PSTNY - PostNL N.V. (PSTNY) Q3 2023 Earnings Call Transcript
2023-11-06 08:50:21 ET
PostNL N.V. (PSTNY)
Q3 2023 Earnings Conference Call
November 6, 2023 5:00 a.m. ET
Company Participants
Inge Laudy - Manager of Investor Relations
Herna Verhagen - Chief Executive Officer
Pim Berendsen - Chief Financial Officer
Conference Call Participants
David Kerstens - Jefferies
Marco Limite - Barclays
Henk Slotboom - The IDEA
Marc Zwartsenburg - ING
Presentation
Operator
Good morning, ladies and gentlemen. Welcome to the PostNL Q3 2023 Results Call. At this moment, all participants are in a listen-only mode. And after the presentation, there will be an opportunity to ask questions.
Now I would like to hand over the conference call to Ms. Inge Laudy, Manager, Investor Relations. Please go ahead, madam.
Inge Laudy
Thank you. Well, good morning, everyone, and thank you for joining us today in our Q3 '23 analysts' call. With me here in the room are [technical difficulty] and Pim Berendsen, our CFO.
As usual, we will start with our presentation, which you can find on the Web site and on your screen when you are logged into our webcast. After the presentation, we will open up for Q&A.
Pim, over to you.
Pim Berendsen
Yes, thank you, Inge, and good morning to all. Thanks for joining us. Let's start by looking at the key takeaways of this third quarter on slide three. The results came in above those of last year, but below our own expectations. It was a tough quarter for us. Volumes at Parcels did still grow, albeit at a lower rate than we anticipated. We saw growth of 1.6% predominantly driven by strong growth from international customers, while domestic volumes were slightly below last year's levels, in line with slow-down in consumer spending. In other words, we do really see this as a market development. We have not seen any material changes in the competitive landscape or in our market share.
Overall, this resulted, and this is the mix in international and domestic volumes, in an unfavorable shift in mix at Parcels that also had an impact on margin. At Mail in the Netherlands, as expected, performance was lower than last year as a result of continued volume decline, but also due to increase in organic costs. And next to those elements, within Mail in the Netherlands, we also saw a less favorable product mix. In other words, more expensive products were substituted by cheaper products. Of course, we've continued our strong focus on yield and other measures to mitigate the impact of cost inflation and these unfavorable mix effects.
This contributed to our results also in this quarter, but could not fully offset the cost increases. We have worked hard to prepare ourselves for the peak season, and are ready to operate at max capacity, both at Parcels and Mail, so we can serve the people that count on us at the best possible quality. But we also know that, particularly this year, ramp-up will be very steep. I will come back to that a little later. At the same time, we need to recognize that economic uncertainty and particularly the consumer spending remains in a volatile market environment. Taking all this into, we now expect the full-year normalized EBIT to come in at the low end of the guided range of €100 million to €130 million.
Next to the press release on the announcement of our Q3 numbers, you also have seen a press release announcing our intention to buy back €160 million of the 1.000% Eurobond, due 2024 is outstanding. And obviously, we do this to optimize our balance sheet and financial position.
If we then move over to slide four for the financials, you see the revenue in the quarter at €722 million, which is 2% than last year. You see normalized EBIT at minus €11 million, also an improvement in comparison to last year when we reported a loss of €20 million. Year-to-date, we report a positive normalized EBIT of €14 million, and this performance includes a high organic cost increase of €38 million in the quarter, adding up to €130 million year-to-date. And, obviously, this also includes the positive impact from the pension agreement [visible] (ph) in our segment PostNL Other of €19 million. Overall, better results than last year, but obviously with business performance lower than expected.
Before going into Q3 a bit deeper, I would like to repeat our strategy and highlight some non-financial developments that are noteworthy in this quarter. Our aim is to continue to be your favorite deliverer with an unchanged strategy to be the leading logistics and postal service provider in, to, and from the Benelux. And you know that is built on the three pillars, Parcels, Mail, and our Digital Next program. We have continued to make progress in the areas of digitalization and ESG. We now have 8.6 million consumers, an increase of almost a million compared to last year. We also have continued the rollout of our automated parcel lockers, and we currently have 900 APLs up and running.
