PostNL's (TNTFF) CEO Herna Verhagen on Q4 2020 Results - Earnings Call Transcript

PostNL N.V. (OTCPK:TNTFF) Q4 2020 Earnings Conference Call March 1, 2021 5:00 AM ET

Company Participants

Jochem van de Laarschot – Director-Communications & Investor Relations

Herna Verhagen – Chief Executive Officer

Pim Berendsen – Chief Financial Officer

Conference Call Participants

Frank Claassen – Degroof Petercam

David Kerstens – Jefferies

Marc Zwartsenburg - ING

Lotte Timmermans – ABN AMRO

André Mulder – Kepler Cheuvreux

Henk Slotboom – The IDEA!

Ivar Billfalk-Kelly – UBS

Marco Limite – Barclays

Andre Mulder – Kepler Cheuvreux

Operator

Ladies and gentlemen, thank you for holding, and welcome to PostNL Q4 2020 Analyst Call. At this moment all participants are in listen-only mode and after the presentation there will be an opportunity to ask questions.

I'd like to hand over the conference to Mr. Jochem van de Laarschot. Go ahead, please.

Jochem van de Laarschot

Thank you, operator. Good morning everyone. Thank you for joining us this morning. With me here in the room, Herna Verhagen, our CEO; and Pim Berendsen, our CFO. As usual we will start with our presentation going through the slides that are available on our website. And after that, we will open up for Q&A. Herna, over to you.

Herna Verhagen

Thanks a lot. And we'll start on Slide number 2, where we have an overview of what we will do today. Of course, we will dive into the details of 2020 business performance as well as financial performance then step over to PostNL's strategy. Part of the strategy is very well known because it's our Parcel and Mail strategy, but we will add today, of course, our digital transformation and the medium-term financial objectives that belong to that digital transformation. And last but not least, we will give you a few on 2021 our capital allocation outlook and some concluding remarks.

So stay with us and we'll start with the key takeaways and that's on Slide number 4. I think we said it already quite some times, but 2020 was an exceptional year in unprecedented circumstances. We took lots of measures to keep our people safe and healthy. We changed part of our operation chain. We used, of course, lots of plastic screens, hand gels, et cetera, et cetera, to keep our people safe and healthy, to keep our customers healthy and we were able, of course, to have a strong post and Parcel network over the full year. That has led to lots of positive improvements in employee satisfaction, in customer satisfaction, in the amount of volume we distributed and as you already have seen a very Q4 results – very strong Q4 results and an improved financial position, which will help us in our acceleration in 2021.

If we move down to Slide number 5, tell you something about the financial highlights. We had an extremely busy Q4, which accelerated the strong performance we already saw in the first three quarters and therefore significantly outperformed our earnings and cash flow guidance. The exceptional performance in the last weeks of the year was mainly driven by Mail in the Netherlands and that was because of the fact that we had much more Christmas cards than expected. As you can see on this slide, we outperformed in revenue, 14% revenue up compared to 2019, normalized EBIT we came in at €245 million, which is 81.4% more than a year before, free cash flow €186 million, which is 73% more and of course normalized comprehensive income, which is €197 million with a proposed dividend of €0.28 and that needs to be approved, of course, at our AGM in April, very strong operational performance leading to a very strong improvement in our financial position and earlier than expected a reinstatement of our dividends.

A little bit more of the details of the full year normalized EBIT are on Slide number 6. EBIT at €245 million we do think that €55 million is non-recurring, a result driven by COVID-19, €40 million of that is in Parcels and €15 million of that is in Mail in the Netherlands. The flexible infrastructure we have in Parcel, the ability we had, of course, in arranging extra capacity showed the robustness of our business model, but also gave us the opportunity to deliver €337 million Parcels in 2020. The €40 million in normalized EBIT relates to €25 million Parcels, which we do think are COVID related. And then you should think of stuff, which is ordered because people needed to work at home, people wanted to sport at home, do the fitness at home, et cetera, et cetera. Parcels we do not expect to see again in 2021.

Secondly, we did see a very favorable price/mix effect within Parcel, which is partly due to the fact that also lots of smaller shops started a web shop and they started, of course, to send parcels as well. Within Mail in the Netherlands overall, of course, a decline in volume 9.6% with the fact that we have much more greeting cards and all the single items, and therefore also a favorable price mix effect. The costs which are related, of course, to rewarding our people and people working for our sorting and delivery partners is €15 million. And that means that we had a very good financial year at PostNL, but we also, of course, made sure that the people working for us and with us had a possibility to take opportunity of that as well with the payment of €15 million.

We did good financially and we also did good non-financially and that's what you find on Slide number 7. The amount of Parcels and Mail delivered emission-free is from 19 – developed from 19 to 20%. The engagements under our employees saw an increase, we saw an increase from 76% to 84% and that in a year in which we had to take lots of measures to keep our people safe and healthy, also the amount of highly satisfied customers increased to 37% something which we are proud upon and it had a positive impact on our reputation. It's, of course, increased from 67% to 73.9%, which is in the Netherlands a very high reputation score.

Fortunately, it was not only the non-financial scores that did well, we also saw a significant positive development in our digitization and that's what you find on Slide number 8. Important, of course, for our Digital NEXT program, which we will come to in a minute, we did see the growth in online visitors, 779 million visits in the year 2020, which is 62% more than the year before and 60% of that was realized via our app. The amount of the PostNL accounts on the app increased to 6 million and by the end of February we're already higher than 6 million, which means that it keeps to be very interesting for consumers to have a download of that app, you can follow your Parcel and your Mail items.

We did sell much more stamp codes, which party of course has to do with the popularity of sending cards, but also, of course, the ease of using the stamp codes 118% increase from 2019 to 2020. And what we talked about earlier is the fact that we introduced our chatbot Daan. We saw an increase in demand of chats with Daan of 70% that helps us in our efficiency, but it also helps customer satisfaction because the easy answers which can be answered by chatbot Daan do receive a higher customer satisfaction. And by this time, we already introduced Sam, which is our chatbot in Belgium, and we introduced Nor [ph], which is our chatbot for our business customers. So it's a successful formula for us, which helps us to increase the efficiency and increase customer satisfaction.

To give you a few more details on Meal and Parcels. And to start with Parcels, I would like to move to Slide Number 10. In Parcels, the growth in Q4 was 29.6%. And we were able with the flexible infrastructure, we have to further increase capacity also in the fourth quarter. It meant that we had a network which worked on almost a maximum capacity and that's helped of course, in efficiency and therefore also help in realizing the normalized EBIT we in the end realized. That's to get a risk, a positive price mix effect, which is partially because of yield management and that is what we have presented at capital market today in 2019, together with the fact that small and medium web shops grow faster and therefore of course, delivered parcels to us as well.

It was not only our parcel network in the Netherlands, but also Logistics and Spring, we had a very good Q4 and a good year, which contributed to the results of Parcels. The results of Parcels in the fourth quarter with €75 million, which is significantly higher than the year before and over the full year, €209 million and that delivered the margin of 10.2%. If you look into Parcels, it was an unprecedented year in which we were able to extend the capacity in our existing network, which helped us in our efficiency and which also helped us to maintain a good working possible Parcels network in the Netherlands delivering 337 million parcels in the year 2020.

Also Mail Netherlands, and that's what you find on, Slide 11, has an exceptionally strong performance in the fourth quarter, mainly caused by more greeting cards and other single mill items. That increased in the fourth quarter that normalized EBIT from €15 million last year to €82 million this year. And over full year, they realized €96 million of normalized EBIT, which gives a margin of 5.6%. Important to highlight is that the underlying volume decline is 9.6%.

Although we had an almost flat Q4, we do see that business mail is still of course substituted and therefore the 9.6% of volume decline over the full year. That also, I think, makes clear that cost savings going forward together with moderate price increases remain to be important. What helps us is the consolidation with Sandd. It added almost 30% of volume and it added of course, lots of efficiencies. And we will come to what delivered in synergies, but the synergy effect which came out of the acquisition of Sandd and the integration of Sandd, which was already finalized February 1, 2020 helped us in of course reaching the normalized EBIT we have reached over 2020.

In Q4, we did not have any non-recurring costs anymore other than the integration of Sandd.

