Deutsche Post Ag S/Adr

Thank you, and good morning and a warm welcome to everybody out there. It isn't that long ago that we have been together in this round, but this time around it's on the official set of Q1 2020 data. And I take it you have the presentation we send out in front of you. As announced, we've got Frank Appel, the group CEO, and Melanie Kreis, the group CFO, here with us. Usual procedure. We have got time for Q&A afterwards. And with that, over to you, Frank.

Thank you, Martin. Good morning also from my side. Thank you for joining us this morning. So I can go straight away, I think, in the presentation. Page two is actually summarizing very well where we stand at the moment. You know, the key numbers are definitely a strong sign of our fundamental strength and our broad portfolio of our businesses. You know, we see at the moment very well from our colleagues around the world that they are really delivering our purpose nicely, and we have very good procedures in place aligned around the world, but also in respective countries to protect our people. That enables us to deliver great service to our customers. Unfortunately, the visibility going forward is still difficult, despite that we see first signs of improvement. Important is, I think, that we have pretty well, as you can see from our operational cash flow Melanie will talk about later on, we have managed pretty well our liquidity. On the next page, you see what we have received from our colleagues all over the world, that they are really excited on one end to really help others to keep the world moving, and on the same side, are well equipped and prepared to save. guard their own health. So if you run a company for so long as I do, it's really rewarding to see the energy level and the commitment of our workforce around the world. And that is not just in one country. It is all over the world. I recently handed over virtually the CEO awards from last year, which we usually do. in a big event internally, and I talked to people starting from Ghana to India, Canada, Latin America, Europe, Asia, all over the place, and what they all said is, you know, we are very committed, and we are doing our utmost to help our people, but secondly, to help our customers to get things moving. And that is great to see. So if I look into how things are progressing on-page, you can see the volume development of PNP and Express. We have highlighted a couple. So you can see here, as we already communicated, the mail volume, particularly the direct mailings, are declining. As you see later, first-class mail is still doing okay. But of course, not surprisingly, people, if their stores are closed, they don't advertise. The opposite is visible on Part of the people can't buy on high street, they buy online. It took a couple of weeks until the people rechanged. Not surprisingly, the first two or three weeks, people were at home watching more of the media, what might happen, and after three weeks, they normalized somehow and said, okay, now I have to fulfill my needs. I buy now online instead of offline. Express, you see actually what we have told you already before. China After the lockdown was lifted, it has recovered pretty well with strong volumes. In week 17, you see a dip, but that was intended by us because we had too much volumes and we had to stop picking up. Otherwise, the outbound flying has been overwhelmed. In Europe, you see first signs of recovery following a pattern a little bit slower than China, less sharp, but What we can observe is that there is probably a similar pattern, as we said already before, and America, as we believe, will follow next. On the next page, you see how we are doing so far in the quarter. I think we have our strong footprint across the divisions. We are definitely benefiting from B2C, and, of course, we have a very solid balance sheet with good liquidity. The measures are clear. Of course, we focus first on our people, then our customers. service, but nevertheless, we have, of course, stopped spending discretionary spend. But we have so far never had the storm quite well by just doing an hiring freeze. We believe that the offer of furloughing is also a good concept, which has Germany and some other European countries for quite some time. To keep people on board prepares you well for after the crisis. In the divisions and TNP, it's continuing what we have started. Tobias and his team are doing a great job in trigger and leveraging all triggers we had, being on the yield side or indirect or direct costs. That has worked well. That's the reason why the profit improved. Express has still a pretty good operative margin, despite, of course, the imbalance in the network hurts us in a network, and, of course, also the disappearance of commercial lift has negative impact as well. DJFF, of course, the volumes are down in air freight, equally on ocean, even more pronounced, of course, on air freight. And of course, that hurts us on the margin of the short end. But of course, we are now adapting to that by ordering more charters for our needs. Supply chain, mixed picture. Some industries are trending up. Grocery, And life science, others are down, fashion and automotive, and therefore the picture is mixed. Actually, that's interesting anyway. You know, what we learned this time, this is not a normal recession. It's a mixture of a recession and a disruption and a discontinuity. And that you see visibly in supply chain. Nobody has expected such a surge or increase in volumes for some sectors. And, of course, nobody anticipated a full stop of certain other sectors, and that is unique. That's the reason why the prediction is also very difficult, not only for you, but also for us, because there are, in the curve, discontinuities different from a normal recession, which makes the situation more difficult to predict. E-commerce solutions, you know, we had a complete shutdown of India, more severe even than in any other country, and of course that had impact on our On the other side, we are benefiting strongly in Europe from the B2C, also in Southeast Asia. What happens next, or will it be our plan on short-term? I talked already about mid-term. I think we have to help to get the customers back into business somehow. Of course, we have to prepare ourselves for potential second wave. Even if that's not clear, if that happens, maybe vaccines will be early enough or the social distancing will work longer and more consistent than we might fear. But of course, the major focus will be to help our customers to get the business up and running and secondly, to protect us against the second wave. Long-term strategy, the clear news here is we don't need a new strategy. The only thing that would happen is the execution would be accelerated, particularly on the digital approach. That brings me to, on page seven, to the group revenue. As I already said, P&P Express are up. The DGF, not surprisingly, is down. It has less volume. Supply chain is, year over year, even if you make it organic, up, but of course sees some impact. E-commerce solution, of course, is a mixture of up-trading and the impact we have seen in Spain and India. On the group level on page eight, if you just exclude the street scooter from both years and the China supply chain sale, we would be more or less flattish in the first quarter. This shows the strength of the portfolio, including all COVID impacts. So what you see on the third right column or bar, it is not excluding COVID, it includes actually COVID-19, but excludes street scooter. So, and if you take that, we are more or less on the same level that shows the strength of the portfolio, despite that we had to digest 210 million negative impact, which is good. Of course, you know, two and a half months, we're hardly impacted. So, therefore, you know, that's not a given forever, but it's a strong sign of all strength. If you exclude the COVID-19 as well, we would be even up year over year. On page nine, I don't have to talk too much about that. That's an explanation. visibility of what I've said already, P&P is doing well, going up, excluding COVID even more. Express would be up year over year, excluding COVID. DJF would own the same level. Supply chain was slightly up, and e-commerce is anyway up already, including in your COVID impact. So overall, I think a very healthy portfolio we have. And of course, it's visible that the broad portfolio in such a crisis helps, and that's a real value of the different divisions. On page 10, more detail on PNP, main communication is stable, but there's also now increasing volumes in e-commerce because which is one product for lightweight, this and that as well. Revenue is nicely up to the yield manage. Dial-up marketing is down on both, and on parcels, we see a good development, and of course, it increased significantly at the end, but a very strong yield as well. And, you know, we are probably at the upper end of what the predicted volume decline has been, because that's mainly driven by the last two weeks of March. Express, still solid development on shipments per day, even better on revenue per day. That means the yield management is working. So let's now see what will happen. The more and faster Europe will come back, the better it will be for the further development, as we already talked about. Not surprisingly, volumes are down on both, but GP is much better due to the extreme tight market. You know, we were able to convert at least some of the price increases into profitability. On the effort side, ocean is under stress, but let's see if things are now normalizing. Somehow we should see a better development on ocean freight because capacity is there. Supply chain, a mixed picture, as I said. We have very healthy business and we have challenging business, but overall I think the flexibility has stabilized the profitability in supply chain overall, ESC as well, some very good development in parts and some challenges in Spain and India in particular as we're hot spots. In the UK we also see good development. And that's more or less the summary of all these developments. So overall I think we had a a decent first quarter, and we have taken the right action to stabilize the situation. So with that, I head over now to Melanie for more financial detail. Thank you.