And finally, we also have made steady progress in our environmental goals, where we are delivering on our SBTi target, and have further improved our carbon efficiency with an 11% improvement in efficiency year-to-date. Then let's look at the market environment in which we are operating. We continue to see long-term growth potential in e-commerce driven, obviously, by the drivers that we discussed before, and consumer spending and on the back of GDP growth as well as online penetration. However, in the shorter-term, the macroeconomic developments continue to be volatile and uncertain.
And on the slide, you see consumer spending of households on products not yet really showing the growth we were looking for. Consumers are cautious to spend money on goods and products, and we also see a shift from more expensive products to cheaper products shipped from domestic clients to Asian clients, which obviously also relate to the mix effect that we've talked about. Obviously, the uncertain environment results in an increasing volatile volume [projection] (ph), both at our customers and on ourselves. Nevertheless, we truly believe that we are still very well-positioned to capture that future growth. Let's look into the segments one by one, and let's start with Parcels first. At Parcels, revenues came in at €535 million, an increase of roughly 6% compared to the same quarter last year, that is obviously as a result of the volume growth of 1.6% and price increases that we've put through.
So, we do see growth, but slower growth than expected predominantly due to the development of domestic volumes. Those were slightly below last year following the slowdown in consumer spending. The volumes from international customers continue to show very strong growth, and that means a shift in our customer end product mix becoming less favorable. The impact of the mix effect is fully offsetting the price increases of €12 million in the quarter, resulting in an overall flat price mix effect. And also keep in mind that the unfavorable mix development will continue to play a role going forward, at least of the remainder of this year.
Our cross-border activities continue the positive trend we have been seeing for several quarters with revenues at spring up, most strongly in Asia. Logistics solutions was €1 million lower than last year, and normalized EBIT for the segment came in at €1 million compared to minus €1 million last year. Driven by volume growth, higher results at Spring and operational efficiency measures. While on the other hand, organic costs continue to be significantly higher than last year. And we also incurred additional cost to be ready for the steep ramp-up towards our peak season relating or resulting into a largely fixed-cost operating environment in the fourth quarter of this year.
Then look to the bridge of the Parcels segment. You see basically the numbers that relate to the elements we've just discussed. So, a €10 million improvement on revenue driven by volume, a zero price mix, in which €12 million of price increases are fully offset by less favorable product mix. Then an €18 million higher organic costs and volume-dependent cost and other costs that are impacted by operational efficiencies. And then Other results, an improvement from spring, an improvement in Belgium, and slightly lower results at logistics.
Then let's move over to the Mail in the Netherlands segment. Their revenue came in at close to €300 million, €299 million to be precise, a decline compared with the €3 million to €8 million last year, obviously driven by the volume decline of 8.7% in the quarter. If we exclude the COVID-19 impact of last year, volumes were down 6.9%. The price mix effect was positive, reflecting our moderate price policy, but it was partly offset by the changed composition of the volume due to -- for example, shifts from 24-hour mail towards lower service levels.
Normalized EBIT came in at minus €14 million compared to minus €1 million last year. Next to volume decline, we had significantly higher organic costs and higher costs related to sick leave and staff shortages, resulting in a challenging operating environment that does impact our quality and cost levels, as just discussed. Additional cost savings, however, partly offset the impact on these cost increases, and by now we've already saved more cost than in the entire year of 2022.
The detailed segment bridge on slide 10 for Mail indicates the €17 million volume effect in revenues, a positive price mix of which €13 million is price increases and €4 million is negative mix effects, a €12 million additional organic cost increase, then the volume dependent costs and other costs that do relate to the cost savings of €10 million within the quarter, but also there are the additional costs related to higher sick leave rates and staff shortages. And other results are small elements, including international Mail performance.
Then on slide 11, you'll find the cash flow for the quarter. Free cash flow was minus €26 million in the quarter compared to minus €49 million in the same quarter last year, so roughly €23 million improvement there, driven by better normalized EBIT and higher depreciation and amortization. And with €26 million, we spend less cash on CapEx than in the third quarter of last year.
