Österreichische Post AG (POST) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Eva, your chorus call operator. Welcome, and thank you for joining Austrian Post Annual Results 2019. [Operator Instructions] I would now like to turn the conference over to Harald Hagenauer, Head of Investor Relations. Please go ahead.

Good afternoon, ladies and gentlemen. Welcome to this conference call of Austrian Post. Today, we would like to discuss the facts and figures about Austrian Post of Q4, and of course, the full year figures of 2019. And so I would like to hand over to Walter Oblin, our CFO.

Good afternoon, ladies and gentlemen. Thank you all for joining in these turbulent times. I feel privileged to present to you our full year results for 2009 (sic) [ 2019 ] as well as our outlook for the ongoing year. And let me start right away on Page 4, which summarizes our -- which summarizes the highlights of 2019. And I think in principle, the core trends that have been fundamentally driving the postal business across the world and in Austria, have been present throughout '19. In particular, the continuous decline of addressed letter mail in Austria is still at a moderate level. On Direct Mail and Media Post, we also continue to face structural headwinds from GDPR, from increased digital advertising, from the crisis of the stationary nonfood retail industry, but I think, given these headwinds, we still can show a resilient Direct Mail and Media Post business. An important project 2019 was and still is and, of course, it's also one of the priorities for 2020, is the development of our new financial services offering. We decided to build a very focused retail bank, branded bank99, and we are well underway to launch this bank beginning of Q2. On the Parcel side, we saw another year of e-commerce taking off in Austria, leading to an absolute record of parcel volumes, transported by Austrian Post 127 million parcels. This was additionally fueled by our new partnership with DHL where we took over the distribution of DHL parcels, again, as of August 1 last year. To cope with this strong growth in parcel, we are running at full steam with the expansion of our logistics infrastructure. A large parcel sorting center opened in time, in budget, in fall 2019 and another one is close to completion. Moving to Page 5, showing you our revenue development. Group revenues up 3.2%. This is a record growth in the last decade. We have not seen a 3 in front of the commerce in the last 10 years and this record growth was, of course, fueled by our Parcel & Logistics business, growing at 14.5%, roughly 8% to 9% of this being organic growth and the remainder coming from the takeover from the new partnership with DHL. On the other hand, Mail & Branch Network declining at 0.8%. I think given the decline in volume, given also the ramp down of our partnership with BAWAG P.S.K., this number also shows the resilience of our mail business. Page 6 summarizes the EBIT development. Reported EBIT down roughly 5%. This is a combination of an excellent operational year. We'll later give you some adjustments of one-offs, but if you take those adjustments, operationally, we are slightly above last year's EBIT, but of course, the data protection fine that we had to provision for, although the legal proceedings are still underway, in total, roughly EUR 25 million has been weighing on our results. This decline of 5% is the net of minus 24.4% EBIT in Mail & Branch Network. Here, this provision was booked. So net of that, a flat strong profit contribution of our Mail & Branch Network, Parcel & Logistics up EUR 4.2 million. Here, the revenue growth translates also in EBIT growth and corporate up roughly EUR 10 million, which has been the net of a release of provisions -- staff provisions and on the other hand, the ramp-up cost of our bank project. Page 7 gives you an overview of our priorities for 2020. Of course, one priority is to continue to defend our mail business, both revenue as well as EBIT-wise. An important project here is the -- is a tariff increase and inflation adjustment, effective April 1, which has been approved by the regulator. And on the Direct Mail side, we tried to defend our strong position in the Austrian advertising markets by complementing our traditional physical distribution of unaddressed and addressed Direct Mail with additional advertising services, both off-line and digital. In Parcel & Logistics, the priority is to complete the integration of the DHL network and continue our investment program and also reap the benefits of new capacity and new more efficient capacities. On the retail and bank side, of course, the -- as already said, the priority is the launch of our new bank in Q2 as well as the expansion of our 24/7 solutions, I'll come to that a little bit later, which are well received by our consumers and where we have additional services that we launched last year and we'll expand this year. Let me continue giving you an update on our strategy implementation. I think I can skip Page 9, which summarizes the well -- the 4 well-known strategic priorities. Let me continue right away with Page 10. Starting in our core business, starting with letter mail, here you see the 8- or 9-year trend of letter mail decline in Austria. Our guidance is -- continues to be for mail to decline around 5%. Last year's decline combined national and international volumes was minus 4.6%. The Austrian higher margin part of that declined at around 3.5%. The international volume a little bit more. There have been some one-offs, which we haven't adjusted here. But I think the core message is letter mail continues to decline, however, on a moderate trajectory. The next page shows you where we stand in Europe with our mail tariffs. I think the message here is we continued to be one of the cheapest international mail markets. We think that is also contributing to the smaller than -- to the smaller mail decline than in other countries. We have a strategy of offering high quality at moderate rates. The key, of course, is to operate with high efficiency. And I think our