Yeah, thank you, Frank, and hello also from my side. I'm looking at the group P&L on page 15. Frank already mentioned the most relevant points on revenue and EBIT. Again, from my side, I think on those two lines, the important message is that We still had growth on the top line in the first quarter, despite the developing COVID impact. And on the EBIT, obviously, at first glance, it looked like a significant decline. That is really due to the positive one-off effects of 330 million in the first quarter of 2019 and the negative non-cash street scooter impact of minus 230 in the first quarter of 2020. If you take those one-time effects out, you're already on a level playing field. And then as Frank showed earlier, we had good underlying EBIT growth around 200 million, but then we had the negative COVID impact of 200 million offsetting that. I think the rest of the page is relatively unspectacular. Financial results are pretty stable. On the taxes side, in line with our expectations, we had a tax rate of 24%. And given that we have less profit before tax, the tax line in absolute terms came down. So I would say no surprises in the lower part of the page. Which takes me to a very important slide, page 16, the cash flow. First of all, as background, due to seasonal patterns, we always have a negative free cash flow in the first quarter. That is what we see every year. When you then look at the overall development, we are very pleased with our free cash flow development in the first quarter. Why is that? When you look at the middle of the page at the operating cash flow, You can see that we tripled it from 250 in the first quarter of 2019 to 750. In this OCF line, neither street scooter nor the positive M&A effects from Q1 2019 play a role. I think this is really a good approximation for the fact that the underlying business is in a very strong shape. And what is particularly pleasing is when you look at the changes in working capital line, it is noticeably better than what we saw in Q1 2019. And one key element in here is the very good collections development, which is obviously in the current situation a top priority for the finance organization. The other number which is interesting is when you look at the net capex line, you can see that net capex is pretty much on last year's level. I think there are two important points to be mentioned here. The first one is that whilst we have naturally looked at all our capex projects and we have looked for opportunities to delay and phase stuff, given the strength of our balance sheet and the way how the business is developing at the moment, we are in a position to take a balanced approach. So we are, of course, very focused on liquidity and short-term management, but we keep investing into the future of the company. I think we are in a good position to really take a sensible and balanced approach here. The second interesting thing to mention here is we didn't have a 777 impact in the first quarter of 2019. The big cash-out for the 777 started in April 2019. In the first quarter of 2020, We had a 66 million impact from the 777, which is less than what we had originally assumed, because we were now able to do a very attractive structuring for the financing of three of the 777s for the current year. And that led to parts of the funding coming through a leasing accounting structure. And that is directionally going to reduce the 500 million we had indicated for 777 CapEx to around about 300 for the year 2020. So putting it all together, when you look at the last line on the slide, you can see that we have taken out the 650 million cash in from the China disposal in Q1 2019. And if you then look at the comparison free cash flow Q1 2019 underlying to Q1 2020, you can see that free cash flow, despite COVID, is actually up half a billion, which I think is a very encouraging start into the year. That takes me to page 17, a slide which we had shown to you in a similar shape and form before. There's nothing materially new here. At the end of the first quarter, our cash and cash equivalence position stood at $2.6 billion. We did not utilize our syndicated credit facilities, so we feel that we are in a comfortable position. But, of course, that remains a top priority for the organization overall. We do a very detailed cash flow steering. So far, we are very happy with the development. But I guess, like everybody else, we do expect that there may be an impact in the weeks to come. We're watching this very, very closely. That takes me to a topic which is, at this point in time, a bit more challenging than in normal years, forecasting and guidance. So on page 18, I think you have a good understanding of what happened in the first quarter. A good start into the year, February, China COVID impact in express and global forwarding, and then in March, 150 million impact across all the divisions also in the other regions. So where do we stand today? As Frank already mentioned when he talked about the volume developments for mail and parcel and express, We still see mixed signals in the divisions. It's too early to talk about a clear pattern. Volumes in most segments remain below normal and last year, but there are first indications that the decline is bottoming out, for example, with regard to the decline in dialogue mail volumes here in Germany. Given the general high level of uncertainty, it remains to be seen whether these developments are now really the beginning of a sustainable trend. whether they turn out to be the first phase of the recovery that we all hope to unfold, too early to tell. And that is why, now turning to page 19, we don't feel in a position yet to issue a new guidance. There's still too much uncertainty and volatility around us. We have the same open questions like everybody else and now have to see what patterns evolve over the next week. But there are also some certainties for us going forward. Whatever shape or form the recovery will eventually take, a V, a U, a L, you name it, logistics will be an essential part of any recovery. And we as a group are extremely well positioned to serve our business customers, to supply consumers around the world. And our strong liquidity and balance sheet here again will play an important role to really capture the opportunities that the recovery will bring. And that is also the foundation why we are upholding our guidance for 2022. 2020, a lot of uncertainty, but there will be a recovery eventually. We will get to a new normal. And based on our strength, we are quite confident that we are then going to get back on track. And on that basis, we are maintaining our guidance for the year 2020. And that already, sorry, for the year 2022. So that already takes me to the last page, the wrap-up. Obviously, the virus is still out there, so we remain extremely prudent. The key priority for us remains on protecting our people, and that's the basis for keeping our operations up and running, as we have successfully done so far. That is then, of course, the basis to keep our customers operating. At the same time, we are getting prepared for the recovery, whatever shape it will ultimately take. But, of course, we're also preparing for a second wave and future deteriorations, which will hopefully not occur, but nobody knows. So, to sum it up, with our strong balance sheet and excellent strategic position, we will get through the current storm. We will try to find the right balance between taking the necessary short-term adjustments, but we will do all that with a long-term focus in mind, in line with our clear strategic framework. So much for the overview, and I think with that, over to you, Martin, for the Q&A.

