Deutsche Post Ag S/Adr

Hello and a warm welcome from my side to our Q221 conference call. As flagged, we have with us today Groups CEO Frank Ethel, Groups CFO Melanie Christ. It aims to be done within 60 minutes and therefore right over to you, Frank. Good morning as well from my side. Yes, we are definitely in a very good spot, seeing a very strong recovery of the B2B markets driven by the overall recovery of the economy and B2C is still continuing to grow at a lower pace than in Q4 or Q1, not surprisingly, and of course that also will continue, both trends will continue to the second year. What we intend to do and have announced already that we will let our employees participate in the tremendous success the company has at the moment. We believe in a service company. The difference is coming from our colleagues around the world. And we are very happy to have already announced that they will get this year and deserve it, I think, as well, another €300 COVID bonus, which we will pay in Q4. We also have already, early July, upgraded our guidance now to above $7 billion EBIT and of course that's driven by the strong trading we have seen in the first two quarters. The utilization is great and the improvement is driven by all five divisions. So overall I think we are in very good shape. Today we would like to focus more on volume development because, of course, that's important to understand as well. So what happened? If I go to page four, in the last quarters we have seen a recovery of B2B. In the second quarter, B2B growth was even stronger than B2C growth. On page five, starting with e-commerce, you can see here the B2C growth in P&P. So overall, good shape, we are happy with the growth, but of course the growth rate will not continue at the same pace as we had before. On page 6 you see similar pictures of, you know, that development in Europe and the US. Here you see that Netherlands is still very strong, Eastern Europe strong growth, UK parcel had already some months where it was slightly negative. This is fully in alignment with our expectations. The U.S. probably were earlier out of lockdowns, and that had impact as well. We believe that we will see a normalization in the other markets as well, but we also expect in the markets where we have seen no growth, we should see, sooner or later, again, growth, because the fundamental trend with moving to e-commerce is still intact. Balance between B2B and B2C shows as well in Express that we have seen a good growth in Express from the quarter, 20%, more driven by B2B. So it's really great to see we have all this good balance. And if you had seen, you know, the same growth in B2C in the second quarter as You can see that across the regions. I think it's great to see this is really a great model for us in our global footprint that we are benefiting from all these underlying trends. On page 8, starting with Express again, there's one element interesting as well, and that's a reflection of what I've just said. So we fly more heavy weight, which of course is good for the revenue line somehow, and therefore we expect that shipment growth will be slower than revenue growth in the coming months. But overall, as I said already before, Express Steel will benefit from very healthy growth on both. On all five divisions, I will show you now some examples of our digitalization agenda, which is in full swing. Here we have, for instance, Vista is our new tool. Leo helps us to recruit faster colleagues to getting on board and we actually added a significant amount of people in the last year. Anyway, if you compare end of June with last year, we probably have around 25,000 people more on board. So we are in the market and recruit not only in Express but in all divisions new people. Customers classification with artificial intelligence is important. A good example is that we lost the de minimis in Europe and of course that It's a challenging number, but I think these kind of things helped us that we haven't heard anything about that. I guess that this was a problem because we were well prepared and have managed that very well, despite us operation quite a challenge. So overall, expressed in good shape, very good digitalization agenda. Global forwarding phrase. You know, we show here as well that we are now ahead of even 2019 before the pandemic. look into the detail, we have added significant volume without adding people. That shows that the systems really help us to gain productivity. And on top of that, we have, of course, very high yield, as all the players have. So I think in Africa, we are really in great shape, and we have grown our GDP in ocean freight as well, and we are now back to the level we had before. The second element of digitalization on the right side is myTHRI. markets as well as we speak. Supply chain, very strong recovery. We are now significantly ahead of the margins we had in 2019 before the pandemic and also the ups of profit, excluding even in 2019-20 where we had one-offs. So this is really now these three years, one-offs in 2021-20. This is mainly a B2B business. Yes, we have e-commerce quite sizable as well, but as we believe that e-commerce will continue to grow, we should benefit in that area as well. We have a lot of digitalization and a quite busy digitalization agenda here as well. Just to name the collaborative robots, which of course are giving us productivity gains that should help us to improve all of our consumer goods. Good activities here and I'm very happy about that development. It was an excellent quarter and I think there are more to come because the agenda of Stanford employees is really working well. E-commerce solutions. I talked already about the growth and the pattern we see. Overall, there is strong growth and are significantly above the margin of what can be anticipated for 2025. It's a consequence of significant lift in volumes, and you see that in these kinds of businesses. If you get more volume into the network and you draw up a certain threshold, you should see a very good development of the market, as you can see here. So that's very positive. An example where we are working on digitalization is our cross-European product, which will definitely grow faster also in the coming years than the underlying market. for our customers. Finally P&P Germany, you can see here that revenue and volume grew nicely but in line, different from the last quarters but that is all reflected continue to be on that. We have the same effect in mail. You can see that here. We have, you know, dialogue marketing has grown much faster than the first class mail. That leads to significantly bigger volume increase than revenue. And that, of course, leads of the short end always to some challenges with regard to, you know, how much profitability improvement you see. But overall, of course, We are happy to see that volumes in the dialogue marketing are coming back and that revenue is growing. Long-term trends are still the same. We expect a decline year-over-year by minus 2-3% but of course we are pretty pleased that we predicted what is happening now and it is slightly better and I think we are in good shape here as well. development year over year. Digitalization and other activities, I think we talked about some of them already before. I think we don't have to stick to that. They have a very busy agenda in digitalization to make our operations more productive and more customer-friendly. Finally, our ESG highlights of the first half. As you know, we have launched our roadmap in March. We are making good headwinds there and I'm very happy that we now announced two days ago our first purchase of electric cargo planes. I know that they are carrying only a ton, around a ton, but they are nice replacements of our old feeder flights starting in the US. And we are also progressing with our to sustain the maritime fuel, as you can see here. A great place to work, of course, is important for us anyway. The second bonus, I think, sends a very strong signal. We have just in Germany vaccinated about 40,000 people in Germany, and I think that is showing as well that we are taking our responsibility for that service. So overall, also on the SSG agenda, I think good progress base of our strategy. So overall, all five divisions are in very good shape business as well after the pandemic has hindered them less to do good business. Thank you for listening.

