Deutsche Post Ag S/Adr

Ladies and gentlemen, thank you for standing by. I am Kyle, your chorus call operator. Welcome and thank you for joining the DHL group conference call. Please note that the call will be recorded. You can find the private notice on dpdhl.com. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Press the start key followed by zero for operator assistance. I would now like to turn the conference over to Martin Ziegenborg, head of IR. Please go ahead.

Thank you, and a warm welcome from my side to the DHL Group earnings call. I take it you have all the material that we send out and that we're going to speak to right in front of you, and with reporting season being in full swing, let's go right into it. Melanie, please go ahead.

Yes. Thank you very much, Martin, and good morning to all of you also from my side. Thank you very much for joining us today for our Q2 earnings call. Let me start with a few highlights on page two. I think when we look at the big picture, we are very pleased with the performance we achieved in Q2, which I believe confirms the resilience we had already shown with our numbers in Q1. Markets are weak as expected, but in these circumstances, our numbers really show the strength of our diversified global portfolio, as well as the success of our cost measures and yield measures. Building on the resilient performance and the strong 3.3 billion euros EBIT in H1, we have today increased our guidance range for 2023 group EBIT based on unchanged macro scenarios for H2. So we have raised the lower end of our guidance from 6 to 6.2 billion. And as you will see later, the good EBIT performance was also again accompanied by a strong cash flow generation. You will probably have noticed, but in Q2, we have also reflected the successful transformation of our group portfolio over the last years by changing our group name to DHL Group. I think that definitely summarizes better the drivers of our current and future performance. Talking about the future performance, obviously there is still quite a bit of uncertainty with regard to the second half of this year, hence we stuck to the scenario format for our guidance for the current year, but looking beyond these short-term circumstances, we are convinced that our group portfolio remains exposed to attractive long-term growth trends through global trade and e-commerce, giving us a GDP plus growth potential with our global portfolio in the medium to long term. So that's in terms of highlights. Talking about the big future trends, turning to page three, I mean, essentially that's not new. We had those four macro trends in our strategy 2020. They are a key part of our strategy 2025, and we feel that they remain valid and relevant as ever before. On globalization, we certainly see changes, but that does not mean that globalization is tracking backwards. Global supply chains are not shrinking, but they are getting more diversified and more complex. And I think that is exactly where we can support our customers in the transformation. We are the most international logistics company in the world, so we are really extremely well positioned to support our customers in their logistics diversification agenda. Talking about sustainability, Well, I think just listening to the news over the last weeks and months, the effects of global warming are becoming more and more apparent. Logistics has a huge responsibility here. We as a company have acknowledged that with our medium and long-term targets, including decarbonizing in the current decade. We are well on track to deliver on our target for 2023. The delivery of our 2030 targets, as you all know, depends very much on the availability of sustainable aviation fuel, as the biggest part of our CO2 footprint is from aviation. And here, the ramp-up of production capacity is not as fast as we would have hoped for, so that remains a key topic for us to watch on the sustainability side. Digitalization e-commerce, we have included a separate slide into the deck. So turning to page four, just very briefly, we have talked about that now on so many occasions. I think the impact and the relevance of digitalization and automation on our portfolio is apparent from visiting our warehouse operations to see robots work hand-in-hand with humans. to the way we interact with our customers through digital customer touchpoints. I just want to use that opportunity to make you aware of a series of events we had over the last weeks, our Digi Fridays, where you can find the presentations and listen to them on our investor relations webpage. If you have time to spare, I think it's really worth to get a good first-hand understanding of what digitalization and automation means in logistics. That takes me to e-commerce on page 5, and I think with that we get to the topic which I assume is probably going to be top of priority in our discussion and the Q&A later on, what is happening with regards to volume trends out there. Starting here with the B2C volumes, I think there are two things that you can see on that page. The first thing is that looking at the year-over-year development in the second quarter, we see that encouraging the domestic e-commerce volumes are again on an improving trend. Obviously, in a weaker macro environment where you can still see consumer spending reluctance, but I think it is positive to see that also in this environment, There is obviously a continuation of the structural