Right. Thanks, Frank and Melanie, for the focused rundown. And, operator, if you initiate the Q&A round, please.

Yes, thank you. Ladies and gentlemen, if you would like to ask a question, please press 9 and the star key on your telephone keypad. In case you wish to withdraw your question, please press 9 and star again. Please press nine and star to state your question. And first up is Daniel Roska from Alliance Bernstein.

Good morning, everybody. I hope everybody is well on the call and with your families. Maybe number one, Frank, if I could ask you a more broad question. You mentioned that you kind of are distinguishing between the disruption and the recession, which is, of course, difficult for every business unit right now. But could you elaborate a little bit more how you would think about your different business units in a recession? So as we move beyond the disruption, hopefully, what are the key priorities and how would you differentiate between the business units in terms of what's important for them in the upcoming recession that is taking hold? Secondly, maybe a little bit more detailed on parcels and P&P in Germany. The charts you showed may indicate that there was a little bit of a spike in parcel deliveries in early April. Would that be fair to say there may be a catch-up effect here? And would you expect kind of the high level of B2C deliveries to continue or kind of soften? And could you comment briefly on the profitability in the mix shift kind of between B2B and B2C in the German parcel unit? And lastly, I think you also touched on it concerning Express in yield management. I think on the last call we had, you said you wouldn't want to take a lot of price in Express. but how would you handicap the opportunities you have to actually select the shipments coming onto the Express network, and how should we think about that yield management effect over the next couple of quarters?

Thanks. These are all difficult questions. The first on the recession, if we go from a disruption just into a recession, I think in PNP we have not seen a massive decline in past recessions. You know, then we will see a decline, but people will still continue to advertise in the e-commerce structural change. The only idea I have, it will be accelerating, but not, you know, to the previous past, but not decline. So in PNP, and we showed that always that the post was on the bottom right corner when we showed impact from GDP and e-commerce. It is a pretty resilient post-business, which is not very much impacted by the GDP growth. At the moment, it's a disruption because shutdown is shutdown. Express will definitely benefit as long as there is limited capacity on the market on passenger airplanes because we will see up-trading from air freight to express and down-trading to ocean. which we typically see also in a recession because people slow down their supply chain, but to refill them by express, that's not unusual either. On the EGFF, it's very much for the rest of the year unpredictable because we should not assume that long-distance traveling with passenger airplanes will get to normal in the second half. Maybe we'll see first signs that some travel is happening again. but that's probably longer term. And of course, in this situation, air freight will, of course, an important part, how you manage the chargers somehow. Ocean freight will probably normalize faster. And in supply chain, I think supply chain, and that's why maybe some of you said even in the first quarter, supply chain is more vulnerable. That comes from a disruption. If a disruption goes out and we have a normal recession, the supply chain business is pretty resilient against that because you either have more inventory and stock in the warehouses, but we have really a complete shutdown of activities. E-commerce solutions will continue. If a lockdown is over, the structural trend of e-commerce will continue. So overall, most business has probably more upside than downside. So B2C, if there's a structural change, it's too early to say. I think there will be an acceleration of what we have seen already before because even more people have now learned and have started to order, but it's too early to say how big that impact will be. With regard to the profitability, it's very difficult to say that in a network business as a half. We have always been more oriented to B2C than B2B. And the B2B business, I think, will come back, but I don't expect neither a very much positive or negative impact. So I wrote on Express the last question. What was Express? You can call it selection of customers or yield management at the end of the day. you have to be very cautious not to damage the business of your customers because they are expecting from us a consistent, they know that we have a fixed network and therefore you should be very cautious to really now on a short and squeeze for orange I think is not a sustainable strategy and express we will not do that. We of course will recover certain costs we have extra but we will not squeeze for orange. I think that's That would be not long-term. And DGF, it's different because everybody knows that the markets are completely distorted. And therefore, you have to charge the customer to pay for yourself. And of course, that's very clear that this is very volatile.

Thanks. Daniel, those were the three questions, right? Absolutely. And great job amid the uncertainty. All right.

Good. Then over to the next one, please.

Yes, and the next one is Tobias Sittig from MindFresh Bank.

Yes, thanks for taking my questions. Two for me, actually. Could you provide a little more granularity on the express volumes that you're seeing now? So is the e-commerce share increasing, or is it a lot of ad hoc business that wouldn't normally be express business versus what sort of the classical B2B volumes are doing? And secondly, a bit hypothetical, but... Basically, without COVID and without StreetScooter, you would have been trading at above a billion EBIT in Q1, and you were aiming for 5 billion for the year, and Q1 usually was one of the stronger quarters in the year, so that doesn't fully add up for the old 5 billion target. Can you provide a little bit more insight on what particular cost effects you'd expected for the remainder of the quarter, yield effects coming for the remainder of the year, coming into force that would have lifted your results as the year goes? What should we be looking at in terms of cost improvements as the year goes across the divisions? Thank you.

