PSTNY - PostNL N.V. (TNTFF) Q2 2023 Earnings Call Transcript

2023-08-07 15:37:10 ET

PostNL N.V. (TNTFF)

Q2 2023 Earnings Call Transcript

August 07, 2023 05:00 AM ET

Company Participants

Jochem van de Laarschot - Director, Communications and Investor Relations

Herna Verhagen - Chief Executive Officer

Pim Berendsen - Chief Financial Officer

Conference Call Participants

Marco Limite - Barclays

Marc Zwartsenburg - ING

Nikolas Mauder - Kepler Cheuvreux

Henk Slotboom - The IDEA

Frank Claassen - Degroof Petercam

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the PostNL Half Year 2023 Analyst 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 Mr. Jochem van de Laarschot, Director, Communications and Investor Relations, PostNL. Please go ahead, sir.

Jochem van de Laarschot

Thank you, operator, and good morning, everyone. Thank you for joining us today. We know some of you are enjoying their well-deserved holidays. So we appreciate the effort to be with us this morning. With me here in the room, Herna Verhagen, our CEO; Pim Berendsen, our CFO. As usual, we will start with our slides, which you can find on the website and on your screen if you are logged into our webcast, and the presentation will be followed by Q&A, as usual.

Herna, over to you.

Herna Verhagen

Thanks, Jochem. And let's start with the key takeaways. We had a satisfying second quarter and, of course, also second quarter results, especially because of the better-than-expected volume development at Parcels, which came in at 3.3%, that is growth in our domestic business, but predominantly with our international customers.

We took lots of measures to mitigate, of course, the inflation, which are supported with good operational leverage and efficiency improvements that helped, of course, the normalized EBIT development in this quarter as well. The reported volumes within Mail in the Netherlands were minus 9%, which is mainly substitution not very different from what it was the last quarters and also the last years.

We improved our carbon efficiency 10% if you compare to full year 2022, and we made good progress in our reduction plan of the 200 to 300 full time equivalents. Good progress means that more of the people who need to leave did find a job within PostNL elsewhere or left the organization. And that, of course, led to the fact that we have -- that we need less restructuring costs. Previously, we mentioned EUR20 million. This year, we expect it to be around EUR10 million, of which EUR5 million is in the second quarter, and a small part of the cost savings is expected to be achieved as early as in 2023.

The interim dividend is set at EUR0.06 per share. Because of a good first quarter and a good second quarter, we also raised our outlook for normalized EBIT. It's between EUR100 million to EUR130 million, and before it was EUR70 million to EUR100 million. Free cash flow remained unchanged between EUR10 million to EUR40 million.

We're happy, of course, that we took measures at an early stage to deal with the changing macro environment. This, along with the dedicated efforts of lots of our employees, is reflected in this quarter's performance. If you look into a little bit more detail on the numbers of the second quarter, you'll find that our normalized EBIT came in at EUR18 million, which is better than expected, but also above the second quarter of 2022, which was EUR10 million. We saw a revenue growth and, of course, also growth in normalized EBIT. Free cash flow also a little bit better than we had in the second quarter of 2022 and the normalized comprehensive income, a little bit less than we had in the second quarter of 2022.

In my view, important, of course, and Pim will come to that as well, the normalized EBIT includes our organic cost increases in the second quarter so far, EUR30 billion in the second quarter, but for the full half year, EUR92 million. And our full year assumption is EUR185 million, and we had a positive impact from pensions in the second quarter, which is visible in PostNL Other.

A better-than-expected quarter above last year and, of course, underpinning the rate in our outlook. We remain, of course, to focus on our strategy, which is being the leading logistics and postal service provider into and from the Benelux. For Parcels, it remains to be managed our business for sustainable growth, which we do, for example, with many of our efficiency programs.

For Mail, it is managed for value, and I will dive into our Mail business at this moment in time. Managed for value means on the one hand, cost savings. On the other hand, price increases and manage, of course, the volume decline. And keeping to be very supportive to our Digital Next program in which we try to digitize our business end-to-end, and that supports business performance and increases customer satisfaction.

Strategic objectives are, of course, helping our customers growing their business, securing a sustainable Mail market, but also, for example, increasing our net promoter scores to be -- to maintain to be the best in the market. In social value, which is an important strategic objective, we made progress when it comes to attracting employees within Parcels, parcel drivers. And of course, we have full attention for solving the amount of vacancies we still have within our Mail business.

