PostNL N.V.

Quarterly Report • Nov 4, 2019

Underlying cash operating income up €2 million to €25 million

Financial highlights Q3 2019

• Revenue at €636 million (Q3 2018: €638 million)
• Underlying cash operating income at €25 million (Q3 2018: €23 million)
• Profit from continuing operations at €13 million (Q3 2018: €19 million)
• Net cash from/(used in) operating and investing activities improved to €54 million (Q3 2018: €(42) million)
• E-commerce-related revenue further increased to 53% YTD

Operational highlights Q3 2019

• 11% volume growth in Parcels
• Addressed mail volume declined by 10.6%
• €9 million in cost savings achieved
• Delivery quality at 95%

Postcon

• Sale completed

Acquisition of Sandd

• Transaction closed
• On track to migrate first part of Sandd volumes in December and to complete integration in HY1 2020
• Process to offer jobs to all Sandd's postal deliverers has started
• Anticipated underlying cash operating income impact from the Sandd acquisition of between €(15) million and €(25) million in Q4 2019

Outlook 2019

• Expected underlying cash operating income (UCOI) 2019 confirmed at between €170 million and €200 million
• Adjusted for impact of Sandd in Q4 2019: expected UCOI 2019 of between €150 million and €180 million

Successful Green Bond offering

• €300 million in fixed rate notes with a coupon of 0.625% and a term of seven years issued
• Financing needs for medium term covered; no covenants

CEO statement

Herna Verhagen, CEO of PostNL: "The transaction with Sandd has closed recently and enables us to secure reliable, accessible and affordable postal services today and in the future. We will continue our existing moderate pricing policy and remain focused on people, quality and innovation in the postal sector. We aim to complete the integration in the first half of 2020. Furthermore, we are preparing for changes in Dutch labour regulation next year.

In general, we face increasing headwinds from ongoing global economic pressure. Volume growth at Parcels came in at 11%, with a continuing lower growth rate in some customer segments. This impacts our margin development at Parcels in Q3 and brings the expected FY margin to around 7%. We are executing our strategy aiming to improve the balance between volume growth, profitability and cash conversion. At Mail in the Netherlands, result was slightly better than last year. We expect the FY margin to be more or less in line with last year.

Against the backdrop of these developments, our underlying cash operating income increased to €25 million in Q3, a satisfying result. Preparations for our peak season have started and Q4 will be our strongest quarter in terms of volumes and financial performance. We confirm our 2019 outlook for underlying cash operating income at between €170 million and €200 million. Adjusted for the first financial impact of the Sandd acquisition, visible in Q4, this will translate to between €150 million and €180 million."

Key figures

Key figures
in € million, except where noted	Q3 2018		Q3 2019 % Change	YTD 2018	YTD 2019	% Change
Revenue	638	636	0 %	1,978	2,001	1 %
Operating income	3 1	23	-26%	9 2	82	-11%
Underlying operating income	2 9	27	-7%	110	96	-13%
Changes in pension liabilities	2	0	-100%	9	7	-22%
Changes in provisions	(8)	(2)	75%	(31)	(6)	81%
Underlying cash operating income	2 3	25	9 %	8 8	97	10%
Underlying cash operating income margin	3.6%	3.9%		4.4%	4.8%
Profit from continuing operations	1 9	1 3	-32%	5 1	5 3	4 %
Net cash from/(used in) operating and investing activities	(42)	54	229%	(76)	79	204%

Note: underlying figures exclude one-offs in Q3 2019 (€2 million in project costs, €1 million restructuring-related charges and a consolidation effect of €1 million with discontinued operations) and in Q3 2018 (€(2) million).

Q3 2019 business performance

0	Revenue		Underlying operating income		Underlying cash operating income
in € million	Q3 2018	Q3 2019	Q3 2018	Q3 2019	Q3 2018	Q3 2019
Parcels	375	401	30	27	28	27
Mail in the Netherlands	371	342	7	5	(1)	0
PostNL Other	17	19	(8)	(5)	(4)	(2)
Intercompany	(125)	(126)	-	-	-	-
PostNL	638	636	29	27	23	25

Note: underlying figures exclude one-offs

Segment information Q3 2019

Parcels – current volume development impacts margin improvement

Parcels aims to capture value through yield management and several other commercial and operational initiatives. These initiatives will result in a better balance between volume growth, profitability and sustainable cash generation.

In Q3, PostNL reported an improving price/mix development, with another new sorting centre opened and one more set to become operational in time for the peak season. A further step towards optimising operational efficiency was taken recently with the change to only a single home delivery attempt.