Thank you very much Frank and good morning to all of you also from my side. So turning to the condensed financial part of the presentation, when we look at our revenue development, I think Frank already explained all relevant trends and on page 15 you can see how that adds up to the Revenue growth of, in absolute terms, €3.5 billion in Q2, 22%. All DHL divisions was on an organic basis, growing with more than 20%, and Post and Basel still growing with 7%. So it was a very good quarter on the top line, and that was the foundation for then, based on very good network utilization, translating that into a very strong EBIT development. On page 16, You can see that with 2 billion, 83 million, we actually had our best quarter ever. I mean, the interesting thing is when you look at the half-year EBIT number, adding to 1, 2, 2, we're close to 4 billion. A couple of years ago, that would have been a great result for a full year. Now we have achieved that after six months. So that's, of course, a pleasing development. contributing to those great numbers. Of course, Express is standing out with more than 1.1 billion euros EBIT in a single quarter. But when you look at the margins, it's a very strong performance for all divisions. Express, a 20% EBIT margin. DTFF and supply chain both, a 6% and DHL e-commerce solutions at 8%, so very strong performance across all divisions. the DHL division, and also good performance on the P&P side. Turning to page 17 and the full P&L, yeah, I think the one consequence of good performance is that we had to pay more taxes, and that in combination with an increase in the tax rate leads to significant increase in the taxes line. I think that's the only thing to point out in addition on page 17. Overall, when you then add it all up, you can see that compensated net profit and earnings per share are up more than 140%. So we are able to translate the top line development into good EBIT progression, and then ultimately, despite the increase in taxes, into a very pleasing progress on the net profit development. So that's the accounting side. Now turning to the ultimate real thing, cash flow. page 18. So first of all, I want to point out that after six months, in terms of free cash flow, we are at more than $2 billion. So that, again, would have been a couple of years ago a number we would have been happy with for a full year, but obviously the expiration levels have gone up. When you look at the quarter in itself, I think there are a couple of points I wanted to comment on, because when you take a first look, you may say that, well, flow is only up 300 million. Why is that? There are four main drivers which are all fully in line with what we had expected. The first one is when you look at the changes in provisions line. In the second quarter of 2020, we actually built provisions, for example, for the street scooter repositioning. So the positive change in provisions number 13 was a bit of an unusual thing. with minus 87 is a more normal thing. That is a 200 million year-over-year swing. Like in the P&L, we, of course, also see impacts in terms of taxes paid. That's up 140 million year-over-year. And business is growing heavily. We saw that in the top line, and naturally that leads to a certain expanding on the working capital side. which is something we're monitoring very closely and overlying with increase in working capital in mind with our expectations. But on the cash flow statement also leads to a minus 229 million year-over-year increase. And the fourth point I want to comment on, obviously on the CapEx side, Given the continued very strong network utilization and volume growth, we keep investing in line with our CAPEX guidance, and you can see that in the increase in net CAPEX. So those four elements together explain why there's only $300 million in free cash flow improvement. But again, for the half year, it's a free cash flow of more than $2 billion. That's all fully aligned with our expectations. So much for Q2 and the past. Now turning to what is probably most relevant for you, what to expect going forward. And we have included three slides before I come to the guidance page to give you a bit of background to our thinking about the guidance. The first one is with regard to what we expect on the top line, and you can see that on page 19. That is basically putting together the individual slides Frank talked about. You can see here on the bottom pack of the line the B2B development. There you see this continued recovery. We obviously see the normalization in growth, like we had expected for quite some time now. So we expect that normalization to continue. It is probably going to be a little bit different country by country, and we have to really see how that then adds up. I think directionally it's very clear what we assume on the top line. The big discussion we then had is, okay, how do we prepare operations for the second half of the year and particularly for the peak season? And then you can turn, when you turn to page 20, you can see in the middle of the page our guidance principles that here we really want to make sure that we have the capacity needed in the peak and that we really want to focus on delivering great service quality for our customers. That means that we are going to plan for a dynamic peak, even though there is a certain risk that it could not be so dynamic, which would then, of course, lead to us having certain areas of overcapacity. That is one of the reasons why our guidance for the full year in terms of EBIT may look a little come the way we are expecting, that would lead to a certain cost overhang, but that is a conscious decision. And just to kind of like explain it very completely, so for example in post and parcel Germany, you saw in one of the slides Frank talked about that in the second quarter, in our parcel volumes, we were still at the same level like in Q4 2019. So we were still running in Q2 on a peak volume. Normally the summer is of course always lower and we tend to quite significantly reduce costs over the summer months. We have not done that as aggressively as in the past in anticipation for this strong peak. We already know that this will have an impact on the EBIT margin and PNP in Q3. We believe that this is the right approach to then be ready for the peak season in Q4. So that in terms of general philosophy, how we are preparing and managing the second half of the year. On page 21, I'm not going to go through all the words on the page. I think the basic message here is we, of course, understand that there is a lot of debate about inflation out there at the moment. I think for us running network businesses, where we have always seen cost inflation over the last years, we are not going to develop something fundamentally radically new to deal with inflation. We will use our well proven tools and the most important tool here is our standard price increase mechanism which we have been executing over the past years and which we will of course do again and where we are very clearly taking cost inflation into account to ultimately pass it on to the customers. So with that to the guidance page which is unchanged compared to That fully takes into account the second COVID bonus Frank talked about. We are taking that into consideration with growth of about 200 million. So underlying, it would be more than 7.2. When you look at the medium term guidance, we have increased that to more than 7.4. So we clearly expect a normalization in growth rates, but we believe that also medium term, we have a good base for further profitable growth, and that is what we're aiming for. I'm not going to go through all the details of the other guidance elements, because nothing has changed here, and we cannot talk better about that in the Q&A. And with that, thank you very much from my side, and Martin, over to you for the Q&A.

