4 Capital structure and financing costs

Accounting policies

PostNL distinguishes the following categories of financial assets and liabilities:
● financial assets and liabilities at fair value through profit or loss,
● financial assets and liabilities measured at amortised costs,
● financial assets at fair value through other comprehensive income

Management determines the classification of PostNL’s financial assets and liabilities at initial recognition.

Derivative financial instruments and hedge accounting

PostNL uses derivative financial instruments, such as forward currency contracts, interest rate swaps to hedge its foreign currency risks and interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value.

Balance sheet hedges

The change in the fair value of a hedging instrument is recognised in the statement of profit or loss as financial income or expense.

Cash flow hedges

Cash flow hedges (hedges of a particular risk associated with a recognised asset or liability or a highly probable forecasted
transaction).

At the inception of a hedge relationship, PostNL formally designates and documents the hedge relationship to which it wants to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. For all cash flow hedges PostNL wants to apply hedge accounting.

The effective portion of the change in the fair value of the hedging instrument is recognised in OCI in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item.

Amounts accumulated in OCI are recycled in the income statement in the periods when the hedged item will affect profit and loss (for example, when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the asset or liability.

When a hedging instrument expires or is sold, or when the hedge no longer meets the criteria for hedge accounting, any cumulative gains or losses existing in equity at that time remain in equity until the underlying transaction is ultimately recognised in the income statement. When an underlying transaction is no longer expected to occur, the cumulative gains or losses that were reported in equity are immediately transferred to the income statement.

Fair value measurement

Fair value measurement is based on the following fair value measurement hierarchy:
● 1) quoted prices (unadjusted) in active markets,
● 2) inputs other than quoted prices that are observable either directly (prices) or indirectly (derived from quoted prices), and
● 3) inputs not based on observable market data. Valuation techniques used include the use of recent arm’s-length transactions, reference to other instruments that are substantially the same, statutory/management reports and discounted cash flow analysis.

Financial assets and liabilities measured at amortised costs using the effective interest method

A financial asset is measured at amortised cost if both of the following conditions are met:
● the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
● the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All financial liabilities are measured at amortised cost, except for financial liabilities at fair value through profit or loss. Financial liabilities are recognised initially at fair value net of transaction costs incurred and are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the financial liability using the effective interest method.

Financial assets designated at fair value through other comprehensive income

PostNL's equity investments are classified as equity instruments designated at fair value through OCI. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as financial income in the statement of profit or loss when the right of payment has been established, except when PostNL benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.

4.1 Adjusted net debt

PostNL Adjusted net debt in million
2019, 2020

At 31 December

2019

2020

Short- and long-term debt

696

708

Long-term interest bearing assets

(6)

(27)

Cash and cash equivalents

(480)

(651)

Net debt

210

31

Pension liabilities

283

86

Lease liabilities (on balance)

264

294

Lease liabilities (off balance)

51

66

Deferred tax assets on pension and operational lease liabilities

(72)

(70)

Adjusted net debt

736

407

As at 31 December 2020 adjusted net debt amounted to €407 million (2019: €736 million). The decrease of €329 million mainly resulted from positive net cash from operating and investing activities of €266 million and a decrease in pension liabilities of €197 million, partly offset by new leases of €138 million.

Reference is made to note 3.4 Leases, note 3.5 Provisions for pension liabilities and note 3.10 Commitments and contingencies for more detailed information on leases (on and off balance) and pensions.

Long-term interest bearing assets

As at 31 December 2020, long-term interest-bearing assets of €27 million (2019: €6 million) mainly include a lessor loan of €15 million (2019: €5 million) relating to the finance lease of a sorting machine by Bol.com, and a loan of €10 million to Nexive which was repaid in January 2021. The expected credit loss amounts to €0 million.