And environment already discussed. We're taking lots of initiatives to improve year-over-year our environmental footprint and environmental impact. And part of our initiatives are, of course, in electrification and using HVO, which is biodiesel for our trucks, which has a 90% less CO2 emission.

If you talk about delivering on our strategy, which is on Slide number 5. You find, of course, here a few of the items I already mentioned. A few others, I think, which are important to mention, if we think about Parcels, we saw a strong potential -- we see a strong potential for e-commerce growth, which is unchanged and which is based on the fundamental growth drivers, which are, of course, the digital -- the amount of consumers that use digital to order their things and the economic situation.

What we do see is that the fundamental growth drivers are still in place. That's the reason why we do think that Parcels will continue to grow. And fortunately, growth came in earlier than we expected. We secure our position in a very dynamic and competitive market, and that's what we do by, on the one hand, making sure that we score high on our net promoter scores and are by far the best in the market when it comes to NPS. And on the other hand, also make sure that at the back, we do have a cost-efficient operation and organization to be able to create efficiencies.

Within Mail in the Netherlands, we have an unchanged drive to get our cost savings right and to fill in our moderate pricing policies. What we do see in the second quarter, we see an unfavorable shift in mix. So less 24 hours mail with a higher margin and more 48 hour mail. We see significant cost increases, which we're not able to fully absorb via cost increases -- sorry, via cost decreases and price increases. And we see that achieving our cost savings becomes more challenging, which partly has to do with the fact that we're already shrinking our organization for the last 10 years and partly have to do with the fact that we have quite some cost-saving programs running at this moment in time, also affecting the delivery quality.

In Digital Next, we keep doing -- we keep having a good performance. Like for example, in the amount of accounts, 8.4 million consumer accounts at this moment in time, and it's constantly growing. We see it in the growth of the amount of parcel lockers. But also, for example, AI, which used for recruiting our people. On AI, as I already mentioned that we had a 10% further carbon efficiency compared to the full year of 2022, and I already mentioned that way we do that is via electrification and also by driving our trucks on biodiesel, which is much more CO2 efficient.

Let me talk a little bit through the business of Parcels and Mail and then I'll step into Slide number 6, and I'll start with Parcels. Here, we see that return of growth came earlier than expected, together with, of course, the measures we took to mitigate inflation, and they are successfully paying off in a good normalized EBIT, also better, of course, compared with the second quarter of 2022.

And as already said, the biggest part of this volume is international volume, smaller part is domestic volume. But I think the good news in this is that, also the domestic volume is growing again. Market share is slightly down in a market which is still characterized by temporary overcapacity. The revenue reflects our volume growth and overall, of course, price mix effect. We see positive pricing, which, of course, put in place partly because of all the inflations we saw partly -- we did see room, of course, to improve our prices. And partly, it's a less favorable mix, which is mainly because of the growth of international customers.

Not only the international customers from spring, but the whole of CBS is showing good progress and shows a positive trend, and that's what we see already from Q4 2022. Within logistics, we saw that revenue came down slightly. Organic costs are higher than expected, which is mostly, of course, labor, and that is due to inflationary pressures. But we took lots of adaptive measures. And you could think in that sense of optimizing our routes, creating higher utilization rates, tight control of our indirect cost, also resulting -- all resulting in improving our operational leverage and therefore, also efficiency.

A few more words on Mail in the Netherlands. Mail in the Netherlands shows continued volume decline. We expect to end the year within the bandwidth of 8% to 10%. Volume decline in the second quarter is 9%. And if you take out non-COVID -- sorry, if you take out COVID, and it's 8.4%. Revenue came down, because of that, volume declined to EUR323 million in the second quarter. It came from EUR350 million. And also our normalized EBIT came down from EUR13 million last year second quarter to EUR2 million this year.

Here, we see, of course, increased labor cost, which follows the CLA of PostNL, but also the CLAs which we have for postal deliveries and Saturday workers. We see a continued higher sick leave in this tight labor market, partly because of the fact that we have vacancies and people are asked to do more work. And we see additional cost savings are, of course, achieved through our programs. But we also did see, and that's what I already mentioned, that the amount of programs together makes it sometimes more difficult to reach the level of cost savings we expect.

More challenging in the sense, we have an unfavorable mix effect, which comes from a shift to lower service proposition and less single items versus bulk mail, but also the proportion of international mail plays a role over here together with, of course, a cost increase because of inflation, but also because of the fact that we have higher sick leave and have more difficulty to get to the level of cost saving we want to get to.