Right, over to you, operator, for exactly that.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question is from Robert Johnson from Exane BMP Paribas. Please go ahead.

Good morning, everybody, and thank you for the presentation this morning. Three questions from me, please. First of all, on the 2021 guidance, you've been clear that you consider the guidance to be reasonably conservative, partly with respect to peak season planning and the possibility that the network may not be fully utilised. Could you maybe just provide some colour on what type of volume growth you're assuming from a capacity planning perspective versus what kind of volume growth you're factoring into the guidance? Second question of concern next year, and specifically one of the main debates within the investment community, is whether 2021 earnings will prove sustainable. Obviously, you provided guidance for 2023, which shows that by ongoing EBIT growth, but maybe could you talk about 2022 specifically and potentially whether you see a step down in EBIT during 2022? First question just on the outlook for parcel volumes. You provided monthly volume data to June in the presentation, which was super helpful, but maybe just given that lockdown restrictions were eased a little bit further during July, If you do have the July volume data as yet, could you maybe just provide some comments on whether you saw any material changes to the trends during July? Thank you.

Yeah, so, you know, maybe I answer this second question and Melanie the first and third. So, overall, you know, we believe that And all that is happening at the moment is actually something that happened much earlier. The second half will be coming down. We will see no growth year over year. Maybe we see a decline in certain quarters. None of that is actually surprising. It was always. And some people said we are too conservative. If you look into our guidance development for this year, we only upgraded that on the delivered numbers but not on predicting anything greater for the future. And that's the reason why we've been comfortable with the above $7 billion because we still expect that we will see certain months that we will see a decline or a mixed change or something like that. But our mantra is the best and the most important thing is keep going for service quality. in Christmas period, not knowing what will really happen with volumes. And that is a great base to then gain market share on top of all the underlying growth next year. And that makes me very confident that we will see a good continuation of even growth next year. Really, may you take the other two questions?

Yes, kind of like volume trends, what we see in July and what we expect in terms of volume growth and utilization for the rest of the year. So in July, we haven't seen anything fundamentally new. We see this anticipated normalization of P2C growth, but with P2P volumes staying on a high level. And on the P2P side, across the P2P businesses, particularly in the forwarding area, we continue to see a very good growth. And that is also what we now expect. really depends on the network, whether this will be above the very strong Q4 2020 on the same level or maybe here and there, slightly below. And that is, again, the reason why we have this relatively conservative style of guidance.

Okay.

Thank you. Thank you.

The next question is from Muneba Kayani from Bank of America, Maryland. Please go ahead.

Hi, Frankie, Melanie. Just following up on July, actually. So just to clarify then, parcel volumes in July remain positive but below the growth we saw in 2Q. Would that be correct? So that's my first question. Secondly, just with air freight rates remaining strong, can you help quantify what's the benefit of the strong air freight rates and express during the first half? and how that will impact express margins as air freight rates potentially normalize over the next two years as ferry capacity returns. And then thirdly, we've heard from GXO, XPO recently on their plans. How are you thinking about your supply chain revenue and margins over the next two, three years? Thank you.

