Topic | Key material topic | Risk level | Trend | Risk summary | Opportunity summary |
|---|---|---|---|---|---|
Competition | Financial performance and position |  |  | Pressure on market share, volumes and pricing impacting revenues and profitability | Outperforming market with high delivery quality and network coverage Investments in Digital Next and initiatives to increase our customer satisfaction |
Substitution | Accessible and reliable postal services | | | Acceleration of decline in physical mail impacting revenues and profitability | Demonstrating the value of physical mail as relevant communication channel for customers Stimulate growth in mailbox gifts |
Implementation of strategic change projects | Digitalisation and data |   | | Delay in digital transformation and achieving our business objectives due to challenges with executing a broad range of large change projects at the same time. This may impact our medium-term targets on customer experience and operational efficiency | Strengthening our governance, capabilities and investments in digital domain as foundation for acceleration of our digitalisation Solid prioritising initiatives to shorten time to market of relevant changes through our agile operating model and customer journey factory |
Climate change | Climate change | |  | Failure to achieve our long-term carbon emission reduction targets can have adverse impact on our licence to operate, reputation and financial performance | Accelerate our decarbonisation based on dedicated investments, innovation and collaboration with partners Enhance communication based on achievements and strategy to promote PostNL as sustainable company. |
Topic | Key material topic | Risk level | Trend | Risk summary | Opportunity summary |
|---|---|---|---|---|---|
Regulatory compliance | Accessible and reliable postal services | | | Non-compliance with current or inadequate adaptation with future laws and regulation adversely impacting business operations, our reputation and on our financial performance | Continuing management focus on interpretating and implementing new and revised regulatory requirements and anticipating on potential impacts Continuous dialogue with governmental and non-governmental stakeholders about compliance requirements to manage our compliance effectively. |
Topic | Key material topic | Risk level | Trend | Risk summary | Opportunity summary |
|---|---|---|---|---|---|
Execution of cost saving initiatives | Engaged people; | | | Unsuccessful or delayed cost saving initiatives, impairing cost savings and employee engagement | Use our experience in realising cost savings as example for implementing other similar initiatives. Job mobility opportunities from Mail to Parcels |
Information technology | Customer experience; Digitalisation and data | | | Ineffective IT management systems leading to issues in e.g. availability, integrity, and confidentiality may impair the quality of our business processes, cost effectiveness and/or reputation | Phasing out legacy systems and becoming more data driven to enhance insights for PostNL and customers faster, more accurate and more meaningful |
Employee attraction, development and retention | Engaged people; | | | Lack of motivated employees due to a tight labour market and/or not being an attractive employer | Strengthen employee branding of PostNL to promote the company as attractive employer, for example on digitalisation and the successful approach towards dealing Covid-19 |
Network peak capacity | Customer experience; Engaged people | | | Operational failures, disruptions in logistic processes and capacity constraints due to substantial increased volumes in our parcel business, impairing business continuity, customer satisfaction and employee engagement | Creating flexibility in our network capacity enabling us to scale up or down swiftly in response to market volatility. |
Topic | Key material topic | Risk level | Trend | Risk summary | Opportunity summary |
|---|---|---|---|---|---|
Total cost of labour | Financial performance and position | | | Higher than anticipated total cost of labour and opportunity costs due to operational disruptions | Realising agreements with trade unions on mutually beneficial conditions based on good relationships Timely and effective updating collective labour agreements for our people |
Funding ratio pension fund | Financial performance and position |  |  | Economic climate and demographic variables may negatively impact the funding ratio, pension provisions or additional funding obligations | Using a healthy financial position of the pension fund to provide a stable and inflation-adjusted pension for our (former) employees |
Financial risk management | Financial performance and position | | | Exposure to claims for loss or damage adversely impacting our financial performance | Improving our financial position to increase credit ratings |
Liability for loss or damage | Financial performance and position | | | Exposure to claims for loss or damage adversely impacting our financial performance | Using data and analysis to identify the most impactful improvement areas in our security and quality levels. |
Competition continues to put pressure on our market share, volumes, and prices in the e-commerce related activities, which could have an adverse effect on revenues and profitability. Three main areas in the competitive landscape relate to developments by established logistics players, new entrants with new business model, and the rise of platform business. Our largest established competitors are expanding their network capacity and coverage, which enables them to capture growth in line with the market and from increases in multi-vendorship by large e-tailers. New entrants with significant funding are disrupting the traditional market with innovative, digital and data driven business models, to attract both smaller and larger customers based on customer experience. Large platform businesses are becoming more dominant leading to concentration of volumes and increased purchasing power. In addition, value chain integration is developing fast, enabling parties to offer distinctive customer experiences.
