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Edited Transcript of PNL.AS earnings conference call or presentation 5-Aug-19 9:00am GMT

Q2 2019 PostNL NV Earnings Call

Amsterdam Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of PostNL NV earnings conference call or presentation Monday, August 5, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hendrika W. P. M. A. Verhagen

PostNL N.V. - Chairman of the Management Board & CEO

* Jochem van de Laarschot

PostNL N.V. - Director Communications & IR

* Pim Berendsen

PostNL N.V. - CFO & Member of Managing Board

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Conference Call Participants

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* Andre F. M. Mulder

Kepler Cheuvreux, Research Division - Analyst

* David Kerstens

Jefferies LLC, Research Division - Equity Analyst

* Henk Slotboom

The Idea-Driven Equities Analyses Company - Research Analyst

* Marc Zwartsenburg

ING Groep N.V., Research Division - Head of Benelux Equity Research

* Ruben Devos

KBC Securities NV, Research Division - Senior Financial Analyst

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Presentation

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Jochem van de Laarschot, PostNL N.V. - Director Communications & IR [1]

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Good morning, everyone. This is the second quarter half year results conference call for PostNL. With me in the room are Herna Verhagen, our CEO; Pim Berendsen, our CFO. My name is Jochen van de Laarschot of Investor Relations. We have a number of participants here in the room and we have participants on the line. We will start, as usual, with our presentation, and we hope you have found our slides on the website of PostNL. Afterwards, we will open Q&A.

Herna, over to you.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [2]

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Welcome to all, and thanks for joining us. I would like to start -- if you have the presentation in front of you, I would like to start with Slide #3, where we have the key takeaways.

For us it was a good quarter. If you look into the underlying cash operating income, we saw an increase of EUR 8 million compared to the second quarter last year, and the underlying cash operating income this quarter was EUR 41 million. Also a strong improvement in our net cash from operating and investing activities, an improvement of EUR 66 million. And fortunately, of course, strongly related to our strategy to be the logistics e-commerce player in the Benelux, 51% of our revenue in the first half year was out of e-commerce logistics.

Based on the results of the first and second quarter and based on what we expect for the rest of the year, interim dividend is set at EUR 0.08 per share and that's according to our dividend policy.

We also reached agreement on the sale of our Postcon business in Germany, I will come to that in a minute. And of course, when it comes to the progress in the process of consolidation, we're waiting for decision of ACM, the Dutch regulator.

So good quarter, important step in selling our German business and, of course, decided to pay interim dividend to our shareholders.

Then, on the next slide, you'll find the agreement we reached to sell our Postcon business, and of course it underpins our focus on core markets in the Benelux and it underpins the further transformation of PostNL into an e-commerce logistics company.

We signed an agreement to sell the activities of Postcon in Germany with Quantum Capital Partners. Quantum Capital Partners is a company focused on investments in companies where they see operational opportunities together with growth. It's a signing, not yet a closing, and the closing is expected before the year-end of 2019 and still subject to several conditions one of which, of course, regulatory approval.

What we find very important in taking the decision to sell it to Quantum is that Quantum is indeed willing to invest in our German business and willing to underpin those investments -- the strategic plan which was developed by the German team and therefore, of course, develop the activities of Postcon in the German markets.

On Nexive, good progress, not yet finalized. And there we need a little bit more time to come to a deal, which is, in our view, this time will give us the opportunity to have a better deal for PostNL and a better deal for Nexive.

So happy with Postcon and also happy with to whom we've sold Postcon and the intentions the company have with our German company (inaudible) activities of Postcon in the German market.

And on the next slide, we'll dive into the progress we've made in our business. Second quarter, I said, a good quarter. We saw an increase in revenue of EUR 15 million and revenue in the second quarter was EUR 681 million. The underlying cash operating income improved with EUR 8 million to EUR 41 million, and also a net cash improvement, as already said, by EUR 66 million. The profit from continuing activities increased from EUR 9 million to EUR 25 million.

We had a good financial performance with increases on our underlying cash operating income, net cash and also profit from our continuing operations. And based on, of course, the results of the second quarter, results of the first quarter and the expectation we have for the rest of the year, we reiterated or reconfirmed our outlook, and that outlook is within -- is a bandwidth of EUR 170 million to EUR 200 million.

So increase on our most important financial items and reiterate outlook for the year 2019.

Then I'll move to Slide #7, and we'll dive into a little bit more detail of our business, starting with Parcels.

In Parcels, we see continued volume and revenue growth. Of course, revenue did grow to EUR 402 million, and that's mainly based upon the volume growth we did see in Parcels, as well.

Volume growth, 13% in the second quarter. And the volume growth we see so far is in line with the average of around 14% growth we expected for this year and the years ahead, which was also communicated at the Capital Markets Day.

The underlying cash operating income came in at EUR 30 million, and that's EUR 1 million less if you compare it to last year. This is mainly due to the performance of Spring, where we saw a EUR 3 million lower underlying cash operating income, lower result than in the same quarter or second quarter last year.

The volume growth of 13% was slightly offset by a negative price/mix effect of EUR 3 million. And what we also did see is that in some customer segments, there was a slightly lower growth. And there you should think, for example, about fashion -- about the segment fashion.

Our business logistics and other in which you find, for example, Extra@Home, but also Pharma & Care, is doing very well. They're doing very well in revenue, is also doing very well in underlying cash operating income and has a positive development also to our Parcel business.

In Spring, we do see that competition remains fierce. And there, we mainly pinpoint at Asia because the business of Spring in Europe is doing well. Business of Spring in Asia, still difficult, partly because of global macroeconomic pressures we see, which also impact our Spring business, and partly we're only halfway with our improvement plan, as we have communicated last February.

Result of Parcels. Performance of Parcels Benelux increased with EUR 1 million, partly because of improvement in volume/price mix. Of course, we did have some organic cost increases, we had a better operational performance and that resulted into EUR 1 million better performance. Results for Spring was down with EUR 3 million, and improvement in logistics is EUR 1 million. And that gives you a view on the results of Parcels in the second quarter.

Last May, we did present -- and then I'm moving to Slide #8. On the Capital Markets Day, we did present, of course, the strategy of Parcels, in which we said we want to be the leading e-commerce logistics company in the Benelux, and our ambition is to be [your play for deliverer]. To become or to be and to maintain that position as a leading e-commerce logistics company, there were 5 elements important to us. That's, of course, to capture growth also going forward, and I will come to these elements in a minute; invest in new capacity and of course innovate our network; improve value through yield management; of course, optimize our supply chain and reduce costs; and being a good employer and to reduce environmental footprint. And the latter, so being a good employer and reducing environmental footprint, is of course an important ambition for whole of PostNL, not only for Parcels.

So I would like to highlight a little bit how we did in the second quarter, although still very early days, Capital Markets Day was May 7, on the first 4 elements: capture growth, invest in our new capacity and then improve revenue and cost for Parcels. And I'll start with the capture of future growth, and then I'll move to Slide #9.

