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, commodity 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, commodity 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 actively manages its balance sheet and identifies interest rate risk associated with its financial assets and borrowings. Virtually all borrowings are at fixed rates, a movement in the rate will therefore only affect the cost base per the moment of fixing the rate of the debt instrument. The term of the lease debt is in line with market practice for the underlying assets. The Eurobonds were agreed with a seven year maturity. PostNL enters into hedging arrangements to mitigate the interest exposure, at the moment the execution of material lease and debt instruments becomes more certain. As at 31 December 2023, PostNL’s gross interest-bearing borrowings, including lease obligations, totaled €1,059 million (2022: €1,076 million), all at fixed interest rates. Financial assets are, on average, of a short-term nature and are therefore more exposed to interest rate fluctuations.

At 31 December 2023, 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 €5 million higher (2022: €6 million). The potential profit increase is entirely attributable to interest income on the cash and cash equivalents. Equity would be positively affected by €15 million (2022: €6 million), mainly due to the interest income on cash and cash equivalents and the cash flow hedge impact on equity of the outstanding interest rate swaps mitigating the refinancing interest rate risk.

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 2023, 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 2023, 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 (2022: €0 million). In 2023, 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 2022. Equity would have been positively impacted by €2 million (2022: €2 million), all related to the move in the hedge reserve.

Commodity risk

During 2023 it was agreed that a group company was exposed to potential price fluctuations on LNG. The group company is required to hedge its commodity risk with Group Treasury. Group Treasury trades these commodity derivatives with external banks. As at 31 December 2023, PostNL had LNG hedges outstanding for a total volume of 16.200 MwH. The exposure on LNG relates to a limited number of trucks running on LNG.

As at 31 December 2023, if the LNG price would increase with €10 per MwH, with all other variables constant, the profit before income taxes on the commodity exposure on financial instruments would have been €0m. Equity would have been positively impacted by €0m, 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 2023.

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 a committed multi-currency revolving credit facility of €200 million, which expires in 2028 available.

As at 31 December 2023, the company’s current assets and current liabilities amounted €943 and €1,280 million respectively. The current assets contained €518 million of cash and cash equivalents. This position does not contain any restricted cash. Included in the current liabilities is an upcoming eurobond repayment of nominal €353 million due in November 2024. Based on its ability to realise its assets and its proven cash flow-generating capability, the company expects to be able to discharge its liabilities in the normal course of business. Should the need arise, the company has (re)financing options available, backed by its committed credit facility of €200 million and an investment grade credit rating.

A downgrade in PostNL’s credit rating may negatively affect its ability to obtain funds from financial institutions and banks and increase the interest rates at which the company is able to refinance existing debt or incur new debt. The terms and conditions of PostNL’s material long-term and short-term debts, as well as its material drawn, or undrawn 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.

At 31 December 2023, the €200 million committed credit facility (maturity date: December 2028) was undrawn (2022: 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
2022, 2023

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