programme to steer our culture and behaviour. This helps guide all of us within the company on how to put the desired customer experience first, supported by the right employee behaviour, working environment and leadership. Since 2019 we have held a series of trainings and events to strengthen this message, such as coaching senior management on the behavioural elements included in the compass, so that they could create a better work environment for their teams. We have also run ambassador sessions and training exercises to help our people better connect with PostNL's goal of being our customers' favourite deliverer. And we have integrated the Orange Compass behaviours into our business learning and leadership development programmes.

Orange compass - Your favourite deliverer

Digital transformation

Focusing on IT and digital capabilities has been an essential aspect of supporting the transition towards a more e-commerce based company. This involves increasing the speed of innovation, while developing an even more agile organisation. We have already begun accelerating the digitalisation of our company in a number of key areas, which will help us strengthen our competitive position and contribute to greater customer satisfaction, while reducing our cost base and attracting new customers.

To take the next step on our journey we have formed a clear vision for further digital transformation, which involves focusing on areas such as network integration, innovation, and developing innovative business models. At the same time, we have created digital building blocks that will help us realise our vision and transform the company in the coming years. As part of this focus, we have appointed Bart Delmulle as chief digital officer. Bart took up his new role on 1 February 2021. More insights into our digital transformation can be found in the interview with PostNL CIO, Marcel Krom at the end of this chapter.

Innovate our business models

As a logistics operator, PostNL provides end-to-end logistic services with a focus on operational efficiency. But the market is changing, and so is our business. Which is why we are further developing our capability to realise certain e-commerce-related services as an integrator. In the future, this would involve integrating operators' services into our own, while continuing to provide (large) e-commerce companies across the Benelux with our growing array of end-to-end logistic services.

By running an integrator model in parallel with our existing physical services, we will be able to grow the range of services we offer our customers, while managing our e-commerce-related networks and those of our partners as one. This will enable us to deliver high-quality services cost-effectively, while providing distinctive customer and consumer experiences.

We will continue to focus on using data and insights to provide e-commerce customers with value-added, real-time insights to help them better understand, target, and personalise their services to consumers. Becoming a true e-commerce partner and specialist to grow our customers' business will help us grow our own e-commerce business.

Transform the commercial engine

At the same time, we will transform our commercial engine through product simplification, rebuilding customer and consumer journeys, and shifting to digital channels. We will become more cost efficient by moving towards a data-driven supply chain, backed by machine learning and big data analytics.

Strengthen technical and data foundation

We are further improving our technical foundation, using smart data and analytics, to support the growth in digital solutions and enable us to accelerate our core transformation. For example, by utilising our data management programme and integrating data management throughout the business.

Drive our digital DNA

We need to ensure that our leadership team, and the full organisation, are prepared and ready to accelerate our move towards being an agile and digitally-savvy company. One example is the launch of our Digital Next Academy, a leadership programme which teaches senior managers from across the company about the changing demands of our customers, the latest digital technologies, new business models, and their own role in the digital world.

Portfolio management

PostNL offers a wide range of products and services aimed at delivering an excellent customer experience. We continuously improve these solutions through change initiatives based on customer needs. The collection of change initiatives is managed in portfolios of change, a process in which feedback between strategy and execution is important to make adjustments to maximise business results.

Switching to an agile operating model is vital. The decentralisation of strategy execution to portfolios with design teams and agile release trains increases effectiveness and the speed of change. Portfolio management applies systems thinking to keep the entities aligned and operating within the broader business context. It facilitates collaboration on a strategic level between business units on strategic decisions, and on interdependencies and trade-offs between change initiatives. These all require significant change and stakeholder management, as well as project management expertise. To provide structure in managing our portfolio of change, we link the improvements to focus areas at a strategic level.

This helps us allocate resources within the business effectively and make changes to our products and services that add the most value to our strategy.

Sustainable logistics

Throughout 2020 we further developed our Zero2030 programme, which we introduced in 2019. We aim to embed parts of the programme fully across the business, so that sustainability is integrated in our strategic and tactical initiatives and has a direct impact on our operations. The programme is made up of a series of projects with both a goal and an action, each of which will contribute to our sustainability ambition. We call these projects the Zeros of PostNL.

We want to motivate and inspire our people, our partners, our suppliers and our customers to work together to make our entire value chain sustainable. The projects focus on:

  • Achieving our environmental targets

  • Improving our reputation as a sustainable logistics company

  • Create movement within PostNL and contribute to employee motivation

Financial and capital management

In managing our financials we essentially focus on two aspects. One is collaboration between business units and Group Finance to ensure consideration of dependencies and maintain oversight on a company level. A second is generating shareholder returns and allocating financial resources to investments in the development of our business. The choices we make in our financial and capital management programme are based on the contribution to our strategic objectives. The programme aims to ensure a strong balance sheet and financial position for PostNL. One of the most important outcome indicators of our programme is the so-called leverage ratio. Calculated as the ratio of adjusted net debt compared to adjusted EBITDA, our aim is to have a ratio not exceeding 2.0 and only accept risks that do not threaten this.

Cash flow generation

The basis for our financials is a solid business performance. All PostNL businesses are evaluated on their contribution to PostNL's profitability and cash flow, based on our annual strategic plan process and periodic planning and control cycle. Our strong strategic focus on profitability and cash flow had resulted in improved performance over the last two years.

In addition to business performance, we focus on managing our working capital and balance sheet. As a large company with high volume business, managing our working capital well, creates financial value.

Next to these structural drivers, we also carry out several other strategic projects that contribute to our cash management. Renegotiating our pension agreement is one example. And in 2020 we signed a sale-and-lease-back transaction for five sorting centres we operate in our Mail in the Netherlands business. This allows for more flexibility in the usage of our buildings, while the transaction provided gross proceeds of €150 million. And in relation to our strategic focus on the core of our company, we further de-risked our portfolio and divested Nexive, Spotta, Adeptiv and Cendris. These divestments enable us to further focus on our core activities, as we transform into the Benelux's favourite logistics supplier for mail and e-commerce.

Capital allocation

Our capital allocation priorities are based on our financial framework, normalised EBIT growth and solid cash conversion going forward. We aim to fund further growth and to provide a sustainable total return for shareholders.

Strong focus on capital allocation is essential to ensure we use our financial capital as efficiently as possible. We roughly divide our capital allocation in four areas:

  1. Investments in our business, including capacity growth, investments related to achieve further cost savings, maintenance capex and investments in working capital;

  2. Investments in the acceleration of our digital transformation;

  3. Pay out dividend to shareholders in line with our dividend policy;

  4. Mergers and acquisitions and further strengthening of our portfolio.

Excess cash could be used to compensated shareholders for the dilutive impact of stock dividend and/or share buybacks for further balance sheet optimisation / debt reduction.

We aim to pay dividend in line with our dividend policy, with a pay-out ratio of around 70% to 90% of normalised comprehensive income. Our pay-out ratio reflects a healthy balance of dividing the free cash flow between investing in growth, acceleration of our digital transformation and distributing dividend. This should result in attractive total shareholder returns, allowing shareholders to benefit from growth while at the same time being rewarded by a solid dividend.