shift to online spending and people are again buying online. That's noticeable in the plus 4% growth in our B2C European volumes in the e-commerce division and also in the parcel Germany growth. Express, I think you can have a debate. These Express TDI B2C shipments are obviously higher value goods where you can probably see economy-induced spending reluctance more clearly than in the domestic e-com volumes. But the good news is domestic e-com volumes are again moving in the right direction. That takes me to the right side of the page. where we have again summarized the big step up in e-com penetration which we have seen over the last years. You can see that all e-commerce volumes remain well above their 2019 levels and I think that confirms this structural step up which we have seen. Maybe one note here on the German parcel number, the plus 21% looks a bit low compared to the others. I think you have to bear in mind here that in the years 2020 to 2022, we have seen the insourcing of volumes by one significant customer. And I think if you put that into perspective, we also have seen a good progress on e-com penetration here in parcel Germany. When you kind of like look ahead, how do we think about the e-com trend going forward? We believe that this will give us at least another decade of attractive growth opportunities for our group portfolio and that is why we keep strengthening our e-comm capabilities continuously. predominantly organically, but as you may have seen, we also just announced an acquisition last week in the e-commerce sector, taking over M&G Cargo in Turkey. M&G Cargo is a fantastic company, one of the leading passive players in this strongly growing e-commerce market, so we are very excited to welcome them to the DHL family. For the B2C side, now turning to B2B and the volumes in our network, which are most exposed to kind of like the global macro sentiment, as you can see on page six, we have actually seen quite a number of quarters now where we had decline in air freight, in ocean freight, and in our express B2B volumes. We had expected, and as was visible also in the past, the swings in air and ocean are more pronounced than in express. Air and ocean are obviously more cyclical than express TDI B2B volumes. And while all three lines are still below zero, you can see that the yellow line, Express TDI volumes, is now approaching the zero line and at least the direction of the decline in air freight and ocean freight is turning upwards again. So obviously it's not a buoyant macro environment out there. But it seems that it's at least not getting worse here and eventually there will be macro impulses as you will have seen with our guidance scenarios. They depend on when that will actually happen. That takes me to the summary of what is happening in the divisions on page 7. We have the more detailed usual slides in the backup. I'm not going to talk through them in detail so that we have more time for your questions. But just in terms of big picture looking at what is happening in all five operating divisions, so expressed we talked about the volume trends, volume was still declining overall with 4% in the second quarter. So we continue with our strong focus on yield and cost management. I think the team around John Pearson is doing a fantastic job here. We have proven that we can flexibly adjust the network. So I think in this fixed cost intense business, we are really managing the volume normalization in a very solid way. That takes me to global forwarding. yes numbers are down significantly compared to q2 2022 but you also have to bear in mind that the second quarter of 22 was an extraordinary quarter it was the highest earning quarter for us as a group ever and of course it was also a very unusual quarter in global forwarding. It was the highest quarterly EBIT for global forwarding and it was already at that point in time clear that there would be a normalization. That normalization is happening. Volume, as you saw in the previous slide, is down 13% in air freight, 9% in ocean freight. At the same time, when you look at the speed with which rates are normalizing, I think that is quite a good cushioning of the normalization in rates, which we can see in our GP development. And I think also very positively, when you look at the EVGP conversion, 36%, it's really proving that we are able to hold that at a significantly higher level than where we were before the pandemic. That takes me to supply chain. I think that is a really nice story. We have talked for a long, long time about the resilience of the supply chain division, which is less macro-dependent than forwarding and express B2B, and we see that very clearly now in the second quarter. We actually had EBIT growth in supply chain. The margin is at 6% plus, so we're very pleased with this performance. where, again, all the systematic improvements in the way how we operate thanks to automation and digitalization are really paying off. And I think also in terms of structural growth, the need from our customers to work on more resilient, more diversified supply chains that is, of course, also a great opportunity for DHL supply chain. And you may have seen that we just recently announced significant investments in international Americas as one of the growth hotspots for DHL supply chain. DHL e-commerce, we are seeing some encouraging signs on the volume side. At the same time, as you know, we keep investing into