For the full year, we pencil in roughly €125 million to €130 million of CapEx. Year-to-date is roughly €90 million. A less negative change in working capital, which throughout the year includes phasing effects, year-to-date we're at minus 47, whilst we would expect it to improve towards Q4, towards, I would say, roughly the minus €25 million -- €20 million to €25 million within for the full year. This brings us to the next slide, where you'll find our balance sheet and the development of the adjusted net debt position.
Before looking at those, I would like to say that we've announced our intention to buy back €160 million of the 1% Euro bond due in November 2024. That has an outstanding amount of €400 million. What we'll do is basically use the cash position of the balance sheet to buy back the bonds that are on the long-term debt side of the balance sheet. That will have a slightly positive effect, because you'll buy back the bonds below nominal. Of course, you lose the interest income on the cash that you would have had, but also don't have to pay the interest expense on the bond anymore. So, that in combination will lead to a slightly positive transaction.
Financially, it will reduce our capital employed and as such will then improve our return on invested capital. Likewise, we would expect it to be positive from a credit rating point of view, and we still have and remain to have the flexibility to determine throughout 2024, how we want to handle the remaining part of the bonds that indeed are expiring at November 2024.
Back to the numbers, as per the end of Q3, our adjusted net debt position was €604 million, which is an increase of roughly €130 million compared to the end of last year, and is obviously largely driven by dividend paid in May and August on top of the development of free cash flow that we just discussed. Obviously, we continue to manage our cash flow, balance sheet, and net debt position carefully with the aim and the expectation to end up in 2023 at an adjusted net debt over EBITDA below 2.
Then to the outlook, taking into account our Q3 performance, we expect the full-year normalized EBIT to come in at the low end of the guided range that we have communicated in August 7 and the same goes for the other financial metrics. We continue to operate in challenging environment with ongoing uncertainties around macroeconomic developments. Market volatility lends clear visibility on the short-term development of the ecommerce mark for only the consumer spending part of that, impacting the accuracy of all projections both for our customers and for overserves. On the slides, you see the underlying assumptions for 2023.
As you know, organic cost increases at €185 million for the year are extremely high. Historically, organic cost increases were roughly around about the €40 million to €60 million per year mark. Going forward, we expect through wage inflation in the Netherlands. And combined with scarcity in the labor market, this will bring addition pressure on labor. This together with a continued unfavorable shift in mix both at Parcels and Mail in the Netherlands is expecting to weigh on our results while we continue our strong focus on yield and tight cost control.
But, it clearly becomes more challenging to mitigate the full impact of these developments I just mentioned. And as usual, we provide you with a full outlook for '24 at full year 2023 publication in February. As you know, our fourth quarter results are crucial for our full-year business performance. We are looking forward to a very busy peak season, particularly between Black Friday, Sinterklaas but also towards Christmas.
To make this all happen and to be able to deliver the best possible quality, we are prepared for and already in execution of a very steep ramp-up plan from Q3 to Q4. This really does ask a lot from us operationally. Already in Q3, we have all taken all possible measures to be ready to operate at max capacity both at Mail and Parcel side, which resulted in some additional cost in Q3, but also means that we are limited in balancing volumes and capacity in fourth quarter. Capacity and thus related costs are fix so to say. Obviously, not in the run, but they are relatively fix in fourth quarter.
Then the final sheet with our closing remarks, all in all, we are looking at results that are better than Q3 2023 too and also our outlook for remaining of the year is still better than the outlook that was in place at the beginning of the year. But, our figures are also below for our expectations. Taking this into account, we expect now a normalized EBIT that will come in at the low end of the guided range of €100 million to €130 million.
We remain to operate in highly volatile ecommerce market with limited visibility in the short term. At the same time, we are fully prepared for a steep ramp-up towards peak season. And all in all, we continue to have full confidence in our strategy and are obtaining the long-term growth potential of the ecommerce market.
For now, thank you for your attention and welcome any questions during the Q&A that is next.
Inge Laudy
Okay. Thank you, Pim. Then, I would now like to open the call for Q&A. Operator, can you please open the lines?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question comes from the line of David Kerstens from Jefferies. Please go ahead. Your line is open.