profit margin in mail should give you a clear indication that we operate on a high efficiency. On the right side of this chart, you see the rate adjustment that will be effective April 1. Basically an inflation adjustment and where we further refine our PRIO ECO product structure that we implemented last year, so 18 months ago, which was well received by our corporate customers. Moving to Page 12. Page 12 gives you the long-term trend of volumes in our Direct Mail and Media Post business. You see here that this business structurally is under pressure, in particular, from the trend towards digital advertising from GDPR, which caused uncertainty among advertisers. And from the crisis of the nonfood stationery retail industry in Austria, we -- last year, volumes declined at around 3%. And we expect further decline in 2020. Moving to Page 13 to our Parcel business, Page 13 shows you the market shares as reported by an independent market research company every year in Austria. I think the core message is the total market grew at around 8% with the B2C market growing at 14%, delivering more than 100% of this growth. B2B more flat, even slight decline reported. Our market share at 52%, with DHL still holding, for the full year, 13% market share. Our market share in B2C at 65% and in B2B at 31%. Page 14 shows this over time and I think, it can be also summarized, as I think, showing our -- the strong development of our Parcel business. On the one hand, with the market share increasing from 42% in 2009 to 52% in 2019 and at the same time, I think this shows nicely how e-commerce has really taken off in Austria in 2016 and is fueling the growth in Parcel business. This translates into the absolute numbers that you see on Page 15, last year, record volume of 127 million parcels. For this year, we expect 140 million or maybe a little bit more. And for next year, the target is around 150 million parcels. Of course, these volume expectations are taking into consideration the DHL volumes, which last year were only included for 5 months. And this year, we will see the full year effect. On the other hand, there is a very large customer that has started his own distribution in the bigger area of Vienna end of 2018 and is step-by-step expanding that distribution in the Eastern area of Austria. Page 16 gives you an update on our international portfolio. Starting in Eastern Europe, here, we see good development of our parcel subsidiaries, also benefiting from the cooperation with Deutsche Post in Slovakia and Czech Republic. In Czech Republic, we withdrew from the market. In Slovakia, we had the opportunity to take over the delivery of the DHL parcels. Overall, good growth at higher single-digit percentage figures and robust EBIT development. Turkey, good development of the company in the last quarter after a difficult start into the year. We continue to be in discussions with the owner family. And Aras Kargo, I think, is still in a very good position to capture the opportunities in the Turkish Parcel Market. In Germany, let me highlight our subsidiary, AEP, a pharmaceutical wholesale joint venture, which we are not consolidating -- to be more precise, which we are consolidating at equity in our P&L. 5 years after startup -- of the greenfield startup, this company generated revenues of EUR 500 million, wholesale revenues, of course, in last year, achieved EBIT breakeven. And we think there is still a lot of gross profit opportunity ahead. In Austria, we continue to expand our value chain, 2 examples shown here, one is a small company called advanced commerce labs, providing e-commerce software solutions, growing 26% and generating nice margins. The other example is adverserve, one of the leading Austrian digital marketing companies, where we hold 82% and which provides services in programmatic digital marketing. Moving to Page 17, summarizing our bank project. We communicated the core building blocks already over the last quarters. We are here in a partnership with the Austrian GRAWE Banking Group. GRAWE is a financial services group, being present in banking and insurance. We took over a banking platform called Brull Kallmus Bank, end of last year, after relevant procedures, including ECB and Financial Market Authority. We closed this transaction in November last year and are now in the final stages of building up a very small, very focused retail bank that targets Mr. and Mrs. Austria, that has, in particular, those customers that are used to do financial services in post offices. The focus of this bank will be on payment transactions or current accounts, payment transaction and savings products. And this will be complemented by third-party products in the area of consumer finance, private housing loans, credit cards and so on, also insurance products. Our strength is, of course, the trust Post enjoys with Austrian consumers and well-known brand that always stood for financial services and our dense retail network consisting of 400 post offices and 1,400 postal partners w we can offer at -- with a very efficient cost structure, physical service, close to our customers in addition to a competitive digital offering. Page 18 gives you an update on our capacity expansion program. Last year, we spent EUR 60 million on growth CapEx, plus EUR 20 million on property acquisitions to secure land for expansion projects. This year, we'll see similar spendings in similar order of magnitude. The most important project last year was a new sorting center North of Vienna, complementing our big sorting center in the south of Austria, which was already running above capacity for a few years. This project was finished in time, in budget, and was fully operational for the peak season last year. We are in the final stage of completing a new logistics center in Southeast Austria in the region of Styria, which will replace an existing sorting center with more capacity and higher productivity. And Page 19 shows you that there are further projects in the pipeline. In particular, a midsized sorting center or a large delivery base in Salzburg/Thalgau, a new