On Slide #9, on the left side of the slide, you find the growth we do see in the whole market. So we still see growth in online spending, and we still see growth in the retail share. So year-to-date, 18% of retail is done digitally or via web shops.

We also still see growth in the top 5 online spending per sector. That translates, of course, in a growth of our Parcel business, 2B as well as 2C, of 13%.

We still see growth also in our additional services like Evening, Sunday, but also Food delivery, and of course, a good development within logistics.

And that underpins the ambition we've given that, on average, we do think the amount of Parcels will grow with 14% over the next coming years, and that is underpinned with what we see happening in the second quarter and also with the figures out of the general developments in the market.

Second important element in our growth strategy for Parcels is, of course, invest in new capacity and innovate our network. An important element in our investing strategy and innovation strategy were, of course, the growth of our parcel sorting centers this year, together with the development of the small parcel sorting center, which will help us to put much more volume through our sorting systems secondly together with reducing the cost.

If you then look into the openings, we did open the depot in Almere, we started building our depot in Tilburg and we will open in a few weeks our depot in Dordrecht. So we're on schedule to open 3 new sorting and delivery centers in the Netherlands this year.

Next to that, we hired a location in Nieuwegein. And that location in Nieuwegein, which is in the midst of the Netherlands, is also the intended location for our small parcel sorting center. But for the time being, it will be used as a new cross-dock location, which will help us bring in more efficiency into our parcel sorting, and of course, distribution system.

So what we expected to happen and what we communicated at the Capital Markets Day, and that's what you find on the right side of this slide, is that we will open another 3 sorting and delivery centers 2019, 1 already opened, 1 almost opened and 1 to go for the remainder of the year. And we're still at the planning that we will open our small parcel sorting center in 2021. And all preparations are started to indeed be able to open that in 2021.

With the opening of the sorting centers this year, we are preparing for peak season as well which is expected to start, as of every year, somewhere beginning of November.

There was a second important element in our Capital Markets Day and the update on our strategy, invest in our capacity and invest in innovations and of course initiatives to improve margins. And those initiatives to improve margins is an update you find on Slide #11, where we have an update on revenue improvement and, of course, cost improvements.

On the revenue side, we are in full preparations for some of the pricing initiatives we discussed at the Capital Markets Day, and we started active discussions with our customers to create a better balance between volume and value.

Next to that, of course we're fully focusing on innovations like, for example, the introduction of the digital notification for senders at retail locations would, at the one hand, for the consumer brings much more ease in knowing when his parcel is at the retail location and picking it up at the retail location. On the other side, it helps us to make a more efficient delivery model.

On the optimizing of our supply chain and reducing costs, there are 2 important elements in reducing the cost or -- and making the supply chain more efficient. That's of course drop duplication and, secondly, with hits rates. So drop duplication is more than one parcel at one address, and the hit rate is that your first delivery attempt is successful. And there, we see in both instances, of the last 1.5 years, an improvement, which helps us in gaining efficiency in the sorting and delivery center we have.

The peak you find over here is the peak around Christmas. And there, you see, of course, because of the volume or Santa Claus -- Sinterklaas and Christmas, because of the extra volume you have in the period, you can create some extra efficiency in drop duplication and hit rate.

So Parcels is showing, I think, the first improvement on the important elements they communicated at the Capital Markets Day. It's also early days, but at least first signs are visible. And those, I think, we wanted to present to you to give some clarity around progress.

Then Mail in the Netherlands. Results from Mail in the Netherlands were good, and those were supported by a lower cash-out for pensions and provisions.

We saw a 5% revenue decline from EUR 400 million to EUR 380 million in the second quarter of this year. The underlying cash operating income improved with EUR 7 million, as said, mainly supported by a lower cash-out for pensions and provisions.

Cost savings are in line with expectation. EUR 12 million of cost savings for the whole of PostNL and we see, of course, a continuation of the trends that Mail Netherlands is indeed able to fill in all cost savings set.

The volume declined 9%, and even 9.8% if you take into account that we had 1 extra working day in this quarter, which is still within the bandwidth of the 8% to 10% we've given with Q4 numbers. But the average of the first half year is 9.4%, so it's a little bit to the upper part of the bandwidth given to the market. The main part of -- of course, that volume decline is still due to substitution. And as we said earlier, it's expected to continue also over the next coming years.

We had a favorable impact of product mix, so overall substitution -- but the substitution in the segments was a little bit higher, margin were a little bit less than in segments where we have a little bit less margin and the delivery quality is stable at 95%.

The results improved. We still see, of course, impact from the volume/price mix, that was EUR 8 million in the second quarter, next to an autonomous cost increase of EUR 16 million (sic) [EUR 6 million].

The cost savings purely in Mail Netherlands. So our mail network were EUR 8 million. And there, of course, you see that the volume decline together with the autonomous cost increases are not offset by cost savings. The other EUR 4 million, which of course sums up to the EUR 12 million, comes from, for example, cost savings at head office. We had a significant lower cash-out from pensions and provisions, which was EUR 9 million. And some other positive effect. And that makes a better results in the second quarter for Mail in the Netherlands.

Important for Mail in the Netherlands, it was important and will remain important, is the level of cost saving. For the year 2019, we expect a cost saving between EUR 45 million and EUR 65 million. And we're still in -- we expect to be in that range for the end of the year.

Cost savings in the second quarter were EUR 12 million, and those come out of cost savings planned which are already well known like, for example, reduction of line management and overhead, but also bringing more efficiency to our sorting and delivery centers and the implementation of the new mail route. That brings us to a year-to-date cost saving of EUR 24 million compared to last year's EUR 10 million. And we expect, as said, that for the rest of the year we'll end in the bandwidth of the EUR 45 million to EUR 65 million.

Then I'll move on to Slide #14. As said, the cost savings remain important going forward. We also expect some step-up in cost savings in 2019 towards 2020. Very important in that step-up was the introduction of the new mail route. That introduction took place in the month June, and to be very specific on June 3, and it was very successful.

What does the new mail route means? It means that we create an equal flow in our delivery system and that we have more or less the same volume on every day from Tuesday to Saturday. That in the end will also give us the opportunity to offer contracts to our employees with more hours than the contract we can offer today because we create longer delivery routes. The mailbox to the mail deliverers can be prepared earlier, so they can start with working earlier in the day, which is for most of the people important. And what we did see is that now most of our volume indeed is offered via that new route of the mail and it's working quite well. In 2019, we see implementation costs. But as of 2020, it will contribute an important part to the cost savings in the year 2020 but also the year 2021 and ahead.

On the left part of that slide, we, of course, gave again an overview of the important cost saving plans. They didn't change, because this is a picture probably well known and already presented a few times. And of course, as already said, the introduction of the new mail route was a very important step for our cost savings to come.

And an update on regulatory. An update on regulatory is, of course, the proposed amendments to the Postal Act. PostNL supports, of course, the proposed changes in the draft Postal Act. We also gave our view, which is only Postal Act and now Council of State is advising on the proposed amendments. That will lead in the end to a new Postal Act, which will be sent to parliament and will be discussed in parliament. Until that moment in time, we don't know what exactly will be the changes based on the amendments made by or asked by parties in the mail markets.