Cash and cash equivalents

PostNL Cash and cash equivalents in million
2019, 2020

At 31 December

Nominal amount

Average amount

Effective interest rate

Cash at bank and in hand

219

  

Bank deposits

25

7

(0.51%)

Money Market Funds

236

136

(0.40%)

Total cash and cash equivalents 2019

480

  
    

Cash at bank and in hand

257

  

Bank deposits

85

35

(0.60%)

Money Market Funds

309

255

(0.45%)

Total cash and cash equivalents 2020

651

  

As at 31 December 2020, included in cash and cash equivalents was €0 million (2019: €0 million) of restricted cash. The fair value of cash and cash equivalents approximated the carrying value.

Debt

As at 31 December 2020, the total of debt-related liabilities consists of long-term debt of €927 million (2019: €896 million) and short-term debt of €75 million (2019: €64 million).

PostNL Total borrowings - maturity schedule in million
2020

 

Eurobonds

Lease liabilities

Other loans

Total

2021

 

63

12

75

2022

 

65

 

65

2023

 

43

 

43

Thereafter

696

123

 

819

Total borrowings

696

294

12

1,002

Of which included in long-term debt

696

231

 

927

Of which included in short-term debt

 

63

12

75

The following table presents the cash and the non-cash changes in debt during 2020. The other loans of €12 million mainly include a short-term pre-lease financing with an interest rate of 1.3%.

PostNL Reconciliation debt in million
2020

 

Eurobonds

Lease liabilities

Other loans

Total

Balance at 1 January 2020

695

264

1

960

     

Proceeds

  

1

1

Repayments

 

(79)

(1)

(80)

Total cash movements

0

(79)

 

(79)

     

New leases

 

123

 

123

Disposal of leases

 

(7)

 

(7)

New loan related to building of NLI

  

12

12

Disposal of subsidiaries

 

(3)

 

(3)

Amortisation

1

  

1

Transfers to assets held for sale

 

(5)

 

(5)

Total non-cash movements

1

108

12

121

     

Balance at 31 December 2020

696

294

12

1,002

Refer to note 4.5 for more details on the current outstanding eurobonds.

The following table presents the cash and the non-cash changes in debt during 2019.

PostNL Reconciliation debt in million
2019

 

Eurobonds

Lease liabilities

Other loans

Total

Balance at 1 January 2019

398

25

1

424

     

Proceeds

296

  

296

Repayments

 

(62)

(64)

(126)

Total cash movements

296

(62)

(64)

170

     

Operating leases at 1 January 2019

 

132

 

132

New leases

 

135

 

135

Acquisition of subsidiaries

 

39

64

103

Disposal of subsidiaries

 

(1)

 

(1)

Amortisation

1

  

1

Transfers to assets held for sale

 

(4)

 

(4)

Total non-cash movements

1

301

64

366

     

Balance at 31 December 2019

695

264

1

960

4.2 Financial assets at fair value through OCI

The following table presents the changes in the carrying value of the financial assets at fair value through OCI.

PostNL Financial assets at fair value through OCI in million
2019, 2020

 

2019

2020

Balance at 1 January

17

15

Additions

1

1

Remeasurement recognised in OCI

3

 

Partial reduction in our stake in Whistl

(6)

 

Repayment of our stake in Endeit

 

(1)

Balance at 31 December

15

15

As at 31 December 2020, the investments in financial assets at fair value through OCI relate to investments in equity shares of non-listed companies. PostNL holds non-controlling interests in Whistl Group Holdings Limited, Endeit Fund II Coöperatief U.A. and Clean Clothes B.V. The assessment of fair value is based on key performance indicators included in related management and statutory reports and derived from the expected development of business and financial performance. In 2019, the fair value remeasurement of €3 million mainly related to our stake in Whistl, for which external valuation insights have been applied.

4.3 Capital management

Capital management is focused on the following components of the current capital structure:

  • targeting a leverage ratio (adjusted net debt/EBITDA) not exceeding 2.0 (outcome 2020: 1.0);

  • structural availability of €300 million to €400 million of undrawn committed facilities out of our revolving credit facility (reference is made to note 4.4);

  • structural funding via a combination of public and bank debt, with a risk-weighted mix of fixed and floating interest;

  • cash pooling systems that ensure optimal cash requirements for the PostNL Group by facilitating centralised funding and surplus cash concentration at group level;

  • tax-optimal internal and external funding focused on optimising the cost of capital for PostNL, within boundaries that are sustainable on a long-term basis.