Margin management, efficiency improvements, leveraging from economies of scale
Significant investments in our network, accelerating digitalisation, and furthering sustainability across the company in order to improve NPS
Multiple commercial initiatives, including service level differentiation, (new) products and pricing, and quality improvements in relation to network coverage and operational excellence
Be even more customer centric in improving our business with the customer journey factory.
Further information regarding competition can be found in the chapter 'Our strategy'.
The ongoing trend of increased digital communication in society, is leading to continuing decline in the physical mail market. Faster than anticipated volume decrease could impact the ability to deliver accessible, reliable and affordable postal services. Volume decline could impact our revenue and profitability. And it could require PostNL to adapt our organisation faster than anticipated, leading to higher cost of change and challenges in our quality levels.
While the market decline in the Netherlands has been offset due to non-recurring additional volumes as result of Covid-19, the underlying substitution is ongoing. In 2021, we have indications that the underlying pace of market decline has somewhat slowed down. The sensitivity of our normalised EBIT for changes in addressed mail volumes amount to approximately €7 million based on a market decline by one percent.
Taking commercial initiatives to slow down or adapt to substitution, for example introducing of a range of new services and solutions, and the rationalisation of existing services and solutions
Updating our business model based on flexibility to respond to future volume decline
Marketing the value of physical mail in combination with cross selling, for example helping e-commerce players discovering the power of physical direct mail.
More information can be found in the chapter 'Customer value'.
To make progress on the three elements our strategic foundation, we are implementing different strategic changes simultaneously. Not making sufficient progress on any of our pillars will negatively impact our growth, profitability, operational efficiency, cash conversion, required cost savings at MailNL.
Implementing strategic changes requires focus on effective stakeholder and project management in order to adequately prioritise the allocation of resources. Organisational agility is also key to anticipate on short term developments and changes in business needs. Due to a tight labour market, hiring sufficient people to implement change projects is challenging and put our capacity to change at desired pace at risk. Ineffective organisation of change may cause delays in projects and suboptimal solutions. Delays in planned improvements in line with our ambitious digitalisation programme will negatively impact our competitive position as PostNL may not be able to keep up with the pace of technological development in the logistics sector. Implementing strategic change projects inherently increases the risk of temporary ineffective internal controls. More information can be found in the chapter 'Our strategy'.
Generating stable and sufficient cash flow to allow for acceleration of our digitalisation through significant investments
Strengthening our governance, capabilities and organisation through formalising and expanding our digitalisation activities in a new business unit.
The growth of our business not only means we require more energy for our buildings and transport, it also places greater urgency on reducing our greenhouse gas emissions. We have set ambitious targets towards 2030 to significantly decarbonise our business, and have identified three key risk factors that could impair our ability to meet these targets. 1. Our dependency on reducing the emissions of outsourced transport, which accounts for a significant percentage of our transport activities. 2. Our dependency on technological innovations, such as the availability of zero emission or low-carbon vehicles, and the availability of the correct loading infrastructure and energy. 3. The agility of our logistics business model, particularly at Parcels. Not being able to adapt our business and operational model in a commercially viable way in time to meet the increasing expectations of customers and society in general will negatively impair our reputation and financial performance. This could lead to a loss of revenue based on customer decisions, and increase costs due to expensive investments or carbon taxes.
Executing and refining our concrete action plan in the short, medium and long term towards our target year 2030, focusing primarily on the transition towards an electric fleet and renewable fuels as a transitional measure to cut carbon.
Continue to enhance the sustainability and energy efficiency of our buildings and facilities
Realise network efficiencies through innovative solutions to cut the number of kilometres we travel, and become less carbon intensive in our operations
Collaborate with customers on reducing greenhouse gas emissions in the value chain, for example by developing green products and services
Use sustainable finance to stimulate our environmental investments.