Volumes were 11% up on Q3 2018, which brings growth to 13% in the year to date in 2019, in line with overall market growth. We faced continuing lower growth in some customer segments (e.g. fashion and electronics). PostNL now expects 2019 volume growth to be around 13%.

Revenue increased to €401 million (Q3 2018: €375 million), with volume development at Parcels Benelux as the main driver for revenue growth. Additionally, Logistics showed growth. At Spring revenue development was backed by the transition towards becoming a provider of global e-commerce solutions, but the business environment remains challenging, impacted by global macroeconomic pressures.

In Q3, business performance at Parcels Benelux was flat. This reflected the impact of volume growth of €8 million, partly offset by a negative, though improving, price/mix effect of €3 million. The increase in organic costs amounted to €4 million. Capacity optimisation and operational efficiency are temporarily impacted by the lower than expected volume growth. We faced additional costs of €1 million, including implementation costs for the expansion of infrastructure. The impact from other performance - mainly Spring - was €(1) million. Underlying cash operating income came in at €27 million (Q3 2018: €28 million), which translates to a margin of 6.7% (YTD 6.6%).

Mail in the Netherlands – continuing volume decline at Mail in the Netherlands partly offset by price increases and cost savings

Performance at Mail in the Netherlands was marked by volume decline, price increases and cost savings.

Addressed mail volumes declined by 10.6% in the quarter (YTD 9.9%). This decline was driven by substitution, particularly in single mail, but also by loss of volumes to competition around 3% this quarter, mainly to Sandd. After closing of the Sandd transaction, PostNL expects volume development to be more in line with the market decline.

Revenue fell 8% to €342 million (Q3 2018: €371 million) while underlying cash operating income improved by €1 million (Q3 2018: €(1) million). Cost savings, lower cash-out related to pensions and provisions and other factors more than compensated for the negative volume/price/mix effect and autonomous cost increases.

€9 million in cost savings achieved in Q3 2019

PostNL achieved total cost savings of €9 million (YTD: €33 million). The cost savings plans include several initiatives, such as adjusting the sorting and delivery process, optimisation of the retail network, streamlining of staff and centralisation of locations.

PostNL Other

Revenue at PostNL Other amounted to €19 million (Q3 2018: €17 million). Underlying cash operating income was €(2) million (Q3 2018: €(4) million).

Pensions

Pension expense amounted to €30 million (Q3 2018: €32 million) and total cash contributions were €30 million (Q3 2018: €30 million). In Q3 2019, the net actuarial loss on pensions was €1 million. Interest rates declined again in the quarter, which resulted in higher pension liabilities, mainly related to transitional plans. Moreover, based on the current level of interest rates, an increase in pension expenses in 2020 is to be expected. The pension fund's 12 month average coverage ratio was 111.3%, well above the minimum required funding level of 104.0%. On 30 September 2019, the actual coverage ratio was 106.1%.

Discontinued operations

Result from discontinued operations came in at €(7) million (Q3 2018: €(49) million) and is partly explained by a negative, though improving, business result at Postcon and Nexive. The sale of Postcon to Quantum Capital Partners completed at the end of October. The divestment process for Nexive is still in progress.

Development of financial and equity position

Total equity attributable to equity holders of the parent company decreased to €(26) million as at 28 September 2019. The main drivers were net profit of €6 million, more than offset by the impact of the interim dividend pay-out over 2019. Net cash from operating and investing activities was €54 million (Q3 2018: €(42) million). This favourable development is mainly explained by lower capital expenditure, less interest paid and an improvement in working capital. The latter relates to better business performance, terminal dues, and also some phasing over the quarters. At the end of Q3 2019, the adjusted net debt position was €698 million, compared with €702 million at the end of HY 2019.

PostNL announced the successful offering of its first Green Bond in September. The company issued €300 million in fixed-rate notes with a term of seven years and a coupon of 0.625%, maturing in September 2026. The transaction highlights the company's commitment to being a sustainable e-commerce logistics provider. The net proceeds of the offering will be used to finance and/or refinance new and existing green projects.

Outlook 2019

The e-commerce market is expected to continue its strong growth and will remain the main performance driver in Parcels. We are focusing on the growth potential of our business by improving the balance between volume, profitability and cash flow. We expect to enhance operational efficiency, partly offset by the impact from the tight labour and transport market. Taking into account the developments in 2019 so far, the outlook for Parcels has been adjusted to high single digit revenue growth at an expected FY margin of around 7%.

At Mail in the Netherlands we expect our addressed mail volumes to decline by 8% to 10% in 2019, partly offset by price increases, resulting in a high single digit decline in revenue. We expect cost savings to come in at the low end of the range of between €45 million and €65 million. Our margin guidance has been adjusted to >= 5%.