So maybe the first, let me take a second. So it's a hypothetical question, as you said. But, you know, I can only tell you that, you know, what we have outlined there, we were exactly on what we expected for the first quarter. And, of course, we have looked into our plans before. So if we had delivered without COVID, the number we had been exactly on the right path. And, of course, we have expected that certain metals are having more traction in the second half and the final quarter. So we were very much in alignment with our expectations. So cost measures now to talk about what has been planned before the COVID crisis is, I think, a little bit too much, you know, to look into the, you know, hand and do something. You know, I would refrain from that because... I have not looked into, but the original plans were even since I was two and a half months, so I would not even know what we discussed at that time. So I think that is completely, you know, what I can say to be is the first quarter without COVID was exactly, excluding street schools as well, was exactly on the right path to deliver the five buildings.

And maybe on the express sector shift, I'm not sure. I think, first of all, generally, let's go also a bit back to the disruption discussion. At the moment, we have a very special situation in the express network. So, I mean, overall volumes are down, but with pronounced imbalances. So, we have a bit of a tortured network with missing volumes in some parts and too much volumes in other parts. And, of course, the biggest distortion is outbound China. where we clearly see at the moment an unnatural mix. We naturally have a very high share of medical supplies, PPE stuff. We also have quite a lot of tech business, but there are other sectors which are, of course, at the moment severely impacted. So I would say overall at the moment it is still quite out of whack and that is why we have also seen in March the negative impact in Express because this imbalance and lack of volume in certain parts has led to extra costs. And as Frank already said, we are trying to recover parts of the costs through surcharges but in a sustainable way. not to damage relationships with customers for the long term.

Tobias? Okay, thank you. Good, thank you. And next caller, please.

Yes, next up is Matiha Jachole from Goldman Sachs.

Hey, Matiha. Yes, hello. Good morning. Three questions for me. Firstly, I'll take the opportunity to ask you also about your thinking about the dividend. You know, free cash flow has been better than last year in Q1. You said that was something that you will consider. But what's your latest thinking about the dividend proposal for this year? Second question will be about CapEx. I'm not entirely sure I understand what you mean by CapEx phasing. Now, do you mean that there could be some capex delays into, say, later years, 21, 22, or something else? And then thirdly, just on air freight. So there was, like, an increase in the gross profit per ton, quite nice, of 11% in Q1. Is that because you had, like, in place already some capacity, basically, bookings, and therefore you could exploit that, or, you know, Is it sustainable, the type of, say, improvement in gross profit per ton, particularly given the tight markets?

Okay, yeah. Three good questions, Matthias. So, I mean, first of all, on the dividend, we had a good year 2019, which is why the corporate board and the supervisory board have endorsed a dividend proposal of €25 per share. The ultimate decision on the dividend is taken by the AGM. which under normal circumstances would have taken place tomorrow. We are at the moment very closely following all that is happening around AGMs here in Germany. We now have the first successful virtual AGMs, so this seems to be a proven and successful model, and we now have to find the right point in time to decide on the new timing for our AGM, where the dividend decision will ultimately be taken. In terms of CapEx phasing, what I meant there was that whilst we have naturally also looked at opportunities to save CapEx, and we have clustered our projects like everybody else has, what could we stop and so on, so that we are prepared to act. At the moment, we have not put a general CapEx hold order into place. because we really want to take a balanced approach. We want to continue with sensible future projects to prepare for the time after the crisis. So I think my message here is we are prepared to react, but at the moment we are really trying to steer through this in a very sensible and balanced way. And the last question on the GP per ton in air freight. Yeah, indeed, that is a very pleasing development, what we now saw in the first quarter. And that is indeed due to the fact that we were able to secure capacity. First of all, that we were able to secure capacity, which is not a given, where obviously our size and the good relations we have with the carriers is helping us. But we were also able to secure some capacity with a bit of foresight early on. at still reasonable rates which are now helping us with good margins which is something we expect to also continue at least for part of Q2 I think the interesting question is then really what will happen in the second half of the year and that is linked to the overall question where we don't have the answer either but you know

A market which is intransparent is good for the forwarders. It has always been. Nothing is worse for the forwarders than predictability. And the best is in a completely unpredictable environment, and that's what the organization is capable of managing.

And that is what you see in the market at the moment.

And that is what you see in these particular cross-profit development per ton in effort.

Can I just give a quick follow-up on the dividend? Let's say there are lots of unemployment schemes, government-supported unemployment schemes and government support in the current situation. And some of those schemes basically prevent companies from paying dividends. Have you taken up any of these schemes in any country that will prevent you from basically paying a dividend? No.

So the situation is more complex, but conceptually I would say the following. So furloughing and in Kurzarbeit in Germany, all this kind of stuff, what is the intention and who is paying for that somehow? It's different. Sometimes it's paid by insurance, sometimes it's paid by the government, but the intention is to pay the salary of the people. So the money doesn't go to the company, the money goes to the employees. And I think that shows that this is not stated. It's different if you have to ask the government for liquidity. That's a different game. And definitely we will not do the second at the moment because we have no needs. And I think that is then the link to the dividend. The link to the dividend is very clear. If we need the government to give us money to stay stable, you know, then we have a very different situation to pay the dividend instead of we take money from the government or from insurance to give it to our employees to keep them employed. For me, that is, you know, that is one stakeholder which benefits, but that's employees and not the company. So why should I then penalize the other stakeholder, which is a shareholder? But it's different for liquidity. If we are not able to collect enough money to run our business, I think then it's a very difficult situation. Fortunately, our cash flow is strong enough, our credit lines are strong enough that we don't run into that problem, at least as far as we see it at the moment. And I said that last time already, I don't know what this year brings, but at the moment we have enough liquidity to operate our business and we don't need any money from the government. Okay, very clear. Thank you very much. That's the reason for the dividend award. We say the same today as we said always. So nothing has changed. but we don't know what will be in summer because nobody expected what happened in the last eight weeks, and it's still two or three months to go. So I think our focus should stay on collecting the cash and generating, like in the first quarter, a very good liquidity. Then we have not the problem number two.