I hand over to Pim.

Pim Berendsen

Yes, let's look at a little bit more detail to our financial performance in Q4 and full year 2020. And I'll start with Slide Number 13. There you'll find in the same format as we quite frequently update you on the performance of the segments, the bridge for parcels. And that is a normalized EBIT for the fourth quarter of €75 million, which is €34 million more in comparison to Q4 2019, obviously driven by a volume effect of 29.6%. Herna talked about the yield measures and the positive mix effects throughout our customer base that contributed €17 million to it.

Organic cost increases on the back of CLA increases an indexation to subcontractor stakeout six, and we've run the network in a very efficient way. So the volume-dependent costs deduct €67 million. Other costs there, you also have – we've included there, the additional payments for instance, to retail stores that we above and beyond the normal compensation we've given them we've paid to ensure that they were able to keep their stores open so that we could continue our delivery activities throughout these retail stores.

Other results, €14 million positive, which was on the back of the good results of Spring and Logistic for your benefit, we've included the revenue mix per segment Parcels in a different way. It gives you a little bit more indication about the relative size of all the components within the Parcels segment, and as Herna said, Spring, and Logistics had a very, very good quarter as well. So on a like-for-like basis the result for the Q4 numbers were €78 million and the – the impact of new labor regulation that we talked about very many times already.

If we then move over to the mail segment, you see the huge step up in profit from €15 million to €82 million, which was driven, of course, in the fourth quarter, by the limited volume decline of 0.2%. But more importantly, on the back of the positive price mix effect driven by the high demand of greeting cards that we distributed, particularly in December. A key component in this EBIT bridge is the contribution of the consolidation and the integration with Sandd within the quarter €21 million of net synergies included. If you look at full year number, the overall gross synergies amount of €79 million, and then you have to deduct €30 million of one-off restructuring costs bringing the net impact for the year 2020 at €49 million.

And as you know, we've sold apart a few companies within the mail segment being print and unaddressed distribution activities. And that's why you see in comparison to last year a minus three million in the Q4 bridge as well.

Then let's move over to the cash flow. Again, a very strong performance on cash in the fourth quarter, from the normalized EBIT of €140 million in the fourth quarter, we turned – corrected free cash flow of €135 million. And of course, they are specials in the fourth quarter being the sale leaseback transaction of €148 million and the payment of the transitional pension plans of €200 million bringing the free cash flow for the quarter at €83 million.

If you look at the several components that make the bridge from EBIT to cash flow a few points, we saw a positive from working capital in the fourth quarter which is an important point to take. CapEx, of course, increased in comparison to last year on the back of investments in IT, as well as investments in capacity expansion in parcels. And last year, there was a big change in provisions related to the restructuring provisions that we accrued for €0.04, which obviously did not materialize again in the fourth quarter of this year.

So all-in-all, a very strong performance on cash, not only in the fourth quarter, but for the entire year, which obviously helps massively to reduce our net debt position, which on the back of the December 31, 2020 balance sheet is at €407 million of adjusted net debt. The investments capital we currently deploy is roughly €1.3 billion.

And if you then calculate a return on invested capital, then we've achieved 17.2%, which is clearly a lot more on our weighted average cost of capital net of tax of 7.8%. So a lot of value being created and that obviously also results in good returns for shareholders. As Herna said, we will propose a €0.28 dividend per share to our AGM. And that brings reinstatement of the dividends earlier than expected back on the table, which is really good news for the company and obviously for the shareholders.

Our equity position has strongly improved at €219 million positive. Our leverage ratio is well below the two, trading at one times adjusted net debt over EBITDA. And that's why we'll be able to payout dividends again, we'll settle for a payout ratio of 70% times €197 million of normalized comprehensive income, which brings you to €0.28 per share.

Then we'll go back to Herna, for an update on our purpose, ambition and strategy going forward.

Herna Verhagen

Let's start on Slide number 19 with our purpose, delivering special moments, there are some data or the reasoning for a company is important for many people who work in such a company so that they understand what it's all about. Our purpose delivering special moments is based on a very strong fundament, our people. And in the end, leadership to get reasoning brings better results, not only non-financially also financially.

Purpose is translated into an ambition. And the ambition PostNL had is to be your favorite deliverer. This is our mid-term marker. It's the reason why we want to have consumer preference and the marker moves. And that's one of the reasons why our Digital Next program is so important, to be your favorite deliverer, to be in the sweet spot of every consumer, gives us competitive advantage going forward.

And that brings us to our strategy. And that is not new. We've discussed that already quite some times to be the leading logistics and postal service provider in, to, and from the Benelux in which we try to give clarity that we are focused on the Benelux and of course have a successful spring organization who brings parcels and mail into and from the Benelux.

Slide number 20, I will give some highlights about Slide number 20 on Slide number 21. So I'll move to Slide number 21. If you think about our strategy to be postal and logistics provider, it is translated into strategic objectives. And these strategic objectives of course, help the organization and help our people to set clear targets and clear goals. Those are related to help customers grow their business and means that we invest in customer satisfaction. Secure a sustainable mail market, which we will come to when we talk about our mail strategy, but also attract and retain motivated people, good people in our organization are the basis of our success, knowing that we have more than 40,000 people working for and with us.

And at work we want to do with an improvement of the environmental impact, when you are a transport company or logistics company like PostNL, you do know that our biggest impact on, of course, sustainability is CO2 emission. And therefore, we've set clear targets to be emission-free in the 25 city centers by 2025, and by the end of 2030, having our full last mile emission-free. And all of course, related to our goal to generate profitable growth and sustainable cash flow.

If you translate that into a value creation model, I think there are three important pillars under that value creation model. Within parcels, it's managed for profitable growth. Within mail, it's managed for value and we've added our Digital Next program. Let's go through these value drivers points by points.

I will start on Slide 22 with parcels. In parcels, we manage for profitable growth. If you translate that in objectives, then of course, we want to enhance our customer interaction with our sending customers, as well as receiving customers. We want to capture further e-commerce growth, and we expect that growth, there will be growth for the next coming years.

We manage our network capacity and of course, utilization of our infrastructure to capture the growth and of course, to be efficient. And we deliver smart logistics solutions in our parcel network and in our other logistical networks. The important value drivers that give us direction to manage for profitable growth are of course continued volume growth, are customer value management which says something around price and price mix, efficiency improvements, increasing capacity and better contribution of Spring and Logistics. I would like to give you a few highlights on each of those value drivers in the next coming slides.

On Slide 23, we want to highlight why we do have such a strong position to date, and that this because we have a state-of-the-art network, which delivers best quality, best surface and has biggest proximity. Our delivery quality, and I'll only take a few highlights, our delivery quality in 2020 was above 99%. We have in Netherlands and Belgium, almost 4,300 retail locations, which means that we're always in your neighborhood. Almost all our business customers do have a digital account with us, which makes interacting with them easy. And next to our big parcel network, we have more than 10 specialty networks, which are in adjacent markets, like for example, health, and like for example, valuable goods, which help our customers to be of course the best in what they do. That state-of-the-art network, of course, will help us to have a competitive advantage going forward.

On Slide number 24, we've explained what sort of market indicators give you insight on how market develops and that in the end impact our volume development. Important indicators are the e-commerce growth indicators, the percentage of online buyers. And we see growth that is not unexpected, but we see growth from 2019 to 2020. We also see that the amount of medium and heavy users has increased, and that of course accelerates the amount of parcels distributed. And we saw an enormous increase in the amount of workshops that has to do with the fact that many of the retailers started their workshop in 2020 to have a second channel to reach their consumers or their customers that led to a growth in online retail. So the online retail market share is 21% by the end of 2020.

Those market indicators are a good indicator for how market develops and therefore also how volume develops. And that's what you do see in our first value driver. We expect volume to grow over the next coming years, and in 2021 with 10% to 12%.

Second important value driver, and that's the one you find on Slide number 25 is of course enhance our customer value management. This is what we also presented at Capital Markets Day in 2019 that we wanted to introduce peak pricing, pricing on parcel size and to have a better customer value management. That's what we have already introduced, and what's helped us as well in our price mix in 2020. Going forward, we still want to improve our indexation and our normal price increases. That was not the only important line. This was the orange line. Also the blue line is important, which is on value drivers three, which is efficiency improvements, which are translated in cost per parcel.