sorting center in west of Austria and also in Tyrol, both last projects replace existing sorting centers. There are 2 more bigger projects where we are currently securing land and where we will still decide on the timing of these projects, depending on how volumes develop and also depending on how some of our large customers develop their strategy. Page 20. Moving to our third -- to the third cornerstone of our strategy, efficiency and productivity, shows you the well-known development of our staff transformation. Last year, net head count reduction despite strong volumes of 193 FTEs and almost 1,000 to 900 civil servants leaving us, most of them being replaced by employees under the new collective wage agreement and, of course, providing a relief of staff costs. This transformation will continue over the next years with head count should be expected around flattish depending on parcel volumes. Page 21 shows you that our 24/7 initiative and all -- a number of new services where we tried to improve customer service and customer convenience, is running at full steam and well accepted by the consumers. They're already well-known 24/7 services, such as pickup boxes, pickup stations or drop off boxes, growing in their usage at double-digit numbers and new services, a number of new services being introduced over the last 18 months. And the target for this year is really to get those projects -- to get traction in those projects and improve usage. Let's now continue with a short summary of our efforts in the area of sustainability. Given the increased attention in these times, we have not started caring about sustainability over the last months. We were one of the first companies, both in the sector as well as in Austria, introducing a CO2-neutral ambition already in 2011, where we introduced our program of CO2-neutral delivery of Mail & Parcels in Austria. So we have now almost 9 years of record and experience and that we are represented on the CDP Climate Change A List. And we are, for 2 years now already, also taking part in the annual Women Career Index, to our knowledge as the first company in Austria, which has got the results for the last year and are proud to have made good progress also in this area. Let me just select a few charts. I would like to touch on Page 26, shows you our 3 priorities to reduce and compensate our CO2 footprint resulting from the delivery of Mail & Parcels. Our priority number one, of course, is to avoid emissions and enhance efficiency. Priority number two is to use alternative technologies, in particular, photovoltaic sorting center that we built that is using a photovoltaic -- a large photovoltaic installation and then, of course, our electric fleet. We are, by far, the largest operator of electric fleet in Austria. And priority number three then is to compensate the remaining CO2 footprint. And there, we have the portfolio of roughly 150, both international and national climate protection projects. Page 27 shows you that we are making good progress in reducing emissions, both in absolute terms as well as per shipment. Page 28 shows you our effort to deliver combustion engine-free in certain areas. We started with something between mail delivery and have rolled this out across all regional capitals. And now we are in a pilot where we also have the ambition to deliver parcels, combustion engine-free, so CO2 free, in the regional capital Graz. So here, we also use parcel transporters for the first time in a broader pilot. Page 29 gives you a snapshot of the expansion of our electric fleet. So for this year, we target more than 2,000 electric vehicles. I think we have a lot of experience already and it's running really without substantial problems at large scale. We'll skip the next pages summarizing our contributions to Austrian society and how we try to be a responsible in caring employer. Page 33 just give you a few pieces of information on a diversity project that we started 2 years ago, Expedition Elly, where we developed various measures to be a more attractive, more caring employer, in particular, for women and women managers. And I think we are making good progress. Overall, there is further work to be done here. Page 34, also this is not new, but we think an important element of our broader sustainability agenda, we are one of the, I think, very few Austrian companies that -- where we have employees participate in the group's profits. So we will pay out this year almost EUR 900 per employee for all employees in the group as their participation in group profits. This is a program, which I think creates a lot of loyalty and ownership with our full staff. So let me now give you a few more details of our group results. Page 33 -- 37 summarizes the core indicators, revenue has already been mentioned. Our EBIT margins operationally, pretty much at last year's level. EBIT margin, of course, impacted by the provision for the data protection topic. Earnings per share, slightly up from last year, a robust cash flow while covering our dividend proposal and a balance sheet that I think can be described as healthy and conservative. The decline in equity ratio is purely due to the first application of the new IFRS 16 standard, which has substantially changed our balance sheet, expanded our balance sheet, and as a result, a stable absolute equity number has resulted and a lower equity ratio. Page 38 tries to highlight the core one-offs that we would suggest to adjust. If you are looking for an operational EBIT, there are 4 bigger effects that we've seen it up here: first, this already mentioned provision for the data protection procedures, roughly EUR 25 million; second, ramp-up costs for our new bank project, roughly EUR 27 million; and positive one-offs, revenues and EBIT contributions from a strong election year last year with European International Elections; and EUR 20 million reduced requirement for debt provisions, also resulting from a stronger exit of civil servants than -- planned than in the previous year. So in total, roughly EUR 12 million that is a kind of net one-off. So if you