The second important part of the -- is Significant Market Power, where the draft decision taken by ACM last year December, there's no final decision yet. It also means that when the decision will be taken, the impact of Significant Market Power will not be between EUR 40 million and EUR 45 million but will be somewhere between EUR 50 million to EUR 70 million, which will be fully visible in 2021. That will only be the case if the draft decision becomes final.

On the consolidation, and as already said with the key takeaways, we're waiting for a decision of ACM. Hopefully, they will come soon, because there will be clarity. Hopefully, it's a positive decision. If it's not, then, and that's what we already presented with our flowchart at February 25, there is another opportunity for us to get approval on this consolidation, and that is via the Ministry of Economic Affairs and Climate.

The fifth important angle of the completion of our strategy of Parcels is important to the whole of PostNL, and that is being a good employer and reduce our environmental footprint. Being a good employer is what we -- is, of course, what we think we are, but we want to stay in that position and that means that we are continuously looking for initiatives to realize favorable working conditions.

It also means that we took lots of initiatives around the very hot weather in the Netherlands of almost 2 weeks ago, where we enabled people in Mail as well as in Parcel to work different working hours to make sure that they were able to do their job.

Next to that, we are working very hard in the reduction of our environmental footprint. Our scientific base targets are approved, and that means that we have now emission-free targets for PostNL towards 2025 and 2030. Together with the fact then that one of the ways of underpinning, of course, reaching our emission-free target is that we rolled out our city logistics program by zero emission by distribution for Mail and Parcels in the inner part of cities. We already started that in Amsterdam and Groningen, and we'll roll out this year also to The Hague, Maastricht, Utrecht and Nijmegen. An important part of being, in the end, an emission-free in the last mile.

So if I summarize, and then I'll move on to Slide #17. A good financial performance in the second quarter: the underlying cash operating income was up with EUR 8 million; a EUR 66 million improvement in our net cash from operating and investing activities; also profit from continuing operation increased on the basis of a good Q2, Q1; and the expectation we cited for the interim dividend; we reiterated or reconfirmed the outlook for the end of the year between EUR 170 million, EUR 200 million; being even a little bit bigger than last year in e-commerce revenue, which is now 51% of our total revenue.

And I think this is a good moment to step into the financials.

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [3]

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Thanks, Herna. Yes, we'll move into the financials with a little bit more detail.

Slide 19, the first one to be addressed. If you look at the second quarter, we're happy with the numbers. KPI, current most important KPI, underlying cash operating income, up with EUR 8 million to EUR 41 million, which is significantly higher than the EUR 33 million of last year. As you might remember, I'm sure you will -- and by the way, this is all about continuing operations -- in May, we introduced a new metric to be used as of 2020 being the normalized EBIT. And to help you comparing numbers and to follow deviations between the old and new metric, we've included normalized EBIT numbers as well, and they came in at EUR 39 million in comparison to EUR 38 million of normalized EBIT over the same quarter last year.

Underlying operating income in Q2 was more or less in line with last year. UCOI, higher, which is explained, as Herna already shared with you, by less cash-out from pensions and provisions, of which provisions are the most important element of that.

What I'm also happy about is that the underlying cash operating income -- sorry, the net cash from operating and investment activities has increased from minus EUR 45 million to EUR 21 million, which is EUR 66 million improvement on the back of other working capital and lower CapEx cash-outs. And in that number, we have an IFRS effect of EUR 40 million of higher depreciation costs that are now being reported there. Later on, we have a more detailed breakdown of the IFRS 16 consequences for the group as well as for the segments which we report the numbers.

Slide 20 is a more detailed breakdown of the underlying cash operating income. If we look at the second and third orange bars, you see the underlying operating income comparison. EUR 40 million in the first -- in the second quarter of 2018, EUR 39 million in this quarter. Parcels segment, down EUR 1 million, which is as a consequence of Parcels -- domestic Parcels performance growing on the back of volume growth and logistics improved businesses, offset by EUR 3 million deterioration of the Spring business predominantly in Asia. Mail in the Netherlands, EUR 2 million down because of volume decline as well as autonomous cost increases not completely offset by cost savings. And PostNL Other benefited from lower indirect costs and cost savings across the board there. And then from underlying operating income to UCOI, you see the difference between the pension and provisions lines there.

That brings me to a more detailed breakdown of the Parcels -- performance of Parcels Benelux on Slide 21. The comparison, EUR 31 million compared to EUR 30 million. In this quarter, you see in the same setup as we've explained, the Parcels' key drivers at the Capital Markets Day here. So revenue, because of volume growth, contribution to the results are EUR 38 million, driven by the 13.3% volume growth; price/mix effect of minus EUR 3 million, which was slightly better than in the first quarter; organic cost increases at Parcels because of collective labor agreements, inflation, indexation of subcontractors, tariffs; and the volume-dependent costs related to the growth in volume of EUR 28 million; and then other costs developments at Parcels, predominantly driven by additional costs from growth in capacity, offset by higher operational efficiency because of hit rates and drop duplication improvements. That together brings Parcels -- domestic Parcels up for EUR 1 million; and then other result, minus EUR 2 million. You see here the combination of Spring being down EUR 3 million and logistics businesses improving by EUR 1 million; brings the overall results of the quarter at EUR 30 million UCOI.

If we then move to the free cash flow generation in the second quarter. We see on Slide 22 the bridge going from UCOI towards net cash from operating activities and, ultimately, to free cash flow. From the EUR 41 million UCOI, a small reversal of one-offs -- about one-offs. Depreciation, amortization in the quarter accounts for EUR 36 million. Change in working capital, still negative but significantly less negative than previous quarters. As I explained to you before, given the change in mix in businesses, Parcels having a higher working capital absorption than Mail businesses, we'll see investments in working capital but not to the extent that we've reported before.

Interest and tax paid, down because of lower interest charges. CapEx, minus EUR 15 million. That brings the net cash from operating and investing activities at EUR 21 million, as said, a EUR 66 million improvement compared to last year. And then here, you find the lease payments as a consequence of IFRS 16 being reported in between net cash flow from operating and investing activities and free cash flow, the EUR 7 million positive free cash flow, which is the cash flow that remains for dividends, repayment of bonds and acquisitions.

Then to the statement of income. Profit from continued operations was EUR 25 million, EUR 16 million higher than the EUR 9 million of last year. Net financial expense being lower mainly because of the redemption of the Eurobond -- the GDP Eurobond in August of last year. The results from discontinued operations was negative minus EUR 29 million in this quarter, which is mainly explained by a fair value adjustment and negative business results for both Postcon and Nexive together.

On Slide 24, we share a little bit more detail the IFRS 16 implications on Q2, and we split those for the group and the relevant business segments. We see basically the depreciation and amortization line increasing by EUR 14 million, split between EUR 7 million, Parcels; EUR 3 million at Mail; and EUR 4 million at PostNL Other. Only slight deviations in operating income, net financial expense. And there you also see the EUR 14 million that we just talked about being the change between the net cash from operating activities and the net cash from financing activities, the first increasing by EUR 14 million and the other one being reduced by the same EUR 14 million. So very, very limited implications groupwide of IFRS 16 on our results.