4.4 Financial risk management

PostNL’s activities expose the company to a variety of financial risks, such as interest rate risk, foreign currency exchange risk, credit risk and liquidity risk. All these risks arise in the normal course of business and PostNL therefore uses various techniques and financial derivatives to mitigate them.

The following analyses provides quantitative information regarding PostNL’s exposure to the financial risks described above. There are certain limitations and simplifications inherent in the analyses presented, primarily due to the assumption that rates change in a parallel fashion and instantaneously. At the same time, for example, the impact of changes in interest on foreign exchange exposures and vice versa is ignored. In addition, the analyses are unable to reflect the complex market reactions that would normally arise from the market shifts assumed.

PostNL uses derivative financial instruments solely for the purpose of hedging currency and interest exposures. The company enters into contracts related to derivative financial instruments for periods commensurate with its underlying exposures and does not take positions independent of these exposures. None of these financial instruments are leveraged or used for trading purposes or to take speculative positions.

Financial risk management is carried out by Group Treasury under policies approved by the Board of Management. Group Treasury identifies, evaluates and hedges financial risks and exposures in close cooperation with operating units. The Board of Management provides written principles for overall risk management, as well as written policies covering the financial risks. Periodic reporting on financial risks is embedded in the overall risk framework and is provided to the Board of Management in a structural way.

Group Treasury matches and manages the intragroup and external financial exposures. Although the company generally enters into hedging arrangements and other contracts to reduce its exposures, these measures may be inadequate or may subject the company to increased operating or financing costs.

Interest rate risk

PostNL identifies interest rate risk associated with its financial assets and borrowings. Virtually all debts are at fixed rates, an increase in the rate will therefore not affect the cost base. As at 31 December 2020, PostNL’s gross interest-bearing borrowings, including lease obligations, totalled €1,002 million (2019: €960 million), all at fixed interest rates. Financial assets are on average of a short-term nature.

At 31 December 2020, if interest rates on borrowings and financial assets had been 1% higher with other variables held constant, the profit before income tax would have been €7 million higher (2019: €5 million). The potential profit increase is entirely attributable to interest income on the cash and cash equivalents. Equity would be positively affected by €6 million (2019: €4 million), mainly due to the interest income on cash and cash equivalents.

Foreign currency exchange risk

PostNL has international operations that generate foreign currency exchange risks arising from future commercial transactions, recognised assets and liabilities, investments and divestments in foreign currencies other than functional currencies of the respective business units of PostNL, irrespective of whether it is the euro (PostNL’s functional and reporting currency) or another functional currency. For accounting purposes the European Central Bank is used as the source.

The main currencies of PostNL’s external hedges are the British Pound, Hong Kong Dollar and US Dollar.

The Board of Management has set a policy requiring Group companies to manage their foreign exchange risk against the functional currency. Group companies are required to hedge material exposures via the use of foreign exchange derivatives with Group Treasury, whereby a financing company operated by Group Treasury trades these foreign exchange derivatives with external banks. As at 31 December 2020, PostNL had no net investment hedges outstanding. Significant acquisitions and local debt are usually funded in the currency of the underlying assets.

As at 31 December 2020, if the euro had weakened 10% against the British Pound, the Hong Kong Dollar and the US Dollar with all other variables held constant, the profit before income taxes on the foreign exchange exposure on financial instruments would have been €0 million lower/higher (2019: €0 million). In 2020, the net income sensitivity to movements in euro/pound sterling, euro/HK dollar and euro/US dollar exchange rates is negligible and did not change compared to 2019. Equity would have been positively impacted by €2 million (2019: €2 million), all related to the move in the hedge reserve.