David Kerstens
Thank you. Good morning, Pim. Maybe a question on your outlook Parcels volume growth in the fourth quarter, you're still expecting low single-digit for the year. What do you see for the fourth quarter in October so far? And also, in this current environment, is normal e-commerce growth or normal Parcel volume growth for 2024 still expected to be in the high single-digit range?
And then my next question is can you give us an update on the cost increases you are flagging for 2024 in terms of labor costs. I think you minimum wage increased. I think you earlier also indicated potentially the unions asking for a 5% to 14% pay raise. And how will that impact our earlier margin guidance? I think you said at least 200 basis points margin improvement for 2024 based on the partial restructuring, some of that now coming into the fourth quarter. What do you see in terms of potential for margin improvement, so going into next year? And I think you've said also [100] (ph) basis points in Mail, and 300 basis points in Parcels, if I recall correctly.
Pim Berendsen
Thank you, David, for your questions. On the first point, volume forecast, we still do expect for the full-year volumes of Parcels of a positive single-digit number. We see a continuation of the high growth, which is double-digit, in the international side. And we do expect also on the domestic side volume growth in the fourth quarter. If you look at the Q3, and the September month was not a great month in comparison to the other two of the month. And coming into October, we saw in comparison to last year, in the [weeklies] (ph) so far the growth that we need to get to, to get to the full-year number we just talked about.
So, and the last weeks, we do see the domestic volume growth back. Obviously, that needs to ramp up to roughly more, somewhere around about €1.8 million to €2 million mark in the busiest days of the period. But first signs in October are looking in the direction that we have estimated, it would -- on 2024, I'm not going to be too precise because, as said, there's a lot of moving parts that currently impact 2024 margin expectations, predominantly also the related product mix developments that are currently very difficult, yet to determine how they will impact 2024.
On the organic cost increases, what has been new since August 7, is that the CPB increased its wage inflation expectations in the macroeconomic [foreign language], I'm not quite sure how to say that in English, in their latest update. And next to that environment, obviously, as part of the election process, an additional increase in minimum has been agreed. The good element that those two elements together, you're already talking at, roughly speaking, €20 million more labor-related cost increases. So, all other things being equal, that's in any event the pressure on labor, and going to cost us extra in '24. It's too early to indicate volume development. We do still expect volume growth as a function of consumer spending growth, and online penetration to continue, and more details. I'm afraid you have to wait on those until we finish the fourth quarter.
David Kerstens
Great, thank you very much.
Operator
Thank you. We will now move on to our next question. Our next question comes from the line of Marco Limite from Barclays. Please go ahead, your line is open.
Marco Limite
Hi, good morning. Thanks for taking my question. The first question I have is about the PostNL Sandd deal. Over the summer, there were some headlines about courts ruling against it. Can you just remind us what all this is about really, and what are the next steps? I remember that the competition market authority didn't approve the deal at the beginning, then you went to the Parliament, you got approval. So, what can happen next? And my second question is on price increases in letters. You announced recently an 8% price increase, which is currently higher compared to last year 5%, and the previous year 0%. Can you remind us how the price increase formula works for the letters, please? Thank you.
Herna Verhagen
To your first question about the PostNL Sandd deal, the PostNL Sandd deal is done, when we received approval from the Ministry of Economic Affairs, and that remains to be our legal standpoint, that it is a deal done under the approval. So, for us, the outcome of the court doesn't mean anything at this moment in time. The next step is that we are able to appeal. That is probably what we will do. And then, it will take another year to two years before we expect an outcome on that appeal. As you do know, that after the acquisition we quickly integrated Sandd into our operations, and that means that nothing of Sandd is left, and that's almost four years ago. So, for us, it's an outcome of a legal process which is much more a discussion besides or behind the real things happening at this moment in time.
Marco Limite
Can I just [flap] (ph) to your answer. So, what specifically the court is ruling against?