Okay, so first of all, on the July volumes, I mean, it really depends. We tried to show that a little bit on the Econ Solutions slide. It's kind of like the development in Netherlands, still significantly above 2K, slightly below volume. So directionally, it is beginning to kind of like normalize more towards last year. across the different markets. Yeah, on the express question, I think that's a really interesting one, and you saw that maybe in the express side where we are showing that the shipment levels are also beginning to normalize, but we see a very strong growth in weight in the network. The main driver for this increase in weight is actually A B2B express shipment has a higher average rate, so the increase in rate in express is primarily driven by the B2B volume growth, that is the volume recovery on the B2B side in the network. There is a bit of a spillover from air freight into express, but that is not the main driver. In terms of the one area where we do see, also in Express, the significantly elevated air freight levels, that's on the ACS side. That's kind of like where we sell off free capacity in our Express network into the forwarding market. Here we still see that pricing levels in air freight are significantly higher than the historical level. And in terms of supply chain, It's really nice to see that we now have a 6% EBIT margin in Q2. I think that clearly shows what is possible. I wouldn't say that this is now going to be the case in every quarter going forward, but I think that gives you a good order of magnitude to aim for. Again, there may be a 5 point something quarter in between, but I think that's actually where we want to go. And in terms of at least network-y type of business. So what we can expect here on the top line is less than in the network businesses, but a solid mixing digital growth is, I think, a realistic aspiration. I hope that answers your question.

Just a follow-up, please. On Express, is it possible to quantify how much of the revenue in the first half came from selling to forwarding?

Yes, that's, I mean, a small chunk. I mean, when you look at our revenue overall, the prime revenue piece is from the core TDI, which normally is around 85% of overall Express revenue. We look at this ACS revenue as a cost offset. So we still, I mean, the fundamental way how we are kind of like managing things in Express at the moment is we still have higher costs on the aviation side We use the ACS volume sell-off into the forwarding market as a cost offset. And then for the Delta, which is still there, so the network costs, even despite ACS revenue, are still higher. We are passing on to the customers through this surcharge, which we introduced more than a year ago. So that's the fundamental mechanism.

Thank you. Thank you.

The next question is from the line of Christian from UBS. Please go ahead.

Hi. Thank you very much for taking my question. It's also free if I may. The first one on PEP, looking at the revenue per unit in Q2, could you talk a little bit about the building blocks, how much you had yield increases? How much was the headwind from mix or other effects there? And also, could you touch on your expectations for the second half of the year in terms of revenue per unit? Secondly, some of your U.S. peers have talked about issues with availability of workers recently and wage inflation more pronounced than usually. Could you talk a little bit what you're seeing into your U.S. business in this sense? And thirdly, I think you flagged at Q1 that you are looking at some of the DHL segments at the midterm targets potential there, and pretty much you've delivered more than your midterm targets recently. Could you elaborate a little bit in terms of the timeline? Should we expect you to revise the situation there anytime soon? Thank you.

Yeah, so three good questions, starting with the P&P question. When you look at the revenue volume developments in Q2, it obviously looks as if there's no real price increase there. This is really due to the mixed effect which Frank briefly mentioned. So in the second quarter of 2020, we saw very strong growth from small customers in the first lockdown and lots of small shops also started sending out parcels to their customers. That had a very positive yield effect in the second quarter of 2020, which we also mentioned at this time. So what we now see is a reversal of the trend, or not a reversal, a normalization. And in terms of underlying price increases, we are continuing that has not changed and that's the clear focus going forward. You will probably still see this normalization effect in the second half of the year, but then obviously going forward in 22, you should again see a good development on the average price per parcel. In terms of U.S. situation, we also see shortages in the labor market and partially significant increases. So that is part of the cost inflation we have to deal with. One of the reasons why we included the slide on how we manage cost inflation. It is, I think, for our U.S. colleagues, one of the top priorities at the moment. But the feedback we are getting is that so far they have been able to manage that carefully. Yeah, and last but not least, on what should be our margin aspirations going forward in both divisions, like e-commerce solutions, which are significantly better than what we had originally aimed for. We are now, in the second half of the year, going through our regular process for the budget and the new three-year midterm plans. That will be the basis for our guidance, which we are going to give next March. And I think that is then also the right point in time to talk about potential changes to our March aspirations. But I can assure you that it will be, like every year, a very intense discussion between the group functions and the divisions. And we will, of course, take into account that they are doing much better than what we had originally aimed for in setting the new targets.

Thank you very much. Next question is from the line of Andy Chu from Deutsche Bank.

Please go ahead. Thank you, and good morning, everyone. Just one question for me, please, and that's around capital allocation. The cash flow generation of the group clearly is in a very good position. You're already sort of covering your dividend and generating excess liquidity this year, and obviously you have excess liquidity sort of accumulated from prior years. given the sort of positive outlook out to 2023, I think you're halfway through, roughly halfway through your share buyback programme, so that could complete by the calendar year end. Would it be possible for sort of, you know, further share buybacks by the year end, given the strength of the cash flow generation and outlook? And if not, you know, why not, I guess, in terms of... another sort of share buyback program.

