This Report of the Supervisory Board sets out the manner in which the Supervisory Board fulfilled its duties and responsibilities in 2020. PostNL's organisational structure forms part of the Report of the Supervisory Board and is disclosed in the 'Board of Management', 'Supervisory Board' and 'Corporate governance' chapters.
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 2020, the following topics in particular were discussed extensively.
The Covid-19 pandemic has had a profound impact on society and companies such as PostNL, which is discussed in further detail below. During the year the company applied all social distancing guidelines and health regulations to protect its people and consumers as much as possible. Additional measures were implemented across our operations and in our facilities to support social distancing and to ensure a safe and healthy working environment. Through such measures, PostNL was able to remain fully operational and was able to continue its primary business activities during these unprecedented circumstances. Throughout the year PostNL served consumers, customers and society at large by maintaining its vital infrastructure, allowing people to remain connected and to do business while staying at home. Going forward, uncertainties remain in relation to the development of the pandemic. Visibility remains limited and depends on factors such as social distancing measures, the potential for a third wave, macro-economic developments and consumer confidence.
OUR ROLE. During the first wave of the pandemic in March and April, the Supervisory Board were provided with weekly updates on the impact Covid-19 was having on PostNL's people and operations, and measures taken, along with the comprehensive business continuity plan which was put in place early in March. Such updates and the business continuity plan were discussed during weekly calls between the Supervisory Board, the Board of Management and the Executive Committee. Following the implementation of the measures, and PostNL being able to remain fully operational, the weekly calls were scaled back to regular updates and virtual update meetings when believed necessary. This kept the Supervisory Board updated and helped them provide the Board of Management and Executive Committee with guidance and advice where appropriate.
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. PostNL focuses on creating an atmosphere where people are passionate and proud to be part of the company. Above all, ensuring a safe and healthy environment for our people in the midst of the Covid-19 pandemic was and still is a key priority. PostNL is proud of its people, who are fully focussed on the ongoing delivery of mail, parcels and other shipments, such as medical goods and food, allowing people to stay at home. In appreciation and recognition of their commitment and hard work, we chose to give a bonus to our people, our parcel delivery partners and the sheltered workplace companies we work with for the efforts of their people.
OUR ROLE. The Supervisory Board and the Board of Management had regular discussions on this topic, covering the impact of the Covid-19 pandemic on our people in areas such as sick leave, social distancing, safety measures and work load, as well as the reward provided to our people, parcel delivery partners and sheltered workplace companies. Further items discussed were the labour market, the new PostNL collective labour agreement and collective labour agreement for Saturday deliverers, organisational changes within the company, employee engagement and diversity and inclusion, and PostNL's culture. Furthermore, during 2020 several members of the Supervisory Board met with the daily management of the Central Works Council.
E-commerce grew significantly as consumers transitioned from offline to online during the pandemic, leading to substantial volume growth at Parcels during 2020. At the beginning of the pandemic, capacity was increased by 35% compared to the beginning of the year, and was further increased to 75% in the peak season as the closure of non-essential stores led to a steep rise in online purchases. Various measures were taken to keep the flow of parcels manageable, so that delivery could continue effectively and safely at peak levels. The company rented additional locations and vehicles and hired more deliverers and sorting centre staff. Revenue in 2020 surged, mainly driven by the volume development and a positive price/mix effect, thanks in part to yield management measures (including improved pricing) as part of the execution of our strategy to improve the balance between volume growth, profitability and cash conversion.
OUR ROLE. The Supervisory Board held regular discussions with the Board of Management on the performance within Parcels, the measures taken in light of the Covid-19 pandemic and the necessity to keep the Parcels' operations up and running. Furthermore, as a follow-on to the deep dives held on Parcels' strategy in 2019, thorough discussions were held on volume development and capacity, in conjunction with the increase of dual vendorship, competition and market share, as well as the further expansion of Parcels' infrastructure announced for 2021. Other important topics for discussion with the Board of Management were customer satisfaction and quality levels.
Spring's business model and strategy enabled it to take advantage of the sharp growth in e-commerce as a result of the Covid-19 pandemic. As a result, Spring saw rising revenues, with sharp growth in e-commerce-related revenue, both in Asia and Europe.
OUR ROLE. The Supervisory Board discussed developments with Spring as follow-ons to the deep-dive sessions held with the Board of Management, Executive Committee members and Cross Border management in 2019. Additional important topics discussed were Brexit, and the abolishment of the low value VAT exemption in 2021.