Herna Verhagen
What you probably do remember is when we wanted to acquire Sandd, in 2019, the first step we had to take was to receive approval from the Competition Authority, ACM. They did not give approval at that moment in time. What we did do immediately is to put an appeal into that ACM outcome or ACM decision. And, of course, that appeal waited till all the other legal procedures were ended, that of course happened a year ago, year-and-a-half ago. Then this appeal came into place. So, that's the real content of the legal procedure. It is our appeal against the decision ACM four year ago, that they refused to give us approval on the acquisition.
Marco Limite
Okay. And there could be a scenario where, clearly, the merger is on. But there could be a scenario where you have to pay a fine or some sort of financial penalty?
Herna Verhagen
No. So, whatever the outcome will be, it will never have any consequence for the past. And as I already said, to be honest, before we expect an outcome on this procedure, it's one to two years from now, then already six years behind the acquisition and full integration of Sandd. So, it's a little bit water under the bridge, but it's an important legal process.
Marco Limite
Okay, clear.
Operator
Thank you.
Herna Verhagen
We still have one question to go.
Pim Berendsen
There was one related to the price increase. Yes, you referred to the 8% increases of the single items. Of course, we do increase prices. We continue to do that also on the business Mail side where, of course, there are regulatory elements, but let's say the room you have for those price increases is enough to do what we believe we should do from a price elasticity point of view, because quite clearly if you increase the prices too much you will lose and accelerate the substitution to other channels quicker. And that's the careful balance that we always try to strike.
And given the fact that the inflation rates are higher, inflation plus, roughly, half of volume decline also leads to higher price increases that or obviously putting through to the market, and to [Mail] (ph), it offsets a big part of organic cost increases. But, obviously, in the past, and it has been a debate that we had before, price increases in Mail also help to contribute to offset half of volume decline and organic cost increases. And this year, price increases are only enough to offset organic cost increases, and not half of volume anymore. So, that is the way we look at price increases.
Marco Limite
Okay. So, can you just quickly confirm if -- I mean it's all about you decision by how much you increase enterprise , of course, within a certain limit, and therefore, it's just your decision this year has increased by 8% versus last year.
Pim Berendsen
That's on single item. On single items that's based on the process where ACM determines whether or not the increase is within the bandwidth of the room -- the tariff room that we have to improve. So there, it is a different process than for business Mail.
Marco Limite
Yes, you're talking about [FTSO] (ph) products. Okay, thank you.
Operator
Our next question comes from the line of Henk Slotboom from The IDEA. Please go ahead. Your line is open.
Henk Slotboom
Good morning. Thanks for taking my questions. I have got a few. Shall we take them one by one? Or, do you want them all at the same time?
Pim Berendsen
Whatever you prefer, Henk.
Henk Slotboom
No, let's take them one by one because then it gets a lot clearer. First of all, Pim, I am a bit confused about what you said about the labor cost increase for next year. If I do the math correctly and I take a look at the Mail deliverers alone, I believe you said in the past that the labor cost of the mail deliverers are anywhere between €180 million - €190 million. We have a change in the minimum wage system. As of 1st of January, there is a standard work in 36 -- sorry, 38 hours as Mail that will be changed to 36 hours. That gives you an hourly wage increase of around 5% - 5.5%. On top of that, there is an indexation of 3.75%. And if I do the math correctly and I see where the Mail deliverers are nowadays in terms of the hourly wage, then this alone is already adding up quite steeply towards the €20 million you just referred to. And then, the CLA ends on the 31st of December. The CLA for PostNL as a whole -- the big PostNL CLA ends on the 31st of March of next year. And, what am I missing in here? The €20 million in my view is only part of the labor cost increase you are going to face next year.
Pim Berendsen
Yes, absolutely. But, the question was related to the development. And, the development since the last time we talked in August. And obviously, in August we did know that we'll go for 38 to 36 hours. We did know already roughly the normal indexation that was going to happen in January. So, I only talked about elements that were new -- new to us since August 7th. And those elements alone already impacted development from '23 to '24 with another €20 million increase in labor related cost.
Henk Slotboom
Okay. So, it's on top of that --
Pim Berendsen
On top of our earlier expectations, yes.
Henk Slotboom
Okay.
Pim Berendsen
So, if you were to look at the total labor cost developments from '22 to '23 and '23 to '24, we do expect an increase in labor costs that is significantly higher than the increase from '22 to '23.