add that on top of the EUR 200.6 million, you end up at roughly EUR 212 million, EUR 213 million, which is slightly above last year's EBIT. Let me jump right away to the divisional results, to the divisional P&Ls and revenue development. Page 40. Letter Mail and Mail Solutions revenue in -- now in our Mail & Branch Network division, up 1.4%. I think a strong revenue development despite an ongoing structural decline, of course, supported by the tariff reform that we implemented in July 2018. Direct Mail volume reduction of around 3%, revenue reduction of around 2% due to already mentioned headwinds. Page 41 shows you our segment P&L. I think, in the end, again, if you adjust for the -- both for the elections as well as for the -- even if you adjust both for elections and for the data protection provision, a strong EBIT showing the resilience of our mail business. Page 42, moving to Parcel & Logistics division, revenue up 14.5% with this growth, mostly coming from Austria, but also with our CEE portfolio, growing organically at almost 9%, which I think is a good number. Page 43 shows you the segment P&L where we can show that we are benefiting from the revenue growth also in EBIT, slight margin depression, which can be attributed both to running above capacity in many areas before our new projects come online as well as the inefficiency from running 2 networks, partly in parallel in the second half year. I'm talking about our own network as well as the DHL network where we already made the first steps of integration, of course, but where we have not yet reached the optimal setup. Page 44 gives you an update of our balance sheet. I think, in summary, this is still a very healthy, very conservative balance sheet with before dividend, a net cash position of EUR 340 million. We are free of financial debt. We have a low level of intangible assets. We have derisked our balance sheet substantially over the last years. Strong level of provisions and a solid equity position of EUR 700 million. Page 45 summarizes our cash flow. As in 2018, we have had a number of one-offs that we're happy to go into more detail, maybe on the Q&A. I think the summary here is adjusted. So if you adjust one-offs, you'll end up with an operating free cash flow before growth CapEx of roughly EUR 150 million, which is well covering our dividend proposal, which translates to an absolute payout of EUR 140 million. Dividend proposal, Page 46, will be EUR 2.08. So the same dividend as last year. And with that, we deliver once again on our promise of being a reliable, defensive dividend stock. And Page 47, summarizes the last 11 years now, pretty much of the current management team, where we, I think, delivered on our -- on this promise of being a stable defensive dividend stock with revenues growing pretty much every year. EBIT margin substantially expanded over the last years while maintaining a strong balance sheet, generating robust cash flow, paying out attractive dividends and being reliable in our guidance. Let me close with the outlook on Page 49. And I think I have to mention, this was a big caveat. This is a pre-corona outlook. Pre-corona, we see -- pre-corona, we see the core megatrends already, again, another year unchanged. In Austria, we see a structural decline. We expect this structural decline in the order of magnitude of 5% in our addressed Letter Mail business. We expect Direct Mail volumes to remain robust for the food retailers, but to be under pressure for nonfood retailers. And we expect parcels to still and once again benefit from growing e-commerce, growing -- leading to a market growth in the higher single-digit areas. Revenue-wise, this would translate into stable to slightly higher revenues or mail tariff measure, effective April 1 will contribute to that. CapEx-wise, we stay with our guidance of roughly EUR 70 million maintenance CapEx, on top of which we will end in the order of magnitude of EUR 50 million for expansion projects, plus maybe the one or the other bigger land acquisition. And earnings-wise, we, pre-corona have an outlook of -- in the target of stable operating EBIT before bank's ramp-up costs. We already communicated that for this year and next year, we expect ramp-up costs of at least EUR 40 million. And of course, we will do everything to remain a stable dividend stock and we'll stick to our dividend policy. Having said, this is a pre-corona guidance, I think it -- may be just anticipating some of your questions, let me say a few sentences about corona. I think it's -- today, it's absolutely impossible to give guidance on what corona -- and developments we observe these days in Austria will -- how these developments will impact Austrian Post. 2 weeks ago, and actually, 4 days ago, life was still normal in Austria. Since Monday or Tuesday, we have very severe restrictions in daily life in Austria with substantial impact on tourism and also retailers in many areas. I think to give you a qualitative assessment, what this could mean for Austrian Post, I think we're roughly simplified speaking present in 3 markets. One is a communication market where we are present with our addressed Letter Mail business. Here, the past compressions of macroeconomic activity have resulted in a more modest acceleration of mail decline in Austria, which is what we expect for the ongoing year. On Direct Mail, we have seen in the past, more quickly and more substantial reductions of marketing spendings and reductions in distributions of leaflets and addressed Direct Mail. And third, we are in the delivery of goods with our parcel business. There, I think corona, on the one hand, could even have positive effect as people are less going out for shopping and more ordering online, but of course, a weak economy impacts consumer spending and this will also have impact on e-commerce. So too early to tell how this will impact, it will impact. We will, of course, take countermeasures and update you in our next quarterly calls on what this means for Austrian Post. But let me now close my presentation and take questions. Thank you very much.