Clear enough?

Clear, yes, now clear. Thank you very much.

Thank you, and on we go.

The next caller is Andy Chu from Deutsche Bank.

Good morning. Three questions, please, if I may. Just on COVID, the COVID impact, how do you actually calculate that €210 million number for the quarter? How much of that is sort of lost revenue or incremental cost? And then are you prepared, secondly, to give a number for April 2020 And based on that, do you think that actually the Q2 impact for COVID could actually be less than the Q1 210 million euro number? And then just a point on clarification, please. In terms of express volumes, Melanie, I think you mentioned that express volumes, maybe TDI volumes are down. Could you just maybe just clarify which sort of time period you're talking about? Is it sort of May, April, and maybe quantify? the sort of level of decline of express or TDI volume decline. Thank you.

Okay. First of all, on the technical calculation of COVID, we have agreed with each of the operating divisions and approach how to do it. It, of course, varies from division to division. So, for example, in supply chain, we have looked at the sites which are totally closed or where we have a very significant drop in volume activities. and have quantified the delta to the normal operation. In Express, we have looked at the trends we have seen in terms of revenue per day to quantify a revenue impact and the extra cost. So there is a very clear method behind it. I think the problem, and that is why we also said going forward we will do less of this, is when you kind of like use the baseline, the trend of the past, as COVID becomes the new normal, this gets more and more difficult. So I think what we have said now for Q1 is really solid because we have clear pre-COVID normal states. But obviously, with each month passing, the comparison line gets more and more blurred. That takes me to April and what was the impact in April and how did we do in April overall. So as expected, and I don't think surprisingly for anybody, we had a negative COVID impact in the month of April, which was, however, fully in line with what we had expected. And I don't think it's a surprising order of magnitude. The reason why we don't want to continue quantifying things now on a monthly basis is that things are still very volatile. For example, when you look at how things evolved in the course of the month of April, the first half of April was totally different from the second half of April. So it's really super difficult to draw any conclusions and forward-looking statements from the numbers. which is why we don't want to quantify it. But it was negative in line with our expectations. And obviously, we also expect a negative COVID impact for the second quarter. And directionally, the second quarter should be at the bottom of the COVID effect. Which takes me to your third question, express volumes. So what we have said... It seems like ages ago, early March, when we did our 2019 results announcement, we said that at that point in time, China was coming back and overall express volumes turned into a positive territory for the first days of March. They have been down year over year for the rest of March and for the month of April. And as we said before, we are now beginning to see early indication for a bottling out, but I wouldn't declare it a trend yet.

Are you up in volumes in May then? Is that correct?

I think May is again really difficult because what we now just had in the first week of May was a golden week in China, which led to some distortions. You may have seen that before that. Due to the huge capacity constraints out of China, we consciously took the volume down a bit. What we are now really keen to see is how are the next three weeks, which should be relatively stable also in terms of year-over-year comparison, how are they really going to develop? We may be at a better point in time to see a pattern then.

So maybe overall somehow, because that's important somehow, how we manage that and what is on my on my colleagues' agenda. So, you know, the key objective is, of course, the safety of the people and customer service. And then it comes liquidity. But behind all of that is we should gain market share, you know, if things are getting back to normal somehow because that's the best base to deliver what we have promised for 2022. To optimize the short term and say, you know, we can take the layoffs here or there and optimize that I think that's a very short-sighted strategy. So, you know, I'm less worried about the COVID impact which might happen in the second quarter. I'm much more worried about can we sustain about our CapEx plans to expand our capacity to be ready when the markets are normalizing to fulfill the needs of our customers. And that's a focus. And therefore, even if we now would know more already about the second quarter, I would say the question at the end of the second quarter I would have is, Do we have still enough liquidity to continue our investment plans, take opportunities, and continue to build the network stronger? And not have we maximized now or minimized the COVID impact because that's not the priority. The priority is to weather that storm in the best shape possible. And I think this is exactly what we are doing at the moment. And I don't want to waste time how much was COVID because I will not know that very soon anyway what is COVID and what is not COVID because the things are overlapping each other. So that's what is on the agenda of my colleagues and myself, you know, how we get as strong as possible to the crisis without losing the trust of our customers, not losing, you know, our people because we are not treating them right. And then we will see a significant improvement after the crisis in our operations because we are so well positioned in all our operations to capture that potential if we are doing it right now.

Thanks very much.

Good. And next caller, then, please.

The next caller is Mark McVicker from Barclays.

Good morning, everybody. Two sort of linked questions, really. First of all, could you just explain why you've gone back to the leasing market with the 777s? What's suddenly become so attractive versus the the ownership model that you talked about when you placed that order. And a sort of linked question to that, you know, I guess, you know, the world is fighting very hard to hold onto freighter aircraft at the moment, but do you think there may still be some opportunities to pick up good quality secondhand capacity somewhere in the course of the next six to nine months?