The regulatory requirements are increasing and becoming more complex in the markets we are operating in. These regulations relate to a broad range of topics, such as but not limited to tariff regulation, competition law, regulation related to dangerous and prohibited goods, customs regulations, labour practices, data protection and privacy as well as environmental. Changes in regulatory requirements could materially impact our business activities, such as we have seen as a result of the abolishment of the VAT exemption of goods imported to the EU as of 1 July 2021 on our international volumes.
In relation to our responsibilities as designated operator under the Universal Service Obligation (USO) for mail in the Netherlands, changes in the postal law (which are in development), and ruling on the Sandd take-over and Article 47 may lead to additional operational costs for example as result of tariff regulation. It may also impose additional legal and administrative costs.
Compliance with laws and regulation is essential and important to demonstrate our commitment to sound business conduct and maintaining our license to operate. Misinterpretation of new or changed regulations or ineffective internal controls could lead to non-compliance. This may lead to sanctions such as fines and business restrictions which could materially negatively impact our financial performance, continuation of services to customers and our reputation.
Continuous implementation and improvement of appropriate policies, processes and internal control procedures to limit exposure to complex legal and regulatory requirements, such as competition law, labour-related laws and regulations, USO requirements and anti-bribery acts
Operating a robust integrity programme that includes business principles and creating awareness
Have dialogues with governmental and non-governmental stakeholders on continuous basis about interpretation of, and compliance with regulations, for example in relation to the USO regulations on national and EU levels
Timely adapting our operations to changes in the legal and regulatory requirements.
Information technology (IT) is vitally important to our business and we are increasingly depending on it. Threats to the availability, confidentiality or integrity of our IT networks, systems or (customer) data caused by IT disturbances, cyberattacks or lack of appropriate security and infrastructure measures may disrupt our business activities. Given our full (public) cloud strategy, weaknesses in the IT and cyber security of our cloud suppliers may also harm PostNL and our customers. IT or cyber-related issues maydisrupt operational processes and systems and therefore negatively impact our ability to provide our services timely with sufficient high quality. It may also result in loss or theft of customer data, material cost increase, penalties, as well as damage our reputation.
Professional and dedicated IT and cyber security management at group level supported by decentral cyber security coordinators on all relevant IT systems used by PostNL including continuous improvement based on issues identified and IT and cyber related developments
Management of cloud suppliers through robust assessments based on a strict control framework
Improvements in our data management based on monitoring and steering by our Data governance board
Evaluating and improving the resilience of critical applications based frequent measurements and testing against stringent criteria, and implementation of action plans to keep our applications up to date
Continuing to phase out legacy systems to improve the overall IT application and infrastructure stability.
Due to market decline in our mail business, realising cost savings is one of the key elements for a sustainable mail business. Examples include streamlining of our workforce, enhancing the efficiency of our infrastructure, and reducing overhead cost. Delays in or ineffective execution of cost saving initiatives could lead to inefficiencies, negatively impact the quality of our services, including our required delivery quality levels, as well as impacting the employee motivation levels. These may result in lower profitability and cash flow, and damage our reputation.
Cost savings projects are executed via enhanced programmes and are monitored continuously by a programme officeMechanisms to adjust to changing circumstances have been implemented and are reviewed periodically. Execution via pilots and in close collaboration with the Works Council enables smooth implementation on a larger scale
Acceleration of our digitalising of our core logistics processes and systems as well as commercial engine to increase the pace of changes with limited temporary impact on our business.
Additional information on these initiatives can be found in the 'Customer value' chapter.
People are at the heart of the services we provide to our customers. The labour market has become extremely tight, especially for operational and IT related positions. Inherent to PostNL's business, the employee turnover rates are relatively high compared to other sectors. These factors impose risks for PostNL in attracting, developing and retaining qualified personnel. The alternation in relieved and tightened Covid-19 restrictions in 2021 as well as higher absenteeism levels due to the pandemic contributed to an even bigger challenge to fill our open vacancies. In a big battle for talent in our markets it is important to be distinctive and attractive as an employer.
Innovation through online recruitment techniques and are continuously improving the employee experience, for example by investing more in employer branding in addition to recruiting for individual jobs
Prioritising the safety and well-being of people more effectively in challenging times to demonstrate the care for our people
We continue to invest in training, health and safety measures, people development and employee retention
Scarcity in the labour market related to high profile IT and Finance functions remains challenging. To increase PostNL’s attractiveness as an employer, we are investing in branding for potential employees as well as retraining and development of our current staff.