[Operator Instructions] The first question is from the line of David Kerstens with Jefferies.

Three questions, please, from my side. First of all, with regards to your parcel capacity expansion Phase III, what needs to happen for you to abandon that phase and stick you to the 80,000 parcels? What are you assuming in terms of ramp up for Amazon?

So I think the message -- I think we're on Page 19 is, we have not made any decisions on Phase III. And we will, of course, observe how volumes develop, how our biggest customer behaves and we will start those projects then when we see robust demand for the capacity we are building.

Okay. And does that mean then that potentially your CapEx could already fall back to EUR 70 million in 2021 just based on the maintenance CapEx that you generally have?

No. We do have projects that are started. So the Phase II projects, in particular, we will carry over into 2021.

Okay. Okay. And then my second question is regards to the new e-government solutions. You're always guiding for mail volume decline of around 5% and then perform actually relatively better than that guidance. What are you seeing that is different this time around that you will actually get to a 5% mail volume decline?

Well, we were ourselves a little bit positively surprised in the last years that we were a little bit better than those 5%. This is also an internal practice that we tried to be conservative on revenues and aggressive on costs. I think we are looking -- with respect to mail volumes for 2020, there are, as I said, new government regulations that basically force companies into electronic communication with the government. And we expect those to contribute to a slight acceleration of mail decline, but we're talking here about also a bandwidth of uncertainty where it's hard to precisely focus how on mail volumes will develop.

Right. Okay. And maybe a final question, if I may, about the financial services offering. How do you model the ramp-up in revenues based on target population and penetration rate? And to what extent are these initial revenues offsetting the start-up cost? Any further granularity on that business model would be much appreciated.

We -- so please bear with me as I will not disclose here details of our business plan, but we plan to -- we have a business plan that over a period of 3, 4 years, target a modest share of the currently roughly 1.2 million Austrians that are doing financial services in post offices. We have assumed that these customers will, over time, achieve average market revenue per customer figures. We have a lean cost structure behind it as we don't have any legacy and we can operate with very low additional costs in our post offices. And our target is to breakeven in 2022.

