Message from Herna Verhagen

Some years just go by and are forgotten quickly. The year 2020 is certainly not one of those. It will be stored in our collective memory for a long time. Although the world has had to deal with more pandemics in recent decades, the impact of Covid-19 surpassed our imagination. It affected literally everyone, both in our private lives and at work. We had to adapt to social distancing measures to help contain the spread of the virus. Some of us fell ill. Some of us lost family members, friends or colleagues. And we had to adapt to a new set of rules, limiting our freedom to live, work and move around.

Health and safety always came first

Throughout the pandemic our first priority always was, and still is, the health and safety of our people, partners and consumers. In March, we were quick to implement the necessary distance measures and to provide physical and hygiene means across all of our locations. While the infection rate among our workforce generally developed in line with national trends, I’m proud to say that we were able to keep our operations running at all times. From mid-March, we asked our colleagues in office jobs to work from home. As much as we miss working together and seeing each other on a daily basis, our people and our teams have proven they are able to work successfully together from home.

Thanks to the dedication and focus of our people and the resilience of our business in these challenging circumstances, we were able to play a vital role in society, creating value for our key stakeholders: customers, consumers, employees, shareholders and society at large. This was reflected in our reputation score, which increased considerably in 2020. Customer satisfaction and employee engagement also improved, as we connected people, companies and communities through our uninterrupted delivery of parcels, mail and logistic solutions.

This helped us make great progress in realising our ambition of being the favourite deliverer in, to and from the Benelux. Although we incurred additional costs to make our operational processes Covid-19 proof, we managed our business effectively, leading to financial results well above our guidance. This improved financial position enables us to reinstate dividend for our shareholders ahead of schedule.

Highlights of our business performance in 2020

The pandemic led to a number of key market developments. The first was unprecedented volume growth at Parcels, driven by the acceleration of online shopping. E-commerce growth picked up significantly and the transition from offline to online accelerated. The number of first-time online buyers increased and the share of existing medium and heavy online shoppers grew.

Despite the demands we faced implementing the required changes in processes and working with social distancing, we were able to significantly scale up capacity at Parcels throughout 2020, as we responded to steep volume growth and delivery peaks. For the first time in history, we passed the volume mark of delivering 300 million parcels in the Netherlands and Belgium. With peak days of 1.7 million parcels occurring almost each day during the festive season, beginning with Black Friday, we delivered a record 337 million parcels in 2020, an increase of almost 20% on 2019. Part of this growth was related to specific, non-recurring, consumer spending as a result of Covid-19.

Growth was visible across almost all segments and products, especially among small- and mid-sized e-tailers, and we also saw steep growth within Belgium. Despite the challenges of the social distancing measures and the sometimes extreme peak pressure, delivery quality at Parcels remained high throughout the year, at 99% across our sorting and delivery processes.

Performance at Mail in the Netherlands was marked by additional volume decline related to Covid-19 in the first half of the year, exceptionally high consumer mail volumes in the fourth quarter, and the consolidation of Sandd. This milestone was completed on 1 February and we are ahead of schedule in delivering the anticipated benefits and synergies. There can be no doubt about the necessity of consolidating the mail networks as we were able to do. It remains the only way to keep postal services accessible, reliable and affordable for everyone across the Netherlands. It created a stable foundation for the future, in which we will continue to balance the ongoing volume decline with cost savings and moderate pricing.

We saw a revival of the importance of physical consumer-to-consumer mail, as people sent more greetings cards in the first weeks of the pandemic, and more gifts and Christmas cards towards the end of the year. However, there was also a steep decline in bulk mail volumes as direct mail campaigns were postponed, and a steep reduction in international mail as borders closed and flights were grounded. Quality at Mail in the Netherlands was impacted by the measures taken to combat the pandemic. As a result, we delivered over 94% of consumer mail by the next delivery day, which was below our 95% target.

We saw strong revenue growth at Spring, boosted by accelerating e-commerce-related revenue both in Asia and Europe, and at our other logistic solutions, which helped contribute to our strong financial performance.

Exceptional year, outstanding performance

Although the pandemic had a major impact on our results, it is important to note that the strategic steps we took in 2019 and 2020 provided a strong foundation for this year’s outstanding operational and financial performance. These include our initiatives to improve the operational leverage of our Parcels business, as announced at the Capital Markets Day in May 2019; the consolidation of mail networks; the agreement regarding transitional pension plans with the pension fund; the sale-and-leaseback transaction of five sorting centres; the divestments of Postcon and Nexive and a number of smaller businesses in the Netherlands, as well as our disciplined working capital approach during the year.