Thank you. Yeah, so also a really good question and I think given how well we're doing on the cash side of the quite natural one. So first of all in terms of where do we stand with regard to the current share buyback program, we're roughly one third through, a bit over 300 and so that is being executed in the way that announced it. I think our focus now is to really see how the second half of the year plays out. That will then be the basis for our decision on the regular dividend and then we would kind of like to take a look at the realistic future once we have really closed the books on 2021. Okay.

Thanks very much.

Thank you, Andy.

Next question is from the line of Satish Sivakumar from Citigroup. Please go ahead.

Yeah, thank you. Actually, I've got a couple of questions. One is actually a follow-up on pricing in Express. The division has actually seen an quarter-on-quarter improvement in pricing. So if you could actually comment on the exit rate, right, what are we seeing in June, and also what are you actually seeing currently in in the pricing and experts, and what is actually driving? Is it, like, underlying yield improvement, or is it also driven by short charges, given the disruptions that we are seeing right now? And secondly, again, pricing, but in R&C freight, what is your expectation in terms of normalization levels for both GP per ton and GP per day yield? Where do you expect it to normalize, and when do you also start to see that normalization levels? Thank you.

Yeah, so on the express pricing, I think two parts in terms of answer. The first one is, I mean, our fundamental pricing mechanism in express has always been our annual GPI process. And I think that is still the fundamental driver for getting up the yield in a very continuous fashion and, of course, also compensating for cost inflation. We then introduced in Q2 of 2020 And we have been relatively stable and consistent on that surcharge. So we haven't modified the surcharging mechanism materially over the last 12 months. It is still in place and it is working really well to offset the additional costs we have on the aviation side. So that is giving a boost to the top line over the last 12 months. but it is really offsetting the cost, so that is not the real driver for the margin development we are seeing. In terms of air freight, ocean freight rate development, obviously rates are still at very elevated levels, both on the air and on the ocean freight side. We do expect a normalization, but it will be a normalization over time. Obviously, on the ocean freight side, it is probably going to be a bit faster than on the air freight side, but the clear expectation is that levels will stay high for the rest of the year. I think the next interesting point in time to really see a movement in the ocean freight rate development will be post-Chinese New Year, towards the end of the first quarter of 2022. And on the air freight side, clear expectation is that particularly on the intercom side, it will take even longer for rates to normalize.

Thank you. Just a follow-up, actually, on the annual GPI process. So is it like any particular timeline that you do at a specific point in time, or is it more of a rolling contract, depending upon the customers? And with the inflation expectations going into next year, what do you see the potential impact on that GPI would be?

Yes, so the general GPI process is a very established mechanism in Express that always happens in the second half of the year. We then also very explicitly country by country announce our average price increase so that our customers can plan for that also for their budgets for the next year. We take a number of factors into account. Of course, cost inflation being one of the most important ones. There are also other elements in the global express network, like, for example, currency developments. If you have a local currency which depreciates in a more lasting way, given that the aviation network is paid in hard currency, you then also have to take the currency development into account. So there are a number of factors. It's a really well-oiled machine, and that is also what will now happen in the regular way in the second half of the year.

And if you take, you know, Express, PNP, and eCorp, will limit the capacity everybody has, even the industry in total has. Since in Express we have seen great price discipline already in the past, but we had not that situation. I can't see why we should not have price discipline in the future. That means, you know, service you provide. In e-commerce solutions and PNP, the same situation. PNP would have seen in the last few years that we are leading the pack and our competitors have followed us. And in e-commerce solutions, we will definitely follow their respective incumbent where they are larger and they will do something as well. We will follow that as well because this is still a supplier market. So there will be more demand than capacity is available and therefore it will lead to due to different reasons and therefore, you know, I'm not worried about that because we will find a way to push it back to the customers. If you talked about and asked about that, that that's a different model, you know, they are the areas, yes, even if the GP growth is not continuing, we have still an opportunity to improve our GP to EBIT conversion. And supply chain is different anyway. We have significant, you know, open book contracts, and of course the contracts will reflect that as well, typically, that if there's labor inflation that customers have to pay for it. So it's different by division, but overall, to be honest, inflation is not my biggest worry because the industry, I think, isn't in a good spot to push it further onto our customers.

Okay, yeah, thanks very much.

You're welcome. Next question is from the line of Alexia Dogani from Barclays. Please go ahead.

Yeah, good morning. I had three questions as well, two on DHL Express and just one on Air Cargo. Just on DHL Express, I mean, clearly margin of 20% is extremely impressive. We understand that... network utilization is really what is driving the performance here. Can you just give us a bit of an indication of where load factor is at the moment and whether you think there are any structural reasons why you couldn't close the gap to sort of industry leader? Then, secondly, again, on... On DHL Express, your recent decision to commit 12 aviation planes, is this within the CAPEX guidance already? And can you just give us a little bit of your thinking behind that? And then finally, on the air cargo market, Do you believe that post these past 12 months of significant disruption in Bali and ocean, have there been any structural changes in the market that will be sustained, be it, I don't know, the share of express operators or dedicated freighter networks? Just lean on your thoughts whether we are seeing a step change in structure post this period. Thank you.