Then going to Slide 25, where we find the translation of this quarter's performance into our balance sheet. There, noteworthy is that our consolidated equity decreased to minus EUR 7 million, which is basically as a consequence of positive profits from continued operations, of course offset by the payout of final dividend of 2018, which resulted in a cash payment of EUR 48 million, and the negative result of discontinued operations including fair value adjustment we just talked about as well as a net actual loss on pensions of EUR 3 million. That basically gets us to the minus EUR 7 million consolidated equity position at the end of Q2.

Based on those numbers, our adjusted net debt position is currently EUR 702 million, which compares to an adjusted net debt position of EUR 621 million at the end of Q1, still within the ranges of our leverage ratio and still properly financed, which we deem very important to steer the business going forward.

As we explained in February, we intend to finance the consolidation if and when we can complete the transaction with Sandd with cash at hand as well as new debt. Currently, we're monitoring the capital markets for new debt arrangements to be made.

If we then go to the next slide, which covers the pension fund position at the end of this quarter. Coverage ratio -- details on coverage ratio. The pension fund was 114.2%, still well above the minimum required rate of 104%, but going down slightly because of reduction of interest rates.

In our numbers, we reported a net negative impact on equity for pensions of EUR 3 million, which is described on the left hand side of the slide. The net pension liabilities at half year amount to EUR 317 million, of which EUR 33 million remains for the fifth and last installment of our unconditional funding obligation, which we'll pay in the fourth quarter of this year. What then remains all relates to transitional pension plans, which will lead to a final payment by the end of 2020. And as we discussed and also as shown during Capital Markets Day, as of 2021, we get to much more normal pension situations, where your actual pension expense and your pension cash-out will only relate to 1 year's additional pension for the people that we're still employing.

Then we go to Slide 27. I want to emphasize that sustainable cash flow performance and our prudential financial framework are the basis for shareholder returns. We've set clear guidelines for that financial framework and as well we make clear what our priorities of capital allocation are. And as discussed before, our dividend policy remains unchanged.

If you talk about capital allocation, investments to accommodate further growth in Parcels are key. We intend to invest in growth close to the core. And when we are in the outer years of the plan that we described in May, we might find ways to compensate for the dilutory effect on earnings per share at that moment in time.

If we will do the acquisition of Sandd, which we still expect to be able to complete in the fourth quarter of this year, it might well have its implications on future dividends if and to the extent that we will exceed the leverage ratio of around 2x that we set as being our way to look at properly financed. But based on the dividend policy that we have, based on the good performance in Q2 and the leverage ratio that we currently have, we have decided to pay interim dividends of EUR 0.08 per share, which is basically 1/3 of the full year 2018 dividend. We'll offer it again as an election dividend, so the shareholder can decide whether they want cash or stock dividend. The dividend will be payable as of 27th of August.

Then moving towards the outlook. We have reconfirmed the outlook for 2019, delivering EUR 170 million to EUR 200 million of underlying cash operating income for the year. What I would like to reemphasize is that those are the numbers excluding a potential effect on the numbers if we can't complete the transaction with Sandd. If that can materialize in the fourth quarter, we expect an impact on underlying cash operating income of between EUR 25 million and EUR 35 million, which is because of the fact that we'll then have implementation costs and the synergy effects of the volume migration not yet exceeding, particularly in the beginning, those implementation costs.

Overall, margin at Parcels remains [in line] with the 7.5% to 9.5%. And as well for Mail in the Netherlands, the 3% to 5% guidance we've given for 2018 is reconfirmed, as well.

Slide 30. What we indicated already in the beginning of the year, what I want to revisit right now, is that we expect a strong improvement in net cash from operating and investment activities if you compare that with 2018. 2018 numbers came in at minus EUR 19 million net cash, and we expect that net cash to grow to EUR 90 million to EUR 120 million, of which subsequently EUR 55 million will go out as lease payments and the balance will be there for the cash component of dividends and potential smaller acquisitions.

We still see an investment in working capital, but not so big as we had to report in 2018.

Interest paid is down and income tax is also a slightly lower number than we've seen in 2018.

All in all, pretty sure to show that improvement in net cash, because we believe that's the crucial metric that will also drive shareholder value going forward.

And looking forward toward the remainder of the year. You know that we have quite a seasonal pattern, where Q4 is always the bigger component of where we make the profit. Maybe not so levered in 2019 as in 2018, still Q4 numbers will, of course, be significantly higher than the other 3 quarters.

If you look at Q3 going forward, Q3 numbers are, in general, always lower than Q1 and Q2, which will also be the case this year. In the first half of the year, we've seen beneficial implications of lower pension cash-out and lower restructuring costs, that will be less elaborate in the third quarter. And we expect Parcels to improve in volume growth and efficiency levels after the new Parcels sorting centers have been started to get used.

Cash and equity components. If you look at Q3, those will, of course, be impacted by distribution of the interim dividend we just talked about that will go out in August.

No working day effects in the third quarter in comparison to third quarter last year.

And to conclude today's presentation, good financial performance in Q2, both in terms of UCOI as well our net cash from operating and investment activities. Also profit from continued activities, up. So happy with those financial results. We're well underway in the transformation towards the e-commerce logistics player with now 51% of revenue being e-commerce-related. And reconfirming our outlook of EUR 170 million and EUR 200 million underlying cash operating income for the year.

Thank you. Jochem, back to you.

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Questions and Answers

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Jochem van de Laarschot, PostNL N.V. - Director Communications & IR [1]

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(Operator Instructions) We will start here in the room, and I'm looking across the table to see who is going to take the first question. Hang on, please. Go ahead.

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Unidentified Analyst, [2]

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A few questions first about Parcels. You reiterated the outlook for the top line trend as well, which is in the low teens. We are now at 8% in the first half. So an acceleration is then needed for the remainder of the year? You already mentioned, thanks to the new sorting center that, that might help, but I was wondering how much visibility do you have for an acceleration into the second half.

And another thing about Parcels, maybe I missed something but in the past, we also presented sales numbers of Spring, which undoubtedly has been under pressure taking into the market conditions, which you gave once again a number there and what you -- for the immediate outlook there, also taking into account last week's. And finally but that's just for confirmation, I believe that you said during the presentation that the cost savings in Q2 were all within Mail.

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [3]

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So this last -- EUR 12 million is in total. So those are the cost savings. In total, EUR 8 million of which are cost savings related to Mail. If we talk about Parcels, we did reconfirm the outlook. And also, what you've seen from Q1 to Q2 is a slight improvement in the margin development of Parcels. The 13.3% volume growth we expect to improve slightly towards the remainder of the year. As you know, we've set an average expected growth of 14% over the next year's account. This quarter, volume growth has been impacted by slightly lower growth than some of the customer segments, just to give you an example. It hasn't been a great quarter where our fashion customers, the volatility and where our circumstances then being very nice and being very hot and then being horrendous rain has not made it the best in profession. Fashion customers, of course, let's say, have not only the first delivery attempt, but that's also a customer segment where there's a lot of returns. So that has implications, has had its implications partially on the volume growth part in this quarter. Based on our analysis, based on our bottom-up approach of old customers and customer segments, we expect indeed an improvement end of the year.