Henk Slotboom
Yes, okay. Clear. Then, on pricing, you already alluded about the -- your results increases we have seen. As part of it is non-U.S. hours -- well, either mix consignments for example and of course the business Parcels and that sort of things. If I look at the USO and I look at the Parcels segment, then I see that the Parcel -- standard Parcels remain unchanged in price. And that the letter box parcels increased by anywhere between 1.2% and 2.4%. And I have seen that the [NYA] (ph) index is 4% for next year. What can we expect in terms of pricing for quality parcels, you said the large clients, the SMEs those kinds of things, is it going to be anywhere near the NYA index? And is that sufficient to offset the higher labor cost which undoubtedly will occur there as well?
Pim Berendsen
Well, let's say, of course, we are trying to offset as much of the organic increases through price increases and yield management measures. But clearly, we need to take account of the fact that on the ecommerce side there are very competitive markets. So, we differentiate our approach in different produce and market segments, trying to get back as much of the NYA indexation through price increases. You will remember that this year we'll have a gap between organic cost increases and price increases of €30 million. We will try to improve on that from '23 to '24. And, we are currently in the middle of renegotiation of terms with our clients heading into 2024.
Henk Slotboom
Okay. With the risk of stealing the whole meeting, I have got two questions left. One is on -- you already indicate the tariff increases alone will not be enough offset the damage in margins. And in your comment on the second quarter results, there was a lot of talk about cost savings and especially in Mail cost savings getting more and more complicated. What else can you do to basically support the margins in 2024?
Pim Berendsen
That's a very broad question. Look on the Mail side, we have stepped up our cost savings from last year. Already now reaching the same number of cost savings that we realized in 2022. And, we are making good progress towards roughly speaking that €40 million of cost savings that we talked about before for 2023, that's also going to be the objective more or less for next year. And then, it's all about the combination of volume development, mix effects, and our ability to offset as much as possible our organic cost increases with price increases. On the Parcel side, of course, there margins are also a function of the level of investments required and the phasing thereof is a function of market expectations on volume growth.
So, there are more parts that impact the margins there. But, what we clearly wanted to indicate also by using the examples leading up to the €20 million is that, of course, we already have used a lot of the room to maneuver in terms of measures. And this less consumer spending and higher labor-related cost, yes, does actually put significantly more pressure on 2024 results than originally expected. That is the case and we'll see how far we can get through to get to the margin improvement we are longer term looking for, but I am afraid, you have to wait a bit longer for me to be more precise on how much the different measures will actually contribute.
Henk Slotboom
Okay.
Herna Verhagen
And as we did say last time, Henk, on the cost savings in Mail Netherlands, we cannot save such big amounts of cost overnight. So, those plans are already well underway and well prepared to bring in the necessary cost savings for the year 2024. So, that's, of course, our yearly cycle which we already discussed many times. But that's not different for the year 2024.
Henk Slotboom
Okay. And then my final question, Herna and Pim, last time we met face to face, we were talking about SME segment in Parcels and initiatives like -- launched by BOLT I have to say nowadays to lure away clients to basically have Parcels sent via them. In your annual report of 2022, you announced some initiatives regarding SMEs and regarding platforms you have like MyParcel et cetera, what are the developments there? You already said we are beginning to see we are not losing market share any more. And, what kind of initiatives have you taken? And, where do you see the progression there?
Pim Berendsen
Again, a pretty broad question, so, I am going to try to break it down in a few elements. Indeed, we don't see a material deviation from market share expectations. But that's not to say that bigger clients are not growing faster than SME segment. So, that is one of the elements that impact product mix or client mix if you want. And in that SME segment, you do indeed see that, that volume goes through platforms but also MyParcel SoundCloud and the platforms are gaining in terms of market segmentation, market share, and that also leads to a slightly negative price mix consequences. At the same time, we're very happy with the progress we're making on the development of our own platform that is now a multi-carrier approach. It is growing. Likewise, the SME strategy that we've defined, we're implementing in these contract renewals that we're currently engaging on. So, good progress has been made on those but too early to share numbers on them.