2020 did show that we do have a robust network. And that adding, of course, parcels to the existing network delivers enormous efficiency. So we did see better utilization. We had a better equal flow, which we presented at Capital Markets Day as well. And we had a strong improvement in first-time delivery. Going forward, because of the opening of our new centers, we expect in 2021 a slight decrease in efficiency improvements.

If you think about capacity, so adding capacity to the network, which is of utmost importance to be in line and to stay up to the growth we expect in e-commerce and efficiency, we added an extra slide and that's what you’d find on Slide 26. This is again an explanation of value driver three, while we talk about network expansion, which is added expansion through the network and of course network utilization. And in both cases, we do see big improvements over the last few years within personnel, partially because we added of course, sorting capacity. And we will add in 2021, like for example, small parcel sorting center, a depot in the Netherlands, a depot in Belgium, but also a new sorting belt bol.com location and we added efficiencies, and equal flow is an important one in that as well as the perfect parcel.

The last value driver in our strategy within parcels is this strong progress in Logistics solutions and Spring, and that is value driver four. Important for the next coming years are top-line growth as well as a step up in bottom-line results. In Logistics, we have, of course our specialty networks, like for example, Extra@Home, which is having goods network like health, like food, like fulfilment and quite some others. Most of those networks are active in the Netherlands and Belgium. We did see quite some growth in all our networks in 2020 as an improvement in margin. We do think that further improvement is possible.

Spring delivered on all their strategic plans and even a bit more. With the growth we did see in 2020, at this moment in time, 77% of the revenue of Spring is e-commerce revenue. And we expect for Spring to be able to grow that further in the next coming years.

Strategy for parcels is managed for profitable growth with four important value drivers, which we highlighted. Second important part of that value creation model is Mail in the Netherlands. And that's what you’d find on Slide 28. Mail in the Netherlands is managed for value. And that means that we try to deliver a stable and predictable normalized EBIT and cash flow, which was also one of the big reasons behind consolidation.

What are the objectives? We keep positioning the value of mail and enhancing customer experience. The year 2020 showed us that physical mails does have a big attention and does have a certain value which cannot be created by digital mails. That is what we keep positioning going forward. The second important objective is that we keep the network accessible, reliable and affordable and reachable in the whole of the Netherlands and assets deliver stable and predictable normalized EBIT and cash flow.

What are important value drivers? So how are we going to create managed for value? Volume development plays an important role in that as well as a positive price mix effect, partly because of moderate pricing and realizing our cost savings.

A few more words on Slide 29, you find an overview of our strong nationwide postal network in the Netherlands. And this is the basis for sustainable profitability going forward. Integration with Sandd, as we've talked about in 2020 was already fully realized on February 1, 2020, and that gave us a start in the year. It made it possible to deliver the synergies and it made it possible to deliver quite some big amounts of letters per day. Our average is 8.1, but in peak season a set we did 14 million letters a day.

We have lots of letterboxes on the street, which makes that they are always in your proximity, still a lot of employees almost 32,000 and out of the 6 million users of the app, 1.5 million of those used MijnPost. And MijnPost means that you see which classes you will receive the next day or did they often.

The most important market indicator formula in the Netherlands and that's what you find on Slide 30 is of course volume development. At this moment in time middle market in the Netherlands delivers more or less mail in the Netherlands delivers more or less 250 letters per household per year. Largest senders are still the ones who do transactional mail. And the face of digitization in those markets is still relatively high, which means it's also for the year 2021, we expect the volume decline of around 7% to 9%.

The recovery of direct mail, it's not yet there where we want to have it. So we did see of course, a recovery in Q4, but we still want to see some recovery in the year 2021. And we try to help customers which for example, the digital, the usage of the Postzegelcode, which is a digital surface.

So going forward, we still expect volume to decline and that's important in how we of course, make sure that we tend deliver with mail in the Netherlands sustainable value. Value driver number one, the other important value driver issue find on Slide number 31. And that is of course realizing our cost savings. With the integration of Sandd, we've added 30% of volume and more or less 4,000 to new customers.

We also added to our network 4,000 mail deliverers and 300 staff employees. And our synergies are ahead of track or ahead of the track we of course proposed. That means that the synergy potential will be reached in 2021 and that is ahead of schedule as well. It also means that as of 2021, we will start intensifying our cost saving programs. That's what we will do by for example the second stage of the new mail route, which will have a possibility to condense our network through centralization of processes and the delivery of non-24 hour mail on peak routes. We will simplify our product portfolio and our sorting processes, which will deliver efficiency.

And we will digitize our supply chain and our supply chain control, which makes it, which enables us to do better planning of our people. And of course, to have a much more advanced customer interaction. So as we said before, we still see quite some opportunities in cost savings. Nevertheless, it also will take of course, most of efforts to make it happen. But an important value driver within a mail in the Netherlands. So strategy mail in the Netherlands is managed for value and then of course, look into volume development and look into realizing of our cost savings. The third important pillar in a value creation model is the acceleration of the digital transformation. The program with the name Digital NEXT.

On Slide number 33, you'll find the objectives of Digital NEXT. With Digital NEXT, we want to further digitize our commercial engine and our core logistics and our – scaling our platform and our digital business models. And the success of Digital NEXT are the value drivers behind that, that is – that those programs contribute to revenue growth, cost efficiencies, and of course also show to return on invested capital to improve customer satisfaction and we can follow the success by, for example, the amount of active users in our web and app, but also the percentage of digital first sales and service.

Let me give you some highlights of the program and why we are starting to de-acceleration of the program at this moment in time. That is where you will find on Slide 34. If you think about digitalization, this is the moment to accelerate. There was a change in customer experience by using iPads, by using iPhones, by indeed having contact via the app. We do see that Corona or COVID does make people more digital.

Data are much more used to drive real time decisions. We see new digital business models. We see robots. We see robotization possibilities. In other words, the world is changing around us and that changing world does change of course, the expectation of our customers, but also creates for us lots of opportunities to accelerate the digitization.

Digitization doesn't start today. And that's what you find on Slide 35. It had a long preparation time in which within PostNL, we changed a lot in our IT infrastructure, we changed a lot in our data infrastructure and our data insights. We started our agile transformation 2.5 years ago. We started our API platform, our advanced analytics, all in preparation of the moment in which we would be able to accelerate that transformation. So the acceleration of our digitization is built upon strong digital foundations, which are laid in the organization over the last – which has been laid in the organization over the last few years.

Digital NEXT and that's what you will find on Slide 36 will help and will contribute to our ambition. And our ambition is to be your favorite deliverer. That digital ambition underpins to us and underpins of course the fact that we want to be the favorite deliverer, and it also helps us to stay the favorite deliverer by seamlessly integration with our customers, with our consumers and operators, as much as possible driven by data and together delivering a unique customer experience. And that will be also a digital experience. With distinctive experience at the right time and place personalized and customized in a proactive way. All beautiful words, and I will give you some examples in a minute to give you clarity around what it could be and what in certain programs it will be.

It’s an ambitious plan and that’s what you will find on Slide 37, in which we have three important value drivers as explained. That is the transformation of our commercial engine by, for example, by simpler and smarter products, but also by automated and self-service retail. It is transformation in our core logistics and operations. By for example, having a fully data driven supply chain and it’s scaling our platform, our app and the digital business models around it. There are two important enablers.

So what we need to do as well is further strengthened our technical and data foundation. We already did quite a lot, when you look into the roadmap over the last eight years, but still some things to do in our foundational IT an important enabler and another important enabler is making sure that the people working for us have enough digital DNA to drive the transformation. And that means that we invest in, of course, education of our people at all levels but also hire new people to underpin this acceleration.

Slide 38, shows you how we are going to measure the progress we will make in our Digital NEXT program. We will do that in two ways. There are, of course, important internal digital metrics, which you find in the gray boxes. We have metrics for our commercial engine. We have metrics for our logistics and operational engine, as well as for our scaling our platforms. And in outcomes, which will be visibly externally as well, an increasing NPS and increasing revenue and increasing margin, a better employee NPS, the speed in which we introduce new products and services, but also our return on investment in capital and digital. Our programs will be closely monitor and measure to make sure that they deliver in the end, the ROIC, and of course, normalized EBIT we forecast.