For 2019, the outlook for underlying cash operating income is confirmed at between €170 million and €200 million. Adjusted for the expected financial impact from the acquisition of Sandd in Q4 2019, this translates into underlying cash operating income of between €150 million and €180 million (comparable to normalised EBIT of €120 million - €150 million.

						Compares to normalised EBIT
		Revenue		Underlying cash operating income / margin	/ margin
in € million	2018	Outlook 2019	2018		Outlook 2019
Parcels	1,555	+ high single digit	117	(7.5%)	~7%	~7 %
Mail in the Netherlands	1,678	- high single digit	9 3	(5.5%)	>=5%	>=5%
PostNL Other / eliminations	(461)		(22)			Δ ~(15)
Total	2,772	+ low single digit	188		170-200	155-185
Impact Sandd acquistion					(15)-(25)	(30)-(40)
Adjusted outlook 2019					150-180	120-150

• normalised EBIT as new key metric for profitability as of 2020 (comparative numbers for 2019)

• reflection of business performance; one-off and significant non-business related items are excluded and explained

• normalisations in EBIT equal to underlying items in UCOI for 2019 except for restructuring-related costs

• difference between UCOI and normalised EBIT visible in PostNL Other, mainly due to pensions

Working days by quarter

	Q1	Q2	Q3	Q4	Total
2018	64	61	65	64	254
2019	63	62	65	65	255

Financial calendar

24 February 2020	Publication of Q4 & FY 2019 results
14 April 2020	2020 Annual General Meeting of Shareholders
4 May 2020	Publication of Q1 2020 results
3 August 2020	Publication of Q2 & HY 2020 results
2 November 2020	Publication of Q3 2020 results

Contact information

Published by	PostNL N.V. Prinses Beatrixlaan 23 2595 AK The Hague The Netherlands T: +31 88 86 86 161
Investor Relations	Jochem van de Laarschot Director Communications & Investor Relations M: +31 613 86 53 58 E: jochem.van.de.laarschot@postnl.nl	Inge Laudy Manager Investor Relations M: +31 610 51 96 70 E: inge.laudy@postnl.nl
Media Relations	Tahira Limon Spokesperson M: +31 610 22 82 81 E: tahira.limon@postnl.nl

Audio webcast and conference call on Q3 2019 results

On 4 November, at 11.00 am CET, the conference call for analysts and investors will start. It can be followed live via an audio webcast on www.postnl.nl.

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.

Caution on 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 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 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 underlying cash operating income. The underlying cash operating performance focuses on the underlying cash earnings performance, which is the basis for PostNL's dividend policy. In the analysis of the underlying cash operating performance, adjustments are made for non-recurring and exceptional items as well as adjustments for non-cash costs for pensions and provisions. For pensions, the IFRS-based defined benefit plan pension expenses are replaced by the non-IFRS measure of the actual cash contributions for such plans. For other provisions, the IFRS-based net charges are replaced by the related cash outflow. As of 2020, 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. Aside from adjustments for restructuring-related costs, all currently adjusted non-recurring and exceptional items within underlying cash operating income are also normalisations within normalised EBIT.

Basis of preparation

The interim financial statements are reported on a year-to-date basis ending 28 September 2019. The information should be read in conjunction with the consolidated 2018 Annual Report of PostNL N.V. as published on 25 February 2019.

The measure of profit and loss and assets and liabilities is based on the Group Accounting Policies, which are compliant with IFRS as endorsed by the European Union. Apart from the changes resulting from the adoption of IFRS 16 'Leases' per 1 January 2019, all other significant accounting policies applied in these consolidated interim financial statements are consistent with those applied in PostNL's consolidated 2018 Annual Report for the year ended 31 December 2018.

IFRS 16 'Leases'

The adoption of the standard impacted the accounting of PostNL's operating leases, mainly related to rent and lease of buildings and transport fleet. PostNL adopted the new standard per 1 January 2019, using the modified retrospective method with the lease assets set equal to the lease liabilities. As a practical expedient, PostNL elected not to apply the requirements for short term leases and leases for which the underlying asset is of low value. The comparative figures of 2018 have not been represented.

The impact on the balance sheet per 1 January 2019 is an increase in right-of-use assets and lease liabilities of €132 million within continuing operations. Further, an amount of €37 million was transferred from property, plant and equipment to right-of-use assets relating to finance leases and capitalised leasehold rights and ground rent contracts. The impact on operating income and net profit is non-material, although straight line lease expenses of approximately €42 million have been replaced by depreciation and interest expenses in YTD 2019. The cash flow statement shows a shift from net cash from operating activities to net cash used in financing activities. The assets classified as held for sale and liabilities related to these assets increased by €36 million per 1 January 2019 due to the adoption of IFRS 16.