If you talk about Spring, we don't give explicit revenue numbers at the level of Spring but revenue has been down in comparison to the same quarter last year. International trade developments have its impact. It's not good for cross-border trades, particularly in the Asia to European streams have been severely impacted. The other countries where we compensate the International mail decline with growth in cross-border e-commerce has been performing at the same levels as last year. We expect Spring to improve in comparison to this quarter's performance. All in all, we expect a slight improvement in comparison to last year, but not happy about Spring's performance in this quarter. I think I covered all 3 of them.

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Jochem van de Laarschot, PostNL N.V. - Director Communications & IR [4]

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Other questions in the room here? Henk?

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [5]

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Yes. Henk Slotboom, The Idea. Just the final remark you made, do you expect small improvements on a full year basis? Just at on a revenue basis? Or it was result basis?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [6]

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For the results basis, yes, well -- yes, but the more important metric for me, for us, is it's the profit improvement, which we expect to improve slightly in comparison to last year.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [7]

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And it's also based on the improvement plan we communicated at the end of February, when we had Q4 numbers, and that's especially on the Asia to Europe lane or Asia to Netherlands lane, we had some improvement plans. They are now underway. It's one of the reasons why we expect to have an improvement compared to the end result of last year. But still as Pim said, if you look into Q2, it doesn't bring lots of satisfaction to us.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [8]

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Okay. So 2 other questions. On Slide 26, I certainly see a -- in the amount of transitionals opening up with EUR 284 million. I'm not sure if that was communicated in May, but as far as I can remember, it was cash out of EUR 200 million-ish -- just over EUR 200 million?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [9]

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No, I will have it more than that. I'm certain about that. The position at that moment of time was, I think, EUR 306 million pension liabilities. And the transitional pensions liability obligation, if you want, moves also with inference rates. So there is a mutation fluctuation of the pension liability. But overall pension liabilities -- and I might be mistaken were EUR 306 million or EUR 309 million at the end of Q1.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [10]

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What I'm talking here about the transitional and that...

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [11]

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Yes, that was part of the same and the EUR 33 million has not been changed because that is the final and 5th installment that we still have to make on the top-up payments.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [12]

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And I understand that you can't say anything about how things are going with ACM in relation to probable waiting on to acquire Sandd. And I can imagine that given the uncertainty set at -- facing that they have problems recruiting the deliverers, it's already difficult. Have you experienced any comp inflow and increase in outflow from Sandd that can (inaudible) come in?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [13]

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No, we don't see big changes compared to, for example, when we communicated consolidation, and what we do see is that, of course, there are, in certain areas in the Netherlands, it's more difficult to find mail deliverers as in other areas but we don't see big changes at this moment in time. Nevertheless, and that's what we constantly say, we hope that there will be a decision soon because in the end, volume keeps declining an 8% to 10% a year so the earlier we can consolidate, the more opportunity you have to create synergies.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [14]

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Perhaps 2 follow up questions on Postcon and Nexive operations. The book value of analysts is EUR 44 million at the end of first half year. That's including the impairment you took in the second quarter. In hindsight, if I look at the EUR 44 million or 2 operations I compare that to the value of Sandd. Are you still happy about the amount you're paying for Sandd?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [15]

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I think -- and this question is often asked also when we presented half year ago. What we said at this moment in time, and that will come back to the value of Postcon, et cetera. But what we had said at that moment in time is when you think about a price this is also a price you pay for the synergies you can create. And that's, of course, a big difference between us, where we can create synergies by, of course, acquiring Sandd and consolidating networks versus a party which is now acquiring our activities in Germany, which needs to earn their money with future growth and creating more efficiency, but they do not have a network to create synergy. So that's, I think, the answer to -- where we think -- if we think about the EUR 130 million, which is communicated is based upon synergies we think we can create by combining the 2 networks.

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [16]

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Doing EUR 50 million to EUR 60 million a year, which is, of course, incomparable of how you can look at Postcon or Nexive. They're completely different transactions by nature, completely different value stories, each of them, and we're happy that we are able to announce the sale of our Postcon activities, which allows us to focus as we said, we would, on the development of our Benelux businesses.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [17]

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But you should be happy that you finally have found a buyer for Postcon. In a typical scenario my view would be far worse. And you sold or you've agreed to sell 100% of the shares?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [18]

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What we said is what we've agreed to sell the activities at Postcon. That's what the press release says.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [19]

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But is there a likelihood that you maintain a stake in the operation?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [20]

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No, all operations, all businesses that -- from our business activities will transfer to the buyer.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [21]

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So there's no clause in the contract or whatever that is private equity privilege buying it by delaying?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [22]

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Quantum.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [23]

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Yes, that's a...

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [24]

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No, we will not get stuck with parts of the business if that's -- just to be clear, all activities both of Pin activities, national businesses, regional business will all be transferred both by Quantum.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [25]

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And their investment is for the long run, they won't sell it to, for example, Deutsche Post, if you get, for example, an offer to buy Sandd?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [26]

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No. We sell to Quantum. We've run a very careful divestiture process with negotiations with multiple party. At the end of the day, we believe this is the best buyer of Postcon going forward. They have bought into the plan, management presented. They're there to help them create improvements on operational levels and help them invest in changing their market approach and grow the business. And to whom they sell, eventually, I don't know, that's not up to us. We're happy with the transaction that we're now able to announce.

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Henk Slotboom, The Idea-Driven Equities Analyses Company - Research Analyst [27]

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(inaudible)?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [28]

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A few of other technical conditions, anti-trust is the most important one. In Germany, you need to have postal licenses to be active in that market and that's another one and as a regular process between signing and completion that you see quite often in these types of transaction. We expect to complete definitely in this year.

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Jochem van de Laarschot, PostNL N.V. - Director Communications & IR [29]

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Andre, looking at you for questions.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [30]

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Okay. When I look at the number of questions. Firstly, looking at the domestic volume at minus 9%. Can you give me a bit more detail on the split of this volume decline? You mentioned substitution is the larger point, but are there a bit more details to mention there?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [31]

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No, the split is not much different from what it was also in other quarters. So you have in the 9% volume decline, it's 1% to 1.5%, 1% to 2% is competition and the other part is substitution and that's the reason why we do say biggest part remains to be competition.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [32]

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And the 1% to 2%, is there a combination of ...

