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.

All right. Thank you, Melanie. And operator, let's start the Q&A.

Thank you. 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. Our first question comes from Andy Chu with Deutsche Bank London. Please go ahead.

Good morning, Melanie. Good morning, Martin. Just one question for me, please. In Express, could you just outline where you are in terms of capacity, please? I think if I remember correctly, around 20% capacity was taken out around December. So could you just let us know where you are, please, on capacity management within DHL Express? Thank you very much.

Yeah, thank you, Andy. So, indeed, we adjusted the network capacity already towards the end of last year and in Q1 by about 15%, and we have kind of like held it around that level.

Okay. Thank you, Andy. And the next caller, please.

Our next question comes from Christian Ndeoko with UBS. Please go ahead.

Hi. Thank you for taking my questions. The first one on Express, I think one of your competitors talked about meaningful decline in yields going forward. Could you offer a bit of color in terms of Express revenue per unit going forward? How sticky is the pricing? What's happening to emergency surcharges and other moving parts? Secondly, on the express profitability, express EBIT, excluding the fuel surcharges, tailwinds in the first half, it looks like it's a run rate of EBIT of a bit more than 800 million per quarter. Now, recently, the kerosene prices have started to go up, and it seems to indicate a little, at least on my math, that in Q3, you're going to have an express headwind from the fuel surcharge of $60 to $90 million. So on my math, it looks that the Q3 EBIT in Express is moving more around $750 million. I'm just wondering if I'm missing any important tailwinds here or any other moving parts to keep in mind when we calculate the EBIT breach. I'll leave it there. Thank you.

Yeah, thank you very much, Christian, for two good questions. I think first of all on the express yield, when we look at our kind of like core revenue per kilo development, stripping out ESS and fuel surcharge and really trying to compare the like for like the stickiness of the price increase, we actually see a good year-over-year increase in line with what we announced as price increase and the stick rate, so that is really coming through. What we are indeed seeing is, and that was also expected, that the ESS is under pressure and is going down. So that's one of the reasons why you see revenue per shipment coming down. The second thing is on the fuel, year over year, fuel is actually down, so it is in the revenue visible as a decline. And that is one of the reasons why it looks a bit funny when you look at the revenue per shipment development. But underlying yield is healthy. On the fuel impact and what to expect going forward. Yeah, so indeed, both in Q1 and in Q2, we benefited in express from a decline in fuel prices. As you know, we have this two-month time lag in adjusting the fuel surcharge. So when fuel prices fall, we still have the higher charging to the customer, and we are already buying cheaper, and that then reverses when a fuel price starts moving up again. We had this tailwind in the first half of the year, roughly same order of magnitude in Q1 and in Q2, and obviously that would now reverse and put some headwind to the express numbers in the second half of the year. At the same time, With all the uncertainties around it, as you will have seen from the volume developments, the yellow line in the B2B volume graph was beginning to move into the right direction again. We already have had quite a significant normalization in the B2B volumes. Of course, here again, we are dependent on what is going to happen macroeconomically, but I think that could now also turn more towards the upside. And in B2C and in the e-comm volumes overall, we do expect a certain seasonal development with Q4 obviously being stronger. And then in this fixed cost network, as soon as the volumes get a little bit more dynamic, that is going to have a massive positive impact on the economics.

Understood. Thank you very much.

Thank you. Over to the next caller, please.

Our next question comes from Alexia Dugany with Barclays. Please, go ahead.

Yeah, good morning. Thank you for taking my questions. Just to follow up, Melanie, on what you just said on the operating leverage impact, can you just... confirm to us again that likely once these surcharges come out, we should continue to see some positive effects on margins, notwithstanding what you just talked about on the potential turn in volumes. Then secondly, You discussed today a little bit more about medium-term growth opportunities. Can you elaborate a little bit on the opportunity specific to supply chain from the omnisourcing and multisourcing you're seeing? And then finally, on sustainability, can you give us an update on customer uptake with regards to your future soft commitments? Thanks.