There are no other IFRS standards, amended standards or IFRIC interpretations taking effect for the first time for the financial year beginning 1 January 2019 that would be expected to have a material impact on the 2019 Group's accounts.

Classification of Nexive and Postcon

In line with PostNL's strategy to become the logistics and postal solutions provider in the Benelux region, PostNL has decided to divest Nexive and Postcon. In Q3 2018, the classification criteria of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations' were met. Accordingly, as of Q3 2018, Nexive and Postcon have been reported as 'held for sale' and the results and cash flows have been reported as 'discontinued operations'. On 5 August 2019, PostNL announced to have signed an agreement on the sale of Postcon's activities to Quantum Capital Partners. The transaction closed on 31 October 2019. In 2019, the YTD result from discontinued operations of €(45) million includes a negative business result, a fair value adjustment, increased costs of disposal and a consolidation effect with continuing operations.

Acquistion of Sandd

On 1 October 2019, PostNL announced it had signed an agreement to acquire 100% of the shares of Sandd. The transaction closed on 22 October 2019. The financial impact of the transaction will first be visible in our Q4 2019 reporting.

Auditor's involvement

The content of this interim financial report has not been audited or reviewed by an external auditor.

Consolidated income statement

in € million	Q3 2018	Q3 2019	YTD 2018	YTD 2019
Revenue from contracts with customers	635	633	1,968	1,990
Other operating revenue	3	3	1 0	1 1
Total operating revenue	638	636	1,978	2,001
Other income	5	2	1 2	4
Cost of materials	(13)	(15)	(45)	(48)
Work contracted out and other external expenses	(315)	(307)	(939)	(932)
Salaries, pensions and social security contributions	(234)	(230)	(741)	(750)
Depreciation, amortisation and impairments	(20)	(36)	(61)	(107)
Other operating expenses	(30)	(27)	(112)	(86)
Total operating expenses	(612)	(615)	(1,898)	(1,923)
Operating income	31	23	92	82
Interest and similar income	0	0	2	2
Interest and similar expenses	(5)	(4)	(23)	(13)
Net financial expenses	(5)	(4)	(21)	(11)
Results from investments in JVs/associates	0	0	0	0
Profit/(loss) before income taxes	26	19	71	71
Income taxes	(7)	(6)	(20)	(18)
Profit/(loss) from continuing operations	19	13	51	53
Profit/(loss) from discontinued operations	(49)	(7)	(68)	(45)
Profit for the period	(30)	6	(17)	8
Attributable to:
Non-controlling interests	-	-	-	-
Equity holders of the parent	(30)	6	(17)	8
Earnings per ordinary share (in € cents) 1	(6.5)	1.3	(3.7)	1.7
Earnings from continuing operations per ordinary share (in € cents) 1	4.1	2.7	11.1	11.1
Earnings from discontinued operations per ordinary share (in € cents) 1	(10.6)	(1.4)	(14.8)	(9.4)

1 Based on an average of 478,632,460 outstanding ordinary shares (2018: 459,559,603).

The results are impacted by a consolidation effect of eliminated intercompany income/charges between continuing operations and discontinued operations. Excluding this effect, operating income in Q3 2019 amounted to €24 million (Q3 2018: €30 million) and in YTD 2019 to €82 million (YTD 2018: €86 million). Likewise, excluding this effect, profit/(loss) from discontinued operations in Q3 2019 amounted to €(8) million (Q3 2018: €(48) million) and in YTD 2019 to €(45) million (YTD 2018: €(62) million).

Consolidated statement of comprehensive income 0

in € million	Q3 2018	Q3 2019	YTD 2018	YTD 2019
Profit for the period Other comprehensive income that will not be reclassified to the income statement	(30)	6	(17)	8
Impact pensions, net of tax	6	(1)	1 7	(10)
Change in value of financial assets at fair value through OCI Other comprehensive income that may be reclassified to the income statement	0	0		3
Currency translation adjustment, net of tax	0	0	0	0
Gains/(losses) on cashflow hedges, net of tax	0	(1)	1	(3)
Total other comprehensive income for the period	6	(2)	18	(10)
Total comprehensive income for the period	(24)	4	1	(2)
Attributable to:
Non-controlling interests	-	-	0	0
Equity holders of the parent	(24)	4	1	(2)
Total comprehensive income attributable to the
equity holders of the parent arising from:
Continuing operations	2 5	1 1	6 9	4 3
Discontinued operations	(49)	(7)	(68)	(45)

