With underlying cash operating income of €245 million in 2016, we continue to deliver on our promises. This solid performance, supported by the sale of our stake in TNT Express, resulted in a further improvement of our financial position: we now have a net cash position and our consolidated equity position is close to positive territory. This validates our expectation and commitment to resume dividend payments in 2017 and highlights how seriously we take our priority to realise shareholder value.
Supported by our 2016 results, we have confidence in our strategy which we are currently implementing and executing successfully. We have made significant progress in transforming PostNL into an efficient, flexible, customer-oriented and financially-healthy company over the past few years, creating sustainable stakeholder value. This has brought us another step closer to realising our ambition to be the postal and logistic solutions provider in our chosen markets.
In this Annual Report you will find inspiring examples that substantiate how well we are transforming our company, in line with the key market trends that we have identified. Some of these stories are based on initiatives that we started a long time ago and which have continuously shown their results, such as the adjustment of our mail organisation to the ongoing volume decline. Others we started only very recently, and are in their first stages. One example is the pilot we launched with the Municipality of Rotterdam to identify loneliness among the elderly.
We strive to accelerate this transformation to further improve our value proposition. With additional cost savings and targeted price increases, we remain focussed on delivering a sustainable cash flow in Mail in the Netherlands. Strong growth in local and global e-commerce sales require us to make smart investments in our Parcels’ infrastructure, which in turn enables us to enhance our capacity and capabilities to provide all our Benelux customers with value-creating solutions. This will accelerate the strengthening of our position as the leading e-commerce logistics company in the Benelux, creating further profitable growth. At International, our focus is on capturing opportunities created by accelerating global e-commerce growth, using our cross-border operations, and on further building Nexive’s and Postcon’s position. Together, this will result in enhanced cash profitability of our International segment.
We also continue to further strengthen our information technology and data capabilities, supporting our transformation. For example, our strong IT capabilities have helped us standardise and simplify our back office processes, further improving efficiency and cost savings.
At Mail in the Netherlands, we used cost savings and price increases to continue to effectively mitigate the impact from the ongoing volume decline. We began adapting our network of post offices and post boxes to reflect postal volume developments and customer needs, and continued to roll out our next-generation sorting machines. The introduction of our next-generation sorting machines also allowed us to further reduce the number of mail preparation centres from 80 to 54. We redesigned our car unit, restructuring about 30 hubs. We also reorganised Mail in the Netherlands’ management structure, resulting in cost savings that correspond with the diminishing operations. Overall, we realised cost savings of €64 million. We also increased our prices in a balanced manner, ensuring we do not materially impact volumes.
I would like to emphasise that we consider shareholder remuneration our top priority.
At Parcels, investments in our best-in-class infrastructure proved to be successful. We had a good holiday season, resulting in record-breaking volume peaks. We continued to introduce new services and solutions, anticipating customers’ demands. These included same-day delivery and Return on Demand. We developed the latter in cooperation with a major e-tailer, and we are now expanding the service to other customers. We also saw strong growth of our Belgian volumes, helped by the fact that our customers can now benefit from the same high quality service levels in Wallonia as they are used to in Flanders.
We strengthened our position as a strong cross-border player, boosted by the rapid growth in international e-commerce volumes and the introduction of new solutions, such as Tag & Trace, which we rolled out across the majority of our markets. This resulted in volume growth both to and from Asia, and within Europe. We also concluded our strategic review of Postcon, and decided to continue to invest in our German operations. This included making a number of acquisitions to help realise the growth potential in the German market. We faced tough market conditions in both Germany and Italy in 2016, and the expected recovery, particularly in Italy, was delayed. However, we also saw promising developments in our nationwide Italian parcel network, which doubled its parcels volume. We are confident that we will reverse the recovery delay in 2017, and going forward.
Approaches by bpost
In 2016 we were twice approached by bpost, resulting in discussions about the possibility of merging our two companies. The first set of discussions ended in May, with neither party able to agree on the terms of such a transaction. In early November we were again approached by bpost. The Supervisory Board and the Board of Management decided unanimously to reject bpost’s second proposal, after carefully considering the interests of all of PostNL’s stakeholders.
The Boards recognised that bpost's final proposal represented a considerable shareholder premium, provided that a transaction could be completed, and we realise that our rejection of bpost’s proposal in December 2016 was a disappointment to many of our shareholders. However, the Boards were not convinced that a combination of the two businesses would be successful, nor were they convinced a transaction with bpost could ultimately be realised. We explained this in a letter to our shareholders, dated 7 December 2016, which can be found in appendix 4 of the Annual Report.
The human factor
Our people have played and will continue to play a vital role in our transformation process. Successful transformation requires specific skills and demands flexibility from our people. It also requires a safe working environment, where people are respected and enjoy a culture that promotes close collaboration across the company’s business segments. It is our responsibility to create these conditions, such as by focusing on diversity, inclusion and engagement.
Our people are given the opportunity to improve their personal and professional skills through our online learning academy, which offers a broad range of learning modules, 24/7. In 2016 we saw a significant increase in the popularity of the online academy, with registrations for certain topics growing by as much as 400 percent. Continuous training not only improves the employability of our people, it also makes them more open for change. For example, having our mail deliverers work with smart phones not only significantly improved the efficiency of our mail delivery and made the tracking and tracing of our letterbox parcels possible, it also granted some of our mail deliverers access to the digital age.
It is stories like these, as well as the countless other examples of hard work and effort our people deliver each and every day, that reaffirms my confidence that we will realise our strategy and accelerate the transformation of PostNL. This will enable us to safeguard a healthy and sustainable future for our company and create long-term value for all our stakeholders.
We want to be an employer of choice for everyone who works for and with us. We work hard to create an atmosphere where people are passionate and proud to work for PostNL. Our people should enjoy working for us and feel responsible for the collective results. To monitor our progress in this area, each year we carry out an employee engagement survey. In 2016 engagement increased to 67% from 64% in 2015.
Our people have played and will continue to play a vital role in our transformation process.
Over the past few years, our growth as an e-commerce logistics company has increasingly contributed to our revenue and results, while the mail business is decreasing due to volume decline. As I mentioned earlier, we expect this process to continue, driven by market trends. In 2017 we will start accelerating the transformation of PostNL into an e-commerce company, to realise our ambition to be the postal and logistic solutions provider in our chosen markets and to further improve our value proposition.
In doing so, one of our biggest challenges will be continuing to find the right balance between adjusting our mail operations to the decreasing volumes in a competitive and highly regulated market, while managing the fast-growing e-commerce business in the Benelux and cross-border business internationally. However, this also creates opportunities. For example, by continuously looking for synergies between the businesses, and introducing the technological developments and innovative solutions developed across the company, such as in our innovation studio.
I would like to take this opportunity to thank each and every one of our people for their contribution and hard work in 2016. I would also like to thank our customers for their continuing loyalty, and for working with us to develop new and innovative services and solutions, helping them enter new markets, stay relevant in cur- rent markets, and stay ahead of their competitors. Finally, I would like to emphasise our commitment to prioritising and delivering stakeholder value. Following the sale of our stake in TNT Express, with the sensitivity of our pension obligation to interest rate fluctuations limited, and given our solid results in 2016, our consolidated equity has improved significantly. As a result, we will recommend our shareholders to approve the reinstatement of our dividend, with a first payment based on our 2016 results.
On the basis of our outlook for 2017, we trust that we will realise a positive consolidated equity in the course of 2017. This belief, combined with our increased ambition for 2020, has led us to adjust our dividend policy going forward, with the aim of paying a progressive dividend. This supports our commitment to create long-term shareholder value.
Back to Annual Review 2016