As already said on my first slide, and then I'll move to Slide number 8. All in all, we're very pleased to announce a second consecutive quarter with results above expectations. We've implemented adaptive measure to mitigate the inflationary pressure and are successfully paying off -- these are successfully paying off. Volumes at Parcels returned to growth earlier than expected, which is positive domestically as well as internationally. And at the end -- and at the same time, developments in mail are becoming more challenging, which, as we expected, which means that we have a performance below last year.

We have made steady progress in our plans to reduce 200 to 300 full time equivalents, which part of the expected annual savings will be achieved in 2023, but also leads to significantly lower restructuring and related costs because of the fact that people find internal jobs and find external jobs and therefore, leave the company themselves.

And as a result of all these developments, taking into account, of course, the growth within Parcels, the fact that they have a better normalized EBIT, the challenges we see within Mail in the Netherlands and the positive -- we are positive about the normalized EBIT of PostNL and raised the outlook to EUR100 million to EUR130 million. We continue to deliver on our strategy, which is crucial for us. And it's probably a sentence which we've used over the last 12 quarters, but we maintain to use it that the environment we operate in remains to be volatile and therefore uncertain.

Much more to tell about the development of PostNL and the financial performance and therefore, I hand over to Pim.

Pim Berendsen

Thank you very much, Herna. And let's look into a bit more detail per segment, and let's start at Slide 10, where you'll find the Parcels bridge. There, you see quite clearly a better result from the Parcel segment than the same quarter last year, EUR3 million better at EUR17 million, whilst the expectation was originally that the result for the quarter would be lower than last year.

So all-in-all, good performance within Parcels segment, driven by volume growth that came in earlier than expected, both in domestic and international volumes with particularly strong growth in volumes from our international customers. You can also see that back in the price mix effects that ended up with EUR7 million positive. But at EUR7 million is split in EUR18 million price effects and EUR11 million mix effect down in relation to the composition of the volume that we carry.

Already looking forward to Q3 and Q4, we expect roughly the same composition of the price/mix effects that you can see in second quarter of this year. EUR17 million of organic cost increases. Herna already talked about EUR92 million of organic cost increases halfway through the year. Full year expectation for the entire group is still around about EUR180 million to EUR185 million for 2023.

Other costs, you see EUR5 million here in the positive, which is driven by the operational efficiency improvements and measures that we've taken to adjust ourselves to a lower growth than originally anticipated. Clearly, that measures, together with earlier growth results in a better performance in the Parcel segment than originally expected.

Other results. Spring is doing well, better results than last year. Logistics Solutions is doing slightly less than last year. And some other internal departments suffer from higher organic cost increases, which, all in all, together causes the minus four in other results that you see here in the bottom end of the graph.

Let's move over to Mail. There you see a deterioration of the result from EUR13 million of last year towards EUR2 million normalized EBIT in this quarter, a decrease of EUR9 million, obviously a result of roughly 9% volume decline together with negative mix effects. Herna talked about the product mix development where we see more 48-hour mail rather than 24-hour mail that comes back with a different contribution. And obviously, that is part of what you see back here in the bridge.

Organic cost increases in the Mail side, EUR9 million volume-dependent costs for our cost 6, which is EUR10 million driven by the cost saving plans that were realized, partly offset by lower bilaterals and higher costs related to higher sick leave rates.

If we then look at the cash flow on Slide 12. Cash flow better than last year, EUR9 million better, yet still negative EUR34 million. Let's look at the key components of it. Obviously, it's better, to a large extent driven by the higher normalized EBIT. Some of the other buckets are comparable to last year. So depreciation, EUR44 million in comparison to EUR39 million. CapEx at EUR26 million. Change in working capital, minus EUR61 million. That does include quite an amount of phasing, and that's why I still expect us to end up in the second part of the year with a release of working capital significantly improving the full year number in comparison to the EUR61 million this year, halfway through the year.

Full year CapEx is still somewhere between, I would say, around about EUR140 million mark in comparison to the EUR150 million that we indicated before. Then if we talk about the segment profit and the cash flow. It's logical to look at the balance sheet that gives the development of the adjusted net debt. Net debt increased to EUR569 million, an increase of roughly EUR100 million to a large extent, driven by the dividends that were paid in May. Clearly, we keep on managing our cash flow and balance sheet and net debt position carefully. In the beginning of the year we were already comfortable that we were able to keep the adjusted net debt over EBITDA below 2 times. Clearly, with the increase in outlook, we'll certainly be able to do that. I would expect us to be -- to end up roughly in around about 1.7 times EBITDA as net debt.