Yeah, thank you, Alexia. Three good questions from very different areas. So first with Express, I mean, as you know, I'm always very reluctant to focus too much on the Express margins because you have many moving parts here. I mean, how does the fuel surcharge inflate or deflate the revenue? What is currency doing to the revenue? When we look at the number, we now have the 14.7%. I think in the current environment, that is quite a pleasing result. I think we have now shown over the last years what express in terms of margins is capable of once the volumes come back. So I think directionally there is of course room for improvement, but as always I'm much more focused on the absolute EBIT contribution from Express. In terms of medium-term growth opportunities, particularly for supply chain, Yeah, I think that's a great question because with supply chain we are also really well positioned to now benefit from growth in Southeast Asia, in Latin America, We just announced that we will invest 500 million euros into expanding our already existing infrastructure in supply chain in the international Americas. When you think about countries like Malaysia, we have a very, very strong footprint there and we know how to operate in these markets where quite often things like labor shortages are actually a limiting factor. We believe that across the group, but also for supply chain, the diversification, the omni-sourcing, the push to Southeast Asia, India, international Americas is a fantastic growth opportunity for supply chain. And then lastly on sustainability. So we have now completed our product offering in Express. You can now buy all our Express international services with a green flavor. There is interest out there. There are discussions with our customers in terms of willingness to pay. And do you really see it in our numbers? No, I think you still need a magnifying glass to really spot the impact. That is, again, as we had assumed for this relatively early part in the journey, and that is why we said with our €7 billion spent on sustainability that probably particularly in the first years we will have to absorb quite a bit of the cost ourselves. I hope that answers your questions.

Yes, thank you.

Thank you.

Thank you, Alexia, for that list of questions. Still quite a list of callers in the queue, so, Operator, let's move ahead.

Our next question comes from Muneeba Kayeni with Bank of America. Please go ahead.

Good morning, Melanie and Martin. Just following up on your supply chain comments, and you mentioned $3.2 billion of new business wins. Did these contribute in the second quarter? And if you can talk about what sort of margins you're seeing on new businesses compared with older contracts. Are these higher? And is this $270 million the new run rate for the supply chain business? Then secondly, just on Express, TDI volumes down 4% in second quarter. What was the monthly performance and kind of the exit rate on Express volumes for 2Q, please? And a third one, if I may ask, just on TDI. forwarding and the unit GP. Do you think you're kind of close to trough levels here or this could decline further in the second half? Thank you.

Yeah, thank you Muneeba. Also a nice run through three of our divisions. So starting with supply chain, over the last years we have really further tightened our focus on making sure that we get the right type of business into supply chain. So this kind of like 6% margin order of magnitude at the higher end of our 5% to 6% corridor. That is what we are targeting also with the new business. And when you look at the 270 in Q2, now 500 million after six months. I think that clearly points towards supply chain being on the path to becoming the next billionaire in the family. I think we have to see now how the second half of the year goes, but I think the direction is clearly in the right upward corner. And I think it was also, again, really nice to see that this division grew a bit in the second quarter against all the macro headwinds. I think in terms of express exit rate, it is really difficult to kind of like overemphasize a week or a month in the current environment. I think in terms of trends, as you saw for the Q2 overall, B2C was still negative, but less negative than Q1. So I think that is kind of like slowly moving in the right direction, but not yet dynamic. And I think on the B2B side, we begin to see it kind of like getting back to less negative directionally positive territory. but it is still hugely volatile and it will really depend on how dynamic the global economy develops. That takes me to global forwarding. As mentioned, I am quite pleased with the balance we struck between holding on to volumes and relaxing rates. Obviously, GP both in air and ocean is on a still significantly higher level than pre-pandemic. And I think there is still a way to go in terms of normalization, probably more so on the ocean freight side than on the air freight side. Thank you.

Okay. Thanks, Moniba. And on to Kola. I can see.

All right. Thanks. question comes from Sam Land with JP Morgan. Please go ahead.

Thanks. Thanks for taking the question. I've got two, please. The first one is on PMP. I think you're trying to change the new postal law, and I think you're also trying to bring forward the new letter price increase. Can we just talk about what sort of new like 2024 or like not steady state, normal EBIT number you think is now the right number for that division. I think previously maybe it was one and a half. Obviously this year is a little bit tougher. Where would you like it to be in a normal year? And the second question is on the guidance. It was six to seven, but I think before you were kind of saying probably central case was maybe in the upper end of that. Is that, still the case with the new 6.2 to 7 or is there sort of an even spread of probabilities across that range? Thank you.