Okay, so on the load factor, it's really difficult to give an aggregate number here because that totally varies from lane to lane. I think for us, the important number we always look at to judge the overall performance in our aviation network is a number which we call per kilo. And this cost per kilo is kind of like including the offset by setting off the excess capacity. And when you look at the development we have seen in this TPK, it really moved up significantly in 2020. And that was the reason why then on the revenue side we had to introduce this emerging research chart. We now see beginning positive trends. So when you kind of like look at the lines for 2020, it's significantly above 2019. We are now really getting closer to the 2020 and more normal levels. So it is moving in the right direction. And one important input factor for that is the quite good overall load factor.

You know, we don't see any structural change in the industry. You know, what we see at the moment is that just, you know, will happen over the next cycle as well, but Express will remain a niche in the whole air freight market. It's also, from a decision-making point, a niche. People expect for this niche a quality which we provide, and that's the reason why the margin is so healthy. Yeah, you know, we can lengthy discuss if You know, we have our own view on the margins. We believe we are best in class and better than UPS margins. It's a little bit, you know, how you look into the best numbers and what you combine, but I think we are providing now, and you can see that also in the second quarter and the total numbers. I think the total profitability of our group has never been more close to UPS total numbers, despite that they have a big machine domestically. You know, we are less dependent on any major market. You had the question earlier about the labor market in the U.S. Yes, it's a challenge. It's for everybody a challenge, but it's for us a tiny challenge in comparison to others. And we have it in the U.K. some challenges, yes, but if you ask me, yes, it's also a tiny challenge for us in comparison to the group. So that is the benefit of our portfolio somehow, and you see that in the second quarter, And I don't see any structural change in that. I think we are so well equipped because we are benefiting around the world from B2C and B2B, and that makes me confident. I had a question around future outlook. That's the reason why we deliver next year more profit than this year, and afterwards more, with a lower growth rate. The questions are all linked somehow to each other, so we are pretty confident that we can keep a good margin. We are not guiding for margins, but also in our express division, I think we are in a good spot. The LS question? The LS question is, of course, included in our $7 billion guidance. It will not materialize partially only, I think, in 2023. There's still a lot of lead time, but, of course, it will be accounted for in our $7 billion The incremental additional cost, not the total cost, because we have to buy airplanes and replace the current feeder flights anyway, so we will accommodate that. But I think we are not allowed to talk about the pricing yet.

No, we're not going to talk about that much, but I think to put things into perspective. So, I mean, we are totally excited about this very innovative new technology and that we can really pioneer here in using electric planes. But those are small, fewer planes. So they carry a ton. So in terms of overall capex, that is really, from a group perspective, not a very significant number. I think we also have to be realistic in terms of CO2 reduction. We will get through this. This is going to be a step in the right direction. But it's not going to be the big thing. I think for aviation for the next decade, given that it depends on the bigger aircraft, it is still about sustainable aviation fuel. And that is the biggest driver of our seven billion, and nothing has changed here. But I'd like to thank you for the question. Maybe that gives me the opportunity to say one more thing on the whole EOC thing, also in terms of expectation management. So when we gave our guidance and committed to a science-based target and the absolute reduction in our CO2 footprint till 2030, we already had taken into account that we would not see a reduction in absolute CO2 footprint in the early years because, again, it's depending on sustainable education fuel being available in sufficient quantity, and that's just not the case. And so what we clearly now expect for this year is that there will be an increase in our CO2 footprint, and that shouldn't come as a surprise to anybody given the very significant volume growth we see in express and air freight particularly. Just wanted to use the opportunity to also clarify that. Thank you.

Next question is from the line of Alex Irving from Bernstein. Please go ahead.

Hi, good morning. Two from me, please. First one on margin development in P&P into the median term. We've seen GLS announce their ambitions to grow in the B2C market. Does that mean rising competitive intensity in Germany, and could there actually be pressure on parcel pricing in that can accomplish, and where are you seeing margins in the medium term in that business? Second, one question on EGFF, please. The rollout of CargoWise is done, conversion margins are starting to improve. Is there, therefore, now a case to start doing acquisitions in this business, which we've seen being quite accretive at some of your competitors? How are you currently thinking about that, please?