Given that projection and given the current performance, and in line with our dividend policy, we set the dividend -- the interim dividend at one-third of the dividend over 2022 rounded to the whole cent to EUR0.06 per share to be paid by the end of August.

Then let's look at the outlook for 2023. Clearly, the encouraging performance of the first half year made this outlook increase. We've raised our outlook for the normalized EBIT to EUR100 million to EUR130 million, quite a step-up compared to our earlier outlook of EUR70 million to EUR100 million. This is driven by a better-than-expected first half of the year, with Parcel volumes returning to growth earlier than expected and together with good operational leverage and efficiency.

However, the Mail results are doing less well and are expected to be slightly lower than originally estimated. Clearly, the measures that were taken to reduce 200 to 300 FTEs will be benefiting us into 2024. But part of the benefits already come in, in 2023, a small part that it, but we're able to do that reorganization with significantly less restructuring cash-out than originally anticipated. Our current estimation is that restructuring-related costs will be EUR10 million at most, whilst the initial assessment was around EUR20 million.

For 2023, we now expect better performance at Parcels, a low single-digit Parcel growth rather than a small low single-digit decline that we originally anticipated. Growth that is visible in domestic and international volumes, but particularly strong with international customers, which will continue to result in a less favorable mix for Q3 and Q4, as already indicated at the Parcel segment bridge.

While not so clearly visible yet in the first half of the year, we do expect a more challenging second half of the year for mail with results coming in below earlier assumption. And that is on the back of volume decline in the range of 8% to 10%, but with a less favorable product mix than previously assumed, which puts pressure on the margin.

Next to that, we see continued high sickness rates and a still very tight labor market. We keep on focusing on realizing the benefit from our cost savings plan, but cost saving plans at mail bus, but achieving those in the second half of the year is becoming more challenging. As said, the implementation of our plants to reduce the 200 to 300 FTEs are doing better than originally planned, leading to lower restructuring costs and already partly savings visible in 2023.

That clearly justifies the step-up in our outlook of normalized EBIT to EUR100 million and EUR130 million. Normalized comprehensive income will follow the step-up in normalized EBIT, and we've changed the outlook there from EUR40 million to EUR70 million to EUR65 million to EUR95 million. The free cash flow outlook is unchanged on the EUR10 million to EUR40 million that was originally there. The reason why is that part of the step-up in normalized EBIT is related to noncash elements, including the lower additions to the restructuring provision. And there's a potential partly offset by tax rating effects on the tax paid line in relation to tax assets from the sale on the international activities. Overall, encouraging performance. We're cautiously optimistic, but still in an operating environment that remains volatile and uncertain in the short term.

On Slide 15, you see the quarterly split of normalized EBIT. It's a slide that we repeat every quarter, basically. There you clearly see that the fourth quarter of this year will be a big contribution to the normalized EBIT. But at the same time, which I think is also very important, Q2, Q3 and Q4 will show results that are better than last year.

Then on Slide 16. [indiscernible] Better than expected, above last year, clearly, the things that are in our control, we manage well. All the measures that we've taken, both on the operational efficiency side, as well as on the restructuring side, are paying off. And that leads to better than expected results. And clearly, that caused us to increase the outlook.

Within Mail, we see more challenging developments and a result that came in below last year, which was expected. But we do expect the end of the year to turn Mail into a lower return than originally planned. That will be made up as such by better performance from Parcels that causes the increase in the outlook from EUR100 million to EUR130 million. And as I said today, we will have announced the interim dividend at EUR0.06 per share.

Encouraging results for the first half year, still some challenging circumstances, and therefore, our optimism remains cautious at this stage.

Thank you very much so far. Jochem, I'll hand it back to you.

Jochem van de Laarschot

Thank you, Pim. Operator, can you open the floor for Q&A, please?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will now take the first question from the line of Paul [Kirchhoff] (ph) from Bank of America. Please go ahead.

Unidentified Participant

Hi. Good morning. Paul [indiscernible] from Bank of America. Two questions from our side, please. On Parcels, could you talk about volume trends through the quarter and what the exit rates were? And also related, can you talk about your expectations for parcel volumes in the third quarter? And then second question is on Mail in Netherlands. You highlight that delivery quality is below required levels and has full management attention. Could you give us a bit more color around that statement and what kind of actions can be expected related to that? Thank you.