this division, and that is, of course, something which we also see in the cost base, hence a bit of a decline year over year. with regard to EBIT, but we are committed to continued investment into this long-term growth opportunity, predominantly organically, but as already mentioned, now also with the acquisition in Turkey inorganically. That takes me last, but not least, to post and parcel Germany, where, as you know, it's a slightly different story compared to the DHL growth divisions. We are successfully managing the transformation from mail to parcels, but of course this year that is not entirely easy. We see the impact from cost inflation, the high union deal which we struck in March, and that at a time when, due to the postal law, we have limitations on our ability to pass on cost inflation to customers. and also on what we can do in terms of flexibilizing our operations. That is why we, as we have always said, need a new postal law. It's in the making, and we hope that this will then give us the opportunity to really stabilize also post and parcel Germany. So that was a bit the overview on what's happening in the divisions. Now turning to the group P&L and cash flow statements on page 8. I think there's nothing particularly standing out here. Maybe on the P&L side, when you look at the development of the financial results, that is pretty much in line with what we already saw in the first quarter. We have some currency effects in here, and also the increase in the share price is reflected in the accounting implications from our long-term incentive programs. With regard to cash flow, I'm overall pleased with the Q2 cash flow performance where you can see that the development on the working capital side is cushioning the EBIT decline so that operating cash flow is roughly in the same order of magnitude as last year. We keep investing into the business. We are making adjustments. As you may see when you look at the divisional capex, so for example in P&P we are spending less in light of the performance, but overall we take a balanced approach and on that basis I'm pleased with the free cash flow of 450 million for the second quarter. And that takes me to the outlook and our guidance. When you look at what we have now achieved after six months in an obviously rather weak macro environment, 3.3 billion euros, we are confident that for the full year we will achieve at least 6.2 billion. That's why we increased the lower end of our guidance. But there is obviously still quite a bit of uncertainty out there, and that is why we decided to stick to the three macro scenarios which we first introduced in March. We will have to see if there is a more dynamic development in the second half of the year. In such a scenario, we still think that around 7 billion in EBIT should be achievable. If there is no recovery in the second half, it continues in the same way as in the first half. We would be above 6.2, and then somewhere in between, we have increased the midpoint from €6.5 billion to €6.6 billion. When you look at where that's coming from, the full set of guidance numbers on page 10, we have obviously not increased the P&P guidance in light of the H1 numbers. We have now introduced a range for P&P between €800 million and €1 billion. but we have lifted the DHL guidance to 5.7 to 6.5. All other numbers are unchanged with regard to free cash flow, capex, tax rate, and also the medium-term guidance. I know that the math doesn't fully add up. So you may ask, hey, if you now increase the lower end of DHL by 200 and you reduce the lower end of PNP by 200, how can you still increase the group by 200? Well, that's obviously based on the assumption that in this broad and diversified portfolio, not all bad things will come at the same time. So we are quite confident that across the portfolio, we should be able to get to the 6.2. And then maybe just one last comment on the free cash flow. We have obviously now announced the M&G cargo acquisition in Turkey. We are looking at some other smaller opportunities, and that is why we currently assume that we will have a net M&A spending of around half a billion in 2023, and that is excluded in the $3 billion free cash flow guidance here. And that already takes me to the wrap-up in very simple terms. When you look at what happened in the first half of the year, markets were weak, but in line with our expectation, And we had hence prepared for this sluggish development in the first half of the year well in advance. And so thanks to our efficient cost and yield measures, we were actually able to deliver in Q2 and in H1, both on the EBIT and on the cash flow side in line with what we were aiming for. On that basis, given the continued uncertainty, we continue to work with Sensarios for the second half of the year, But we raise the 23 guidance as we expect group EBIT to be better than what we conservatively assumed initially at the lower end of our guidance range. Most importantly, however, we have a very strong group portfolio and a strong balance sheet, and that allows us to focus on the right sustainable priorities. We don't have to make any short-term adjustments which would come back to haunt us later on. And on that basis, we are convinced that there will be the turning point when we go back into EBIT growth mode, and on that basis, we are confirming our medium-term outlook. And with that, back to you, Martin, and I look forward to your questions.