Henk Slotboom
Okay. May I squeeze in a very brief one. You mentioned this -- how do you call it, the sickness rate. Where's the sickness rate at this point in time? Is it higher or is it lower than the figure you reported last year over the full year?
Herna Verhagen
It's more or less the same as last year but it's higher than what we see on market average. And that's more or less always what we aim for. So that's the reason why we say higher than expected because we do have lots of actions in place to improve our sickness rate. And we see some slight positives but it's not paying off yet as we would like it to be. And that's more what we put forward. And that also means that in the way, of course, we've looked at the full year numbers and the Q3 numbers, we took into account a certain sickness rate and we're a bit above that percentage. And with the amount of people we have, that does have an impact. That's the reason why you find it in the press release and also in the summary we gave around the presentation.
Henk Slotboom
Okay. Well, I've taken enough of your time. Thank you very much. Much appreciated and success.
Pim Berendsen
Thank you.
Herna Verhagen
Thank you.
Operator
Thank you. [Operator Instructions] We will move on to our next question. Our next question comes from the line of Marc Zwartsenburg from ING. Please go ahead. Your line is open.
Marc Zwartsenburg
Yes, good morning, everybody. A couple of questions left. First of all, Pim, can you help me a bit in clarifying what you mentioned on the partial volume trend? You mentioned July, August still quite okay, but September was worse. But if I look at the trend, it seems that it was the opposite. July and August were basically flat year-on-year, as you mentioned, and that September must have been, say, around mid-single-digit growth. Can you help me a bit with that, what the real trend was?
Pim Berendsen
The real trend, let's say, was July, August slightly better than last year on the domestic side, and in September it was worse than last year on the domestic volume side, but obviously international continued to grow the double-digit growth in all three months of the quarter.
Marc Zwartsenburg
So, but if we include international, because that's basically the number we're looking at.
Pim Berendsen
Yes.
Marc Zwartsenburg
What was then the pandemic was say, flat, and up, say, mid-single-digit. Is that correct?
Pim Berendsen
No, it was slightly up, slightly up, two times up, and one time slightly below.
Marc Zwartsenburg
Okay. I thought you said that July and August were flat. But that is still, then, it's different from what we heard at Q2, that we were trending a bit in line with Q2's volumes, which was implying a bit, I say, 7% growth, but now you're telling that you have feasibility of October.
Pim Berendsen
No, what I said is on August, of course, in August, we were looking at Q2 numbers and the developments throughout the first parts of July, and there were kind of still indicating the same trend line that we talked about, and that's why the September result was a disappointment, because there it was a little bit of a break of that trend line, and that's what we now have addressed in this Q3 report.
And on the question that we've got earlier, I indicated that from that point onwards, we now see in October an improvement on the domestic volume development, coming back to single-digit, sometimes higher, a single-digit growth in the weeks that I've seen, where there is still a continuation of the international growth, indicating that the step-up that we need to see so far is there. But I also said that, obviously, it still needs to ramp up further to get to the max gap numbers of somewhere around about 1.8 million to 2 million around Black Friday and Sinterklaas.
Marc Zwartsenburg
Yes, okay. Okay, clear. And then maybe on the margin, I think David also already asked about it, your margin improvement that you expected for Parcels, but also for Mail, for parcels, it was trimmed a bit by the different phasing in of these cost savings, but nevertheless, it was still suggesting, I think, more than 200 basis points. But here you talk about what happened since August in terms of wage inflation, the 20 million you mentioned, and the fact of the price mixer element. Is it fair to assume that we, despite the cost savings, that we might be looking more at the flat year-on-year development in terms of margin for Parcels? Is that because I haven't heard you reiterating that target for next year? Can you maybe comment on that, what you now currently foresee in terms of margins? Because you provided some guidance on the margin for Mail and Parcels, can you maybe update us on that one?
Pim Berendsen
Well, the step-up in margin will be more complicated than we've discussed earlier. So the cost-saving initiatives do contribute. They are in full implementation, contributing a little bit in 2023 with lower restructuring cash-out than originally assumed. So that element of step-up of margin, that if you isolate it from the rest, is still the same as what we've talked about. What is new is that there's, from 7 August onwards, even more pressure on the labor side of things that do impact the development from 2023 to 2024 on the margin level. To what extent and how much precise, I cannot say, but it clearly is a deterioration of the margin expectations for 2024.