The next question comes from the line of Bernd Maurer with RCB. Mr. Maurer has withdrawn his question. Next question comes from the line of Andre Mulder with Kepler.

A few questions here. Firstly, can you tell us what's caused the market share decline in B2B? In B2C, it's likely to have been the Amazon part and what's happened in B2B? Next question also on parcels. If I look at your volume projections and take market growth into account, I think you on your own would already be around 200 million to 140 million parcels. Next to that, there are something like 27 million parcels coming from Deutsche Post. So why are you not higher there than just 140 million plus? And possibly in relation to David's question, what kind of ramp-up do you see for the market share of Amazon?

Andre, first of all, of course, our focus is always the consumer part of business there. We are -- we have a clear strength in sharing infrastructure we've made in having all these lockers on the street. So our focus is, of course, the consumer part of business where our margin lies. When we take a look at the B2B parcel business, they are the biggest competitor, DPD. They are in this industry, definitely the #1 in the last 10 years. And so they are focusing there. And I would say, 1% up or down is not really important to us. Our biggest strength and focus is on the consumer part of business, and now for the takeover of this DHL parcel volumes. You mentioned the number of parcels coming on our portfolio right now. It's true. The DHL did have close to 30 million parcels in their portfolio the last years. But of course, a lot of those parcels also came from Amazon. So Amazon in the past, did split up their volume, maybe 60% into our network and 40% into the DHL network. So in our conclusion, we said -- of course, the most -- the former DHL parcels will end up somewhere in our network that could be, let's say, in total, more than 20 million parcels. But some of the volume will end up somewhere else, most of them may be in their own delivery system of DHL. Yes.

Okay. And...

And how about Amazon, of course, yes. Well, I think you see this B2B -- this consumer part of business is a market of 150 million parcels. We think right now, this -- they are somewhere at, let's say, whatever 8 million, 9 million parcels. And then yes, they could go to step-by-step to a level of 10 million to 15 million parcels. But as we all know from other countries in Europe, it's hard to predict what the real plans are, what kind of penetration they want to or coverage they want to have in Austria. So far, we see that they focus on Vienna and the eastern part of Austria. But of course, we cannot rule out that they will do some more cities in Austria in a couple of years.

Last question on the tax rate that appear to be quite high, higher than what we've seen over the last few years, anything behind that?

That has to do with the fact that this final data protection is not tax deductible.

[Operator Instructions] We have a question from the line of Matija Gergolet with Goldman Sachs.

Two questions from my side. One is on the government initiatives. Could you just remind us what is the approximate amount of sale revenues that you're getting from government services within the nonmail business? And then secondly, just on your guidance for 2020, '21, can you just clarify, say the EUR 40 million that you're talking about for altogether costs for basically launching the banking services. Is that, say, altogether, so EUR 20 million plus EUR 20 million approximately or is it EUR 40 million each year? Just to be clear on that.

Yes. Thank you for your questions. So starting with the last question. It's not a linear development. So we expect a bigger number this year and a smaller number next year. Second, government revenue is roughly EUR 100 million.

Okay. So EUR 100 million. Let's say, the EUR 40 million is in total. So it's approximately, let's say, approximately, for me, if I was to distribute, it will be EUR 20 million plus EUR 20 million, right? It's not EUR 40 million plus EUR 40 million?

No. It's not EUR 40 million plus EUR 40 million, but it may be EUR 25 million EUR 15 million in that...

Yes. Something like that.

It's more in the first year.

The line of Bernd Maurer from RCB has reregistered for his question.

I tried to use my second chance. Two questions I have. First, the provision for the potential fine for breaching data protection law of EUR 25 million in 2019. We saw one court verdict today before yesterday speaking in your favor. Is there -- would this be enough to release part of the provision in 1Q '19? That's question number one. And question number two refers to the FTE reduction, civil servant and old collective bargaining agreement. We saw in 4Q is a significant high number of especially civil servants to leave Austrian Post. How -- what is still possible on FTE reduction in this next year? Or is it already strongly flattening out the FTE reductions we saw in the last years?