The continuing volume growth at Parcels has been putting pressure on our network capacity and imposes higher risk of operational failures, for example due to disruptions in logistic processes. It also increases the risk of capacity constraints across our locations. This is particularly acute during the peak periods when our networks operate at full capacity. In case of major business disruptions, we may not be able to fall back on our regular business continuity measures. Structurally operating at full capacity may also lead to negative effects on employee motivation, commitment and eventually absenteeism.
The volume growth in our Parcels business during the pandemic resulted in greater pressure being placed on our network and people, especially during the period building up to Sinterklaas and Christmas. The alternation in relieved and tightened Covid-19 restrictions in 2021 (which may continue in 2022) increased the volatility in the market including pressure on our network capacity which required flexibility of PostNL to scale up or down swiftly in response to the government announcements.
Increase network capacity in line with projected volume growth through new locations, permanent or temporary, and business model innovations such as the introduction of a new way of working in our small parcels sorting centre
Looking for operational efficiencies on continuous basis to create incremental capacity in our existing locations and in our transport
Updating our future logistics labour model to allow for further growth while improving our quality levels and customer experience
Collaborating with partners in the e-commerce value chain to manage volume expectations better and lower the extremes in our peak moments
Putting the health and safety of our people first to keep our workforce healthy and ensuring continuous operations of all locations during the Covid-19 pandemic.
Being a good employer is vitally important to us. One aspect of this is the terms and conditions under which we hire our personnel and employ outsourced labour. These terms and conditions, including salaries and other secondary benefits, represent a substantial expense for our company and is an important component of our operating model. Our financial performance could be affected by higher than anticipated total cost of labour and/or other related losses. In addition, opportunity costs due to operational disruptions as a result of action from trade unions and/or actions triggered by media attention. This could further undermine our financial performance.
Maintaining good relations with trade unions and social partners based on mutual recognition of shared interests. In addition, we are evaluating the sustainability and financial feasibility of our labour model and are researching alternative solutions to make it future-proof.
We are exposed to a variety of financial risks, such as currency risk, interest rate fluctuations, credit risk, liquidity risk, price risk and cash flow risk. These risks can have an adverse effect on our financial position and results. This also impacts the valuation of the pension provision.
Using various techniques and financial derivatives to mitigate financial risks, which arise in the normal course of business. Examples include hedging both currency and interest rate risks in accordance with the relevant Group policies
Improving our financial position allows us to accelerate the digitalisation of our key activities
Focusing on being able to pay dividend, underscoring our significantly improved financial position.
For more information, see the financial statements.
Actuarial assumptions, such as discount rates and demographic variables, have an impact on the valuation of employee benefit plans. A decrease in equity returns or interest rates may negatively affect the funding ratios of our pension fund, which may lead to an increase in the pension provision, or in multi-year additional funding obligations.
Our pensions retain an element of vulnerability. A materially bad economic climate, combining lower interest rates, declining pension fund assets and material increases in life expectancy, could still negatively impact cash and equity. In 2021, the 12-months average funding ratio increased from 104.4% per year end 2020 to 121.4% per year end 2021. This decreased the current risk of a new recovery plan, but may become opportune in the future. The actual year end 2021 funding ratio was 126.2%. In addition, the intended comprehensive change in pension legislation may lead to financial transition effects.
Holding open and regular discussions with the pension fund trustee board, which is independent of PostNL
Managing the volatility risk of our pension provision through updating our finance agreement with the pension fund. Considering the resilience of the fund, analysis shows sufficient headroom before our financial position is materially impacted by pensions
Pro-actively engaging with all relevant stakeholders on the impact of the anticipated new pension legislation, both from a regulatory and financial perspective.
We are exposed to claims for loss or damage. Some of these exposures are covered under conventions such as the United Postal Union, the Warsaw Convention or the Convention on the Contract for the international Carriage of Goods by Road, as well as PostNL’s general terms and conditions. Claims for loss or damage not covered under these conventions or PostNL’s general terms and conditions may negatively affect our financial performance. Our exposure to this risk is increasing as a result of the growing volume of e-commerce parcel deliveries in our portfolio, which on average are higher in value.
Maintaining insurance policies in relation to our business and assets with reputable underwriters and/or insurance companies against claims for loss or damage to the extent not covered by conventions, and to the extent that is usual for companies like ours
Strengthening physical security management through a dedicated steering committee 'loss prevention'.
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