Yeah, thank you Sam. So on the postal law and the letter price reversal of the current ruling, I think so on the current ruling we have indeed asked to revoke the decision for 24 and because in light of the changes in inflation and labor costs and so on, we feel that the old price headroom granted to us is absolutely insufficient. So what we're aiming for is to get the opportunity to increase prices for 24. That's the first element. The second element is that after 20 years we need a fundamental reform for the postal law. A, with regard to the pricing mechanism, which is currently linked to the peer profitability across Europe, which is not an ideal benchmark. but also with regard to operational flexibility so that we can manage the transformation from mail to parcel in the most cost-efficient way. And what we have calculated is in order to get P&P into a position, where they earn enough and generate enough cash flow to fund their own investments into this transformation from mail to parcels and into decarbonization. We probably need an order of magnitude of about 1.3 billion euros in EBIT. I think that is also how I think about PNP. By the end of the decade, once we're done with the transformation, it will be an e-com business with a good growth opportunity fitting nicely into our European e-com portfolio. Until we get there, we have to get into a position where this family member must earn what it consumes itself, and that is how we are approaching the political discussions around the postal law.

And the likelihood among the three scenarios?

Oh, and then to the second question on the guidance, yeah, I think we have not attributed a probability. I think it is really very difficult to foresee at this point in time. Obviously, the first half of the year was as inconsistent and un-dynamic in terms of trends as we had assumed. It seems as if with regard to an ocean freight peak season where you should see first signs now that is not looking very encouraging. So it will depend on is there going to be some form of movement on the air freight side and how dynamic is the ECOM Q4 season going to be.

Understood. Okay. Thank you very much.

Thank you.

The next question comes from Tobias from a referring team. Please, go ahead.

Good morning. This is Tobias, and thanks for taking my questions. I have two questions, please. The first one is on changing the group name. Are you considering any further moves or a separation of certain divisions? Specifically, would there be any synergies on a demerger of PNP And then the last one on supply chain complexity, I know you've touched up on this and there were also a question on it, but just regarding the impact you've already seen in terms of unit GP, could you perhaps shed a bit more color around that? And then also, would you expect the forwarding conversion rate to move even higher than it already has compared to pre-pandemic maybe as well? Thank you.

Thank you, Tobias. Starting with the group name and is there more to come? I think for us the group name change was really a clarification of what our company is all about. More than 90% of the revenue is generated under DHL. So I think this complex Deutsche Post DHL group name was misleading and confusing. So I think that was really a tidying up exercise. As Tobias put it, you should say on the box what's in the box. And I think that is what we did. With regard to the group structure, I think we are very happy with our portfolio of divisions and it's something where we have now again in the first half of the year seen this nice strength with supply chain growing whilst forwarding is going through the normalization. And I think that also P&P has a role in this picture. Yes, it's at a different stage at this point in time, but as mentioned before, Once we are through this male normalization period and it has turned in a parcel player with a bit of letter business on top, it sits right in the center of Europe as a strong e-comm growth play. So I think for P&P the question is not to remove them from the group, but to make sure that in the family picture they get through this transformation period in a sustainable way. With regard to supply chain complexity and are we seeing that in unit GP? I think at the moment what is driving the dynamic in the global forwarding normalization is obviously that the capacity constraints are gone, both on the air and on the ocean freight side. So capacity is back. You can now discuss are we getting into an overcapacity situation over the next years, particularly on the ocean freight side when you look at the order books of some of the ocean carriers. But there's definitely no limitation on capacity at the moment. And that, combined with the weak demand, has obviously led to the decline in unit rates, where, as usual, the spot rates show that much stronger than how we are able to manage it in our portfolio. That takes me to the question, GP conversion rate, what is realistic? So what we have said is that we would now expect over the cycle around 35%. That's what we're currently aiming for. And it's very pleasing to see that now in the second quarter, despite the volume development, we were actually at 36%. I hope that answers your questions. Yes, thank you very much. Thank you.

Thanks Tobias, and I think we've got Johannes Braun next on the line.

Our next question comes from Johannes Braun with Tifo. Please go ahead.

Johannes Braun Yes, hello. Thanks for taking my questions. Two for me. Firstly, on the M&G cargo acquisition, can you maybe elaborate a little bit on the rationale Why do you see some synergies? What's the cash investment? And why do you see this as a good investment of shareholder money? And in that regard also, to what extent will the 500 million M&A budget eat into future shareholder returns? That's the first one. Second one, can you give us your current thoughts about this year's peak seasons for express and forwarding? Do you see at peak season in Q4, and how significant will it be? Thank you.