Pim Berendsen

Yes. Shall I take the first one, Herna. So on the volume trends within the quarter, I would say, similar developments for the months in the quarter, slightly up more in May, also driven by the payout of holiday allowances in the Netherlands. But all in all, all months showed good performance.

Expectation for the second part of the year is a continuation of the growth. An indicator that I can share is that, let's say, on absolute terms, we would expect kind of the same volume in the third quarter than in the second quarter of this year, whilst Q3 numbers 2022 were down in comparison to Q2. So that should lead to an even higher growth rate to be reported in the third quarter of this year. And obviously, also, we anticipated higher growth in the fourth quarter of the year. So that's also why we've changed the indication of growth for the full year from a minus single digit to a low single-digit growth number.

Herna Verhagen

And on Mail in the Netherlands. Full attention, what does that mean? It means that we have dedicated teams working on filling the vacancies because that's the main reason behind the quality we currently have. And then you could think of, for example, offering employees of PostNL as of day 1 an untemporary labor contract so that they are working for us fixed -- on fixed terms.

Secondly, we offer people bonuses when they start working with PostNL. We offer our employee bonuses when they bring in new mail deliverers. We're starting up new pools in which we can find people to work for us, like for example, people who are retired and still very healthy, but also migrants that came into the Netherlands, but also housewives in certain areas in the Netherlands. So there's lots of dedicated attention to it. Still, 1,000 vacancies with our mail deliverers. That's much less than last year, but nevertheless, still 1,000 to go.

And in the current very scarce and therefore, also small labor market we have in the Netherlands, it's difficult to fill all those vacancies. So it's not an overnight solution we can offer at this moment in time.

Unidentified Participant

Understood. Thank you.

Operator

Thank you. We will now take the next question from the line of Marco Limite from Barclays. Please go ahead.

Marco Limite

Hi, good morning. Thanks for taking my question. First question is on the parcel volume growth expectation for the second half. I appreciate the explanation you just gave. But I mean, if I do -- if I've done the math right, the new guidance for the full year implies second half at 7%, 8% volume growth. So if you could just clarify a little bit more what are your assumptions behind this growth other than comps being a bit easier?

Second question is on elections in Netherlands. And just wondering if you have an estimate of what would be the tailwind to profitability from elections and if elections are included in your guidance?

And third question, if I may, is about pricing for 2024 in Mail. I mean, in 2022, you were now able to increase prices, in 2023 it was just a mid-single-digit price increase below inflation. Just wondering what could be the expectations for 2024 mail price increase? Thank you.

Pim Berendsen

Okay. Another question on the growth assumptions. Clearly, let's say, if we go back to the drivers that define the volume growth in our e-commerce part of the business, it's GDP growth, online penetration and market share.

On market share, we do not see a deviation from expectation. So it's the combination of GDP growth and online penetration that calls us back and brings us back in growth territory earlier than expected.

And from the growth perspective, we see a bit more coming from international clients than from domestic clients whilst domestic clients also contribute to the growth. So you see slightly more positive client expectations still with a level of uncertainty that causes the bandwidth of growth expectations to be pretty broad, and we need to make sure that we're flexible enough to adjust along the way within that bandwidth. Your calculation is roughly right.

For the second part of the year, we would assume around about a 7% growth. And for the third quarter, as I said, let's say, roughly the same volume in Q3 as in Q2, that's EUR86 million that Herna explained, while Q3 2022 was EUR3 million less than Q2 2022. So that already indicates an increase of the growth from 3% to around about 7%. And that's also what we expect to continue with.

Herna Verhagen

The elections, we did take that into account when we came up with the outlook. Elections are planned for November 22. I think important to take -- to keep in mind as well is that, that is for us already peak season, which means that we have to organize the people around it to get all the work done and that comes with some extra cost.

When it comes to the pricing of Mail in the Netherlands for 2024, without, of course, giving lots of guidance on what we will do because that's a process we will run in the third quarter, which we have to get approval from the regulator in the Netherlands before we can publish it. Of course, you do know that there's a regulation in place, which limits us to a certain extent in what we can do when it comes to increases in mail. And what we have to balance always is, of course, the increase we take into account and the level of substitution that is connected to it because increasing more than we normally do does mean that you create some extra substitution, and we also try to find the careful balance between the two. That's what we will do in the next coming -- in the quarter ahead of us, which will go then to our regulator [indiscernible] for approval, and then we'll publish it by the end of this year.

