Deutsche Post Ag S/Adr

Thank you and a warm welcome from my side to all dialed in for our Q2 conference call. I've got with me Group CEO Frank Apple and Group CFO Melanie Price. Before we start into the Q2 content, just let me remind you with a little advertisement. We are planning for September 8th a management update and site tour for our express division. We will send out a reminder later this week and encourage you to participate. Okay. Now, with that, Frank, please start us off.

Good morning as well from my side. I will hand over in a second to Melanie who will lead you through the presentation. Just a couple of words at the beginning. Yes, we live in a very volatile, uncertain time at the moment. We are taking the war in the Ukraine as a first and then all the consequences which we have from that and COVID is still around. we definitely have no better insight than many of us, but what we have seen in the second quarter, and we are very proud of that, that we have managed that storm quite well. Sometimes one division is better than another division is better. Some trends are stronger here than other strongs are there, but I think the portfolio overall has demonstrated the tremendous resilience we have. We had a very good result. It was a the best quarter ever, even stronger than the last year, fourth quarter. So that shows the resilience of the portfolio. And we believe that there are some positive signs coming. You know, commodity prices are now starting to come down. Also, rates in our industries are coming down slowly. And we see also a transfer from air freight back to ocean freight. All these things are signs of stabilization of the situation, which is good. You know, still very high employment is also good. Of course, it increases some cost pressure as much as, of course, it needs when our activities that we get the right people as we could find the right people so far. So overall, complex situation, but I think we have demonstrated that we can keep the existing level we reached last year and And that's the reason why we also confirmed today the guidance for this year and for 2024. With that, I hand over to Melanie now, who will lead you through the presentation. Thank you.

Yeah, thank you very much, Frank. And good morning also from my side to all of you. And thank you very much for your interest in our Q2 numbers. When preparing the presentation, we somehow had the feeling that you would be even more interested in talking about the outlook than about the Q2 numbers. So you will have seen in the presentation that we kept the Q2 summary very, very brief. Of course, you find additional information in the appendix in our I Asked That book. And if you have any more detailed questions about Q2, I'm happy to answer those as well. But in all brevity, when you kind of like look at page two, Yeah, as Frank said, the second quarter of 2022 was another very, very successful quarter for Deutsche Post DHL Group with an operating result of 2.3 billion euros. It was actually, as Frank said, our best quarter ever. And when you combine that with the first quarter, which had been the third best quarter in the company history, you will actually see that for the first half EBIT now stands at 4.5 billion euros. I'll talk a bit more about the individual contributions by the different divisions in a second. But I mean, bottom line, we have really seen the strength of the portfolio. Some of the divisions are going through the e-commerce normalization, the B2B divisions kicked in, so a very solid result from the group all together. I think the key message today is that based on this performance in Q2, in the first half of 2022, we confirm our full guidance set. and we are going to talk a bit more about the sensitivities we see for the rest of the year. Obviously, there is a lot of uncertainty out there. There are some very unpleasant potential macro scenarios out there. But we are confident that also in the case of a sharp downturn in the second half of 2022, we will be able to deliver on our guidance. In that case, we will be more towards the lower end of the guidance range. And equally, if the business dynamic continues more in line with what we have now seen in the first half, we also see potential upside to the current guidance range of 8 billion plus minus 5 percent. So much for the super high-level overview. When we now turn to page three, that's the page where we have tried to summarize on one side what is happening in the different divisions. And here you can very clearly see how the portfolio comes together between the B2B divisions and the B2C divisions. As expected, DHL Global Forwarding Freight was again the strongest performer in the portfolio. The division with the highest revenue in the quarter, more than 8 billion, and as you can see here, 746 million in EBIT. That's of course a new record, and that is due to the market situation on the one hand, But we should also not forget that we also increasingly see the benefits of our new IT systems and that is of course the part which will be sustainable also if and when a normalization in the market environment occurs. The second very much B2B driven division where we saw a very strong performance was DHL supply chain, strong double digit growth and you may have listened to Oscar in the recent management update and you will know that on that basis this is nothing that is just happening but that is really the very systematic approach to standardization, the digitalization activities, all that really nicely coming together delivering 244 million euros in EBIT for DHL supply chain. DHL Express, as you know, we have a mix of B2B and B2C volume developments, delivered a