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [33]

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Substitution.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [34]

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… lower network, excess and real competition?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [35]

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Yes. Yes, correct. So that's same -- Postal, they are same as in the other quarters. If it comes to the 1% to 2%, it's partly real competition, it's partly the fact that postal operators are distributing more in their own networks than they do via us. If we then look into the volume, the decline in single mail items is a little bit higher than the decline in bulk mail. So also there are no trend difference from the other quarters.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [36]

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A bit of same question on the selling of Germany and Italy. Can you give a bit more color on the split in results, the split in share value adjustments, the size of the operations (inaudible)?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [37]

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No. But in the financials, we did say that -- we combined -- we have combined to 2 in discontinued operation. And that's how we present also the numbers. So there's no split made at this moment in time between Postcon and Nexive.

When we do full closing of Postcon, we will give some more financial details on Postcon. That's what we have said today. When it comes to the business, then if you think about Postcon in the German market, Postcon is a mail company, almost 100% mail focused. They do around 1 billion items. That 1 billion items is partly, of course, distributed via our own networks and partly via other networks. They have a 10% market share, and they are clear #2 in the market. And that's also if you think about the business plan going forward, it's based upon growth in the mail markets, which is, of course, less fastly declining. In the Netherlands mail market, in Germany has a decline of 2% to 3%. They're a challenger and therefore, able to grow the business going forward.

Around 5,300 people working for Postcon partly employed, partly via partners. If you compare that to our business in Italy, in Italy, we're active in mail and parcels, and there, of course, we did start to invest in our Parcel network 3 or 4 years ago. In mail, we have market share of around 16%. In Parcels today, we have a market share of around 5%. 8,000 people employed partly directly, partly -- biggest part via partners, who are working for us in the Mail and Parcel business.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [38]

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Apart from the book value of EUR 44 million, I believe there are also some tech side, which you mentioned today?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [39]

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Correct. Correct. It's in Note #9. You'll find the tax opportunity we see, which amounts to around EUR 66 million -- EUR 60 million, yes.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [40]

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EUR 66 million?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [41]

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That's EUR 60 million.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [42]

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EUR 60 million?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [43]

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6 0.Correct.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [44]

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And then a question on your demands for cash share contribution from government. Much realistic is you cannot keep on raising prices forever. What has been the reaction of government on that? If they are really certain about maintaining a postal system in Netherlands and like, we can also see that this is realistic to account for cash. What was been the reaction of government then?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [45]

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We don't know yet. So we gave, of course, our reaction to the draft Postal Act. In that, out of the many reactions, this was one of them. What normally happens in such a process, there are more market parties, who probably will have delivered their views on the Postal Act. Some of the amendments will be taken up in the new Postal Act and that Postal Act is seen, and of course, commented by the State Council. And that will lead to a new postal -- new draft Postal Act which will be discussed in Parliament.

Until that moment in time -- so until they will publish the new draft Postal Act up for discussion in Parliament, we don't know to be honest what exactly has happened with the comments we delivered but also the comments others delivered.

And if the -- is the translation for net of cost already liked cash in fee or is a translation of net of cost already in English? The net post compensation?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [46]

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Yes.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [47]

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Net post compen.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [48]

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Yes. To a numbers question. Firstly, on Page 29. You mentioned the amount of EUR 15 million and the amount of EUR 25 million to EUR 35 million. How should we look at those numbers?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [49]

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EUR 25 million to EUR 35 million is the impact on the underlying cash operating income. That is if we can complete the transaction with Sandd in the fourth quarter. As you might remember, Andre, that the flow of how the synergies come in, the negatives are driven by implementation costs. We'll have slight delay in our own cost saving plans and synergies, of course, will only come in when we've moved volume from their network to ours. And the balance in the fourth quarter of 2019 of those 3 elements together will be minus EUR 25 million to EUR 35 million. And then we said based on the insights we did have by February, the 2020 number would be slightly created on underlying cash operating income.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [50]

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So that's the EUR 15 million?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [51]

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EUR 15 million was the impact on the EBIT number or normalized EBIT number and the difference between those 2 is the difference between normalized EBIT and UCOI. And the difference between -- oh, that's due to provisions and the cash out from provision.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [52]

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Okay. You mentioned the net debt number of EUR 702 million. Can you also give us the adjusted EBITDA number?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [53]

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No, we don't really give that, but as I said, the leverage ratio is not exceeding 2, so that basically gives you roughly the answer.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [54]

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Now what's the reason for that not mentioning there? Because it's quite important for different investors to see where you are in terms of debt ratio.

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [55]

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We've given the normalized EBIT number. We also given an indication on the precision elements. So I think there's enough ingredients to get a fair assessment of the EBITDA. And what I said, leverage is not exceeding the 2.0.

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Jochem van de Laarschot, PostNL N.V. - Director Communications & IR [56]

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Okay. Let's move to our online participants. Operator, can you please take over now?

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Operator [57]

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The first question is from Mr. Ruben Devos, KBC Securities.

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Ruben Devos, KBC Securities NV, Research Division - Senior Financial Analyst [58]

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I have 2. First one relates to the implementation costs related to the infrastructure expansion. I think you recognized cost of more than EUR 7 million in the first half. Just wondering whether that level of costs been in line with your expectations? And could you maybe give a rough indication what we can expect in the second half of this year? Can imagine, yes, these are one-off costs. They're expected to come back in the next few years given the announced network developments in the coming years? So any color you give on that for the years beyond 2019 will be very helpful. Then secondly, just curious whether you'd have the latest update on the ongoing discussions with FNV. Are there still the risks today after they signed CLA with the other unions? And then related to that, what could we expect for the new CLA for postal deliverers, which, I believe, expires at the end of September.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [59]

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All right. Let's start with your last 3 questions. The first one on Significant Market Power. I think it is -- there's no news at this moment in time, so that means that we have the, of course, the draft decision from ACM. We have our reaction, which was already sent to ACM, I think 10 or 12 weeks after the first draft, which is also the case for the other market parties at this moment in time. If they come up with that decision and the decision is more or less in line with the draft, it will have a negative impact and that's the difference between what we see today, EUR 40 million to EUR 45 million and, in fact, EUR 50 million to EUR 70 million mentioned also in the presentation and that EUR 50 million to EUR 70 million will be fully visible in 2021. And then coming to...

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Ruben Devos, KBC Securities NV, Research Division - Senior Financial Analyst [60]

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I'm sorry to interrupt. But my question related to the FNV, the ongoing discussion with FNV and the new CLA for postal delivers, yes.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [61]

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Oh, we understood SMP but you -- FNV, okay!

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Ruben Devos, KBC Securities NV, Research Division - Senior Financial Analyst [62]

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FNV, yes.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [63]

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Yes, yes, yes. No problem. That's what I understood as the last 2 questions around the unions and the CLA for postal deliverers. I think there is a CLA for postal now, which is signed together with the other 3 unions not being FNV and the other 3 unions together have more than a majority with the people and with the members, of course, being part of unions. And that's the reason why it is a validly signed CLA, which is in place at this moment in time, which will end in 2020, I think April 2020. So that's the status around our current CLA. It's a signed CLA. It's fully implemented. And there will be new negotiations when it expires beginning of next year.

Then the second CLA we do have is the CLA for postal deliverers. There, that will end in the third quarter of 2019. It means that we will start discussions with the unions around the CLA also in the third quarter so we'll start discussions with all the unions, which means including FNV. So that's the current status.