Thanks, Bern, for your questions. I think on the data protection provision, you should understand that EUR 20 million of those EUR 25 million relates to the fine and administrative costs behind the fine, and court ruling that we got a few years ago has nothing to do with that. It's encouraging for the remaining EUR 4 million or EUR 5 million of provisions, but it's too early and too limited in scope, but it's encouraging. Yes. So I don't expect changes in that provisioning for Q1, of course, not knowing what will happen in the remaining 2 or 3 weeks. And then your second question was on civil servants development going forward. So I think net head count, of course, is always dependent on volumes, volume development in parcels and in mail. And I think what you saw over the last 2 years was double-digit parcel growth in combination with around 3% to 5% -- to 4% mail decline. I think with that combination, you should expect a more flattish development. If we see more than that in parcel growth, we will need more stuff. But again, we are not building up capacity necessarily only with own staff. We have also some outsourced capacity here. On the other hand, if parcel volumes develop less -- if we see less growth in parcel volumes and more decline in mail volumes then we'll have less need for staff.

We have a follow-up question from the line from Andre Mulder from Kepler.

Just two questions further on the mail side. Can you give an indication of what the price increases will do to the sales in the mail division, either on an annualized basis or the effect for 2020? And last, should we expect any special mailings for this year elections so far?

Let me start with the second question. So we have a few smaller elections in the -- over the course of the year, we had economic chamber elections already over the last weeks. We have a few regional elections, probably the biggest one of them being the municipality elections in Vienna. So there will be some contribution, but we are not talking about any large national elections. So we'll talk probably about a small single-digit million revenue figure compared with a higher double-digit figure that we saw this year. On your...

Maybe the question on the price effect, the whole portfolio or the price effect in the portfolio here is we're talking about a basket of products in total revenue of EUR 400 million or so. And it increases, is a kind of inflation based, so kind of 4% up. For the 5% up, what means that an annual effect would be EUR 20 million and the effect for 2020 then accordingly is at about EUR 15 million.

Okay. One last follow-up on this item of the EUR 58 million in the other income line. Can you give us a bit more detail because it was rather fake -- immaterial?

Yes. Thanks for your question and I have not touched on this. So this is, I think, the third year where we see cash inflow and other revenues from this topic. This is, I would say, a more complicated topic relating to civil servants with regard to a period between 1990-something and 2008, where we have had several rulings that basically say we get money back. But there is a provision we made for the government trying to recover part of that money, which in total now is about EUR 100 million in absolute terms. The net EBIT contribution of that was close to 0. I think it was slightly negative as we changed also the provisioning amount this year. So no substantial EBIT contribution from that topic this year.

Should we regard this as a cash item? Or is that the same amount as appears in the cash flow bridge that you gave, there are -- so an amount of EUR 65 million or so.

In the cash flow bridge, we tried to adjust for it. And also, there are EUR 58 million cash inflow that we -- that you should not regard as operational free cash flow. So the EUR 148.8 million is net of that. I think you should look at the EUR 99 million provision as cash in our balance sheet that has the potential to be paid back to the government. Whether and when this will happen is unclear and will probably be part of court rulings as this is a very complicated legal topic.

So you're right. The positive EBIT effect is cash in, and the negative EBIT effect of the provision has no cash relevance at the moment. It's a provision.

[Operator Instructions] We have a question from the line of Marco Limite with Barclays.

Just a quick one from me on the DPS. You are guiding for at least 70% payout ratio on the 2020 net profit. I'm just wondering if that applies on the reported net profit or you actually think about stripping out the net costs from the ramp-up of the financial joint venture? And also, how do you think about free cash for all coverage in 2020 as well, if you include also the net cost and external CapEx?

Well, the 75% is our former dividend policy, which relates to net reported EBIT. As you see in the past, we have always paid out more and the inspiration was always basically to keep or slightly increase last year's dividend, but it's too early to provide guidance on the dividend for the year 2020.

As there are no further questions at this time, I hand back to Harald Hagenauer for closing comments.

So thanks, ladies and gentlemen, for this conference call. Under the circumstance, I think we will not meet in the next couple of weeks. So -- but I hope you will hear us on the phone in the next days. Bye-bye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.