Deutsche Post Ag S/Adr

Thank you and good morning to all of you out there. Thanks for joining on the call for the Q3 23 reporting. As flagged, we have our Group CEO Tobias Meyer and Group CFO Melanie Kreis with us, who will take you through the material. And with that, right over to you, Tobias.

Good morning, everybody. Thanks for joining. Page 3 provides a... Overview of the highlights. Generally, we would say that Q3 was in line with our expectations, also with market expectations. Given what has been going on in the world, it has been financially an astonishingly uneventful quarter. We have seen the moderation and normalization of the general freight market. You have seen this in the reporting of our competitors as well, that obviously on the ocean side, on the air freight side, there is rate normalization. We do see still some softness, particularly on the B2B side, so we have clearly not seen a revival of the global economy and global trade in the third quarter yet. This is also why we have taken that macro scenario out of our guidance portfolio and remain our guidance with the remaining two macro scenarios that lead to a range of 6.2 to 6.6 billion of EBIT for this year. We do see also in the third quarter that our free cash flow generation has structurally improved. We're actually quite satisfied with that. We selectively continue to invest in quality, but obviously we have slowed down investments in capacity expansion, and we have particularly right-sized our investments in Germany. Overall, we see ourselves well positioned. Also, on the employer side, we run an annual opinion survey, and this year we were a bit more cautious regarding our expectations, given that the sentiment in many countries isn't that positive, and we're satisfied that we keep a very engaged workforce and have good feedback also with regards to that. Generally, we see ourselves in a position of good performance given the macro environment and also good financial health. We'll continue with our share buyback program as planned and laid out earlier. So there is no surprises on that side as well. On the following page, page four, you see a bit of volume trends here focusing on the B2C volumes, where we obviously had a massive surge during the COVID area, which largely stayed with us. On the express side, we still have some down trading in the third quarter, given that some of the shippers are a bit more cost conscious and focus on lower cost modes of transportation, but also there, particularly now leading into October, we see a robust start into the pre-Christmas peak season. That is also true for e-commerce and parts of Germany volumes. E-commerce, as you know, we have quite a heterogeneous portfolio. Some businesses like Poland and to some extent also India have quite a B2B share as well. We have other markets that are very much B2C focused and we have seen good growth in those markets, particularly in recent weeks. That would be the Netherlands, the US, Sweden and Thailand as examples of markets of DHL e-commerce where again in the third quarter we had growth but a slightly accelerating trend as we head into the finishing quarter of the year. Germany, the parcel volumes up, particularly workday adjusted. This would add another two percentage points to seven. The full quarter at 5% parcel growth. Obviously, this being balanced by decline in mail, which continues to be above historical levels. and the challenging regulatory side when it comes to the pricing of mail, but the partial business in Germany being in a very healthy state. Page five turns towards B2B volumes. There we continue to see very much the global macroeconomy being reflected, particularly the continued softness in B2B trade. It has been quite a long time. You see this here now for Express, basically now in the ninth quarter of negative growth. It's narrowing also again in recent weeks, but it's still not positive and still a substantial decline in the general air freight and ocean freight market. In the forwarding market, competitors have taken a bit of a different stance on their yield management and volume management approach. If you average that out, we are pretty much in the middle of that. So we see this still as an ongoing market correction and also the aftermath of rising interest rates, which seems to have a longer track on the macroeconomic environment than some might have expected. So that might well take another one, two quarters until we see a substantial revival in freight volumes. Rates, particularly on the ocean side on the spot market seem to have bottomed out, but at least on most trades, but obviously longer term contracts are still in place. So that will again probably take another one, two quarters until that also the contract kind of renewal then reflects the new reality. Page six shows a bit our short-term priorities. We're obviously looking at cost, indirect cost, but also adjusting capacity. I think we have flexed the networks quite well, especially in Express. We're quite happy with the mix of commercial air, so belly space that we use on some trades, our mid- and long-term charters, and then our own aircraft. So that mix proved to have the right flexibility also in the current situation. And we do not only flex down, we also flex upwards. So in recent weeks, we had a couple of additional charters on the Trans-Pacific because we had unexpected spike in some e-commerce related volumes. So it shows, I think, that overall we have a good balance there, and the network is providing the efficiency that we can expect in this part of the economic cycle. On the yield side, that's similar. We invested a lot of time across the divisions to professionalize our pricing, and I think that serves us very well also in the current situation. This includes fuel, where we have the typical surcharge mechanism that you're aware of. It has a certain time lag, but ultimately we recover any rise in fuel price that there might be. Finally, on the peak season, the pre-Christmas peak coming up, and as I alluded to, we already see first signs of this. There might be a sense of e-tailers, particularly advancing their sales, recognizing that overall consumer spend is somehow limited by affordability. But again, a good start on the consumer side when it comes to buying online and shipping parcels. So that feels like we will have a peak season in that segment of our business. Page 7, and many of you are familiar with this, our portfolio is all logistics related but has exposure to different segments of the economy. Global forwarding freight being most exposed to the cyclical part in the air freight and ocean freight markets. B2B Express is somewhat decoupled from that. There is more stable flow of spare parts and similar goods. but still an exposure also when it comes to the freight product, the filler product that Express offers, and that you also see in Q3 that that has reduced. Supply chain being much more robust, and that is also what we see in the Q3 numbers, that we still have growth there. Also on the EBIT side, and then the e-commerce related part, which performs well, the division when it comes to growth which is important to us because we want our smallest child to grow a little bit bigger in that promising market but also the e-commerce related businesses in supply chain in post and parcel Germany and the B2C share of Express so we still overall feel very good with that portfolio and obviously the leather business in Germany which is structurally declining being now a relatively small part, about 7% of revenue. Page 8 speaks to what I already mentioned. Our employee engagement score traditionally shows some correlation with earnings and the macro situation. That is not the case, at least from 22 to 23. So we remain at a score of 83, which we consider very positive. that is driven by all DHL divisions, particularly also our supply chain colleagues, where the sentiment is very positive. So we feel good about this. It matters in our business, which is a service business, that we have an engaged workforce that is loyal and committed to delivering good service. So that is particularly assuring when tough weeks in the B2C related businesses are ahead, referring to the pre-Christmas peak. With that, I would hand it over to Melanie to give you some more details on the financials.