Yeah, so first of all, on the aircraft financing, we had planned under normal circumstances to use Q1 for a little bit of an in-depth discussion of how we are financing the 777s. We have taken a very creative approach. We have Jolko constructions. We have straightforward deals. We now have identified for three of the 777s very attractive but hugely complex financing constructions, which in essence lead to the prepayments, basically the first half of the payments being capex and being paid out directly, and then the second half of the payments on delivery being done through a leasing construction, which accounting-wise are not impacting capex and free cash flow and are preserving liquidity. So I think... I do hope that we get to normal times and we can do a CapEx 777 in-depth tutorial. This is nothing which was surprisingly now done due to COVID. That was part of our general approach to look for the best and most attractive ways to finance those 14 777s. In terms of general approach on aircraft, I mean, obviously at the moment, both in express and in global forwarding, there's huge demands for freighter capacity. We have an opportunity here because, as you know, the 777s are coming in to replace aged 747s, where in certain cases we are now looking at opportunities to hold on to those aircraft for a bit longer to work through the current air capacity shortage. That's a nice opportunity for us, and we are obviously also looking for potential opportunities which may come up in the second half of the year, be it from existing cargo carriers, but what we have also seen in previous crisis situations, that there may be good opportunities to get cheap passenger aircraft for conversion. We're keeping an open eye for that. I think that is probably something more for the second half of the year.

Mark, anything else? Yeah, one very quick follow-up. Could you just remind us, how many more of the 777s have you still got to be delivered? And do you think you might choose the very complicated leasing structures for the balance of that fleet, or are you going to revert to normal CapEx? What's the thinking on that?

Yeah, so the original delivery schedule was four in 19, six in 20, and four in 21. Of the 2020 batch, we now have three delivered according to plan, three are still to come this year, and then the four remaining ones in 21. And we are now really very openly looking for the optimal way to finance each of those aircrafts. That also depends on where do we actually want to utilize it later on, so which legal entity is going to be the owner of the aircraft. It's a very complex, really aircraft-by-aircraft decision. And what we just wanted to flag here today is that when we still had a guidance out there for 2020, we had told you that there would be around 500 CAPEX from the 777, and that has been boosted by around about 250. due to the new construction.

Got it. Thank you very much.

Yeah.

Great.

Great.

Thanks, Mark. And the next caller, then, please.

The next caller is Adrian Peer from Commerzbank.

Yes. Hi, everybody. Good morning. Good to hear that you are in good health. Actually, two quick ones left from my side. Well, first of all, on the volume search that we see in parcel and the recent weeks, there was just wondering whether there are also more Amazon volumes included in here. I mean, obviously, your plan is a little bit to churn that deliberately to some extent, but maybe they found out probably in the crisis that you are also a quite reliable partner for them, and has there changed any of your plans going forward with that regard? The second question is a really quick one. There were some press articles on short-term work you've been doing, using, actually I think it was rather supply chain, and I was wondering whether you expanded short-time work either in that division or anywhere else in your operations until in the last couple of weeks or so. Thank you.

Okay, so first of all, where is the volume search in Parcel coming from? It is not coming from one or two particular customers. I think that is one of the nice things that we saw a very good growth also from smaller and mid-sized customers, which has also been beneficial on the yield side. So it's not due to an imbalanced growth with just one or two of the big customers. In terms of short-term labor, I think that goes back to what Frank has already said on our general approach. So first of all, here in Germany, we are using short-term labor in an extremely restrictive way. We have 220,000 colleagues here in Germany. The number of short-term labor impacted people is in a very low single digit percentage order of magnitude. What we try to do first here in Germany is redeploy people in other parts of the organization. We struck a deal with the Groups World Council early on so that people, for example, from a supply chain site where nothing is moving, can be redeployed in the parcel area. And that is one of the reasons why we have only made extremely minimal usage of short-term labor here in Germany. In other countries, it does depend. We are analyzing in a controlled way what programs are available on a country-by-country level and take a balanced approach here.

Concerns are my view. Thank you.

Thanks, Adrian. And the next caller, please.

Next up is Sam Bland from J.C. Morgan.

Hi, good morning. Three questions. Yeah, three questions for me, please. The first one was, there's quite a large increase in the parcels price mix in parcel Germany in Q1, which is maybe odd, given, I guess, the strength in volumes is coming from B2C and weakening in B2B. So I just wondered what's driving that higher price mix. Second one was, was there... a material benefit from lower fuel costs in either P&P or Express in Q1? Or would there be one in Q2, given the lag to the fuel surcharge mechanism in Express? And I guess the final one in Express, certainly in previous quarters, you've been probably able to win market share from some disrupted peers. with COVID-19 going on, how's that looking now during this period? Is maybe that sort of market share potential accelerated, if anything? Thanks.

Okay, so first of all, on the parcel yields, yeah, that's indeed pleasing to see. As you know, we have been working on pricing measures in parcel for the last quarter, and we're increasingly seeing the benefits of Maybe towards the end of the quarter, we also saw this additional boost from good growth also from small and mid-sized customers, what I mentioned before. But I would say the big chunk of the good parcel average price development is really due to the pricing measures we have now taken over several quarters. In terms of Express, yes, we do see a benefit on the fuel side in Express. At the moment, we see it in two ways. The first one is that a year ago, we made adjustments to the fuel pricing matrix, and then, of course, we have seen the decline in fuel prices. That is, for Express, always a temporary topic because with two months' delay, those benefits are passed on to the customers. In terms of market share gain, I think it's too early to quantify that, but I guess one very important aspect for us is that we have been able to keep the network up and running all through the crisis, which has, as you saw in the express numbers, led to some extra costs. Also for the express network, we use some commercial capacity and passenger aircraft. We have very creatively now stitched the network together so that we can still operate all locations with dedicated flights. I'm deeply convinced that ultimately this is going to pay off and customers will appreciate it. Do we have a quantitative proof yet? No.

Okay. That's great. Thank you very much. Great. Next caller then.

Next caller is David Kerstens from Jefferies.

Hi. Good morning, everybody. Three quick questions, please. Just trying to understand better the dynamics in the parcel business. The over 4,000 new hires since the end of March, are they coming from elsewhere in P&P, or are they actually new hires, and what does that do to your cost base? And do you then expect that the surge in B2C volume will be increasingly compensated for the decline in dialogue marketing, or does it not happen because of the additional costs related to the new hires? Then secondly, with regard to the P&P labor negotiations, are there still – ongoing as planned, or are they currently on hold in the current uncertain economic environment, or is there still a new pay deal on the agenda this spring? And finally, a quick financial question. I saw that you took out the $19 million loss for Street Scooter in Q1 2019 in the underlying EBIT growth calculation. What was the full-year impact? Was that the majority of the $100 million that you had earlier talked about, or I think that also includes some other projects? Thank you very much.