A few examples. Slide 39, one of the examples and partly that already – we are already partly piloting that at this moment in time, it doesn’t want your half our app. And while you’re not at home, you can choose, if you want to have your parcel delivered with your neighbors or for example, with a retail store or edit by yourself decided place. You can make a picture of your passport, of your garden, et cetera, et cetera, upload the picture. And then your parcel deliverer will put the parcel at the – by you decided place. It’s an improved customer experience and consumer experience, it reduced delivery time and it makes that we have our first time ride is much higher. This is an example of how we are transforming our commercial engine.

Example two, which you find on Slide 40 is an example, how we transform our core logistics. These are the trackers on our roll containers. The trackers on our roll containers are enable us to follow roll containers through our process. And we can, of course, then look into our roll containers following the most efficient route from our customer to our sorting centers and from our sorting centers to, for example, retail stores. What they also do is they give us information on the amount of parcels and letters in the roll container. And that enables us to be even more efficient in the planning of our employees. The second example of how we think digitization can help us in transforming our core.

Then we’ve added a few more examples of what we are doing or going to do on Slide number 41, which I will not dive into. Slide number 42, which is in my view, a beautiful slide gives you an overview of an each part of our process, where we do think that digitalization can help us to become even more efficient than we are today. And then the last example, where I spent a few words on Slide number 43, which is an example of e-identification, providing digital security to PostNL on identity or address. It’s one of the things we want to add in our app, which gives us and also the consumer, the possibility to communicate with each other in the most safe way possible.

It also reduces the development and maintenance cost in the end of our services, but it also helps of course, to protect our PostNL brand reputation and protect the identity of our customers. I think all by all, examples of how digitization can help PostNL in reaching their ambition, reaching, of course, in the end also this strategy.

We’ve translated it into medium-term financial objectives, which will be highlighted by Pim as well as diving into the year 2021.

Pim Berendsen

Yes. Let’s look at the medium-term financial objectives first, and let’s start at Slide 45. The Digital NEXT program will accelerate the growth of our normalized EBIT, starting from the full year 2020 numbers corrected for the one-off COVID defects of €190 million. We expect an increase of €80 million to €100 million by 2024. 50% of this increase, roughly 50% of this increase will come from regular business performance. And the other 50% will be driven as a consequence of the acceleration of our digital transformation program, where Herna just talked you through.

If we talk about the first half, the improvement of business performance, that growth is driven by parcels, stable contribution from Mail and it includes an increase of €25 million of non-cash impact pension expenses as well. In other words, the growth in parts also is going to be bigger than 50% of the €80 million to €100 million step up in performance towards 2024.

The second part is then as a consequence of the acceleration of digital, and that will be a combination of both top line growth, as well as cost reduction or deficiency improvements. As of 2023, the acceleration of digitalization program will be accretive to return on invested capital as well as on dividend per share. And in the meantime, for the years 2021 and 2022, we aim to pay a dividend of at least €0.29 per share.

If we then move to the next slide, there you see what it takes to accelerate digitalization. And that is we’ll aim to spend €80 million roughly split 50-50 in operational costs, as well as CapEx. And the phasing of that slide gives an idea of how the maturity of the different initiatives will flow through our numbers. So in 2021, you will see an impact on operational costs, operating costs and EBIT of roughly €10 million and another €5 million to €10 million in our free cash flow outlook for CapEx investments. And as I said, accretive as of 2023 both in terms of return on invested capital as well as on dividend per share.

Obviously, the investment in digital is not the only investment we’ll make. Slide 47 gives an overview of the overall investment levels. And we already talked about it throughout 2020, that in 2021, you will see a steep step up in investment levels towards €140 million to €160 million CapEx levels. You will also find on this slide a split between the maintenance CapEx, Digital NEXT and IT, capacity growth in parcels, as well as investments related to the cost savings that we need to realize putting Mail in the Netherlands. What is important to note that not all capacity increases are managed through CapEx spent, but also some through lease and lease additions that will also contribute to the increase in capacity in parcels that is required for the future growth that we do. Also in 2021, we expect to go back to a roughly run rate of €100 million to €120 million of investments for the years 2022 towards 2024.

Now let’s look into in a little bit more specifically to 2021 outlook and guidance. And before we go, we felt it appropriate to give you a little bit of indication on how we look at prioritization our capital and this slide gives the capital allocation, which will fund growth and will lead to sustainable returns for shareholders. Obviously from a company perspective, but also from a return on invested capital perspective, investments in business will be our first priority. We will do everything we can to improve our competitive position. We’ll invest in capacity growth asset and in infrastructure that will allow Mail in the Netherlands to save costs, certainly some replacement and maintenance CapEx, and working capital as well. Given the fact that parcels will require a little bit of working capital to facilitate future growth.

The second component of that value creation model is related to the acceleration of our digital transformation what we just talked about. Obviously, we’ll want to accompany that with a good dividend return for our shareholders and the dividend will develop in line with our business performance with a payout ratio of 70% to 90% of normalized comprehensive income. Selectively we’ll look at M&A portfolio changes. We’ll adopt the disciplined approach based on clear strategic fit and return criteria before we engage in M&A transactions. If that all ends mid-term to excess cash, we’ll evaluate the opportunities to compensate future dilution of stock dividends and/or share buybacks optimization of balance sheet and our debt reductions when feasible.

If we then look into the transition from 2020 towards 2021, of course, you’ll recognize the €245 million normalized EBIT for the full year of which €55 million is non-recurring impact of COVID-19, which is split roughly €40 million from parcels and €15 million from mail that takes the baseline to €190 million. And then we expect parcels to continue to grow and add profit from that growth. As you know, we will open up new facilities for parcels, and that will take the cost base €10 million up. We’ll have higher pension expenses of roughly €20 million for the year 2021, which will be completely feasible in PostNL order and asset will have a negative EBIT consequences of our Digital NEXT program of around €10 million in 2021, which brings the outlook for normalized EBIT to a €205 million to €225 million for the year.

What is important is that – let’s say that outlook is obviously on the back of a still limited feasibility going forward around COVID-19, look down has continued into 2021, which has led to ongoing strong partial volume, but also additional operating costs. For instance, keep retail points open and only for the months, January and February, we paid an additional contribution to those retail stores, so €14.5 million which is obviously all taken into account when defining our normalized EBIT outlook full year of €205 million to €225 million.

If we look at the segment – per segment comparison on Slide 51, you’ll see the bridge for parcels starting point of €209 million normalized EBIT for the year 2020 that will turn into a €200 million and €210 million indication of normalized EBIT for 2021. And the baseline of €209 million includes there the €40 million non-recurring COVID impact. We expect parcels to grow 10% to 12% in volume, not an awful lot of additional positive price mix effect. We expect to roughly keep the customer mix and price mix around the same levels as the high 2020 numbers. Of course, we will add some organic cost developments and in other costs here, you will have the additional cost related to the start-up of new facilities, but also the parcels part of the Digital NEXT costs. So ending up with parcels between €200 and €210 million of normalized EBIT for the year.

If we look at the Mail in the Netherlands bridge, that bridge starts with €81 million corrected for one-off COVID impact €15 million that is, so €96 million of reported normalized EBIT. We expect a volume decline of 8% to 10% moderate price increases and mix effects will add a bit of profit. And then of course, organic costs on the back of – an increase of the collective labor agreements is a negative there and in comparison to 2020, we obviously won't have the one-off integration costs in 2021 not anymore. So that is a contribution to the normalized EBIT in 2021. We expect for a Mail in the Netherlands €85 million to €95 million normalized EBIT 40 year.

Then we move over to the other key performance metric financially and that as the development of free cash flow would in 2021. On here, you see our reconciliation from normalized EBIT to free cash flow from €205 million to €225 towards a €200 million to €230 million outlook for free cash flow.

And there's a few important points that I want to talk you through, we do expect the cash in – or we have realized, I should say, cash in on the sale of Sandd’s customer contact, which was completed on the 23 of February, a depreciation and amortization amount to €150 million. And obviously that's a little bit less than last year driven by the one-off depreciation cost outstand that be accounted for in 2020.

