PostNL (PNLA; NR/ BBB Neg) Notes on the co

Low margin (industry dynamic), volatile performance (company specific on high operating leverage), low cash to BS (hefty dividend pay-outs), net leverage in target on cash pile. Fundamentally think Tobacco; mail (combustibles) vs. parcel (non-combustibles) netting out to leave guidance ~flat this year. FV on 7Y to follow, please (!) note the "asides" at the bottom - some key risks there.

• "Leading e-commerce & postal service provider in the Benelux" - i.e. Belgium, Netherlands & Luxembourg. It had 8.9m postNL online accounts, 5,795 retail locations, 903 automated parcel lockers & 37 sorting centres.
• 2 segments are Parcels (60% revenue, 5.6% EBITDA margin) & Mail in Netherlands (35%, 5.3%). The former is the growth segment but disappointed last yr with flat volumes. It's expected to accelerate to 7-10% this year (+2-4% in domestic & double digit from international customers). It says local online penetration lags USA/UK & is a tailwind for parcel growth.
• Its been blunt in Mail outlook noting the 35% decline in volumes from 2014-23 (total) and adding the >€500m cost savings in that period was/is not enough to offset volumes. Heading forward it will require changes in operating model to keep up with falls, including adapting to declining demand in next-day/24hr delivery; it will shift to within 2-days on standard mail and over time within 3 days (dependent on changes passing parliament though). Guidance is currently for a -7-9% volume decline this year & continues last yrs -7.4% fall.

• Financials: revenue at €3.2b (+1%yoy), EBITDA €260m/+18%yoy at 8.2% margin, EBIT €92m/+10%yoy at a 2.9% margin, FCF at €52m (vs. €90m last yr).
• Guidance is for adj. EBIT of €80-110m (~unch yoy) , €40-70m net income (unch) & net of the ~€110m of expected capex, FCF at 0-€40m (down -€30myoy).
• Dividend pay-out target is 70-90% of net income- last yr totalled 9c/share or €42m/80% payout - this is sizeable. It does allow investors to elect for it in shares instead of cash.
• BS has €980m gross debt that is 3.75x levered & net of cash, net debt is €462m/1.7x levered. It is inside its net <2x target.

Some asides (turns into key risks)

• Guidance is backloaded on seasonality. 1Q EBIT as e.g. was -€9m, historically bulk of EBIT (not headline revenue) has come in 4Q.
• It suffered €178m cost drag in FY23, 70% of it on labour costs & not helped by Dutch minimum wage hikes. Wage negotiations on its mail collective labour agreement (CLA) were resolved for bulk 15k mail deliverers (vs. 34k total staff). That agreement gave 19% rise over 2 years (total) ending in Dec 2025. It still has a 'PostNL CLA' on which negotiations should have started this month. Labour market is still tight; has 300 vacancies in Mail.
• Expected to give more updates on changing mail operating structure (from next day delivery obligation - see above) in 2Q earnings. This adds some vol/event risk & downside is on political change not happening (says it has support) or taking longer than expected (pushes back cost savings). No changes/savings assumed from this in FY24 guidance (earliest '25 it said).
• It faced some headlines that the Public Prosecutor in Belgium had recommend a €24.4m fine for dealings with subcontractors - in 1Q it said increase of €9m in provisions (to €46m) was not related to those headlines. Not much colour outside that.
• We assume no net supply with expected €300m deal. This will cover refi on the Nov 24 which after tender last year has €353m outstanding.