So let me go through that briefly. So these are new hires, additional people, mainly in delivery, but also some of the sorting centers. Of course, that increases our cost base, but, you know, of course, we have significantly more revenues as well. I think it's too early to finally judge just on the basis of four or five weeks to say what's the impact of B2C to the lower-priced, you know, I think we definitely will go after the second quarter. And that's interesting then to ask the question, what does it mean longer term? Is that a match or is it not a match or even positive or negative? But I think it's too early to judge that, I have to say. And the unions have not canceled the contract yet. So the negotiation is delayed, but the unions have not. And usually they had to cancel that end of April for end of May, and they haven't done it. Should we now cancel end of May for end of June? We don't know yet.

Yeah, so on street scooter, yeah, we tried to give you full comparisons and transparency on what is the core logistics business excluding street scooter, which is why we also showed the 19 million negative impact we had in Q1 2019. The full year effect, we didn't give a specific number. We said it's around $100 million. So we saw an increase in the cost base in the course of 2019. And we'll show that transparently through the quarter. The overall number should be around $115.

Okay, great. Thank you very much.

You're welcome. Great. Thanks, David. And three more calls, I think.

Yes, and the next caller is Christian Nadelke from UBS.

Hi, thank you very much for taking my questions. If I may, first of all, in part, so could you give us a bit of color of what's happening with Amazon volumes in Q1 this year? Secondly, in terms of dialogue marketing, you briefly touched on this earlier, but you have around $2 billion of revenues there for the full year. What's the range that you expect for this year or the potential declines in revenues there? And thirdly, looking at the free cash flow as we move to April and into the second quarter, What are the first signs in terms of working capital? You've mentioned you keep a close eye on that. Are you seeing any more extreme movements there? And should we expect a similar trend of positive improvement in T1 to continue for T2 free cash flow too?

Yeah, so what we said with regard to Amazon in early March was that for the group overall, it's around about 2% of revenue. For P&P, it's around about 6%, and that we expect that share to go down as Amazon is building out its own logistics operations here in Germany, which is why we also gave a quite wide range for what we expect for parcel growth throughout the year, the 0% to 5% range. What we saw in the beginning of the year was that we were really fully in line with that. And also through COVID, there's no fundamental structural change to what we expect with regard to Amazon. On the dialogue mail side, yeah, that's a complex question because even before COVID, we had a special effect here. We had this court ruling in the fourth quarter of last year, which said that certain types of mail can no longer be sent as dialogue mail, which is why we indicated that we will also see stronger volume decline in mail overall this year, the 5% to 6%, because we expect volume to be lost. But on the revenue side, we said it's going to even out. So that was already a negative push on dialogue marketing before COVID came. We then saw this very abrupt change in March where we had significant double-digit declines. As we said, it's beginning to bottom out now, but I think that is one of the categories where I'm not comfortable giving a number yet because it's really too early to tell. With regard to free cash flow, working capital, what have we seen in April second quarter so far? We are quite pleased with the cash development in the quarter so far. And we have not seen any material changes on the collection side. But I would add a big yet. there I think on that as well it's too early to declare victory because obviously we have to assume that some customers probably also particularly on the small and mid-sized side are going to get into difficulties so we really have to keep monitoring it really closely which is what we're doing Thank you very much Great Thanks Christian

Two more callers.

Yes, and the next caller is Andre Mulder from Kepler.

Yeah, good morning. Four questions still left. Firstly, on mail communication, there's this unusual increase in volumes. Can you talk about that? Secondly, on air freight with belly space largely out, what percentage of that does that represent in the total market? On supply chain, your exposure to the automotive sector is around 15% of sales. What's your exposure to fashion? And the last question is on the cash flow. Looking at the statement, there is this notorious item, Waller, which has a swing of $500 million. Can you spend a few words on that?

Okay, so first of all, on the mail volume increase, I think there are two effects here. The first one, the smaller one, is a working day effect. We have 0.6 additional working days in Q1. The second effect is the positive side of what I mentioned earlier as a negative on dialogue marketing because of that court ruling. Certain mailings can no longer be sent as dialogue marketing but have to be sent as standard letters with the associated higher price and giving us some support on the mail communication volume. In terms of air freight, belly space, I guess the best number which is generally quoted out there for the market is that half of air freight travels in belly space. I think what the last weeks have shown is that it's probably actually a little bit more, and I think that is also true for us. In terms of what percentage of fashion do we have in supply chain, I don't know the number because we don't have fashion as a factor in our supply chain. It's a little bit impacting consumer and retail. I think the general statement is that obviously fashion has been one of the areas which have been negatively impacted. but this is probably something which is, in terms of impact, not as material as, for example, automotive for the supply chain quality.

And it's very volatile in the fashion sector.

In the fashion sector, for numerous reasons, even before COVID has been volatile. And then the fourth question had me was on... The cash flow? Yeah, but what on cash flow? Sorry, I didn't get that.

And with the 500 million...

What were you referring to? Yes, the other item which states it was negative 477. Ah, yeah, yeah.

Yeah, so that is when you look at page 16, the minus 477 in other in Q1 2019. That's what you're referring to, right?

Yeah, that's right.

Yeah, so that is the impact of the supply chain China disposal. We had a positive impact in the EBIT of net 426. That was reversed out because it doesn't count into operating cash flow. And then the full benefit of the 650 million was then coming in the M&A line, the 648 million. So the 477 other is a reversal of the EBIT benefit of the China supply chain portal.