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [64]

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Then back to your Parcels question. I'd say the increase in cost related to the expansion of the network relates, of course, that when you open up a new depot, you have to adjust all your transportation routes. Now you've got 22 depots in the beginning, 23 right now. That means if you've got additional routes, which in the beginning are not completely efficient given the fact that you need to, let's say, grow into the volumes to make that change in line -- and transportation network very efficient. So that takes a little bit of time.

And as we said in 2019, we'll open up another one within the next weeks and another one later in the year just in time for the Christmas and Sinterklaas season. One of the key components of our strategy of Parcels going forward is to create a better balance and volume growth, margin development as well as investment levels required to grow the business.

So our investment in the small parcel and sorting center will refrain us from having to open a lot more parcel depots and will also be beneficial to the cost per parcel as we've indicated in the Capital Market Day slide.

So we expect to improve on the operational efficiency of Parcel on the back of more volume growth in the remainder of this year. And as of 2020, 2021, particularly when the small parcel center is going to be opened, we'll see an acceleration of that as well.

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Ruben Devos, KBC Securities NV, Research Division - Senior Financial Analyst [65]

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Okay. I understand that will obviously benefit the cost per parcel delivered and processed, but just could you have any indication on the implementation costs really in H2 or maybe for 2020 or that be mean a ballpark figure?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [66]

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No. As I said in the bridge -- explained the result of Parcel, you'll see an increase in those cost related to expansion of network in the quarter of roughly EUR 2 million, and that's all I can say. Going forward, we said we want to improve the margin of Parcels going forward by means of the commercial initiatives as well as the operational initiatives that should bring the cost per parcel down resulting together in the higher yields we're looking for.

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Operator [67]

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The next question is from Mr. Marc Zwartsenburg, ING.

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Marc Zwartsenburg, ING Groep N.V., Research Division - Head of Benelux Equity Research [68]

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Coming back -- again, sorry for that on the Parcel division. I know Ruben trying to squeeze out some on the implementation cost. But should I see the EUR 2 million of implementation cost that were in Q2 as a result of the first DC being just about live and the next one almost live and most of it is already in there. If we should at least see a little bit of lower implementation cost going forward in the second half. And related to that, we're trending a little bit below, so you expected the margin to improve and also the growth to accelerate, but how much -- what if the growth doesn't accelerate? How confident are you still with your 7.5% low-end of the range margin. That's my first question. Then on Postcon and Nexive, mainly on Nexive. It's still in discontinued? Doesn't mean that you will probably reach also an agreement there already in the second half? Or is it possible that this goes into 2020? And then related to that, how much of the actuals carry forward, say the EUR 60 million deferred tax asset? How much is related to Postcon that should come in quickly? And how much is related to Nexive? And should we look at EUR 60 million in terms of cash flow? When should we see a part of that amount? How much is say, for 2020? Those are my questions.

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [69]

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Okay. I'll take the last 2 to begin with. We're still in the process of selling Nexive. We expect to be able to do so before the end of this year. We'll remain to report that discontinued operations. And at this moment, Marc, we'll not make a split both in terms of equity value nor in terms of ETA between those. We're still in the process of negotiation. I don't think it's in the interest of the company to split those numbers right now. As Herna said at the moment that we complete the transaction, we'll give a bit more information on the Postcon transaction. But at the moment, we're not willing to split those numbers between the 2.

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Marc Zwartsenburg, ING Groep N.V., Research Division - Head of Benelux Equity Research [70]

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And the reason for the timeline on Postcon so year-end, is that because of all the competition authority timeline?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [71]

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It's because of the conditions between signing and completion and we expect definitely to complete that before year-end. And again also here, the saying applies the sooner the better, but definitely before year-end.

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Marc Zwartsenburg, ING Groep N.V., Research Division - Head of Benelux Equity Research [72]

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Is there a break fee involved?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [73]

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No, but there's also -- there's no reason for that. It's regular conditions between signing and completion, that need to be fulfilled. So -- and also, relates back to Henk's earlier question, we were not left with any businesses that we don't want to have, that everything goes as part of this transaction.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [74]

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Also for Nexive, we expect to finalize it, at least to signing in the second half of this year. So that's -- was it correct view on how we look into Nexive. When it comes to Parcels, so we expect growth to accelerate a little bit towards the end of the year. It's, of course, based on -- as explained by Pim, mainly the fashion segment did see a little -- the second quarter which was a little bit less than expected. It's not expected that to continue for the remainder of the year. So that's one of the reasons. And secondly, we also, of course, expect some growth to continue for the second half of the year as we did see also in many of the other years. If you think about margin improvement, I think very important and that's what we tried to do by giving you also the impact on margin with the Spring number is that the margin for our Parcels business is improving and also when you compare Q1 to Q2, we see this improvement in the margin of Parcels. That's what we expect also if we look into the second part of the year. And as explained, mainly the reason why we gave the number of Spring and then especially, of course, the decline in underlying cash operating income compared to the second quarter of 2018.

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Marc Zwartsenburg, ING Groep N.V., Research Division - Head of Benelux Equity Research [75]

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We should not expect say the implementation costs in the second half to be a deal-breaker here on the margin. That's, of course, why people are asking about it and why people are worried a bit. Because there's still 2 decisions to come in and that need to be implemented. You can have one, of course, and then you have the CLA agreements on strike and maybe you're out? Must be -- that's not the -- do you have now room to cover that?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [76]

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To be very clear, CLA negotiations are about mail deliverers. It have nothing to do with Parcels so that's why...

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Marc Zwartsenburg, ING Groep N.V., Research Division - Head of Benelux Equity Research [77]

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And Parcels has nothing coming up? Okay.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [78]

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No, that CLA is already concluded and it's a binding CLA, which is already in place since last April. And so I think that's important to understand. And with the confirmation of the 7.5% to 9.5% of Parcels as explained by Pim, when he talked about the outlook and also the expectations, we do not have the expectation that implementation cost in the end will hurt the 7.5% to 9.5%. Because then, of course, when we knew at this moment in time, we would have set something around it, and we did not.

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Marc Zwartsenburg, ING Groep N.V., Research Division - Head of Benelux Equity Research [79]

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Maybe a final one. What is the next date actually for the ACM in the parliament to come up with something on the -- around Sandd?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [80]

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Yes. It's -- we don't know. It's in the hands of the ACM at this moment in time. So we hope rather soon.

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Marc Zwartsenburg, ING Groep N.V., Research Division - Head of Benelux Equity Research [81]

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And there's no session planned yet by the government parliaments around this?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [82]

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No, no, no. So it's truly waiting for the decision of ACM. Nothing's planned.

