PostNL : Analyst presentation

Q1 2020 Results

The Hague, 4 May 2020

Published by: PostNL NV

Prinses Beatrixlaan 23 2595 AK The Hague The Netherlands

Additional information

Additional information is available at www.postnl.nl. This press release contains inside information within the meaning of article 7(1) of the EU Market Abuse Regulation.

Note that the numbers presented in this presentation (tables and result explanations) may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures due to rounding.

Warning about forward-looking statements:

Some statements in this press release are 'forward-looking statements'. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. These forward-looking statements involve known and unknown risks, uncertainties and other factors that are outside of our control and impossible to predict, and that may cause actual results to differ materially from any future results expressed or implied. These forward-looking statements are based on current expectations, estimates, forecasts, analyses and projections about the industries in which we operate and management's beliefs and assumptions about possible future events. You are cautioned not to put undue reliance on these forward-looking statements, which only apply as of the date of this press release and are neither predictions nor guarantees of possible future events or circumstances. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events, except as may be required under applicable securities law.

Use of non-GAAP information:

In presenting and discussing the PostNL Group operating results, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. Non-GAAP financial measures do not have a standardised meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. The main non-GAAP key financial performance indicator is normalised EBIT. Normalised EBIT is derived from the IFRS-based performance measure operating income adjusted for the impact of project costs and incidentals.

2

Q1 2020 Results

Key takeaways

Business review

Financial review & Outlook Q&A

3

Mail and parcel deliverers provide a vital service to society

Comprehensive business continuity plan in place since early March

4

Health and safety for our people and consumers comes first

Impact Covid-19 going forward

• Measures taken across all businesses to ensure 1.5 metre distance expected to be maintained, including contact-free delivery and flow patterns, extra cleaning of facilities and distribution of disinfectant gels
• Extensive internal communications programme to promote social distancing and extra hygienic measures
• All our people with office jobs are working from home
• Sick leave levels among staff started to improve in early April
• Both challenges (incl. costs related to sick leave and extra measures, as well as overall macroeconomic impact on business environment) and opportunities (e-commerce picking up and increasing popularity of consumer mail)

5

Key financials and highlights Q1 2020

Solid Q1 performance and improved free cash flow

Revenue

Normalised EBIT

Free cash flow

Outlook normalised EBIT FY 2020

Q1 2020	€701m	€15m	€5m	€110m - €130m
Q1 2019	€684m	€30m	€(8)m

Highlights Q1 2020

• Committed to achieve FY 2020 outlook; uncertainties regarding duration and severity of Covid-19 pandemic may impact ability to achieve this result
• Strong development at Parcels since mid-March, supported by positive price/mix effect
• Integration of Sandd ahead of plan in delivering anticipated benefits and synergies
• More greetings cards contributing to a favourable price/mix development
• Additional mail volume decline due to lower direct mail activity since mid-March
• Measures to protect our people and clients and increased staff absence due to Covid-19 pandemic impacted operating costs
• Normalised EBIT includes impact of higher pension expenses and new labour regulation (together €(8)m), as indicated before, and sale and discontinuation of non-core activities of Mail in the Netherlands
• Disciplined working capital management contributed to improved free cash flow

6

Growing importance of digitalisation

online visitors

PostNL accounts

stamp codes

talks with chatbot Daan

Q1 2019

Q1 2020

96m	114m	+18%
(44% via PostNL app)	(55% via PostNL app)

4.5m 5.5m +22%

308k 520k +69%

340k

770k

+126%

7

Q1 2020 Results

Key takeaways

Business review

Financial review & Outlook Q&A

8

Q1 2020

Q1 2019

Parcels: strong volume development since mid-March, supported by positive price/mix effect

Revenue	Normalised EBIT	Volume growth	Revenue mix
			Spring		Parcels
€414m	€26m	2.8%		Q1 2020	Benelux
Logistics & other	€414m
€398m	€23m

Revenue growth

Result Parcels up €3m

9

• Volume growth 11.1% in March
• • Covid-19crisis resulted in pick-up in e-commerce
  • Good growth in small and mid-sized webshops contributes to favourable development of price/mix effect
  • Run-rategrowth 13.6% at end of March, with even stronger growth in April
• As expected, webshops opting for multi-vendorship impacted overall volume growth PostNL, especially in January and February
• Mixed growth pattern continued
• • Low growth rates in some, more mature, e-commerce segments, e.g. fashion
• Yield management (incl. improved pricing)

• Operational efficiency improved
• • Better hit rate
  • Drop duplication slightly down
• Higher costs:
• • Adjustments in process and higher staff absence related to Covid-19
  • Increased cost level due to new depots opened in 2019
  • Impact new labour regulation
• Improved result at both Spring and Logistics