A clear step up in CapEx driven by the increase in capacity of parcels, the increase in IT, the acceleration of digital as well as investments in the new mail route at Mail in the Netherlands. As a little slide investment in working capital is expected for 2021, while change in pension, liabilities, which accounts for the difference between the pension expense and the regular pension cash contribution.

Also important to note is that the interest in income tax paid is minus 25%, but important, there is that after 2021, we expect to be able to – or we expect to go back to kind of regular tax rate and tax paid positions because by then we have absorbed all the liquidation losses in relation to the transactions of post-COVID in the next year, that we've structured for.

The €16 million is one-fifth of the faced payments on traditional pension plans that we still have to make, which brings the free cash flow to an attractive €200 million to €230 million for the year. That is summarized subsequently on Slide 54, where you see the outlook for normalized EBIT on €205 million to €225 million, which includes €30 million for digital NEXT, and then on cash pension expenses, roughly split by €10 million digital NEXT and €20 million additional pension expenses.

On free cash flow, €200 million to €230 million which includes round about €15 million for digital NEXT. Other insights in relation to financial indicators, the CapEx up to €140 million €160 million, the changes in pension liabilities around €55 million and the normalized comprehensive income, which is obviously, the baseline for dividends roughly around €200 million for the year.

I think important to look at the phasing off these results over the year, both in terms of normalized EBIT and free cash flow, and they will not be evenly spread over the quarters. You will certainly need to expect in comparison to last year, a very strong for first quarter in comparison to last year, the other quarters are expected to be below the 2020 numbers, obviously because of the fact that in Q2, Q3 and as well, Q4 on the Mail side, we've had the one-time or non-recurring consequences of COVID-19 in our results.

On a cash flow level, Q2 and Q3 are cumulatively expected to show negative free cash flow, partially due to the EBIT pattern but obviously as well driven by the increase in step up in CapEx and a little bit of working capital investments.

That brings us to the end of the presentation with some concluding remarks before we open up for Q&A. If you look at where we are today we believe that we are very well positioned for future growth. We entered delivering attractive return to our shareholders. If look, where we are today, 57% of revenue is e-commerce related. The integration of Sandd is completely done with a higher, quicker and better general realization. The portfolio restructuring selling off our international activities and refocusing the business on our core markets as successfully been done, with integrated our ESG objectives in the way we work and steer the business. And by doing all those things in 2020, including sale leaseback and pension agreements reached.

We have created a very, very strong financial position, which brings us at a good starting point for future growth as of 2021, balancing volume and value with Parcels by expanding our capacity to capture that future e-commerce growth, as well as capitalizing on the consolidation of Sandd’s and intensifying the cost saving projects to mitigate the ongoing mail volume decline.

We'll accelerate our digital transformation to strengthen our competitive position by building further on our platform, connecting customers and consumers and solutions to even simpler and smarter digital journeys. Surely, that will remain a little bit of uncertainty around COVID-19, it's difficult to predict where that will take us, but at least we believe that PostNL is in a very strong position going into 2021 and being the leading logistics and postal service provider into and from the Benelux.

Jochem, I think we'll go back to you.

Jochem van de Laarschot

Yes, thank you, Pim. And before we go into Q&A, good to note that we will organize a deep dive later in the year about the acceleration of our digital transformation program, and of course, you will be invited at that moment. Operator, over to you for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question is from Mr. Frank Claassen, Degroof Petercam. Go ahead, please.

Frank Claassen

Yes. Good morning or good afternoon to you all of you. Three questions, please. First of all, on your guidance for volume growth in Parcels for 2021 that 10% to 12%, how much impact of positive impact of the lockdowns or COVID do you see in that number? That's the first question. And secondly, on your balance sheets indeed leverage now already down to one times, is that a level you feel comfortable with or what do you do with additional room? Or, yes, any words on the leverage – target leverage you envisaged going forward? And then finally for the digital transformation program, do you also expect to see one-off charges or all the costs included in the P&L already to €80 million? Or do you expect from one-off charges for this? Thank you.

Herna Verhagen

We start with your first question. We took into account in our volume prognosis and also in our normalized EBIT guidance for the year 2021 that the lockdown – is of course, taking place in the Netherlands so far, and partly in Belgium as well. But we also took into account that as of a certain point in Q2, that the effect of COVID will fade out. So yes, we did take it into account with, of course, as Pim did say the uncertainty around COVID because nobody knows how it exactly will develop in 2021.

Pim Berendsen

If you look at your second and third question, I will take those. Well, if you look at the balance sheet indeed leverage rates you around about one, which is a clear and strong improvement in comparison to where we ended the year in 2019. I think for now that sets us up with a very strong balance sheet that allows us to also make the investments in digital that we want to make. That is the first and foremost step we want to make. If you look at the capital allocation sheet, which was there, of course, for that purpose, we will be looking at those investment opportunities. We’ll see whether or not there as attractive M&A chances that that allow us to grow the company going forward and only after we’ve taken those steps, we’ll consider alternative ways to return capital toward shareholders.

The third point all costs being one-off or cost in relation through step up in the number of people we employ of digital are taking into account the €80 million. So there’s no additional charge through the P&L next to the €80 million that we talked about.

Frank Claassen

And what kind of one-off charges can we still expect going forward?

Pim Berendsen

Well, there always – let’s say, as you know, well in order to counter the volume development that mill in the Netherlands will continue and intensify our cost saving initiatives and those could come at one-off restructuring costs at certain moments in time, which of course, our part of the guidance in the outlook we gave.

Frank Claassen

Okay. All right. Thank you very much.

Operator

Next question is for Mr. David Kerstens, Jefferies. Go ahead, please.

David Kerstens

Yes. Thank you. Good morning, Herna and Pim, congratulations with the strong results. I’ve got three questions, please. First of all, on the €55 million non-recurring EBIT impact, I was wondering if you could provide some sort of color on how that non-recurring impact from COVID impacted revenue and operating expenses. You said €25 million parcels, if I multiplied as an average price of five-year per partial this already on the €25 million in additional partial revenue, then the mill impact us probably around €75 million. Does it implied that the COVID-19 related cost increases royalty order of almost €50 million, some color on that to get a good starting point for 2021 could be quite useful.

And the second question is on the partial volume growth of 19% compared to some other parcel markets in Europe that seems a relatively low number, whereas yes, your EBIT improvement as long as strongest. So, I just try to reconcile how that works. And I was wondering if you can give an indication on how the entry of Amazon in the Netherlands last year has altered the competitive landscape does that had any impact on your parcel volume growth number. And do you already have a number of how strong the market development was?

And then finally, but interest rates rising and after you’ve paid off a large part of the transitional pension plans, can you give an indication of the sensitivity to that’s where the €20 million pension costs increase your guiding for this year and what that could be in 2022? So, how does that number change when interest rates go up again? Thank you very much.

Herna Verhagen

I’ll start with your question two, David, and then Pim will take your question one and three. The – and especially number one, we’re still thinking and making the calculation you made that gives us a little bit more time. But the volume growth 90%, I think the volume growth is partly depending on of course the lockdowns and there was a big difference in the sort of lockdowns you saw in Europe. And it’s exactly what we did see as well in lockdown period – real lockdown periods in the Netherlands growth was much higher like we did see in for example, April and part of May, but which we also did see again in the fourth quarter. So that’s one of the reasons why there is a difference in the overall growth rates when it comes to parcel volumes.

We do not think that it has to do with the entry of Amazon. Amazon we distribute of course, part of the volume of Amazon and biggest part is distributed by DHL in the Netherlands. In our customer lists, there are not in our top 10 customer list and we didn’t see more growth than the normal growth we did see with all our big customers in the year 2020. So, we don’t think that that at least in 2020 did make a difference.

David Kerstens

Okay. Do you have a number for the markets growth already for the total parcel markets or is it too early?

Herna Verhagen

Too early.

David Kerstens

Okay.

