Deutsche Post Ag S/Adr

Thank you. Good morning and a warm welcome to everyone out there to our scheduled Q2 2020 reporting call. As you've seen in the invite, I've got Melanie, our group CFO with us, who will take you through the presentation, which I take it you have in front of you. And after that, there will be time for Q&A. So the usual procedure. Melanie, over to you.

Yeah. Thank you, Martin. And good morning, everybody. Welcome also from my side to our Q2 call. As you know, we pre-released our Q2 numbers in early July. I think the first important message is that in the second quarter, our group EBIT was back to growth. And I think what is extremely pleasing, and you will see that in the remainder of the presentation, all five operating divisions had a positive EBIT, and actually four out of five divisions showed year-over-year EBIT growth. The second positive message is that cash flow development has been very strong in the second quarter, but overall for the first half of the year 2020. For me, this is both a confirmation of the fundamentally sound operating performance in our division, but it's also the result of our strong internal focus on improved cash generation. So, obviously, it has been quite a dynamic development in the last month. And in the beginning of the pandemic, our focus had been very much on preserving liquidity, keeping us in a super safe balance sheet position. In early July, based on the good performance we had seen in the second quarter, we had a discussion in the corporate board to reassess our cash allocation. And as you will have seen on that basis, we first of all took the decision to reward our employees with a bonus for their exceptional efforts throughout the last month. And we also scheduled a date for our AGM and honored our commitment to dividend continuity with a proposal of a 1,15 Euro dividend to the AGM. So I guess overall, so far, we have gone through this Black Swan event quite successfully. And I would say that our investment case, which you can see on page three, is fully intact. The first element of our investment case is sustainable growth from our diversified logistics portfolio, and you can see that in action on page four. So as you can see here, we had a reported revenue growth of 3.1%, organic growth of 4.6%. of course, saw an impact of the pandemic situation, for example, in our mail volumes and also overall in global trade-related flows. But four out of five divisions nevertheless were able to report solid revenue growth in the second quarter. The one division, supply chain, where we had a revenue decline, that was driven by the fact that this non-network business is really impacted significantly. by lower activity levels in customers operations. Quite often we have dedicated customer sites and that of course also had an impact on our supply chain revenue development. The growth we saw across the group has also been heavily driven by e-commerce. We have talked about that now for quite a long time as a structural growth driver. And of course that was also an important element now in the second quarter of 2020. The growth in the second quarter is also a manifest of our ability to successfully manage through very unusual market circumstances, like for example the tight air freight market, as well as a very quickly changing volume pattern, which we saw over the last month in Express. Let's take a look at some important volume trends. I think nothing materially new, but I still want to talk a bit about what we saw in P&P Express and global forwarding on the next three pages, starting with P&P on page five. So as previously flagged, dialogue marketing volumes were down significantly, but that was offset by the very significant growth in parcels, up 21% in the second quarter. One of the positive numbers on this page here is the mail communication decline, which this minus 3% has held up very well. Just as a reminder, we had a change in product portfolio at the start of the year, which led to some shifts from dialogue marketing to mail communication. We lost more on the dialogue mail volume side than what we gained on the mail communication side. But of course, particularly in dialogue marketing, we also see the impact of the pandemic. You can also see the strong effect of our continuous yield measures driving higher average unit prices in both mail and parcels. The positive developments, particularly on the parcel side, are really the result of the very focused yield initiatives we have been driving for the last two years since the summer of 2018. So that is also a very structural trend which we're seeing here, which has been helped in the second quarter also by a very healthy customer mix under the pandemic. Express volumes on page six show first on the left side, the monthly pattern, which we also described earlier on. We had a very good start into the year in January. We then saw the effects of the pandemic in February in China and Asia. Early March, we were back into growth, but then, of course, with the lockdowns in Europe and the U.S. taking effect in the second half of March, we turned into negative territory in March again. April was the low point. By May, we were back into growth, and in June, we saw a very strong and healthy growth in our express TDI volumes. This growth is strongly driven by e-commerce. And just as a reminder, for our Express division, it's premium e-commerce. We always had a very strong focus on taking the right type of e-commerce into our most expensive network. So what we always say internally, e-commerce but in a profitable way. And you can also see that in the good margin development in Express. On the right side of the graph, You can see the regional split. I think nothing really surprising here. In the first quarter, Asia was the declining region. In the second quarter, Asia, particularly driven by China, was healthily back into growth. Whilst for the quarter overall, we had