Consolidated statement of cash flows
in € million	Q3 2018	Q3 2019	YTD 2018	YTD 2019
Profit/(loss) before income taxes	26	19	71	71
Adjustments for:
Depreciation, amortisation and impairments	2 0	3 6	6 1	107
Share-based payments	1	0	2	1
(Profit)/loss on disposal of assets	(4)	(2)	(10)	(4)
Interest and similar income	0	0	(2)	(2)
Interest and similar expenses	5	4	2 3	1 3
Results from investments in JVs/associates	0	0	0	0
Investment income	1	2	11	7
Pension liabilities	2	0	9	7
Other provisions	(5)	(1)	(18)	(8)
Changes in provisions	(3)	(1)	(9)	(1)
Inventory	(1)	1	(1)	-
Trade accounts receivable	1 2	1 6	4 1	5 1
Other accounts receivable	(4)	(5)	1 1	(6)
Other current assets excluding taxes	(15)	(9)	(6)	1
Trade accounts payable	7	1 1	(14)	(3)
Other current liabilities excluding short-term financing and taxes	(58)	(5)	(136)	(77)
Changes in working capital	(59)	9	(105)	(34)
Cash generated from operations	(14)	65	31	151
Interest paid	(17)	(1)	(21)	(5)
Income taxes received/(paid)	5	0	(34)	(43)
Net cash (used in)/from operating activities	(26)	64	(24)	103
Interest received	-	1	2	3
Acquisition of subsidiairies (net of cash)	-	-	-	(1)
Investments in JVs/associates	(1)	(1)	(2)	(1)
Capital expenditure on intangible assets	(6)	(7)	(20)	(21)
Capital expenditure on property, plant and equipment	(21)	(6)	(55)	(17)
Proceeds from sale of property, plant and equipment	1 3	3	2 4	8
Other changes in (financial) fixed assets	(1)	-	(1)	5
Net cash (used in)/from investing activities	(16)	(10)	(52)	(24)
Dividends paid	(16)	(23)	(63)	(71)
Proceeds from long-term borrowings	-	297	-	297
Proceeds from short-term borrowings	1	-	1	-
Repayments of short-term borrowings	(223)	-	(223)	(1)
Repayments of lease liabilities	(1)	(14)	(1)	(41)
Net cash (used in)/from financing activities	(239)	260	(286)	184
Total change in cash from continuing operations	(281)	314	(362)	263
Cash at the beginning of the period	524	214	645	269
Cash transfers to discontinued operations	(21)	(3)	(61)	(7)
Total change in cash from continuing operations	(281)	314	(362)	263
Cash at the end of the period	222	525	222	525
Total change in cash from discontinued operations	(11)	(23)	(51)	(16)

Consolidated statement of financial position
in € million	31 December 2018	28 September 2019
ASSETS
Non-current assets
Intangible fixed assets
Goodwill	9 7	9 7
Other intangible assets	115	111
Total	212	208
Property, plant and equipment
Land and buildings	322	285
Plant and equipment	155	125
Other	1 2	1 3
Construction in progress	5	2 2
Total	494	445
Right-of-use assets	0	213
Financial fixed assets
Investments in joint ventures/associates	3	4
Other loans receivable	6	6
Deferred tax assets	6 6	5 2
Financial assets at fair value through OCI	1 7	1 5
Total	92	77
Total non-current assets	798	943
Current assets
Inventory	5	5
Trade accounts receivable	313	262
Accounts receivable	1 2	1 9
Income tax receivable	2	2 0
Prepayments and accrued income	9 9	9 7
Cash and cash equivalents	269	525
Total current assets	700	928
Assets classified as held for sale	200	178
Total assets	1,698	2,049
LIABILITIES AND EQUITY
Equity
Equity attributable to the equity holders of the parent	4 6	(26)
Non-controlling interests	3	3
Total	49	(23)
Non-current liabilities
Deferred tax liabilities	3 1	0
Provisions for pension liabilities	296	321
Other provisions	1 9	2 0
Long-term debt	398	695
Long-term lease liabilities	2 2	153
Accrued liabilities	4	3
Total	770	1,192
Current liabilities
Trade accounts payable	146	143
Other provisions	2 1	1 2
Short-term debt	1	1 5
Short-term lease liabilities	3	5 1
Other current liabilities	126	147
Income tax payable	3	2
Contract liabilities	8 0	4 6
Accrued current liabilities	378	324
Total	758	740
Liabilities related to assets classified as held for sale	121	140
Total equity and liabilities	1,698	2,049