Pim Berendsen

That’s too early. But remember that first quarter of 2020 of course, the growth rate was impacted by ownership that we talked about which, of course, is a personnel specific step down and growth at that quarter in time. Then you went very quick to the way you’ve calculated the COVID-19 impact, let’s go step by step, and we’ve not necessarily looked at it from a top-line perspective only. But what we say is that roughly €25 million parcels were COVID non-recurring cost driven. So from the €55 million, €40 million is additional result in parcels, €15 million is additional results in mill. And that additional result takes into account for instance, the additional contribution that we’ve given to our employees and the employees of our partners, which was roughly €15 million, but it also includes additional retail costs that we’ve paid additional to the normal contribution to our retail partners of roughly €4 million in 2020.

And of course the volume dependent costs that we need to carry just to ensure that we deliver the additional volume is we’re also taking into account. The – I think you calculated it with an average price per parcel, €5, which is significantly too high. But all in all, that is the split of how we look at the 55 million additional contribution driven by COVID.

David Kerstens

And do you have an indication of how much you spent on PPE, hand gels and facemasks and things like that?

Pim Berendsen

Yes. Well, there is millions – a couple of millions so to speak, that’s yes, that’s not the biggest component of this bridge. let’s say somewhere between €2 million and €5 million, €3 million to €5 million additional costs in relation to changes in our processes and indeed procuring hand gels, masks and what have you.

David Kerstens

Okay.

Pim Berendsen

then, your point on the sensitivity of interest rate developments on the level of pension expenses that there’s more to it than just the developmental, the interest rate, it’s also the indexation levels that are from an IFRS point of view is taken into account when calculating pension liabilities. But just for your guidance, let’s say the step-up in pension expense, driven from 2020, towards 2021 is on the back of – yes, in basis points, only a limited step-down of interest rates of roughly 30 basis points to 40 basis points. but obviously, percentage wise, that was a relatively big step-down of the interest rate used to calculate the interest expense.

So at the moment, of course, we don’t predict how interest rates have or will develop. We’ve taken the current interest rates as the basis of how we’ve calculated the pension expense for the years going forward, and that is done on the end of every year. The interest rate as per the 31st of December will determine the level of pension expenses for the year. There are based on the IFRS guidelines.

David Kerstens

And you said an increase of €20 million in 2021 and €25 million over the four-year period…

Pim Berendsen

Yes. but that’s not driven by only interest rate developments, but also development of the base of people. So that’s the other components.

David Kerstens

Okay, understood.

Pim Berendsen

In case, collective labor increases, for instance, of course, also results in the higher, slightly higher pension expenses.

David Kerstens

Yes, yes. Great. Thank you very much.

Operator

Next question is from Mr. Marc Zwartsenburg, ING. Go ahead, please.

Marc Zwartsenburg

Yes. Good afternoon and thanks for taking my questions. A couple of them left, first of all, on the – all the dividend outlook, you indicated for 2021, 2022, at least €0.29, but is the guidance also including the assumption that the prior year’s dividend is the four for next year of dividends? Let’s say, you have €0.29 for 2021, and that’s what 2022, it will be at least €0.29. That’s my first question. Then, all the mill NL habits and that’s looking towards your guidance for 2024, you mentioned a stable contribution from mill NL. But that is apart from the box on that slide, below that the – say things or efficiencies from digital investments, should we assume even perhaps a growing EBIT for mill NL towards the guidance of 2024, or should we indeed keep it flattish, like you indicate on that slide? And then my third question is out of interest.

Why won’t you already guide now for 2024 instead of waiting perhaps for a bit more feasibility once the one-off of COVID are done. And then you have a bit of visibility, how things are developing post-COVID. So, let’s say at the same time, next year, you would have – could have also given the guidance for say 2025 and a medium-term guidance. Why – already, provide a guidance now with the feasibility debt you have, or perhaps you already have enough feasibility, of course.

So that was just curious how that why you basically chose to give a guidance already. And then for Pim, my other question on excess cash, I think, wholesale [ph] already tried to get a bit of a feel for the leverage ratio, but what is, as you define excess cash, as you mentioned on your capital return policy slide, and what is your definition of excess cash at some point in the future? And then my final questions for you, sorry for the many questions, on the middle volume guidance for this year, it’s minus eight to minus 10, and that’s actually in line with the normal market trend post-integration with sense. So actually, we had a negative COVID with impact in 2020, so an easier comp. So, why then stick to the minus eight to 10 range instead of maybe lowering the low end of that a bit. that’s it. Thank you.

Herna Verhagen

Your first question on dividends, it is literally what we stated, which means at least €0.29 in 2021, and at least €0.29 in 2022 within our dividend policy, which gives us of course, a little bit of flexibility, because we did say that we will do a payout of net comprehensive income, somewhere between 70% to 90%. So, you have to read it literally as said at least €0.29 in 2021, and at least €0.29 in 2022. EBIT of Mail in the Netherlands, it’s a stable contribution. So, you should assume stability. And why are we already guiding now for 2024?

And I think to give you some visibility, what a digitization program will bring. And of course, COVID – as we’ve seen in 2020, COVID can change a lot. hopefully, in a few months from now, we’re all vaccinated and we will return to a more normal life. But the reason why we did it is to give you visibility on what digitization can bring to PostNL in revenue, as well as in a normalized EBIT, which is based of course, on the efficiencies we reach and because we are presenting digital NEXT today, we added a view on how we think 2024 could look like.

Pim Berendsen

Exactly, then on your excess cash question, that we are in for BBB, BBB+ credit rating that we feel is appropriate for the company we are. that is what we’ve translated to adjusted net debt/EBITDA of not big or down to. I think you all will remember that we’re having a leverage ratios close to three for a part of the time, 2.6 by the end of last year. So we're currently at a much, much better position. For the asset, we intend to use that room to invest in our business, to invest in acceleration of our digitalization program and over time, we'll see whether or not there will be excess cash that will seek to deploy in a different way by distributing it towards shareholders or considering bond buybacks. So there is no specific excess cash position but it's somewhere in between the 1.0 times to 2 times adjusted EBITDA over net debt.

Marc Zwartsenburg

That’s very clear…

Pim Berendsen

And on the mail volume development, we do expect as we said, an 8% to 10% volume decline for the year 2021. The overall substitution levels in 2020 are more or less comparable than what we do expect in 2021 to happen as well.

Marc Zwartsenburg

Yes, but you have a bit easier course and due to COVID maybe two or three percentage points in negative impact in 2020 that should have a bit of positive impact in 2021 or is that excluded?

Herna Verhagen

Also 8% to 10% so, it gives you little bit of decent bandwidth between 8% to 10%.

Marc Zwartsenburg

Okay. All right, thank you very much. This is very clear, thank you.

Herna Verhagen

Thank you.

Operator

Next question is Ms. Lotte Timmermans, ABN AMRO. Go ahead please.

Lotte Timmermans

Good morning and good afternoon. First question the lease payments in 2021 on Slide 53. How can you expect lower lease payments in 2021 than in 2020, I would think that the reopening of the sorting centers and surely you should expect increase lease repayments? Additionally, I think Q4 is roughly 27 million, so this is seriously higher than 75 million or there is some one-off in 2020 due to Sandd or any other things I could take into account? Then a question on definition of the cost sufficient, thanks for providing that. If you look at the postal in the Netherlands I would say that then, I assume that the Belgium is included in logistics in order, is that correct assumption? And what about the parcel solution, is it still Belgium and the Netherlands. And could you give some color on the split between Belgium and Netherlands as you always already said before that Belgium obviously grows at significantly higher rates?

Pim Berendsen

There is a risk lot of that, that I need to ask you to repeat some of them, because that was really quick. But I think the first one clearly starts with lease payments on Slide 53, see, in slight only a small increase of 1 million a comparison to the 79 million in 2020. And part of that is there are still one-off lease payments or lease payments in relation to Sandd lease obligations that were there, that are part of the lease payments in 2020. So that's one of the elements.

Herna Verhagen

And your question was if Belgium was part of logistics and on our part of our parcel, our big parcels network and that's mentioned in best way that was your second question.

Pim Berendsen

Yes, there is a little bit of a technical answer that I need to give you there because that's always the case where do you eliminate – what we do eliminations.

So, as you know our strategy in Belgium is to a large extent driven by growing in Belgium, by growing together with our Dutch webshop towards Belgium. So part of the external revenue relation to those clients is within our parcel Netherlands segments or buckets so to say. And the external, domestic and export revenues of Belgium are in the logistics solutions and other buckets.