In this extraordinary year, PostNL delivered an exceptional financial performance of €245 million in normalised EBIT and a strong free cash flow of €186 million, well ahead of our expectations at the beginning of the year.

And because exceptional results deserve exceptional recognition, we decided to reward the commitment and hard work our people have shown since the start of the pandemic, providing both an extra payment and, separately, higher performance-related compensation. We also rewarded the people working for our Parcels’ sorting and delivery partners in the Netherlands with an extra payment. We are thankful for the consultations and the support of our works councils ahead of important steps we took in relation to Covid-19, as part of our responsibility to ensure a safe, healthy and rewarding work environment for our people at all times.

For our partners in the PostNL retail network, 2020 was far from easy. After non-essential stores were required to close, our PostNL retail locations could only open for parcel pick-up and delivery. We responded swiftly by engaging with our retail partners on the consequences and decided to pay an additional fee over and above the usual fee. This helped keep most of our retail network up and running, which was key for webshops, retailers and consumers alike. So far, PostNL spent around €18.5 million to provide additional support to retailers during the lockdown from December 2020 until February 2021.

I’m very pleased that we are also in a strong position to reinstate dividend for our shareholders. After paying an interim dividend in 2019, we paused dividend in October 2019, as a consequence of the acquisition of Sandd. Given the strength of our balance sheet and the current leverage ratio, we are now able to reinstate dividend ahead of schedule. Based on our strong financial position, we are pleased to propose a dividend of €0.28 for 2020, to be approved in the Annual General Meeting in April 2021.

Looking ahead to 2021

At the beginning of the year, we have to take into account that uncertainty about the impact of Covid-19 will remain. Due to the continuing unprecedented circumstances, visibility going forward remains limited. Although the lockdown in the Netherlands and Belgium continued in January and February of 2021, we expect – and we hope – that the impact of the pandemic will fade out during the year.

Meanwhile, our vision and our strategy remain unchanged. Being the leading logistics and postal service provider in, to and from the Benelux area remains our strategy. We are continuing to manage our Parcels segment for profitable growth and our Mail in the Netherlands segment for stable financial performance.

In more detail, our focus is on balancing volume and value in Parcels by expanding our capacity to capture further e-commerce growth. The consolidation with Sandd is delivering full synergies as the integration was successfully completed, which will help stabilise the results of Mail in the Netherlands. As planned, we will intensify our cost savings projects to mitigate the ongoing mail volume decline.

With the step-up in consumer preference for online shopping and the rapid developments in technology, now is the right moment to accelerate our digital transformation.

We aim to strengthen our competitive position by building further on our platform, connecting customers and consumers and solutions through simple and smart digital journeys. The execution of our strategy will accelerate value creation, translating into attractive total shareholder returns.

And it helps us realise our ambition of being the favourite deliverer. The strategic focus areas are important to improve the customer experience and capitalise on the upward trend of satisfied customers.

We are pleased to see the improvement in employee engagement, despite the challenges the year provided for our people. We will continue to ensure favourable working conditions for everyone working with and for us. This includes a safe and healthy work environment, a manageable workload and development opportunities.

A final strategic focus area remains the implementation of our strategic actions to combat climate change and work towards our long-term objective of emission-free last-mile delivery in the Benelux by 2030. While growth at Parcels in 2020 negatively impacted our average CO2 efficiency per kilometre, we laid the foundation for significant efficiency gains in 2021 and intensified our investments in emission reductions

Thank you

We can only achieve our goals with the continuing strength and support of our stakeholders. This is true for our customers, who trust us to deliver on their behalf every day in, to and from the Benelux. It is about our people, who worked with resilience and dedication in 2020, and who we want to be happy and motivated to do what is best for our customers and consumers, while being proud to be part of PostNL. It is about our other partners, with whom we work to contribute to a better society, which is connected, smart and sustainable. And it is about our shareholders and investors, who support us in our drive to produce a healthy financial position and performance, while creating long-term value.

To each and every one of them, I would like to say thank you very much on behalf of all of us at PostNL.

Kind regards

Herna Verhagen, CEO