Yeah, thank you, Johannes. So, on MNG, I mean, first of all, we believe that the Turkish market has good growth opportunities. We have a good presence there already with our express division, with supply chain, with global forwarding, so we know the market. And it is obviously a very important bridge market between Europe, Middle East, Asia. We've seen quite a number of e-com producers setting up warehouses and operations there. It's also domestically a young and growing market, so this combination of Turkey and e-com are two very good growth drivers. That is why we have been looking for opportunities to also go into the domestic e-com market there for a while. and we're very pleased that with M&G Cargo we have found a perfect match for us. It's already a nicely profitable company with a very good growth profile, and I think that will really help us to develop positively going forward. In terms of this around 500 million for M&A, is that going to eat into shareholder returns? No, I think very clearly we have the capacity to have an attractive shareholder return policy. As you know, our regular dividend linked to net profit with a strong commitment to dividend continuity that's, of course, untouched. And we are in the middle of executing our three-year share buyback. And, of course, no changes whatsoever to that. And then to the peak season, express global forwarding, what are we seeing? As already mentioned, it's not very dynamic out there at this point in time. We don't see an ocean freight peak developing. That is something where you would really see August, September, the usual seasonal dynamic. That doesn't look likely. air freight is later in the year likewise expressed and that is what we have captured with our scenarios and we will really have to see how all the moving parts come together.

So obviously this year's peak season, big question mark, as mirrored in the scenarios, what we can say about last year's peak season was nearly existing, right? So comps are going to be easy.

Yeah, that's Also a fair point, of course, in terms of year-over-year comparison. I mean, I already mentioned that the second quarter of 22 was the best quarter for us as a company ever, the best quarter in global forwarding. So comps are obviously also coming down.

Yeah, helpful. Thank you.

Thank you.

Thank you.

And next caller, then.

Our next question comes from Parachain with HSBC. Please go ahead.

Parrish, can't hear you. Okay. Parrish, operator, there seems to be a problem with that caller. Maybe we can switch over to the next in line until Parrish is... Hello, can you hear me?

Can you hear me? Hello? Yes, we can. Okay. Lovely. Sorry. Very quickly, I have two questions briefly on the... structurally higher freight forwarding conversion rates or the GP unit economics. If you can just briefly share what would be some of the drivers? Is it the IT rollover that DHL has gone through? Is it the structural cargo mix or is it just the underlying higher freight rate either in ocean and air both or in one of them? If you can just talk through about what are some of the underlying issues that we have at the moment. And second question would be, is it too early for you to think about what would be the potential impact of EU ETS and fuel EU come 2024 and 2025 on different businesses or overall to the group?

Mm-hmm. Yeah, thank you. So on the conversion rate, I mean, we had pre-pandemic aimed for 20% EBGP conversion and had then said, oh, due to the automation and the new transport management system and so on, we should be able to over time move towards the 30%. Obviously, things got accelerated massively. So I mean, for all of us, the past years, the pandemic was digitalization on steroids. And I think this much more efficient and digitalized way of doing things not only in terms of operational effectiveness but also in terms of transparency, what business to go for, how to better optimize yield across the different lanes. I think that is at the core of the improved conversion where again with 36% we are at the order of magnitude where we feel very comfortable with at this point in time. So refueling... refueling EU ETS and stuff, I mean, this is something where we had dealt with ETS here in Europe for some time. We feel comfortable and well positioned to deal with that, and we have it, of course, in our planning. I think for me the biggest worry is when you look at all the different SAF fuel blend mandates which are being discussed at this point in time, and the speed with which SAF production capabilities are being set up, supply and demand are not in sync, and I think that is going to be the biggest problem in the current decade.

Okay. Thank you so much, and have a lovely day.

Thank you. You too.

Thank you. Bye-bye. Okay. Next caller. Let's see. The list is getting shorter.

Next question comes from Sachish Sivakumar with Citigroup. Please go ahead.

Yes, thank you. I've got two questions here. So firstly, on the ocean freight, what does your booking visibility look like right now as you go into the peak season in terms of demand coming through? And then the second one, within the express divisions, Can you, like, quantify APS contribution in this quarter also year-to-date? That will be helpful. Thank you.