Performance at Mail in the Netherlands was marked by volume decline, the positive impact of moderate pricing and the combination of the mail networks as per 1 February 2020. The latter is ahead of schedule in delivering the anticipated benefits and synergies. Covid-19 had a negative impact on international and bulk mail, with a slower rate of decline towards the end of the year. People sent more greetings cards in the first weeks of the pandemic, and more gifts and Christmas cards towards the end of the year. During the second lockdown, the number of cards and letters sent surged, more than doubling compared to average volumes during the year. PostNL makes use of its maximum capacity to deliver mail and parcels responsibly, while always prioritising the health and safety of its employees. In order to maintain coronavirus rules for the processing of mail and parcels, and to ensure the network continued to run properly, PostNL monitored developments and volumes closely to make any necessary adjustments. Going forward, PostNL continues to implement cost savings initiatives, such as adjustments to the sorting and delivery process, streamlining of staff and centralising of locations. However, the phasing of some of these projects has been delayed due to the additional measures taken to apply social distancing guidelines in operations and facilities.
OUR ROLE. The Supervisory Board held regular discussions with the Board of Management on performance within Mail in the Netherlands, the measures taken in light of the Covid-19 pandemic and the necessity to keep the operations up and running. The consolidation of networks was discussed regularly, for example in the context of the ruling by the Court of Rotterdam annulling the earlier granted approval for consolidation and the appeal lodged by the Dutch government and PostNL against such ruling. The Supervisory Board is impressed with the way the consolidation of networks has taken place, both from an operational and a financial perspective. Furthermore, the Supervisory Board was updated on the plans for further cost savings in the years to come. Other points of attention were the quality of delivery, the developments in the regulatory environment, such as in relation to the anticipated new Postal Act, and customer satisfaction.
Value creation for our shareholders remains a key priority. For 2020 PostNL reports strong business and financial performance, leading to upward adjustments on our outlooks in June 2020, October 2020 and January 2021, in which PostNL announced it expects its full-year 2020 normalised EBIT to come in at around €240 million. The agreement between PostNL and Pension Fund PostNL announced in June to determine details and conditions of the final payment for transitional plans, the increase in normalised EBIT as well as disciplined working capital management, translated into an improvement in free cash flow. Combined with the sale-and-leaseback transaction closed in November, this resulted in a leverage ratio below 2.0x by the end of the year, which means that PostNL is properly financed in line with its financial framework. The improved financial position allows PostNL to re-instate dividend for 2020, to be proposed to shareholders at the AGM 2021.
In January 2021 we announced that the basis for dividend, i.e. normalised comprehensive income, was expected to come in at around €195 million for 2020. Furthermore, in line with the strategy to be the leading logistics and postal service provider in, to and from the Benelux, we divested Nexive, Spotta, Adeptiv and - early 2021 - Cendris.
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 business and financial performance, and the implementation of the plan for improvement of working capital. This was discussed in conjunction with the progress on - and impact of - the several projects implemented, such as the aforementioned agreement with the Pension Fund PostNL, the sale-and-lease-back transaction and divestments of Nexive, Spotta, Adeptiv and Cendris. As such, the improvement of the balance sheet as a whole, and the possibilities this brings about, such as payment of dividend, was a recurring item for discussion.
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 improved financial position allows us to accelerate the digitalisation of our company in a number of key areas as part of the transformation of PostNL. With this acceleration, we aim to strengthen our competitive position and contribute to customer satisfaction, reducing our cost base and attracting new customers. With digital transformation a crucial driver of our strategy, PostNL has appointed Bart Delmulle as Chief Digital Officer and member of the Executive Committee per 1 February 2021. Together with a loyal workforce, the acceleration of digitalisation underpins our ambition to be the favourite deliverer in the Benelux region.
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, and were the topics of deep-dive sessions. 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. The appointment of Bart Delmulle was also discussed with the Supervisory Board, and several members of the Supervisory Board have met Bart prior to his appointment. Given the importance of digitalisation for PostNL, the members of the Supervisory Board also participate in the Digital Next Academy programme set up by 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 announced the successful offering of our first Green Bond in September 2019 and issued our first Green Bond Report in September 2020. During 2020, PostNL was recognised as one of the world’s most sustainable companies within the logistics and transport sector, ranking third on the Dow Jones Sustainability Index (DJSI), and received recognition for leadership in sustainable entrepreneurship from the international not-for-profit environmental charity CDP (formerly the Carbon Disclosure Project) in the form of a listing on the prestigious A List for reducing CO2 emissions and mitigating climate change.
OUR ROLE. The Supervisory Board acknowledges the importance of sustainability and 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. These have been items of discussion with the Board of Management and senior management, including the underlying plans in reaching those goals.
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