Yeah, so maybe I take role. On the P&P margins, I think you took nice structure they have. But you should fundamentally think, you know, we always said around 10% margin is something we are going for. Much significantly more long-term is probably difficult because then the regulator might say why we should increase pricing and on-stem price. So I think a sustainable margin around 10% is, I think, a long-term, you know, ambition and I think realistic to achieve. So on the M1A we always say the same, of course if there is a good opportunity, so there is no strategic must have to do something. I think if there is a good opportunity to augment our capabilities, we would do that in supply chain, we would also do that in DGF, but we don't have a need. We have the biggest and most global network in the industry, different from some of our players who were more active recently. And that's really, we don't have a need. But if there's a good opportunity, we would consider that as well. Because, you know, that is what you should expect as well as shareholders. You know, that we are looking into and make good use of the free cash we generate if there is a good target. So it's a generic answer, unfortunately, but, you know, I can't say more about that. But in principle, if there is a good target which will help us to grow our business faster, we definitely will go for it. Is there a need to do that? No. And we have looked in the past and we look into the future in the same way. Okay, thanks. You're welcome.

Next question is from the line of David Kerstens from Jefferies. Please go ahead.

Hi, good morning, everybody. Three questions on P&P, please. First of all, I was wondering if you have seen any impact on your volume trends following the end of lockdown, which I think was in the middle of May, so right in the middle of the second quarter. It seems that your parcel volumes held up very well after the end of lockdown. Was there any impact maybe on the recovery in dialogue marketing? And also mail communication remains very resilient. I was wondering if that number might have been helped by some one-off mailings in the second quarters, for example, such as vaccination letters. And then finally, You continue to expand the backstation network now to 12,500 backstations. Can you give an indication of how much volume is going to these stations today? I think at your capital markets day you were aiming for 10% by 2025. How much would that be with 12,500 backstations? And what is the optimal number of backstations in Germany longer term? Do you expect that this could become the dominant partial delivery method longer term in Germany? Thank you very much.

Yeah, so on the volume strength, I mean, first of all, on the parcel side, as you saw, we are still at very high levels in the second quarter. We were on what was the peak in 2019, so way more than 7 million parcels on average per day in the network. And we are now seeing this normalization. staying at this elevated level which we had anticipated. We indeed believe that there is a bit of a temporary boost to the dialogue marketing volumes. When you look at the year-over-year comparison, I think that is A, impacted by the really extremely low volumes we had in Q2 2020, but we believe that there is also a little bit of advertising boost to get people back into the shops. When you look at the volume growth overall and the trends in both, we believe that with regard to key substitution, COVID has clearly pushed us to a lower level than before the pandemic. And also kind of like the Q2 mail communication numbers are not meaning any significant change in trends. So we believe that we have gone down to a lower level And our best expectation is that the normalization over time will take us back to the historical decline rate. And I think that is what we will now be gradually setting in, probably not so much in the second half of the year, but more than towards 2022. And with regard to the pack stations, yes, indeed we are aiming to over time get about 10% of the parcel volume into the pack stations, and the build-out and the continuation is of course creating the infrastructure for that, but the Germans love their plants to be delivered to their homes, so we don't think this will become the dominant way of delivery like we're seeing in some other markets. I think the 10% expiration is still a vicious target. We still have some way to get there.

Yeah, maybe coming back to the first question, we don't know yet because summer season is not over, but And I, you know, I always reflect what I see doing myself and my families. And you are also, you know, have you gone in the same way back to the stores, if you have done before, or your partner or your kids? Probably not. No. Are you going on vacation again? Yes. Are you ordering a lot on your vacation? No. So, therefore, the vacation, which we now see in July, August, and September, I believe will have a significant bigger impact year over year than the end of the lockdown. But that's a speculation and observing myself. I was already on vacation and I have not ordered anything during vacation. And I have not had any two weeks in the past year where my family or I didn't order anything. So that's the reason why that impact is bigger than the lockdown. And to be honest, if I see not only my diary family but also friends, they say, you know, it's so convenient to get stuff home. Why should I go for that stuff? They go there for restaurants. They are busy. I see that as well here. So that is what humans are doing. And vacation is so fundamental. That's the reason why we probably will see relatively weak summer period, not only in P&P, but many refer to them already. And knowing that, we say, okay, but now cutting capacity would be weird because then we might miss the service quality in autumn. on EBIT for a certain month or two but then we are well prepared and next year of course we will be brought back to northern and then we will do what we have always done learning from the past so it's not a lasting effect even if you compromise but we did actually you might remember I said last year in May we will compromise on EBIT we will not compromise on service quality and I think that was So we are living still in volatile times. I think the priority for us is to focus on the best service quality and to protect all people.

Thank you very much.

Next question is from the line of Sumit Meropra from Society General. Please go ahead.

Good morning. Good luck with Alice. We all want this to succeed. So fully conscious of Frank's response was earlier, but still delving into the earnings durability aspect a bit more in Express. There are 19% EBIT margins in first half. Can we expect similar levels in 4Q peak? And from what can we draw confidence that 2022 we won't see any steep step down versus the 21 levels in Express? That's for Express. In freight forwarding, conversion rates, yes, quite impressive. How can you show that the conversion rates will stick and they won't come down to, say, 15% to 16% levels earlier we saw in 2019 and 2018? Thank you.