negative numbers in Europe and the Americas. But there as well, we of course saw an acceleration in growth from April towards June. That takes me to page seven and the forwarding volumes. I think obviously global forwarding and particularly air freight has been the most distorted market where we saw the most unusual patterns. Volumes are down significantly, but I guess it looks compared to markets as if we still performed relatively well, particularly on the air freight side. I think I really have to say thank you to our air freight team here. They did an outstanding job in early on securing capacity in this extremely tight market, where the name of the game in the second quarter was getting the right type of capacity at all. And by moving swiftly and using our long-standing relationships and our size advantage, we have been able to deliver strong GP uplift, and that has been the main driver for our strong Q2 EBIT overall. That being said, it is also encouraging to see that GP per TU was up in ocean freight, and also on the road freight side, our colleagues have equally managed to navigate successfully through these unusual circumstances. One very positive number, which you may have noticed, is our GP to EBIT conversion for DGF, an order of magnitude we had never achieved before. And as you know, Tim and the team are very focused on structurally improving the GP to EBIT conversion by improving our core processes. We have to be honest, however, the number we now saw in the second quarter is, of course, also due to the unusual circumstances and a positive outlier. The underlying trend is also going in the right direction, but miracles take a bit longer in an underlying way. Yeah, let's take me to page nine and the overall profitability improvement, which you can see in our P&L on page nine. In a nutshell, based on a solid revenue increase and strong cost focus, we turned the roughly 5% organic revenue growth into a 19% EBIT increase, which I think is quite a pleasing development. No unexpected moves otherwise below the EBIT line. Tax is up, reflecting both higher earnings as well as an increase in the tax rate in line with our guidance for the year 2020. The bridge on page 10 is something that we already showed you in early July. We have now updated the page with our final Q2 numbers. The message ultimately remains the same as on July 7th. If you adjust for all non-recurring items, group EBIT was up significantly, plus 26% year over year. In that number, we have included all operational COVID impacts. With every month, it's got more and more difficult to quantify them in isolation. So we're not doing that anymore. The only precise COVID-induced one-off number we are showing on this page is the minus 99. Those are the extraordinary effort impairments which we did induce by the lockdown measures. So 26% overall operating EBIT growth is a very healthy result. And if you ask me, honestly, probably not the number I would have predicted at the beginning of April when we're just all going through the low point of the pandemic to date. Yeah, so page 11 recaps the main drivers by division. I'm not going to go through all the numbers and all the information here on the page. That's a couple of words by division. I think in P&P, two things are sticking out. Under the pandemic, we have seen an acceleration of the structural shift from mail to parcel. It's a little bit fast forward to a state we may have achieved otherwise in maybe three years' time. The positive news is that we have been able to operationally cope with this acceleration in mail volume decline and the boom in parcel, and it has obviously also worked financially, and that is due to the second important point to emphasize on P&P, For the last two years, we have made great progress in all those structural improvement programs, be it the overhead cost reduction, be it the systematic yield improvement programs, and that is what is really helping the strong P&P performance. The express colleagues have once again done an excellent job in adapting the network to the quickly changing circumstances and to make sure that the extra costs we had in the network We're already also offset on the use side. We have been able to really provide our customers with ongoing service quality and we have been able to give them capacity which under the current circumstances wasn't to be taken for granted. Global forwarding, as already mentioned, the really great DGFF performance is predominantly driven by the strong air freight DP development as the main driver. Supply chain, our not network business, we here also on the either side see the impact that this business is more closely linked to activity levels of individual customers. And I think that explains why the impact of the pandemic in the second quarter has been more pronounced for supply chain. However, also here, cost focus and the diversified customer portfolio have been key to maintaining a positive profit contribution despite the 500 million euro lower revenue shown earlier. And finally, last but not least, VHL eCommerce Solutions is taking full benefit of orientating its network strongly towards B2C. Our youngest division was just in the positives despite a 30 million asset impairment in the second quarter, which is great, and they are firmly on track towards the first positive EBIT contribution for the full year 2020. With that, I'm turning to the important topic of cash flow generation and cash usage. The Q2 cash flow statement on page 13 shows how the EBIT performance is translating into even stronger OCF growth. Where is that coming from? Well, in addition to the strong reported EBIT growth, this reflects the fact that a lot of the Q2 one-offs The asset impairments, some of the provisions for the street suitor restructuring costs, and we also delivered an ongoing strong working capital control, and that all leads to our OCF being up $381 million year over year. In the