Marco Limite

Thank you.

Operator

Thank you. We will now take the next question from the line of Mark Zwartsenburg from ING.

Please go ahead.

Marc Zwartsenburg

Thank you for taking my question. Good morning, everybody. Two questions from my side. First of all, on the Mail ML business. You mentioned some delivery quality issues due to the vacancies and the scarcity of labor. I think we discussed this also in the pre-earnings a bit. Could this still lead to potentially a fine from the ACM? Is that still possible? So that's my first question.

And the other one is also in Mail. You see that the Mail volume decline is a bit higher. Also, the mix is putting the pressure on margins as well as the cost and maybe efficiencies from sickness. Does it also mean that you would take more cost-cutting measures to offset the margin pressure from these elements? Because we're running a bit behind already on the cost savings, should we expect additional measures in the Mail division? Those are my questions. Thank you.

Herna Verhagen

I think when it comes to the fine -- and hi, Marc. It is, of course, positive -- it is, of course, possible because the postal law says that we need to get to the 95% of delivery quality. The normal process is, of course, that we -- at a certain point in time, we send in our quality figures and we sent in the reasons why we think we should be excused or why the quality number should be mitigated because certain things happens.

Like for example, scarcity in the labor market, which is not specific to PostNL or/and special weather conditions, et cetera, et cetera. Better than in the end is discussed. And finally, of course, ACM will come to their view on the quality delivery of a certain year. That's the process we are in.

So could that lead to a fine? The simple answer is yes, it could lead to a fine. Now that we do have arguments in place why it is what it is, but we're not yet at a phase that there is a final verdict or a final outcome of the ACM process or procedure.

Then Mail in the Netherlands, extra cost-cutting measures. Of course, we planned for around EUR40 million of cost cuttings in this year, so 2023. What we do see at this moment in time to come to the EUR40 million of cost savings, and we will not fully get that by the end of the year. We started quite some saving programs. And the combination of all those saving programs sometimes lead in certain areas of the Netherlands that we're not able to do the full cost saving as expected.

So adding more at this moment in time, in our view, will not help to get to the right levels. So that unfortunately cannot be the answer at this moment in time. And that's, of course, what we're working on, but that's not the answer at this moment in time.

Marc Zwartsenburg

Maybe as a follow-up on that EUR40 million. Can you share with us what currently the target is? What is achievable? Is that EUR30 million? And will then be the remainder that's still out there left for next year or?

Herna Verhagen

Yes, it's a valid question to be expected. But we didn't give guidance on what we then expect to do for this year except of the fact that we, of course, did say that we expect a little bit less cost savings than we originally planned.

Pim Berendsen

And that EUR10 million haircut from EUR40 million is more than a little bit off. So we're not thinking that number of the EUR40 million. Halfway through the year mark, we've realized roughly EUR20 million of cost savings. And the second part will be more difficult. But only a couple of million deviation is what we expect and not the level of the EUR10 million that you just talked about. Nevertheless, the combination of -- the combination -- go ahead.

Marc Zwartsenburg

Yes, if I understand it correctly, is it also quite difficult to do actually more even maybe next year because of the restraints you have already with the sickness and the scarce labor market, I can imagine.

Herna Verhagen

No, we're specifically talking about 2023. And specifically, in this year, we had quite a big amount of programs we had to start due to cost savings for this year, which partly, of course, also have their work through effect next year. So it's too early to give a view on next year. And of course, like every year, we're working hard at this moment in time to get our programs ready for the year 2024.

Pim Berendsen

And if I may add, Marc, I think, let's say, from 2022 to 2023, you actually see a step-up in cost savings. So the delta and expectations is not driven by worse cost saving contribution than last year. It's driven by, obviously, the fact that organic cost increases are significantly higher and price increases are not contributing to half of the volume decline.

Now price increases offset the organic costs and only that. So that is obviously the reason why there is a step down in results from Mail in comparison to 2022, whilst there is a step-up in cost savings from 2022 to 2023.

Marc Zwartsenburg

Okay. I thought last year, it was EUR47 million or so, but maybe that's...

Herna Verhagen

No, no, no. It was around EUR20 million.

Marc Zwartsenburg

Okay. Around EUR20 million. Well, thank you for answering my question. And congrats on the strong quarter.

Herna Verhagen

Thank you.