Parcels: normalised EBIT development

(in € million)

Normalised EBIT Q1 2019 Revenue - volume Revenue - price/mix Organic costs Volume-dependent costs Other costs

Other results

Normalised EBIT Q1 2020

New labour regulation

Normalised EBIT Q1 2020 like-for-like

23

6

6

-5

-5

-5

6

26

2

28

Parcels Benelux

2.8% volume growth in Q1 2020

Yield measures supported by positive mix effects

CLA increase, indexation subcontractors and impact of new labour regulation

Combination of efficiency (hit rate, drop duplication) and other costs (partly related to new depots that went into operation in 2019)

Improving performance Spring and Logistics

Impact of new labour regulation

10

Q1 2020

Q1 2019

Mail in the Netherlands: integration Sandd ahead of plan and already accretive to normalised EBIT

Revenue	Normalised EBIT	Net contribution of Sandd	Addressed mail
		in normalised EBIT	volume decline

€395m €5m €5m 12.8%*

€392m

€16m

Revenue development

• Volume declined by 12.8%*
• • Substitution in line with expectations
  • Impact of elections in 2019 (1.8%)
  • Covid-19crisis: more greetings cards, but lower direct mail activity; additional volume decline almost 2% (partly phasing)
• Reduced international mail activity
• Consolidation of Sandd
• Moderate price increases and favourable mix effects
• Discontinuation of non-core activities

Result

• Sandd Integration ahead of plan in delivering anticipated benefits and synergies
• Impact Covid-19
• Cost savings initiatives progressed according to plan
• • Adjusting sorting and delivery process
  • Streamlining of staff
  • Centralisation of locations

11	* Adjusted volume decline (one working day less): 12.3%; starting point for volume decline: 2019 pro forma volume including Sandd volumes

Mail in the Netherlands: normalised EBIT development

(in € million)

Normalised EBIT Q1 2019

Revenue - volume

Revenue - price/mix

Organic costs

Volume-dependent costs

Other costs

Other results

Normalised EBIT Q1 2020

16

Mail activities

13	Volume decline 12.8%*, revenue includes €37m related to Sandd
consolidation
10	Moderate pricing policy supported by favourable development
price/mix effects
-5	Mainly CLA-related

		-9	Including volume-dependent costs related to the addition of
		volumes from Sandd
			Cost savings and other efficiency related results, costs related to
-13		Sandd (mainly one-off integration costs of €17m), restructuring
			charges, and other
-7			Impact of sale of PCS and Spotta, discontinuation of unaddressed
			activities) and result other services (f.e. export)
	5

12	* Starting point for volume decline: 2019 pro forma volume including Sandd volumes

Q1 2020 Results

Key takeaways

Business review

Financial review & Outlook

Q&A

13

Generation of free cash flow in Q1 2020

€13m improvement compared to Q1 2019

(in € million)				Q1 2019					Q1 2020	Comment
Normalised EBIT											15
				30
Reversal normalisations
	-8			-17
Depreciation & amortisation		35					48	Increase mainly related to Sandd
Capex
			-10			-8
Lease payments		-13				-18	Temporary effect, mainly related to Sandd
Change in working capital						0					-6		Continuing the strong Q4 2019
								performance and some phasing effects
Change in pensions and provisions		-1		-17							Mainly restructuring cash-out (Sandd)
Interest paid and income tax	-45						-1							No tax payments in Q1 2020
Other														Includes €7m proceeds sale of non-core activities
4						9
Free cash flow	-8										5		Improvement €13m

14

Pension developments

Coverage ratio (12-month average) pension fund at 108.3% as at 31 March 2020

(in € million)	2019	YE 2020	Q1 2020
Provision for pension liabilities	283		259
Pension expense (P&L)	119	~145	36
Regular pension cash	111	~120	29
contribution

• Provision for pension liabilities down mainly due to increase in interest rates during Q1 2020
• Pension expense up ~€25m in 2020 as indicated before, visible in normalised EBIT (€(6)m in Q1 2020)
• Impact on equity mitigated by positive effect in OCI (€23m in Q1 2020, of which €14m phasing)
• Expected impact on cash contributions is limited
• Actual coverage ratio 98.9%; taking into account resilience of pension fund, no top-up payment obligation is expected

Positive outcome discussion pension fund

• Expected cash-out for final payment transitional plans: ~€300m, to be paid by the end of 2020

• Agreement-in-principle:
• • Final payment transitional plans capped at €290m
  • Substantial part of the payment will be deferred and paid in 5 instalments in period 2021-2025
  • Regular contributions related to transitional plans expected to be €5m less
  • Entitlements of employees will not be affected

Agreement-in-principle with pension fund results in lower cash-out for transitional plans