The biggest component of our Belgium strategy is clearly the – if you talk about from a Belgium point of view, the import flows from the Netherlands, so that part is not included in logistics solutions and other, but in parcel Netherlands.

Herna Verhagen

And that also means Lotte, that the biggest part of our volume development is in our parcel network in the Netherlands and therefore in the volumes of our parcel network. And we did not guide on Belgium, that's also what we did not do before, but once in a while, we just give you a little bit of a highlight on how the developments are in Belgium. And that's the reason why we did gave in the future, for example, examples about growth in Belgium when there was a lockdown in Belgium as well.

So I do think if you think about the growth of parcels in Belgium, it's a little bit higher than it is in the Netherlands. That's related to the fact and that's what we've discussed earlier as well, that the development of e-Commerce in Belgium are picking up of course also because of COVID, but they're still a little bit behind, and that's what we expect to happen in 2022 – 2021, sorry, this year.

Lotte Timmermans

Okay. Thanks. It was clear on the lease payment in full of small one. So does that mean that in Q4, because there was actually what manifested in Q4 these lease payments were at 27 million, where there is still in some Sandd today that will see any initial payments then as well?

Pim Berendsen

Not in the fourth quarter of 2020. No.

Lotte Timmermans

But then it means that in 2021 on a quarterly basis it goes down compared to Q4. Is that correct?

Pim Berendsen

I'm not quite sure if we look at the lease payments for the full year, they – let's say for the full year, they go down in the mail segment because of the fact that in 2020 it still includes lease payments in relation to Sandd lease obligations it's gross or increases from a parcels point of view because we've have taken on lease additions that are related to capacity increases.

So for the full year we'll get you to the roughly 80 million lease payments for the entire group, which is more or less comparable to the full year 2020 lease payments.

Lotte Timmermans

Okay. Thanks.

Operator

Next question is from [indiscernible]. Go ahead please.

Unidentified Analyst

Yes. Good afternoon. A few questions about mail, you mentioned during the presentation that you expect the full potential of the Sandd which is to be achieved this year, just for safety do you still anticipate contribution somewhere between 50 million and 60 million? And then on cost savings for Dutch Mail still important with all the new plans, could you give us a bit of an update where we are standing now as far as cost savings is concerned on an annual basis and how you expect that to progress in the upcoming years? Thanks.

Pim Berendsen

The first one, let's say if you look at the full year synergies of Sandd, then it is a gross synergy of €79 million. And then in relation to realizing those synergies are €30 million of one off cost associated with it. So the net impact is roughly €50 million, will do not expect that €30 million any more clearly in 2021. But volume decline will obviously also hit the synergy potential. But all in all, the contribution of sample in 2020 was beyond the bandwidth of €50 million to €70 million on the gross synergy level and certainly that will still be the case for 2021.

Unidentified Analyst

And then the cost expectations?

Pim Berendsen

Yes, on cost savings asset, we gradually what we talked about when introducing the Sandd and the business case of Sandd, we have to face or postpone some of the cost savings in order to accommodate the integration of Sandd. And we'll gradually see a step up in cost savings a little bit from 2020 levels towards 2021, but more steeply from 2021 towards 2022 in the level of cost savings that we aim to achieve to counter for the volume decline that we talked about as well. We're not going to be more specific at this moment in time about level of those cost savings overtime.

Unidentified Analyst

Okay. Thanks.

Operator

Next question is from Mr. André Mulder, Kepler Cheuvreux. Go ahead please.

André Mulder

Good afternoon. So a number of fair questions today. Firstly, can you give a split of the €80 million that you aim to spend on digital transformation split between mail and parcels? Second question is you have given this outlook for 2024. Can you also give us the assumptions that you have for the volumes in mail and parcels? Third question also a bit related to that about half of the year, the volume increase in parcels due to COVID. Can you give us corresponding numbers for mail as well? And then a bit of a numbers question, last one. If I look at your EBIT guidance, you started 185 plus. So you're now going to, let's say 215. I do not see the delta appearing under comprehensible income because that amount is still about the same. Why is that gap widening? Why are you more optimistic on EBIT? What are your underlying assumptions are there and why does that not boil down in comprehensive income?

Herna Verhagen

We didn't give a split of the €80 million between mail and parcels. It will be what we did say of course part of that will be CapEx. And part of that will be OpEx and that split is more or less 50:50. If you look into the project, we have then of course some of those projects are more related to parcel than to mail, but also within mail are quite some projects on digitization. So that gives you a little bit of a flavor around it.

The outlook 2024 assumptions, we did not give an outlook on volume for the years to come. So we did of course for 2021. And we gave in the graphics in the slides, a little bit of a view on the years to go. When it comes to mail in the Netherlands, it's one of the things we already said that it's 8% to 10% for the year 2021. But also our expectation going forward is that mail will keep declining. That's what you find on the slide about mail for you, and for parcels the assumption for 2021 is 10% to 12%, but it was also the year after we expect growth, which will be around the same level or a little bit lower. That's the expectation we have at this moment in time.

Your third question, which was on, as you mentioned, half of the volume within partials were due to COVID. What was it within mail in the Netherlands and that answer I don't know by heart. So I'm looking to Pim if he knows it by heart and otherwise…

Pim Berendsen

On the volume point of view is roughly 15 million pieces. So 15 mail volume, roughly 25 million of additional parcel volume as being the non-recurring COVID-19 impact. So that is the answer on that question then, is the gap widening between normalize comprehensive income given the – or that is, let's say if you look at the trading of the language we used, we were not that specific. It was around 185. It's now around the 200. So it's not, you should not read into this a logic of a gap that is widening. This is a little bit about the rounding and around numbers that come into play here, but nothing that makes that gap bigger or smaller.

André Mulder

Okay. And maybe on the follow-up question on the expectation of the stable mail [indiscernible] numbers have been under constant pressure and not only in terms of sales, but also in terms of EBIT. I assume that your cost savings potential at some point in time will become a less there. Why expecting a stable contribution for mail like, I cannot believe that it will fully come from the effects of digital transformation. So what are other assumptions behind it?

Pim Berendsen

From a Sandd business case point of view, let's simplify stuff, a 30 million improvement from 2020 towards 2021, because we'll not have the one-offs anymore. Of course, then you'll have volume decline also over the Sandd volumes, but still that is step up of contribution of that integration from 2020 towards 2021. And then gradually increasing the level of cost savings again for the period that we just talked about keep the stable – the profit of mail more or less stable.

André Mulder

Great. Thank you.

Herna Verhagen

Thanks.

Operator

[Operator Instructions] We have a question from Mr. Henk Slotboom from the IDEA! Go ahead, please.

Henk Slotboom

Good morning, all. Okay, good afternoon, sorry.

Herna Verhagen

Hi, Henk.

Henk Slotboom

Time flies when, were you having fun? I've got a couple of questions in relation to Slides 46 and 47. And if I look at the Slides 47, if I look at the orange bar I can't really connect it to what I see in 46, the orange bar. Am I right to assume that digital mix – how you show that in 2022 the investments are peaking and then they go back again in 2023 and 2024, but I see the bars only Slides 47, the orange bar staying more or less the same, a little bit lower in 2022 and 2023, 2024. Can you provide me some background as to why that is the case? That's the first one.

And when we are old, Slides 47, anyhow, then the dark blue parts, the capacity grows in impartial, you're building a small parcel center this year. You're opening that up this year. That'd be – there is a new parcel center in those [indiscernible], one in Belgium. So I would expect 2021 to be got a peak in capacity growth in parcels and on easing down a little bit in the year to come more over at course of the way the small parcel center is set up to accommodate more and more volume there? Can you elaborate about this?

And then on the digital next strategy; the examples you gave are mainly focused on the receiver part of the business and on the equity operational part of the business. Is there an elements of trying to yes, to help workshops or online retailers as well with our conversion. It's a couple of months ago, there was a presentation by DHL and they showed how to yes, how they were helping women sellers to boost conversion in order to basically improve the relationship with the clients and yes, avoid too much pressure on carriage?