Operator

Thank you. We will now take the next question from the line of Nikolas Mauder from Kepler Cheuvreux. Please go ahead.

Nikolas Mauder

Hi, good morning. I would like to come back to two of the guidance bridges. First, the divisional one, which was not repeated in today's material. But compared to the original version that we saw with Q4 results, you indicated negative impacts in both Parcels and Mail for Parcels and Mail. Is it safe to assume with the EUR20 million underlying uplift, excluding the revision of the provision there, that Parcels is now seen up year-on-year and EBIT contribution, whereas Mail is seen more down. That's the first question.

Secondly, I would like to get back to the quarterly EBIT bridge for the full year guidance. The indication of EBIT in the third quarter, even if it's only an indication, has not materially changed despite the raised outlook. Why is that the case? And then finally, housekeeping. Can you indicate the distribution of the provisions you have booked in the second quarter? Where were they booked? And where will the remaining EUR5 million be booked? Thank you.

Pim Berendsen

Okay. Thank you, Nikolas. The guiding principles. So yes, if you go back in time and look at the outlook that we presented in the beginning of the year, you saw a bigger step-down in Parcels, an even bigger step-down in Mail, a EUR20 million assumed restructuring cash-out and then offset by EUR75 million of benefits from the pension and deal that was reached.

If we were to make the bridge again, the performance of Parcels would from a negative turn into a positive, which is also in our perspective, very positive news. So we won't see a deterioration of profit coming from Parcels, but an increase in profit in comparison to last year.

At the same time, the negative in Mail will become slightly more negative and the combination will obviously turn into the step-up of the profits that we talked about that we indicated in the improved outlook. The other element, obviously, that around EUR20 million will be at most EUR10 million. And those elements together will -- are giving you the new kind of segment bridge, so to say.

So if we talk the quarterly development, I think in the second quarter, the EUR5 million restructuring cash-out was accounted for partially within the Parcel segment and partially in PostNL Other for the restructuring component that does relate to the head-office staff of the various programs that we're doing.

But for the second part of the year, the remainder of max 5 timing is a bit depending on when final agreements are reached on -- with the works councils. But I would say that the vast majority will probably be in Q3 with a little bit in Q4 as well. I don't have a specific split right now for you.

Nikolas Mauder

Okay. Thank you. And then just finally, why the indication for the third quarter EBIT didn't change despite the rate of outlook?

Pim Berendsen

Yes. A big part of the change was also related to the first half of the year. And given the size of the third quarter, where we are also in kind of in the summer season, where July and August will be slow months anyway, it will not be that material within the quarter and the big step-up as a consequence of what is still to come will come as of September moving towards October, November, December. So the majority then clearly will be in the fourth quarter.

Nikolas Mauder

Okay. Many thanks.

Operator

Thank you. [Operator Instructions] And the next question comes from the line of Henk Slotboom from The Idea. Please go ahead.

Henk Slotboom

Good morning. Thanks for taking my question. I've got two. One is related to the mix of Parcels. I'm a bit puzzled, when I look at the presentation of the first quarter, I see that spring is growing by 10.5%. Domestic Parcels are decreasing by 1.7%, and it results in a positive price mix effects. And in the third quarter, I see a delta in spring, which is, in absolute terms, EUR28 million, actually a delta in domestic parcels, which is EUR21 million. And I see all of a sudden a negative mix effect. Could you explain to me why that is? What are the main drivers behind that? Is it new business at lower margins? Or how should I see it?

The second question is on the development at Parcels and especially on the labor front. On the one hand, I see that in Parcels, the labor costs are roughly the same as in the first quarter, whereas the first quarter contained this one-off payment of, what was it, 1.5%. Is it purely because of the holiday allowance or so that the second quarter is roughly on par with the first quarter? I see also that the number of FTEs has risen quite significantly by 450 roughly people. Why is it that you don't have the recruitment problem in parcels where else it is difficult to find the mailman. Those were my questions. Thank you.

Pim Berendsen

Thank you, Henk. You were very quick and throwing a different type of numbers, let's say, on your first question. I think there, we need to deviate was split Spring's performance and cross-border volume that hits the e-commerce network. Those are not one and the same.

So spring makes money at very many different trade lanes, and only some of them get volume in the Netherlands. So if we talk about volume development in the segment, Parcels, we talk about the combination of domestic volume being Dutch episodes that sell to Dutch customers through PostNL's mail or parcel network. And at the same time, cross-border clients that sell to Dutch customers and hit the domestic Parcels network.