Credit risk

Credit risk represents the potential losses that the company would incur if counterparties are unable to fulfil the terms of underlying agreements. Credit risk arises from cash and cash equivalents, derivatives and deposits with banks and financial institutions as well as credit exposures relating to customers. The credit risk exposure is minimised by only transacting with financial institutions, ensuring established credit guidelines are met and by managing its customer portfolio.

The top 10 trade accounts receivable accounted for 19% of outstanding trade receivables as at 31 December 2020. In 2020, we noticed no material negative impact from Covid-19 on the payment behaviour of our customers.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, PostNL attempts to maintain flexibility in funding by keeping committed credit lines available. The terms and conditions of PostNL’s material long-term and short-term debts, as well as its material drawn or undrawn committed credit facilities do not include any financial covenants. There are no obligations to accelerate repayments of these material debts and committed facilities in the event of a credit rating downgrade. A downgrade in PostNL’s credit rating may negatively affect its ability to obtain funds from financial institutions and banks and increase its financing costs by increasing the interest rates on its outstanding debt or the interest rates at which the company is able to refinance existing debt or incur new debt.

At 31 December 2020, the €400 million committed credit facility (maturity date: 10 April 2022) was undrawn (2019: undrawn).

The following table analyses PostNL’s financial liabilities, categorising them into relevant maturity groupings based on the remaining period on the balance sheet to the contractual maturity date. The outgoing flows disclosed in the table are the contractual undiscounted cash flows that contain the redemptions and interest payments.

PostNL Maturity liquidity risks in million
2019, 2020

At 31 December

Less than
1 year

Between
1 and 3 years

Thereafter

Book value

Eurobonds

6

12

716

695

Leases

66

102

107

264

Other loans

1

  

1

Interest rate and cross-currency swaps - outgoing

18

  

0

Foreign exchange contracts - outgoing

176

  

0

Trade accounts payable

197

  

197

Other current liabilities

67

  

67

Total outgoing flows

531

114

823

1,224

     

Interest rate and cross-currency swaps - incoming

18

   

Foreign exchange contracts - incoming

176

   

Total mitigation via incoming flows

194

   
     

Total liquidity risk 2019

337

114

823

1,224

     

Eurobonds

6

12

710

696

Leases

68

114

131

294

Other loans

12

  

12

Interest rate and cross-currency swaps - outgoing

18

  

1

Foreign exchange contracts - outgoing

238

  

1

Trade accounts payable

141

  

141

Other current liabilities

72

  

72

Total outgoing flows

555

126

841

1,218

     

Interest rate and cross-currency swaps - incoming

18

   

Foreign exchange contracts - incoming

238

   

Total mitigation via incoming flows

256

   
     

Total liquidity risk 2020

299

126

841

1,218

4.5 Financial instruments

In line with IFRS 9 and IFRS 13, the following categories of financial assets and financial liabilities can be distinguished.

PostNL Financial instruments - assets in million
2019, 2020

At 31 December

Notes

Input information level (IFRS13)

Loans and receivables

Derivatives used for hedging

Financial assets at fair value through OCI

Total

Other loans receivable

 

level 2

6

  

6

Other financial fixed assets

 

level 3

  

15

15

Accounts receivable

3.1.1

level 2

322

  

322

Foreign exchange contracts1

 

level 2

 

1

 

1

Cash and cash equivalents

4.1

 

480

  

480

Total assets balance sheet 2019

  

808

1

15

824

       

Other loans receivable

 

level 2

27

  

27

Other financial fixed assets

 

level 3

  

15

15

Accounts receivable

3.1.1

level 2

355

  

355

Foreign exchange contracts1

 

level 2

 

1

 

1

Cash and cash equivalents

4.1

 

651

  

651

Total assets balance sheet 2020

  

1,032

1

15

1,048

  • 1 Foreign exchange contracts are included in prepayments and accrued income in the statement of financial position.

Fair value represents the price that would be received when selling an asset in an orderly transaction between willing market participants. For the level 3 financial assets at fair value through OCI our valuations have been measured by using the market approach as per 31 December 2019 and 31 December 2020.