And then my last question is a simple one. There's still discussion about what our most personnel should have been able to buy or merge with sense. I know that there's an appeal case done wrong and economic affairs is working on all sorts of modifications for your proposal has not been interrupted by the capital crisis we've seen. Is this a controversial subject or are things progressing as you wish? Those were my questions. Thank you.

Pim Berendsen

Thanks, Frank. I will take the first two to begin with. The logic or the connection between 46 and 47; 46 is the spent both in terms of OpEx and CapEx in relation to digital neck. So it does not take into account the maturity of this initiative that will contribute to the bottom line as well. These are the costs side, the spending side of the equation and that's also why there's a comment that says it will be contributing towards return on invested capital as of 2023, as well as contributing to dividend per share.

So as of 2023, the balance will be positive is the message there. But for the first two years, the balance is clearly negative, and that's also why you see that back in our EBITDA bridge for 2021. Then 47 is the overall CapEx spend and there orange is the combination of IT and digital next. So clearly digital necks is what we've announced today. But there are still orange bars looking back and capacity increases are not only because of additions or sorters or branch or depots, but also capacity investments are related to IT that we have seen and will expect to see going forward as part of capacity increasing investments that we need to make as well. So there's a clear step up from 2020 towards 2021 on the orange bar and also for the year 2022 and 2023, you'll see the levels of orange being higher than the levels of investments in IT that we've done in the past.

Then what I've tried to address when talking about this Slide first time around is that there are also different types of, let's say ways that lead to an increase in capacity from a parcel site. Not all capacity increase is managed through CapEx. For instance, the small parcel sorting center itself so the building is not CapEx but at least the short that will place into that facility is a CapEx across docks that we opened some sometimes. There are not within our normal analyst structure will not be CapEx but will lead to lease additions. So all in all the combination of the two leads to an increase of capacity on the back of our volume expectations for parcels. So there is an also lease addition expected over the year 2021 that also plays into the capacity improvement.

Third question was related – your digital mix examples seem to employ only, and we share it slightly different network or operationally. Elements...

Herna Verhagen

But there are also many commercial elements…

Pim Berendsen

Yes, exactly.

Herna Verhagen

So the program is of course it's a balanced program between commercial project, operational projects and projects, which are much more related to our business platform and our – the data that we have. So it's a balanced approach, which will bring us revenue, which will bring us efficiency and therefore normalized EBIT, and which will bring us also new business. But I gave a few examples, which you can use as an idea of what the program and deals, but it's by far not as full overview of all the projects.

Henk Slotboom

Okay.

Pim Berendsen

And the fourth question was related to the recent decision of the ministry of economic affairs.

Herna Verhagen

Yes. Something the Ministry of Economic Affairs or the cabinet in the end, they will take new decision as was communicated by the State Secretary of Economic Affairs, I think already almost half a year ago. We don't know, we do not know exactly when to expect that, and then of course we will have to appeal afterwards as well. So there's still two important steps or yes steps to be taken, which is decision buy cabinet; and secondly also of course the appeal.

Henk Slotboom

Okay. Thank you very much.

Herna Verhagen

Thank you.

Operator

Next question is from Mr. Ivar Billfalk-Kelly from UBS. Go ahead, please.

Ivar Billfalk-Kelly

Good morning. I wanted to talk a little bit on your ESG terms, when you're talking about especially decarbonizing last mile. Have you given a sense of – as of how much you might need to spend in terms of CapEx to actually achieve your goals? And is that included in your CapEx profile on Page 47?

Secondly, you talked about maintaining pricing power [indiscernible] as well. How long do you actually expect that to be in a position to be able to do that with the current environment? And are you seeing any of the markets and your competitors increasing their sort of capacity in general, which will have an impact on that? And lastly, on your Digital Next quickly, you may have mentioned it. But do you have a sense of how that's going to impact your FTE going forward?

Pim Berendsen

Okay. The ESG well, there is no yet. I thought let's give a split a whole, the CapEx spend in the different categories, but both – let's say kind of the more traditional split. So we've not broken out the specific ESG-related investments. But they clearly are part of the overall CapEx spend. So there's everything that we need to do and want to improve on our ESG targets is included in the numbers that we've shown.

For 2021, we've indicated on how we expect the price mix to develop, we've seen positive developments in 2020 as a consequence of also smaller and mid-size workshops growing contribute to more average price per parcel than some of the bankers do. Of course, we've also introduced our yield management measures throughout 2020 that will continue to mature during 2021, and for the time being you'll have to work with that assumption, we’ve not given specific components of volume margin developments of 2022 towards 2024. But clearly what we did say is that roughly half of the step up of $80 million to $100 million will come from business performance and the other half will come from our Digital Next program.

On the Digital Next FTE development going forward. There is clearly all-in-all parcels of course grows and is expected to grow, we'll ask people there and Digital will lead sometimes to more efficiency and maybe less employment in some parts of the process used, but given the fact that all-in-all parcels will grow, there is no – there shouldn't be an expectation that Digital Next in itself will have big impact on the number of FTEs that we'll employ going forward.

Herna Verhagen

And we will add, of course also people in the organization to further accelerate the digitization. We do that, of course, with the existing people we have, but we will add new competencies and new people as well. So in that sense in a growing environment, we do not expect that it will hit the amount of people working for us in the contrary to be honest.

Ivar Billfalk-Kelly

Great. I’m so sorry, I didn't quite catch the question in terms of what you see your competitors doing in terms of their capacity additions.

Herna Verhagen

Yes. We of course will add capacity to our network in 2021 and quite a lot of capacity with two new sorting centers in the small parcel sorting center. Our competitors in the Netherlands added capacity of course, in 2020. And I did not see any announcement of big capacity addings in 2021. But let's see, the year is still early days, sorry.

Ivar Billfalk-Kelly

That's great. Thank you very much.

Herna Verhagen

Thank you.

Operator

Next question is from Mr. Marco Limite from Barclays. Go ahead, please.

Marco Limite

Hi, good afternoon all. I’ve got just one question left. So why you are guiding about 10% to 12% parcel volume growth for the year? I guess you're expecting a super strong Q1. So what sort of levels you expect for, let's say for the second half of the year, is there going to be sort of low single digit or – yes, so what's the expectation post-COVID?

Herna Verhagen

Yes, we did know of course guide quarter-by-quarter on parcel volume development, we do see a strong January. And the expectations that I will continue in February as well, although we did have of course a big snow week in the Netherlands, which impacts volume developments. Overall, taking into account strong January, we have set guidance for the 10% to 12% for the full year. What we took up in our expectations, and I think that's what are also answered on one of the first questions asked is that we expect the effect – the positive effect of corona to fade away as of Q2 and then in the direction of summer. That's our expectation.

Marco Limite

Okay. Thank you.

Operator

Next question is from Mr. Andre Mulder, Kepler Cheuvreux.

Andre Mulder

Yes, good afternoon. One question left just. Just sort of try to get deep into the caption there. If you're there saying that’s about half of the exceptional volumes, half of the volumes in parcels is coming from let's say exceptional items. How do you determine that? I think a lot of parcel field know what’s inside there. So I'm just curious to see how you arrived at that number.

Pim Berendsen

Let's say, we've done some analysis throughout 2020 and clearly you can see, for instance, a spike on a couple of moments in time, for instance, related to the masseter of the mayors of the five biggest cities that they one day said, well, let's not go into the City centers by online. You can clearly see a top up in volume development when lookdown is announced. And obviously also in the first phase of COVID-19, we saw a lot of equipment and also clients growing in relation to kind of the one-off stuff you need to be able to work from home.

So different components, different data analysis has been done to end up roughly to that $25 million let's say non-recurring COVID volume, which is driven not only by working from home, but also let's say lookdown effects as a consequence of people not being able to shop in more traditional retail stores.

Andre Mulder

Okay. Thanks.

Operator

Ladies and gentlemen, this was the last question, please continue.

Jochem van de Laarschot

Thank you, operator; and thank you all for listening in. It's been a long call, we had a lot of things to talk about today. Thank you for joining, we will be back on the 10 of May with first quarter results and as at we will also post a webinar later in the year to provide some further details on Digital Next. Thanks very much, and you know where to find this when you have any further questions. Thank you. Bye-Bye

Herna Verhagen

Thank you, bye.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your line, and we wish you a very nice day.