very good absolute EBIT result, 1.1 billion. Yes, it was a bit down compared to the absolute record level we had in the second quarter of last year, but I think considering that we here see the expected normalization in B2C volumes, And, of course, also the impact of the China lockdowns in the second quarter, that was a very good performance leading to 1.1 billion euros in EBIT. And then in the very much B2C e-commerce driven divisions, DHL e-commerce solutions and post and past Germany, we have indeed seen the normalization as anticipated as we already discussed in the first quarter. I think important message here is that when you compare Q2 to Q1 you already saw that the rate of normalization is normalizing and that is of course also what we then expect in the second half of the year to continue and then eventually we still anticipate a return to the structural growth patterns in the e-commerce divisions. Turning to the group P&L on page 4. Well, I think there's actually not much need for deeper explanations. You can clearly see that we were able to translate the EBIT development into growth in consolidated net profit despite the tax line going up due to higher profit before taxes and the 29% tax rate. But I would say a very pleasing and expected flow through from the top line to EBIT and then ultimately to earnings per share. That takes me to cash flow on page 5. So first of all, it is a coincidence that you see the number 254 here three times. So we had 254 million more EBIT year over year. But you can see that on the EBIT, we were down year over year. There are two main drivers for that. The first one is that, as expected, we had significantly higher tax payments. So they already explained about half of the difference. And then the second element is a working capital effect. which is not due to a significant worsening in DSO or DPO. It is really mainly driven by the very strong top line growth we have been experiencing. It's something we are watching very, very closely, so I would say it's nothing to be fundamentally concerned about, but given the significant top line growth we have now seen for several quarters and given how much we have optimized DSO and DPO over the last years, that is something we will have to live with and manage. But nevertheless, when you put it all together, you can see that we still have $2 billion in OCF. And then you kind of like look at the H1 free cash flow with $1.8 billion. We are well on track to deliver our free cash flow guidance. And I also want to use that opportunity to quickly comment on the share buyback. As you will have seen, we accelerated that, and execution is in full swing. So as we had said, we now want to kind of like get the 500 done by the end of this month. We're well on track to do that. And then we'll continue with executing the first tranche of 800 million until the fall. The last page before I come to the outlook is a topic which is, as you know, very close to our hearts and is not forgotten despite all the other super relevant topics like inflation and energy prices and so on, which we will discuss in a second. We are still convinced that global warming is the biggest challenge for mankind and so we are and we remain totally committed to pushing forward with our decarbonization agenda. One point we want to highlight here on page 6 is that Based on all the really deep green initiatives from our electric delivery fleet to sustainable aviation fuel to sustainable maritime fuel, we are now at a point where we are really able to offer green products to our customers in all divisions. And those are not offsetting green products, but they are really kind of like deep green products. It's too early to tell. how big the uptake and how the willingness to pay will be on the customer side, but we are really receiving encouraging signs because obviously particularly the large customers who have also committed to science-based targets, they are also very keen to decarbonize their supply chain and we are helping them to do that. So much for kind of like what happened so far. Let me now switch to the outlook and let me start with a slide on page 7, which we have shown in a similar format a couple of times before, but I think it is probably as relevant as ever, and that is how to think about our portfolio. So, as you know, we are very well diversified. We have a very well-balanced portfolio with the different divisions, with the mix between B2C, B2B exposure across regions, across factors. And that of course does not make us immune to what is happening in the world around us, but I think this gives us a really solid foundation to deliver throughout the economic cycle where the different elements will have a different dynamic at any given point in time. But having said that, it's not that we kind of like sit on the sideline and just watch what is happening to us. I hope we have shown to you over the past quarters that we are also really actively managing the volatile environment around us. So also in the asset heavy divisions like DHL Express, There is flexibility in the network. So, for example, based on the current volume developments, we are already folding in third-party aviation capacity into the network. So, adjustments are continuously ongoing in the asset-heavy divisions. And, of course, we also have the asset-light divisions where cost adjustments are particularly in a sharp downturn even easier. and of course overall we have a very strict and established cost management we know which levers to pull should that be necessary. I'll come back to that in a second, but maybe first on page 8 Let me address the three main themes which I know are probably relatively high on