PostNL Financial instruments - liabilities in million
2019, 2020

At 31 December

Notes

Input information level (IFRS13)

Financial liabilities measured at amortised costs

Derivatives used for hedging

Total

Long-term debt

4.1

level 11

695

 

695

Trade accounts payable

 

level 22

197

 

197

Short-term debt

4.1

level 22

1

 

1

Other current liabilities3

3.1.2

level 22

66

1

67

Total liabilities balance sheet 2019

  

959

1

960

      

Long-term debt

4.1

level 11

696

 

696

Trade accounts payable

 

level 22

141

 

141

Short-term debt

4.1

level 22

12

 

12

Other current liabilities3

3.1.2

level 22

72

2

74

Total liabilities balance sheet 2020

  

921

2

923

  • 1 Eurobonds level 1.
  • 2 We consider the fair value equal to the book value as these items will be settled within short-term and therefore level 2.
  • 3 Other current liabilities include 'Payments from customers received in advance' for €48 million (2019: €49 million) and 'Other' for €26 million (2019: €18 million), refer to note 3.1.2.

All financial instruments are reported on a gross basis per instrument. Netting of financial instruments per contractual counterparty will not have a material impact on the outstanding balances.

Eurobonds

For the details on the outstanding eurobonds, see the table below.

PostNL Outstanding eurobonds in million
2019, 2020

At 31 December

Nominal
value

Costs/discount to be amortised

Hedge
accounting

Carrying
value

Fair
value

1.000% eurobond 2024

400

1

No

399

412

0.625% eurobond 2026

300

4

No

296

299

Total outstanding eurobonds 2019

700

5

 

695

711

      

1.000% eurobond 2024

400

1

No

399

416

0.625% eurobond 2026

300

3

No

297

312

Total outstanding eurobonds 2020

700

4

 

696

728

Leases

For the details on the outstanding leases, see the table below.

PostNL Outstanding leases in million
2019, 2020

At 31 December

Nominal
value

Fixed/floating interest

Hedge
accounting

Carrying
value

Fair value

Total outstanding leases 2019

264

fixed

No

264

264

Total outstanding leases 2020

294

fixed

No

294

294

Derivatives - Foreign currency exchange contracts

For the details on the outstanding foreign exchange contracts, see the table below.

PostNL Outstanding foreign exchange contracts in million
2019, 2020

At 31 December

Carrying value

Fair value

Nominal value

Hedge

Amount in equity

Asset

1

1

79

balance sheet/cashflow

0

Liability

1

1

97

balance sheet/cashflow

0

Foreign exchange contracts 2019

     
      

Asset

1

1

125

balance sheet/cashflow

0

Liability

1

1

112

balance sheet/cashflow

0

Foreign exchange contracts 2020

     

The fair value of these outstanding foreign exchange hedges is recorded as a current asset in ‘prepayments and accrued income’ or as a current liability in ‘other current liabilities’ and includes credit valuation adjustments.

In 2020, the total ineffective portion on all derivatives recognised in the income statement that arises from the use of fair value and cash flow hedges amounted to €0 million (2019: €0 million).

Derivatives - Interest rate swaps

For the details on the outstanding interest rate swaps, see the table below.

PostNL Interest rate swaps in million
2019, 2020

At 31 December

Carrying value

Fair value

Nominal value

Hedge

Amount in equity

Interest rate swaps 2019

0

0

18

balance sheet/cashflow

0

Interest rate swaps 2020

(1)

(1)

18

balance sheet/cashflow

(1)

The fair value of these outstanding interest rate swaps is recorded as a current asset in ‘prepayments and accrued income’ or as a current liability in ‘other current liabilities’ and includes credit valuation adjustments.

4.6 Equity

Accounting policies

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where any Group company purchases PostNL’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, are included in equity.

Authorised share capital

Since 4 August 2011, the company’s authorised share capital amounts to €120 million, divided into 750,000,000 ordinary shares and 750,000,000 preference shares B, both of €0.08 nominal value each.