Thank you, Sajid. I didn't fully get the second question. Quantify what in Express?

APS sales? No, also cargo. Yes.

ACS, yeah, okay. So I think ACS is obviously also down year over year in line with what we're seeing in the forwarding market. I think the important thing here is we don't, see that as a standalone revenue stream. We use it as a cost offset in our aviation network and so that is part of kind of like optimizing the aviation cost base. They are based on the still relatively low load factors due to the volume decline. We currently see relatively flat CPK development and that is where the ACS development plays in. In terms of ocean freight booking visibility, as I already said, it's not very dynamic, and we don't see any signs that an ocean freight peak is developing.

Thank you.

Crisp, three callers left from what I can see. Operator, let's move on.

Our next question comes from Robert Johnson with BNP Paribas. Please go ahead.

Good morning, Melanie and Martin. Just a couple of questions from me, please. So first of all, on forwarding, if we look at the absolute EBIT produced by that division during the past three quarters, the number's been pretty much identical at around 380, 390 million. Do you see that as the new run rate for profitability, or is the expectation more that profitability in that division will generally continue to soften? And then just the second question on the dividend. It looks like net income, I guess, will be down quite significantly this year, maybe 20% or so, I would guess. How should we think about that in the context of the dividend? I'm just conscious that the last time the dividend was cut was in 2008. So for this year, is it a case of raising the payout ratio towards the upper half of the 40% to 60% range and keeping the dividend flat? So maybe just some color on that. Thank you.

Yeah, thank you very much, Robert, particularly for the second question, because I think that's a good opportunity for me to clarify our thinking about this. When I kind of like took over this role in 2016, I still had discussions with shareholders where the opening statement was, and then you did this dividend cut, right? So I think that is something which I don't necessarily want to experience again, and that is why... emphasis on dividend continuity is a super important one for us, and that is why already when we took the decision about the dividend for 22, when we were already anticipating the EBIT normalization and hence net profit normalization for 23, we consciously went to the lower end of the payout ratio, which at that time, based on the 22 number standalone, may have looked a little bit conservative, but that was indeed to give us the flexibility by going to the upper range of the payout corridor, make sure that there is at least a dividend continuity. So I think that's a very important point to clarify. On the new DGFF EBIT run rate, is it around this 380, 390 order of magnitude? I think we really have to see in this very volatile environment. So I think I can give you a scenario where it will keep moving down a bit if we now continue to see significant volume declines combined with a continued GP per unit normalization. That is, of course, going to create a headwind. If we now see volumes coming back, even if rates continue to normalize, that of course can then, in the multiplication, lead to a positive GDP development. So I think there will be still a bit of volatility, but then directionally, of course, over time, we expect an upward trend again. It's now, I mean, when you look at the numbers from Q2 last year, I think that is probably, yeah, not the normal run rate we should expect anytime soon. But the division has shown what is possible. So, yeah, I think a bit more normalization to come and then let's see where it balances out.

All very clear. Thank you.

Thank you.

Thanks, Rob. And last two callers. So, next caller, please.

Our next question comes from Samit Mehrotra, Associate General. Please, go ahead.

Hi, Samit from Associate General. So, Melanie, by now we sense a dislike to talk about express EBIT margins, but overall EBIT levels. So do you think Express EBIT will be better in second half versus the first half? Keeping your comments on fuel surcharges in mind and fourth quarter still not very clear. And then for 24, what would need to fall apart that EBIT would be lower or flat in Express for next year? Secondly, again on Express, what actions have you taken during the first half to dial down your capacities? And are you largely now done with those actions? And thirdly, yes, Melanie, on your guidance, you say that the start of the Q3 is largely unchanged versus the second quarter, so not very committal on the exit rates, and that macro recovery signs are still to show up. So does that mean that you're tracking on the U-shaped recovery scenario, or are you tracking away from the U-shaped recovery scenario for this year? Thank you.