second quarter of 2019, we saw the peak in the 777 capex. So I think to have an honest free cash flow year-over-year comparison, you have to take out the 777s, and that is what we did in the last line on page 13. And you can see that excluding the 777 capex, we actually improved our free cash flow by $444 million compared to the second quarter of 2019, and overall reported a free cash flow of more than $600 million in the second quarter of 2020. On page 14 and 15, we have updated our expectations for the major cash flow drivers in 2020. And we have also given you an indication towards our 22 guidance. One obvious question when you look at our guidance for the year 2020 is, why are we able to keep our free cash flow guidance at 1.4 billion, which we also had pre-COVID? when we were still targeting a significantly higher EBIT. I think the first thing to bear in mind is that our EBIT guidance, the 3.5 to 3.8 billion, include around about 700 million in runoff costs, and the biggest chunk of those 700 million are non-cash, so depreciation, amortization, and changes in provisions. Secondly, we have seen a very strong working capital performance so far in 2020, where we are quite confident that we should be able to hold on to at least part of that in the second half of the year. And thirdly, while we have 200 million one-offs in real cash from the employee donors, we also expect 200 million lower capex than in our original guidance, due to a different way of financing the 777. You can see more details and numbers on those two pages, and we do hope that they will be helpful to model the free cash flow, not only for 2020, but also for the outer years towards our 22 guidance. Let me have a quick word on the balance sheet. You can see that on page 16, where I want to mention two significant movements in the second quarter. The first one, also nothing new, is we issued 2.25 billion euros in bonds in May at record low coupons. And that is obviously, yeah, I would say further safety buffer on liquidity. This has led to a balance sheet extension per quarter end and of course it has also been one of the drivers for the step up in our cash and cash equivalents position at the year end 19 that stood at 2.9 billion, 30th of March 2.6 and now on the 30th of June up at 4.6 billion. The second point I want to mention is the development in our defined benefit pension obligations. So obviously interest rates have further declined in a very extreme way in the UK. You can see that in the lower right corner of that page. In Germany, we had a bit of refinement in the methodology that helped to dampen the decline. But I guess the big topic is the UK. I guess we will not be the only company to tell you that we are currently in discussions with our UK pension trustees how to address this topic. I mean obviously that size of design nobody had ever seen in the UK before in a quarter. Turning to a couple of pages which are completely unchanged compared to July 7th. So I guess I can be rather quick on pages 18 to 20. as we basically confirm all guidance components as given in July, as well as our dividend proposal, which is a good sign of stability in our finance policy. So page 18 shows our new 2020 guidance as introduced on July 7th, no change here. And yeah, I just talked about the bridge to the 1.4 billion free cash flow targets. Page 19, tries to kind of like put this guidance a bit into context, pointing towards the one-offs, 700 million of one-offs included in the 3.5 to 3.8 billion guidance. So if you take that out and you look at the operating performance implied by the guidance, you can see that this guidance actually implied 4 to 11% growth in 2020. towards an EBIT run rate of 4.2 to 4.5, excluding the earlier flagged and explained one-offs. On page 20, 22 guidance is also fully confirmed. No changes here. And last but not least, on page 21, I'm very happy that based on the good Q2 performance, we felt indeed able to schedule a date for our AGM and to fully deliver on our performance of dividend continuity by proposing a stable dividend of €15 per share, also under the very unusual circumstances of the year 2020. And I know every once in a while it still comes back, so should any one of you still have 2009 in mind, I hope that this eventually testifies our strong commitment to shareholder returns and our finance policy. Technically, we are in the final stretches of preparing our virtual AGM for August 27th, and the dividend payment is then expected on September 1st. So, to conclude, it has been a challenging and unusual year, I guess, for all of us. I think on the positive side, it has shown how mission-critical logistic services are to keep the world moving. And for us as a company, it has shown how our leading and diversified positions across the industry provide us with a resilient base for sustainable success. And that is what gives me strong confidence beyond this second quarter. Our stable strategic logistics footprint in combination with our agility and which we have proven now in the second quarter, that we really had to respond rapidly to unforeseeable events, and the colleagues out there have done an amazing job. I think the fundamental basis for this success has actually what we have worked on continuously over the last years, and that is our company culture and the values. We have had our purpose connecting people, improving lives out there for many years now, and our people across the organization have probably never felt this contribution this purpose so real and first hand like under the pandemic circumstances now in the second quarter I think that shows that also with our strategy 2025 aspiration we are on the right path to keep delivering sustainable performance also for the next quarter and with that Martin back to you and we are happy to take your questions

Exactly. Thanks, Melanie. And Emma, if you will then push all the right buttons to initiate the Q&A, please.