your agenda and probably I should say on your very list, inflation, energy prices and interest rates. So let me maybe start on the right with interest rates. rising interest rates are not really a significant direct topic for us. You know that we have a very strong balance sheet, we have relatively small financial interest costs, the bonds we have outstanding at fixed rates, so we have no meaningful risk on that end. And to the contrary, the rising interest rates have actually improved one position in the balance sheet quite materially, and that's our net pension provision. It's actually down by an amazing 2.4 billion year-to-date, down to now only 1.4 billion euros. Some of you may remember there were the days when we were talking about seven or eight billion in terms of a pension deficit, so that's kind of like a positive side effect of the rising interest rates. Regarding energy prices, moving to the middle column. First of all, a big topic here in Germany is obviously gas at the moment. I think on that one we can give you a very clear message that we only have a very small exposure to gas. It's not critical for our production processes compared to, for example, what you hear from some of the chemical companies. We need it prominently for heating and we are of course also working on alternative plans should there be a significant gas shortage over the winter. The bigger impact for us are fuel costs, including jet fuel, but here, as you know, we have well-established pass-through mechanisms, so we are, in some cases with a time lag, in most cases able to pass on fuel increases to customers. Which takes me to the left, inflation. So inflation is, of course, a relevant topic for us, as I guess for any other company at this point in time. And of course, one very important factor for us is wage inflation. So at the moment, I think we are really well positioned to manage that also very strongly on the yield side by making sure that cost increases are passed on to customers. But of course also the other programs we have been driving, digitalization to increase productivity, are now really helpful because they are also an important lever to offset inflation. So overall, I'm not saying it's a non-issue, I'm not saying it's easy, but I think we have it well under control and we know how to manage that topic as well. Which I think takes us to page 9. It's a bit of a different way to say what I have pretty much already said. We are, of course, aware of all the uncertainty out there. And, for example, when you think about the cost topic, we have not gone into a significant cost-cutting mode now, but we know exactly what would have to happen should the situation get worse. We're not doing that for the first time in all of the divisions. As you know, we have very experienced colleagues, so you can rest assured that should that become necessary, we will take the action. I think the key focus at the moment is actually on the pricing pillar to make sure that the inflationary trends are passed on to customers. The starting point here for us is actually service quality. So to really support our customers with reliable logistics solutions was probably never as relevant as it is today and customers do appreciate it and on that basis you of course have a completely different discussion on price increases than if you had a poor service quality. So, as I said, we are not immune, we are prepared, but as you will have also now seen in the Q2 numbers, we are quite experienced and equipped to deal with the uncertainties out there. And that brings me to our guidance set on page 10. which is unchanged and again we are of course aware of the discussions and worries out there and when you particularly look towards 2023-2024 there's a very broad portfolio of scenarios and sensitivities you can play with I'll talk a bit more about the sensitivities we have thought about for 2022 in a second. With regard to 2024, fundamentally in kind of like the base case range of scenarios, we stay on track to deliver in line with our medium-term guidance. Now turning to the 2022 guidance in a bit more detail. provide you with some more concrete sensitivity around our guidance range. So we have achieved 4.5 billion euros EBIT in H1 and despite all the headlines we have also not seen that things fall off a cliff in July. Yes, there are some areas where demand is weakening but I would say so far we are on a very solid track. In our base case scenario, we have assumed that there will be a decline in global GDP growth, so macro will slow down towards the end of the year. And we have looked at two variations of that, should there be a sudden sharp decline, which is not what we're seeing at this point in time, to be clear. Should there be a sharp, sudden decline in global GDP in the second half of the year, we are still confident that we will deliver within our guidance range, but that would then take us to the lower half of the guidance range, between 7.6 and 8 billion euros. Should there be a decline but not as sudden and as sharp, more kind of like moderate and more towards Q4, that would then take us probably towards the upper half of our guidance range, 8 billion to 8.4 billion. But obviously clearly based on the current solid business momentum, which as I indicated is more also what we see in July, there should also be some scenarios where we could end up above the $8.4 billion. So we are quite confident that we will definitely not surprise with some negative headlines, and there is, yeah, depending on how the next months play out, a scenario where you could also see some upside potential. So much from my side, and I would now hand over to Frank for the wrap-up.