Marc Zwartsenburg
Clear. And then a final one on the USO and the delivery quality, can you perhaps also update us on that, because due to sickness and the tight labor market you were behind, but also the previous years, what's the latest status on that in terms of potentially a fine, or is it improving as well? How should we look at that, can you update us there?
Herna Verhagen
Now when you see the Q3 numbers, you see that it's not improving. I think it's still difficult for us. There is a tight labor market, I would say almost in the whole of the Netherlands, except of the Northern provinces, there we do not see that tightness as we see it in the other parts of the Netherlands. It means that we have quite some vacancies, so we're still around 1,000 vacancies. And that also means that you sometimes are not able to fill in all the routes with people, and that causes the delay. So we're working hard to fill in those vacancies. There are more, I think more than 20 actions ongoing to get people from the market to start as Mail deliverer. But the shortage we see is not an easy to solve shortage. So that's the status when it comes to the vacancies we have, and in relation to that the quality of delivery, and there's no further information or no new information on possible fines or no fines, Marc.
Marc Zwartsenburg
Okay. That's very clear. Thank you very much. Those were my questions.
Herna Verhagen
Thank you.
Pim Berendsen
Thank you.
Operator
Thank you. We have time for one more last question. And our last question comes from the line of Marco Limite from Barclays. Please go ahead. Your line is open.
Marco Limite
Hi, thanks for taking my follow-up question. I have a question. I have a question actually on your September volume trends. A few retailers exposed to the fashion vertical have clearly said that September was a weak month because of the hot weather. So, just wondering whether your volume trends in September, especially for domestic volumes, you have seen weakness across verticals or you also saw the majority of the weakness was coming from the fashion verticals? Thank you.
Pim Berendsen
Definitely also in fashion, but not only limited to fashion, but a big component is indeed not a great month from the entire fashion industry, so to speak. But also on some other categories, there was less consumer spend in the market than expected.
Marco Limite
Cool. And if I can squeeze in another question, so, you have got both the CLAs coming up for renewal during 2024. Can you just clarify when we should expect in terms of timing for those CLAs to be concluded? Thank you.
Herna Verhagen
Somewhere in the first half year. So, the first CLA we will negotiate is the CLA for Mail deliverers. And of course, a little bit depending on the length of that negotiation process that will be finalized. And then after that, we'll start with the CLA for the PostNL CLA. So, if I would roughly guess it at this moment in time, it will take us at least the first half year to finalize those two CLAs, maybe a little bit longer.
Marco Limite
Okay. So, when you talk about the additional €20 million of wage cost inflation, your reasoning is basically based on the latest update from the government, I guess, on wage inflation. We are assuming that those CLAs will be more expensive. Is that basically the reasoning or --
Pim Berendsen
Well, let's be more precise. What I've said is, let's say, in relation to what we knew in August, there's at least two elements new on the labor side of things. One is a higher expected on average wage increase in the Netherlands based on the macroeconomic exploration of the Central Bureau [indiscernible]. And the other element is an agreement in Dutch Parliament to increase minimum wage with another 1.2% by July of 2024. Those two elements together, direct, and indirect effects that relate to those measures, lead to an increase in labor related costs already of €20 million. That is what we've said. Obviously, expectation is that if the expectation for the entirety of the Netherlands increases, that will somehow not pass us by. And that's why we're making this point.
Herna Verhagen
But we did not indicate anything around the increases of our CLA because, therefore, we do need negotiations with the unions and we do not want to give guidance up front on that, as you understand.
Marco Limite
Okay. Thank you very much.
Herna Verhagen
Thank you.
Operator
Thank you. There are no further questions at this time, so I'll hand the call back to Inge for closing remarks.
Inge Laudy
Okay. Thank you all then for participating today. If you have any questions left, please reach out to us. You know where you can find us. For now, have a nice day and speak to you next time. Bye.
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PostNL N.V. (PSTNY) Q3 2023 Earnings Call Transcript