Yes, so on the express margins, I mean obviously what you have now seen in the first half is really a very perfect combination of the right volume in a very mixed balance flowing through the network. I think that shows what the express network is capable of. As explained in general, we are now really focusing on quality. and the utilization will be in the second half of the year will really depend now on the volume development. It should be on a very good level for X-Press, but how good it is will now really depend on how effective the volume patterns play out in the second half of the year. But overall, I think we will also, in terms of absolute numbers, see a good performance from X-Press in the second half of the year. The good thing, coming to your Chancellor 2 question, is that Yeah, we believe that we are now seeing the beginning of the normalization in B2C. That's probably going to impact the second half of the year in Express already. That is then going to be a good basis for solid performance on the B2C side into 2022. And on the B2B side, given the general dynamic of the global economy, we also think that there is further growth potential into 2022, and that should, of course, benefit the B2B volumes for Express And that is the basis for our outlook for Express into 2022. Again, we will give the full 2022 guidance in next March when we really see and know how the second half of 2021 has played out. With regard to the GP conversion in global forwarding, before COVID, yes, there was a time before COVID, even though it feels long ago, we had very clearly said that we want to improve our GP conversion based on the benefits of our new transport management system. and then gradually taking that up by 100 to 200 basis points year over year, based really on our fundamental internal process improvement, and nothing has changed about that. So this underlying improvement should still continue. Of course, at the moment, the abnormally high GDP levels are boosting the conversion. There will be a bit of a fade-off on that, but this underlying progression should continue.

If you look into what can lead to drop in profitability and margins, so we talked already about volume development. We are confident that we will see positive volume development on e-commerce B2C growth. Not even talked about B2B e-commerce, which will help us as well because it takes time. That should help us there. Pricing, I talked already about, you know, quite intensively that I believe we have a level for next years with, you know, capacity constraints, which should be good there. So we don't expect a volume drop. We don't expect a price war somehow in the network businesses. In Melanie referred already, EGF is different, but we have a lot of opportunities from GP to EBIT improvements. And that's the reason why And if you look into our guidance, we, of course, will not continue to grow the bottom line in the same way. And that's a mixture of maybe, yes, we see a slight decline in some margins, but we definitely will see a continuation of growth. And that's the reason why our numbers for 2023, I think, are prudent and realistic and not dreaming that everything will be in the same way as it was in the last quarters. But the fundamentals, like pricing, volumes, capacity will not change. And in the supply chain and DGS, I think we have a lot of opportunities for our internal measures to improve their profitability further. And finally, in the network business, you have seen what scale means. We had a target of 5% in e-commerce solutions. Now we have eight trading in the last two quarters. So that shows you, and if volumes are not disappearing, and I can't see any reason that there's a fundamental shift of the margins to a higher level, as we have seen. If that's at 20% sustainable or a lower level, that's a different question, but if you take all elements together, that probably would come up with our guidance for 2023 as a pretty decent one.

Thank you very much.

You're welcome. Next question is from the line of Sam Bland from J.P. Morgan. Please go ahead.

Thanks. I have two questions, please. The first one is on B2B volume. We've heard about how when we get through to Q4, for example, we might see some normalization on the B2C side. Can you talk about how depressed B2B volumes still were in the second half of last year? And so could we see, although B2C is a bit lower maybe year on year, we still get quite a nice boost from B2B volumes? And the second question is, you know, in Express, are we right in thinking that really the main driver of the higher profit in Express is the higher volumes? You know, so there's not some piece of the profitability that's going to unwind or isn't sustainable, you know, whether it's the ACS, whether it's, you know, the air freight capacity comes back, whether it's, you know, surcharges. Is it really kind of just volume, higher volume, and that's what's driving the Express profitability? Thank you.

Yeah, I think it's more of a, you know, researchers, of course, the express industry has not played the game like in the forwarding industry. And we can't do that with customers anyway. The customers understand that our costs didn't go through the roof. We had a higher cost for 3,000. treated customers with regard to pricing differently from the forewarning industry. Because in forewarning, if you buy higher, you have to charge your customer higher. That is fully understood by all customers that the forewarning industry is different from the express industry. And as I said already, when the prices in the forewarning industry are coming down, you see maybe our GP per ton and GP per TU comes down, but our conversions can still go up from GP to EBIT. On B2B, I think your assumption is right. I can't see at the moment any reason why we should not have a very strong B2B growth in the second half as well.

I agree to that. Okay, understood. Thank you. You're welcome.

There are no further questions at this time, and I would like to hand back to Martin Ziegenborg for closing comments. Please go ahead.

Thank you, operator. with that quote. Okay, thank you very much for joining. Beforehand, over to Frank for his closing remarks. Thank you for listening and for your interesting questions. I think they were all spot on and of course these are the questions we are discussing internally as well. Hopefully you heard that of course nobody knows what will happen but we have some quite confident that our guidance for this year is achievable and also beyond And, yeah, and the company, if it's good, the company is doing the right stuff. We have five divisions who are knowing what the program is, and that's the reason why I'm confident that we will deliver what we have promised this year and beyond. So with that, thank you very much for listening, and hopefully in the not-too-far-distant future we might see each other again in person. Thank you very much. Bye for today.