PostNL: exceptional results driven by strong Parcels and Mail performance
Strong operational performance boosted in last weeks of 2020
At Parcels, volume growth in Q4 2020 amounted to 29.6% (FY 2020: 19.2%). PostNL delivered 337 million parcels in 2020, of which around 25 million parcels are estimated to be non-recurring as they are related to Covid-19. The favourable price/mix developments continued in the fourth quarter are coupled with positive impacts from yield measures. Its flexible infrastructure, combined with more equally spread flow, shows the robustness of the business model in this exceptional situation. Good performance at both Spring and Logistics continued. Normalised EBIT for Q4 2020 is expected to amount to €75 million, up €35 million compared with Q4 2019 (FY 2020: €209 million, of which around €40 million qualifies as exceptional driven by Covid-19).
At Mail in the Netherlands, volume decline in Q4 was 0.2% (FY 2020: 9.6%). Normal substitution was almost fully offset by a recovery in direct mail and more greeting cards. The latter resulted in a more favourable price/mix development that is not expected to recur. The consolidation of Sandd contributed positively to the result. As no further integration costs occurred in Q4 2020, the effect of synergies is now fully visible. Normalised EBIT for Q4 2020 is expected to come in at around €82 million, up €67 million compared with Q4 2019 (FY 2020: €96 million, of which around €15 million is qualified as exceptional driven by Covid-19).
Strong development of free cash flow in 2020 and improved financial position
Free cash flow amounted to around €185 million in 2020. This was supported by the extraordinary business performance and by strict capital allocation actions, such as the pension agreement, strict working capital management, the sale-and-lease back transaction and further de-risking of PostNL’s portfolio through the divestures of Nexive, PCS, Spotta and Adeptiv. Excluding the payment on transitional pension obligations (€200 million) as well as the proceeds of the sale-and-lease back transaction (€146 million), free cash flow would be around €240 million.
The improved financial position allows PostNL to re-instate dividend for 2020, to be proposed to shareholders at the AGM 2021. The basis for dividend, i.e. normalised comprehensive income, is expected to come in at around €195 million for 2020.
Due to the continued unprecedented circumstances, visibility going forward remains limited. While the lockdown continues into the beginning of 2021, leading to ongoing strong parcel volumes but also additional costs, among others to keep retail points open. PostNL assumes that the impact of Covid-19 will gradually fade out in 2021. Based on the preliminary results for 2020 and current assumptions, PostNL expects:
- Normalised EBIT for 2021 to be higher than normalised EBIT 2020 corrected for the exceptional Covid-19 impact of around €55 million
- improvement of business performance, mainly at Parcels
- higher pension expenses (around €20 million non-cash, mainly explained by a lower discount rate) and start-up costs of new facilities (around €10 million)
- Free cash flow is expected to increase further
- Normalised comprehensive income to be comparable to the level of 2020
PostNL will continue to invest in its network to be able to accommodate future e-commerce growth. In addition, PostNL will accelerate the digitalisation of its activities.