Form of shares

The ordinary shares are in bearer or registered form. Ordinary shares in bearer form are represented by a global note held by the Dutch clearing system Euroclear Netherlands and are transferable through Euroclear Netherlands’ book entry system. Ordinary shares in registered form are transferred by means of a deed of transfer and PostNL’s written acknowledgement of the transfer. PostNL does not have share certificates for ordinary shares represented by the global note. The preference shares B are in registered form.

Issued share capital

At 31 December 2020, the company's issued share capital amounted to €40 million (2019: €40 million). The number of authorised, issued and outstanding shares by class of share is as presented in the table hereafter.

Issuance/repurchase of shares to cover share plans

For all equity-settled and cash-settled share plans, PostNL intends to perform the settlement (or in case of cash-settled plans, fund the settlement) by issuing new shares. As a result, the company issued 1,038,803 ordinary shares in 2020 (2019: 852,661 shares) under its incentive schemes to 'Stichting Managementparticipatie PostNL' (Foundation Management Participation PostNL). The company did not purchase any ordinary shares in 2020 (2019: 0 shares) to cover its obligations under the existing share plans. At 31 December 2020, the total number of shares held for this purpose was nil (2019: 0 shares). The company also held no ordinary shares for cancellation at 31 December 2020 (2019: 0 shares).

PostNL Shares number of shares
2019, 2020

Before proposed appropriation of profit

2019

2020

Authorised by class

  

Ordinary shares

750,000,000

750,000,000

Preference shares B

750,000,000

750,000,000

Total authorised

1,500,000,000

1,500,000,000

   

Issued and outstanding

  

Per 1 January of the reported year

469,199,776

493,952,586

Issued for stock dividend

23,900,149

0

Issued under its incentive schemes

852,661

1,038,803

Per 31 December of the reported year

493,952,586

494,991,389

   

Issued and outstanding per 31 December by class

  

Ordinary shares

493,952,586

494,991,389

of which held by the company to cover share plans

0

0

of which a foundation incorporated by the company only holds the legal title

1,830,366

2,161,059

Preference shares B

0

0

Incentive scheme and Foundation Management Participation PostNL

For administration and compliance purposes, since May 2013 all shares belonging to PostNL employees under PostNL incentive schemes are held by Stichting Managementparticipatie PostNL (Foundation Management Participation PostNL) on an omnibus securities account with ING Bank, the Netherlands. Foundation Management Participation PostNL legally owns the shares, while the beneficial ownership of the shares is vested in the employees, who are also entitled to dividend received by Foundation Management Participation PostNL on their behalf. At 31 December 2020, the number of PostNL shares involved amounted to 2,161,059 shares (2019: 1,830,366 shares) with a nominal value of €0.08 per share.

Foundation Continuity PostNL and preference shares B

Stichting Continuiteit PostNL (Foundation Continuity PostNL) was formed to safeguard the interests of PostNL, the undertaking connected with PostNL and all parties involved. It does this by, among other things, preventing any influences that could threaten PostNL’s continuity, independence and identity, as far as possible. Foundation Continuity PostNL is an independent legal entity and is not owned or controlled by PostNL or any other legal person.

PostNL’s articles of association provide for protective preference shares B that can be issued to Foundation Continuity PostNL to serve these interests. The preference shares B have a nominal value of €0.08 and have the same voting rights as PostNL’s ordinary shares.

PostNL and Foundation Continuity PostNL have entered into a call option agreement, which enables Foundation Continuity PostNL to acquire a number of preference shares B not exceeding the total issued amount of shares minus one and minus any shares already issued to Foundation Continuity PostNL. The call option agreement is meant as a preventive countermeasure against influences that might threaten the continuity, independence and identity of the company. Preference shares B will be outstanding no longer than is strictly necessary. At 31 December 2020 no preference shares B were issued.

Additional paid-in capital

At 31 December 2020, additional paid-in capital of €161 million (2019: €160 million) is fully exempt for Dutch tax purposes to the extent that this has been paid in by shareholders of the company.