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Operator [83]

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(Operator Instructions) Our next question is from Mr. David Kerstens, Jefferies.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [84]

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Two questions from my side as well, please. First, regarding the Parcel price/mix effect. I think you presented now in a different way and you showed some -- an effect of EUR 3 million in absolute terms. That seems -- actually, if you put it in the percentage term, much lower than what you had previously. And I was wondering if you already see any positive effects from the new commercial strategy? Or is this just a different way of presenting the numbers? The second question is regarding the remarks you make about the volume shift to competitors? I understand this is still ongoing despite the potential changes to the postal law. Where do you see market share of this group of competitors at the moment? Has it substantially moved at all? I think briefly I think you called it at around 5%. And then related to this, do you also see any volume coming back to PostNL for example from Sandd customers. If you're a Sandd customer today, what is the reason to stay with them? Why would you not move your contact to PostNL already before the merger takes effect? And then final question is a follow up on the leverage ratio question. I was also struggling to calculate the net debt-to-EBITDA ratio below 2. I understand that is based on the performance in the first half of the year as well as the -- well, the expected performance in the second half. And I was struggling to get to a number below 2. So any further color on how you calculate that EBITDA number will be much appreciated.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [85]

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The Parcel price/mix effect is presented in absolute terms and you're right that it's less than we did see in the quarters before. I think it's too early days to say that this is a full effect of the implementation of our commercial initiatives, which we announced at the Capital Markets Day but you do see some effect. And that's also the reason why we did say in the press release that first signs are visible.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [86]

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Are there any price increases included? Or is it just purely mainly mixed effects to drive the improvement?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [87]

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It's small price effect and bigger part is mix. Then your remark about volume shift, do we see the market share of postal operators changing much, the answer is no. We don't see it's changing much. And so I would not change the number 5 or 6. It's still, in our view, around that number. Is there lots of volume coming back to PostNL? There, the answer is no as well. And so it remains to be with Sandd or it remain to be with PostNL and there's not a big shift going on at this moment in time or volume from one to the other or the other way around. So remind you customers are waiting for -- also here waiting for final decision and waiting for what will happen.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [88]

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But are there any large contracts coming up for renewal before the acquisition closes?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [89]

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Yes, the answer is hopefully -- hopefully, of course, we close this case in Q4 because that's still the assumption we have. But of course, there are contracts coming up in the last part -- in the last quarter of this year for some of those contracts will end by January 1, 2020.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [90]

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Okay. Understood. And on maybe the leverage question?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [91]

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Yes, yes. I was about to go there. Let me try to explain it better than I did last time. If you leverage ratio based on our policy is, of course, the year-end adjusted net debt divided by the adjusted EBITDA. If we look at the outlook for the remainder of the year and for full year, you'll see a couple of things. Net debt will improve in comparison to the end position for the end of this quarter. That's always the case given the phasing of our cash flows and results are realized within PostNL.

So if we go to look at, let's say, our outlook expected year-end adjusted net debt divided by the adjusted EBITDA that we expect, which is a little bit above the EUR 300 million will be above or I would say within the boundaries of our dividend policy.

Another way to look at it would be to look at the current adjusted net debt position, but you have to then divide it by then full year EBITDA number. You could also look at the last 12 months EBITDA and also then in the boundaries of the dividend policy.

So on the back of that and on the back of our strong Q2 performance, and as well as what we clearly said, we'll just apply the dividend policy. We decided to pay out the interim dividend of EUR 0.08 per share.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [92]

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So if you take the backward-looking approach, I assume you take out the lease liability since you have not restated the -- or the second half of 2018? Is that correct?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [93]

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It will take the same definition that we currently apply, which has always been the definition of adjusted net debt very close to the definition also credit rating agencies use and then you divide that by the last 12 months adjusted EBITDA.

And going forward, you look at given the performance that we expect for the remainder of the year, where will we expect adjusted net debt be at the end of the year, divided by what the EBITDA number that we expect on the back of the outlook of EUR 170 million to EUR 200 million underlying cash operating income.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [94]

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So that's excluding the EUR 25 million to EUR 35 million for Sandd?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [95]

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Yes. Indeed, this is on the back of a growing concern...

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [96]

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As is today.

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [97]

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As is today.

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Operator [98]

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We have no further questions, sir. Please continue.

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Jochem van de Laarschot, PostNL N.V. - Director Communications & IR [99]

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Okay. Then I think we have reached the end of our meeting. No, just 1 final question.

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [100]

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Or 2.

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Jochem van de Laarschot, PostNL N.V. - Director Communications & IR [101]

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2? Okay. Here in the room, I'm sorry, only.

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Unidentified Analyst, [102]

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Based on your comments on, let's say, your growing concern, you would still expect the net debt-to-EBITDA be below 2?

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [103]

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At the end of the year.

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Unidentified Analyst, [104]

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But it depends on the acquisition...

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [105]

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At the end of the year...

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Unidentified Analyst, [106]

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Yes. And the acquisition of Sandd could turn things...

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Pim Berendsen, PostNL N.V. - CFO & Member of Managing Board [107]

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Yes, the acquisition of Sandd and that's also what we said in February what drives a potential excess over the leverage ratio is the transaction of Sandd so the cash out on the purchase price and the other component so implementation costs, delay of cost savings and then offset only partially in 2019 with positive synergies will lead to the increase of the leverage above -- significantly above to 2. That's also why we said a 12 to 20 months potential delay in dividends. But on the back of growing concern performance, we can pay out a interim dividend and we're happy to do so.

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Unidentified Analyst, [108]

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Going back to the various scenarios so I would say with Herna here now, you presented -- in February, you presented a sort of flow chart with the various routes could be but if there's no -- of ACM, you can -- theoretically, you can take the case to the government affairs and ask for the Article 47 procedure. If there's a, "yes," but with various conditions, there are 2 varieties, one is that the conditions are so ridiculous that you pull the plug. The other one is that -- is there another one that you say, okay, don't pull the plug but I'm going to appeal against this decision wherever in a court at a...

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [109]

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In my view, it will be a yes or a no. If it's yes, it could be yes, under conditions and then, of course, it's still up to us to discuss if the conditions are, as we also said, by the end of February was still in line with what we think it should be more or less -- keep this a value creative business case. But that's I think still the answer and our expectation with all the support there is, all the political support because there's a very broad political support that we will find a solution that's why we say we're still very trustful and still with lots of confidence that we can bring this to a deal somewhere in Q4 2019. That's based on those assumptions.

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Unidentified Analyst, [110]

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There's no -- if you believe the conditions are so unfair, there's no alternative rules but to pull the plug?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [111]

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It's not our assumption. Our assumption is that we'll find a solution. That's what we truly do think.

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Unidentified Analyst, [112]

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Can I ask you a personal question, Herna? Your name has been mentioned too in various articles in relation to KPN. I assume that since your reappointment was largely motivated by the fact that you have a job here to run maybe integration one to take off and integration of Sandd, will you be doing the full year presentation as well?

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Hendrika W. P. M. A. Verhagen, PostNL N.V. - Chairman of the Management Board & CEO [113]

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Yes, that's a good assumption. Yes.

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Jochem van de Laarschot, PostNL N.V. - Director Communications & IR [114]

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On that happy note, let's conclude the meeting. Thank you very much for joining us today. If you have any further questions, you know where to find us. Thanks very much, and have a good day.