This Report of the Supervisory Board sets out the manner in which the Supervisory Board fulfilled its duties and responsibilities in 2021. 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, with a view on long-term value creation. In exercising its task in 2021, 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 made adjustments based on any revisions to government guidelines and regulations, from the easing of restrictions to additional lockdowns. The company applied all social distancing guidelines and health regulations to protect its people and consumers as much as possible. 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, visibility remains limited and depends on factors such as social distancing measures, the potential for further Covid-19 waves, macro-economic developments and consumer confidence.
OUR ROLE. In dealing with the pandemic and accompanying measures the company could rely on the experience of 2020. PostNL was able to remain fully operational, and the comprehensive business continuity plan was in place. As such, the Supervisory Board was able to rely on the regular business updates provided, and no separate meetings were required in relation to coping with Coivd-19. Building on the experience gained in 2020, most of the Supervisory Board meetings were held virtually. The Supervisory Board provided 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. 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.
OUR ROLE. The Supervisory Board and the Board of Management had regular discussions on the impact of the Covid-19 pandemic on our people in areas such as sick leave, social distancing, safety measures and work load. Deep dives were held on the employment model within Parcels. This included discussions on the inspections by the Belgian social inspectorate at our Belgian activities, related to delivery partners hired by PostNL, and the temporary closing of one of our Belgian depots. Another regular attention point was the focus within society on PostNL's employment model.
Further items discussed were the labour market and the impact on the organisation, delivery quality, the PostNL collective labour agreement and collective labour agreement for Saturday deliverers, the agreement on a new social plan, employee engagement and diversity and inclusion, and PostNL's culture.
The Supervisory Board also discussed the ambitious and appropriate targets for the Board of Management and senior management to promote gender diversity. Changes in the Executive Committee were also discussed.
Furthermore, several members of the Supervisory Board met with the daily management of the Central Works Council, and regular informal sessions were held between members of the Supervisory Board and PostNL employees and senior management, to get their view on the company.
We believe sustainability is our license to operate. As such we continue to invest in activities that make our business more environmentally sustainable, and have announced an acceleration of our sustainability investments to speed up our progress towards our environmental, social and governance targets. PostNL's aim is to be the driving force for sustainable logistics in the Benelux.
OUR ROLE. The Supervisory Board acknowledges the importance of sustainability and fully supports the commitment to being a sustainable e-commerce logistics provider, including the goals set by the company and step up in investments. These were items of discussion with the Board of Management and senior management, including the underlying plans in reaching those goals, during 2021. Sustainability is a regular topic discussed in the meetings of the Supervisory Board, and will continue to be an important topic for discussion in 2022.
E-commerce growth continued in 2021, driven by the transition from offline to online. Part of the growth was connected to specific, non-recurring consumer spending as a result of the pandemic. The pandemic also caused fluctuations in e-commerce volumes, reflecting the government restrictions which led to the closure or reopening of non-essential stores. To accommodate the stronger growth in parcel volumes, PostNL has chosen to ramp up its capacity-expansion plans ahead of schedule. In October, PostNL opened a fully automated, robotic sorting centre for small parcels. During the year the company had to deal with disruptions in global supply chains. This led to an ongoing rebalancing of our Parcels’ network. Over the busy year-end period, we added capacity and resources to provide customers with the high-quality services they expect and demand. We continued to manage Parcels for profitable growth.
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 steps required to keep Parcels' operations up and running. Deep dives were held on the future network configuration. Furthermore, thorough discussions were held on volume development and capacity, in conjunction with dual vendorship, competition and market share, as well as the further expansion of Parcels' infrastructure. 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. During the first half of 2021 results at Spring were very good. However, in the second half of 2021 the impact from changes to the VAT regulation for small non-EU goods and other regulations in China were stronger than expected. The recovery in international volumes has not yet materialised, due in part to supply chain disruption issues and increased freight costs.
OUR ROLE. The Supervisory Board discussed developments with Spring, particularly in relation to the impact from the regulatory changes described above. Additional important topics discussed were Brexit, and the impact of disruptions in global supply chains.
Performance at Mail in the Netherlands was marked by three quarters with increased addressed mail volumes, mainly due to the impact from non-recurring items, for example the delivery of election cards and invitations for the vaccination programme. However, the underlying trend of volume decline continued, albeit with a light improvement compared to last years. On 28 October, PostNL announced that stamp prices will remain unchanged in 2022 due to the positive contribution of Sandd volumes and the non-recurring volume increase in single mail, related to Covid-19 in 2020. For business mail, PostNL continues its moderate pricing policy.
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 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 a ruling. 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 in conjunction with the labour market, the developments in the regulatory environment, and customer satisfaction.
Value creation for our shareholders remains a key priority. For 2021, PostNL reported a strong business and financial performance, leading to upward adjustments on our outlooks in January and April 2021. In January 2022 a further trading update was issued indicating the preliminary results over 2021, and at the same time a €250 million share buyback programme was announced to neutralise assumed dilutive impact from dividends 2021-23. Cash flow performance was very strong in 2021 and exceeded our expectations, further strengthening our financial position, with a leverage ratio well below 2.0x at year end.
In line with the capital allocation framework, PostNL is well positioned to launch a share buyback programme. Confidence in the successful execution of our strategy gives us comfort around our longer-term business performance and cash generation perspective. Furthermore, the financial position allows PostNL to issue a final dividend for 2021, to be proposed to shareholders at the AGM 2022.
PostNL continues to deliver on its strategy and pathway towards 2024. The ambition for 2024 is to achieve normalised EBIT between €330 million and €370 million. This implies a step-up of €60 million - €80 million compared with earlier expectations. Overall, PostNL will invest an additional €450 million in the 2022-24 period, while ensuring sufficient flexibility in timing to adjust the level of investments in capacity expansion with volume growth expectations. This brings cumulative investments (capex and lease additions) to around €950 million for this period. The Digital Next programme is running on schedule and estimated to become accretive to ROIC as of 2023.
In December, PostNL successfully completed a five-year €200 million revolving credit facility (RCF), with the margin, to be paid by PostNL, partly dependent on the successful execution of its emission reduction strategy. For this RCF PostNL uses two main indicators in the performance evaluation, the carbon efficiency of its own operations and the share of emission-free delivery in the last-mile. The facility can be used for general funding purposes.
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. The ambition towards 2024, and step-up in investments, have been extensively discussed with the Board of Management. In this light the improvement of the balance sheet as a whole, and the capital allocation framework specifically, were recurring items for discussion. The renewal of the revolving credit facility was also discussed, as was the sale of Nexive to Poste Italiane. Naturally, the announcement of the share buyback programme was discussed with the Supervisory Board, in conjunction with the value creation for all stakeholders.
Digitalisation and the growth in e-commerce are transforming our company. Technological development is one of the key market trends shaping the lives of our customers and impacting our strategy. It is also leading to an increase in cyber threats. This requires us to continually improve our service proposition, by developing innovative services, while ensuring our IT backbone is kept up to date. Accelerating digitalisation across the company will enable us to strengthen our competitive position and further develop customer satisfaction, as well as reducing our cost base and attracting new customers.
OUR ROLE. PostNL's IT strategy, the speed of digitalisation, the agile way of working, 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 and digital ethics. The appointment of Bart Delmulle as Chief Digital Officer and member of the Executive Committee was also discussed with the Supervisory Board, and several members of the Supervisory Board met Bart prior to his appointment. Given the importance of digitalisation for PostNL, the members of the Supervisory Board also participated in the Digital Next Academy programme set up by PostNL.
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