Thank you, Sumit. In terms of express EBIT for the second half of the year, I think that will really depend on what volume dynamic we see. We have been very disciplined on the cost side. We have what John Pearson calls extended EBIT protection plan in place. All discretionary spending, making the necessary adjustments that have been driven not only since January but already in the second half of last year. It will now depend on when and how dynamically volumes come back. If in the V scenario we see a more dynamic volume development, I think we can have a very good second half of the year in Express. If it continues very slowly and fuel turns completely against us and currency, you can also see a scenario where the second half would be weaker. So it really depends. And in terms of 24 EBIT for Express, that will, of course, also depend on how does the second half of this year play out and with what run rate do we go into the new year. I think what is clear, given that Express is by far the biggest EBIT contributor for the group, to get back to the 8 billion plus in 2025, we will have to see a step up again in Express, and that is what is solidly assumed in our medium-term planning. In terms of fleet capacity and what adjustments have we made, I think that is one of the big strengths of our express division that we have this very flexible setup. We have own aircraft, we have long-term leases, we have medium-term leases, we have short-term leases. And that allows us to flex down at any given point in time. And that is what we have done. And in that way, we have reduced the capacity by around about 15% over the winter. And at this point in time, we're kind of like holding it at this level. And then to your last question, are we currently more on the U-shape paths It's really difficult to tell. I think for me the important months will be September and how we then go from September into October. August is always a funny month with large parts of the world on vacation. It's a very small month, so I don't think August will give us a good indication for anything. So we have to see how the volume trends develop in the course of September.

Thank you.

Thank you.

Okay. And let's move on to the next caller, please, operator.

Our next question comes from Alexia with Barclays. Please, go ahead.

Thank you. I just also wanted to ask about the development in central costs. I mean, clearly in the first half, the run rate is much better than the maintained guidance for a loss of $450 million. Can you just discuss what kind of internal cost measures you've done to date and what would make you reinvest them in the business in the second half? Thanks.

Yeah, thanks, Alexia. So, in terms of the central costs, we are, of course, also following the cost-conscious approach of the divisions, so we also have a strict EBIT protection plan in place for the central functions and that is of course showing an impact in the numbers for the first half of the year. That includes, for example, that we are not doing certain refilling of positions, that we are very tight on travel costs and so on. And there are also some discretionary things where we have a phasing impact on branding and marketing. So if things, depending on how they develop, get a bit more dynamic in the second half of the year, we would also see a relaxation effect and a catch-up effect there. That is why we are upholding our guidance of the 450, but I'm very aware that based on the H1 numbers, there is probably a bit of upside potential here. Thank you. Thank you. That's great. Thanks.

Thanks, Alexia. It looks like we have come to the last Q&A. Operator, please.

Our last question comes from Lars Hengdors with Norgy. Please, go ahead.

Good morning, everybody, and thank you for taking my question. It's regarding the yield development in the forwarding business. We've seen quite a different development in yields from some of your competitors that actually do report these numbers, depending on how they source their cargo, whether they're long or short in the market. So maybe just a few words on on how you position your capacity, how you secure your capacity in the forwarding business. Are you long, short, are you back-to-back as you head into something which now appears to be a normalization? Thank you.

Yeah, thank you Lars. So in terms of kind of like yield development and comparison also to competitors, I think the first thing you see is that For example, on the ocean freight side, there have been slightly divergent approaches. I think one of the two large competitors has obviously chosen to be more yield-focused at the expense of volume. whilst the other went more for volume at the expense of yield. I think that is one of the big decisions at the moment. We have tried to do a balanced approach, but also more on the yield is more important than volume side. And in terms of capacity procurement, obviously in the current market, Most people tend to go more on the shorter side than you would see normally at this point in time of the year.

Thank you so much.

All right. And I think that's concluding our Q&A round. So thank you very much for your questions and interest. And Melanie, I leave it to you now for the closing remarks.

Yeah, thank you very much, Martin, and thank you all for the great questions. I think we really did a very holistic tour around the business. So, I mean, as said, we knew that we would see a normalization in the market and our earnings. That is what we had assumed in our guidance and obviously as we discussed around the dividend or in our dividend planning. So we are pleased with the development of the numbers in the first half of the year in line with our expectations. It's still quite a lot of uncertainty out there, not a consistent picture, clearly no macro dynamic impulses at this point in time, which is why we stuck to the three guidance scenarios for the second half of this year. I think beyond that, as also discussed, we feel that we are really uniquely positioned to capture the benefits of our four global megatrends and When the dynamic comes back, we will also go back into EBIT growth mode, and I think that is going to help us develop favorably over the years to come. So thank you very much for your interest. Thank you for joining us, and all the best. Bye-bye.

Ladies and gentlemen, the conference is now concluded. You may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.