Okay, thanks. I may want to add, because these are important questions, and of course we are asking these kind of questions, what will happen to the different industries? It's too early to judge, but I think it's always a good starting point is to think, you know, will consumers change their mind about these subjects? So on fashion, the clear answer, no. Why we should not, they definitely will not buy as much for the spring season or the summer season as they have done in the past, but after the crisis is over, why should they not buy new fashion? So therefore, that will not change because there is no danger to have more fashion. If you talk about the automotive industry, you know, maybe people even, counterintuitive, maybe people say, you know, I can't travel this year anyway, I have more cash available. And I buy now a car because it's safer as well to travel by car than traveling in public transportation because public transportation might be in a risky area. Tourism, of course, until people really get back to normal is quite way out because they think I can't judge. So that's the reason why I think the starting point looking to industry should always count what kind of psychology effect this pandemic might have on the people behavior. And That's 100% clear, but for fashion, I'm pretty sure that after the summer is over, we will be very much back to normal, and then we will not have any significant impact in our fashion business. The fashion retailer probably had an impact, and if they survived, they continued to do their business somehow. So it's very difficult to really judge, but of course airlines, and that's the reason why it's important, airlines, until they really get back to normal, Intercontinental travel is an issue, and that's linked to what Mark asked about. Should we buy additional cargo airplanes? That's actually a quite complex exercise, but of course we have to think about these kind of things. How realistic is that that we get back to normal on intercontinental travel or tourist travel? And what does it mean for these respective industries if they are customers of us and how we can help them? In other industries, they will be back to normal pretty rapidly, but And we have seen that. We saw no rise in e-commerce in the first two to three weeks. And then we were overwhelmed by the volumes because people said, okay, now I have read enough about corona, now I want to shop something. And that is because they have no personal fear. The fear is an important element of the whole crisis. And, of course, that's different sitting in an urban transportation or driving your own car or sitting in an airplane or or driving to a place. So therefore, I think that's what the jury is still out, what it means. But in certain sectors like fashion, I can't expect, I don't expect that in autumn people say, if a coronavirus, I don't buy any new clothes because I don't know if there is a next wave coming somehow. So people have forgotten that by then somehow. But they will think differently about purchasing a car or traveling somehow. And that is an exercise that Kiwi can monitor even over time, what happens, because our customers are a reflection of what's really going on with the consumers, finally.

Thanks, Andrew. Thank you very much for that question. And Machine says there's one more caller in the line.

Yes, we now have the last caller in the line. It is Neil Glynn from Credit Suisse.

Oh, hello, everybody. Thanks for squeezing me on. If I could ask two quick ones, please. The first one, just interested in how do you assess the prospect of supply chain bottlenecks being eased to help the market once this crisis eases and any feedback that you're getting from customers, which might actually help the second half of the year's volumes relative to the first, despite a likely recession. And then second question, back to the subject of aircraft financing. Usually in these sale and leaseback type transactions, you've paid for a lot of the value of the airplane first in pre-delivery payments. And then when the sale and leaseback transaction is actually executed, you actually see a cash inflow because of the value being paid by the leasing company. Just interested, will this supply in this structure, and might we see a cash inflow on the back of that transaction because of it, or do you just avoid the cash outflow based on this structure?

Yeah, to the second question, that is really taking away the second half of the payment. So the prepayment we have shown in CapEx, that has been a cash out through our free cash flow, and we are now just avoiding the second half. on delivery payments.

Okay, pretty opportunistically. And on the other, maybe I didn't get the question right, but what I can say is our colleagues around the world have never received more positive feedback than now. They are telling us in our internal medias, they are telling us it's amazing to see how positive customers are. I don't know if every logistics company gets such a positive feedback because I don't know what others are hearing. But what we hear from customers, from small, from private consumers, up to the large corporates is amazing. It's really amazing what they are telling us in internal emails they are sending us or compliments they are making. And that is very rewarding for our people and very reassuring for us as a senior team.

And just actually, Frank, just to follow up on that, the question was also trying to just touch on the prospect of pent-up demand that isn't actually currently being satisfied. Do you feel that a lot of your customers are waiting for the crisis to pass to really then ramp up activity, which might help a recovery in trade flows in the second half at all?

Yes, I think so. You know, they are all waiting and hoping and And it's too early to judge if we really see a V-shaped recovery. In China, we saw a V-shaped recovery. Will that happen in Europe? It's too early to judge. And it might be different by industry, but there's definitely one scenario is that we will be very much back to normal in the second half. And then we are more looking in how can we get more capacity for fulfilling the needs of our customers. That's one scenario. then there might be a scenario that after the summer is over, like all this with the flus and all these kinds of viruses, we have a second wave in the second half. That's the reason why I said already we are preparing for such a situation because we are taking our learnings. And as I said in the last call, I think I'm sitting together every morning together with the ops people to discuss exactly these kinds of things, how we can be well-prepared. So these are different scenarios and of course what we are doing actually, we are looking into these things and judge on that basis what does it mean for our CapEx plan, what does it mean for our cost base. That's a complex exercise because you can think about different scenarios and you can also look into the different industries. What is very interesting, and if you run a company from home, which I have done on a regular basis, you have some time to read some of the advice from all the consultants. And what is very reassuring is if I read that and get these reports from the McKinsey's and you name it, I always have at least one step ahead of these guys. So they are writing down what we have done, actually. We started that already mid-February or end-February to set up what we should need to do to protect the operation. And that is pretty good. I have not read any of Melanie's on the liquidity already before we talked about that. And that is what you can read in these reports. They prioritize what you have to do. You have to be visible. You have to communicate. We are constantly communicating to our organization on all levels. And that is important for these folks. So And that makes me very confident that hopefully the crisis is over, but then the company will be in very strong shape.

So, Neil. Many thanks.

Good. Well, thank you very much. I think that concludes the Q&A round. And with that, I'd like to thank Frank and Melanie for their time and sharing their thoughts. We're now looking forward to talk to you and meet you on a virtual conference format if possible. We, as IR, are looking forward to send out in the next couple of hours invitations for our virtual tutorials to keep you abreast in how the business continues to develop. And it's not all on COVID, but also on other things we are doing. Digitalization continues to be an important theme. So looking forward to be in touch with you then. And with that, I'd like to say thank you and goodbye.

Thank you.

Thank you. Bye-bye.