15

Consolidated statement of financial position

Adjusted net debt position end of Q1 2020: €699m

(in € million)	28 Mar 2020		28 Mar 2020
Intangible fixed assets	359	Consolidated equity		(10)
Property, plant and equipment	402	Non-controlling interests		3
Right-of-use assets	239	Total equity		(7)
Other non-current assets	88	Pension liabilities		259
Other current assets	434	Long-term debt		695
Cash	485	Long-term lease liabilities		191
Assets classified as held for sale	68	Other non-current liabilities		31
		Short-term lease liabilities		59
		Other current liabilities		762
		Liabilities related to assets classified as held for sale	85
Total assets	2,076	Total equity & liabilities		2,076

• Adjusted net debt is €699m; gross debt (Eurobonds, other debt/receivables), pension liabilities (adjusted for tax impact), lease liabilities (on-balance sheet and off-balance sheet commitments, adjusted for tax impact) and cash position
• Total comprehensive income Q1 2020: €10m (Q1 2019: €(1)m)

16

Committed to achieve outlook for 2020

Uncertainties regarding duration and severity of Covid-19 pandemic may impact ability to achieve this result

(in € million)

Normalised EBIT	2019	2020 like-for-like		2020 indication
Parcels	120	125 - 145	new labour regulation ~(10)	115 - 135
Mail in the Netherlands	52	50 - 70		50 - 70
PostNL Other	(37)	~(40)	pension expense ~(25), no impact pension cash-out	~(65)
PostNL	135	145 - 165	impact new labour regulation and pensions ~(35)	110 - 130
Free cash flow*
PostNL	107	(15) - 15	final payment transitional plans around (300)**, to be	(315) - (285)**
			paid in 2020

• Cash flow before dividend, acquisitions, redemption bonds/other financing activities; after payment of leases
• Agreement-in-principlewith pension fund: maximum final payment of €290m; substantial part of the final payment will be deferred and paid in 5 instalments in 2021-2025

Outlook for 2020

17

Attention points for Q2 2020

Normalised EBIT FY 2020 to be largely achieved in the second half of year

% of normalised EBIT not evenly spread over the quarters

indicative only

2019 2020

Q1	Q2	Q3	Q4
(in € million)		2019	Q2 2019	2020 outlook
Normalised EBIT	135	39	110	- 130
Free cash flow*	107	7	(315)	- (285)

• Lower (normalised) EBIT
• Phasing working capital and other cash flow drivers
• Gradual increase in capex/lease payments

Covid-19 impact

• Strong volume decline bulk mail
• Additional volume growth Parcels
• Better price/mix
• Additional costs due to measures (partly structural) and staff absence
• International mail, parcels, Spring: structural lower volumes anticipated

Other elements in Q2 2020

• Higher pension expense ~(6)m
• New labour regulation ~(2)m
• Small positive contribution from Sandd integration
• Continued mail volume decline and in delay cost savings
• Discontinuation of non-core activities compared with Q2 2019

Additional

• Negative contribution of Sandd in Q4 2019 (restructuring related charges and other business effects)
• Too early to be very specific about exact phasing Q3 and Q4

18

Key takeaways Q1 2020

• Fully operational and able to continue primary business activities
• Health and safety for our people, partners, clients and consumers comes first
• Comprehensive business continuity plan in place since early March
• Integration of Sandd ahead of plan in delivering the anticipated benefits and synergies, already accretive this quarter
• Start new depot in Belgium
• Strong liquidity position with €485m in cash at end of Q1
• Going forward, we see both challenges and opportunities, as e-commerce has picked up, resulting in strong volume growth in Parcels since mid-March, and consumer mail is becoming more popular
• Building on solid Q1 performance, we continue to be committed to achieve our FY 2020 outlook
• Uncertainties regarding duration and severity of Covid-19 pandemic may impact ability to achieving this result

Solid Q1 performance and improved free cash flow

19

Q1 2020 Results

Key takeaways Business review Financial review & Outlook

Q&A

20

Q1 2020 Results

Appendix

• Results by segment Q1 2020
• Breakdown pension cash contribution and expenses

21

Results by segment Q1 2020

(in € million)RevenueNormalised EBIT

	Q1 2019	Q1 2020	Q1 2019	Q1 2020
Parcels	398	414	23	26
Mail in the Netherlands	392	395	16	5
PostNL Other	21	26	(9)	(15)
Intercompany	(127)	(133)
PostNL	684	701	30	15

22

Breakdown pension cash contribution and expenses

(in € million)	Q1 2019		Q1 2020
	Expenses	Cash	Expenses	Cash
Business segments	24	26	24	29
IFRS difference	6		12
PostNL	30	26	36	29
Interest	1		0
Total	31		36

23