The combination of those two has led to the 3% growth in the second quarter, whilst the combination of those two in the fourth quarter led to a 6.5% decline. So within the quarter, we see a very big contribution to the growth of international clients. And at the same time, we do also see domestic clients growing again.

The composition of the cross-border volume is quite different than the composition of domestic volume. By and large, it is smaller packets, smaller DM-3, so less sized products. And as a consequence, the average price per item is lower than the average price on domestic clients. That leads to the negative price/mix effect that offsets the positive price effect of EUR18 million in this quarter. That's the way you should look at it.

Henk Slotboom

Okay. Well, that’s at least clear. Thank you.

Herna Verhagen

When it comes to the labor parcels, what you do see correctly that we hired more people at Parcels. That means that we have more people now employed with PostNL than we had in the second quarter. So on the program, which we started summer last year, that we want to hire more people on our own payroll that's running successfully, and that means that we indeed are able to get them on our payroll. That also explains a little bit of the cost we saw in Q1 and the cost we saw in Q2.

In fact, why do we have difficulties in finding enough mail delivers and do not have the same difficulty at Parcels? I think two answers to that, Henk. The first one is also within Mail. Last year, we had around 2,000 vacancies. This year, we have around 1,000 vacancies. So also there, we do see that we're able to find lots of people to keep those people, but we're still not yet at a level which is in our new normal level within the workforce of Mail in the Netherlands. That takes time. It's a scarce labor market. We're fishing in the same labor markets as many others. So it will take time.

When it comes to Parcels, it's -- for many, it's an attractive proposition. It's a full-time job. It's driving in a van. It's a very independent job. So in most hours of today, you're on your own and can decide, of course, between certain limits. How you do your work? It's a job in which you have lots of contact with people with many of our people do like. So in that sense, it's an attractive job to have.

What we see over there is that we are able to recruit lots of people, and it's important to make sure that the people we recruit have a careful training, understand what the job is truly like, and that enables us to maintain them and keep them in the job. So it's a little bit the difference between the two jobs. That makes the difference while on the one hand, in Parcels, we have no vacancies or easily able to fill the vacancies. And within Mail in the Netherlands, we still have vacancies, but take into account as well the improvement we made compared to last year.

Henk Slotboom

Okay. Very clear. Thank you very much.

Operator

Thank you. We will have time for one more question from the line of Frank Claassen from Degroof Petercam. Please go ahead.

Frank Claassen

Yes. Good morning, all. A question on your outlook, your guidance. You more or less raised guidance by EUR30 million, the range. How much of this EUR30 million has been roughly been achieved in the first half? And how much do you still think you can achieve of this step-up we need to achieve in the second half? Could you roughly indicate?

And then secondly, you started the year with a guidance for margins for 2024 with 200 basis points at least improvements. Of course, now we -- some of these margin improvement is coming earlier than expected. So how should we read that guidance for 2024?

Pim Berendsen

All right. Thank you for your questions, Frank. First one, let's say, the step-up in the EUR30 million, EUR10 million of that is obviously because of lower restructuring cash-out. I've given the phasing on that element. We obviously have seen half year results that are better. So a big part of the step-up is already accounted for in the first half of the year with a part of the step-up to come predominantly in the Parcel segment whilst that will be offset by lower performance in Mail. So that is kind of what I can give you.

So Parcels will continue to improve. Also in the second part of the year, Mail will go back a bit. That will contribute to the step-up of the outlook in the second part of the year, and a big part of it is already in half year realization there.

On the basis point step-up, I think there's a couple of components. So the 200 basis points for PostNL at large, I think the lower restructuring cash-out and the slight contribution to the cost savings that we realized earlier partially in 2023, all other things being equal already shift 50 basis points towards 2023. And then next to that, we see better operational performance in Parcels and growth earlier. So I would say that, let's say, half of that step-up will roughly be realized already in 2023 and then another step to come from 2023 to 2024.

Frank Claassen

Okay. That’s helpful. Thank you very much.

Operator

I would like to hand back over to Jochem van de Laarschot for final remarks.

Jochem van de Laarschot

Thank you, operator, and thank you all for your participation today in this call. As usual, you can find all Q2 materials on our website. And if you have any remaining questions, please contact the IR team at PostNL. Thanks very much, and goodbye.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.

For further details see:

PostNL N.V. (TNTFF) Q2 2023 Earnings Call Transcript