Yeah, thank you very much, Tobias, and good morning and welcome to all of you also from my side. So Tobias has already talked about all the relevant trends shaping our financial performance in the third quarter, and he has already said that this third quarter, despite the year-over-year decline in operating results, was fully in line with what we had expected, given the very high comp level of Q3 last year and the fact that everybody knew that, for example, on the freight side, a market normalization would be coming. So nothing really surprising on page 10. I will talk about express and supply chain on the two next pages in a bit more detail. So let me quickly touch the three divisions where we don't have a detailed slide in the main deck, starting with forwarding freight. Yeah, so Tobias already said this is obviously a macro-dependent business. We have again seen a quarter with relatively low volumes and that combined with the ongoing and expected normalization of rates has led to the results. I think what you see in our numbers are pretty much the same drivers which you have already seen in the peer reporting. So I would say nothing surprising on the global forwarding freight numbers. In e-commerce, you saw the B2C volume development for Europe, where we were in growth territory. So I would say overall resilient volume development in e-commerce. And as Tobias already said, we keep investing into the expansion and optimization of the networks in this growth division. And that is why we have consciously accepted some temporary impact on margins to capture the attractive structural e-commerce growth opportunities going forward. Turning to post and past Germany, the fundamental developments were similar to here, so the structural male decline continued, no surprise here, the impact of cost inflation And on the positive side, you also saw that in Tobias' numbers, the resilient development of the B2C parcel volume. We have taken additional cost and yield measures, and that is visible in the sum of better EBIT run rate. So it is moving in the right direction. And as we all know, Q4 and the peak is a very important quarter for the P&P division. which should give us the uplift to deliver on the P&P guidance, which I will come to in a minute. I think the other important topic which we have previously discussed, we expect the revision of the postal law, which should take into account the changed consumer habits around digital communication, and that should give us the opportunity to then better reflect cost inflation in a declining male volume market. So that is for the three divisions, which I'm not going to discuss in more detail. On page 11, we have included a dedicated slide on Express, because we know that this is, of course, very relevant for you, given the role Express has in the group numbers. So looking at the numbers of Express for the third quarter, I think the first important thing to mention is that we have not seen any fundamental change in the volume of pricing environment compared to what we saw in the second quarter. On the volume side, and Tobias mentioned that already, but I think it is worth pointing out, it was now the ninth consecutive quarter with volume decline. which is beginning to ease out a bit, minus 3% now. But it was the ninth quarter of consecutive volume decline, which of course has an impact on operating leverage in the express network. So the 11% EBIT margin has also to be seen in that context. The other thing which I want to point out, when you look at the minus 10% TDI revenue per day year-over-year decline, that looks like a very high number. This is very much impacted also by currency impact and by fuel, which takes me to the fuel topic. So we have discussed that already in Q1 and Q2. where we actually saw a tailwind from fuel to our numbers. We pointed that out very clearly. That is also shown visually here on that slide with the two green arrows. This trend reversed in the third quarter. In the course of the third quarter, we saw a very significant increase in fuel prices. And as you probably all know, there is a certain time lag before we can pass this increase in fuel on to the customers. So the tailwind we had in the first half of the year turned into a very stiff headwind. And that combined with the continued headwind from currency led to a significant negative impact on the express numbers in the third quarter. On the positive side, we saw this being partially offset by a positive tax effect. If you put all three topics together, fuel effects and the positive tax effect, the net impact was around of headwind for Express in the third quarter. So if you want to talk about the underlying Express EBIT run rate, that would have been around 770 million euros. And it was a bit below H1 obviously, but still a very healthy number in the current macro environment. So as already mentioned, in a business like Express, volume decline is putting a certain grind on the profitability of such a fixed asset network. But I think there's also a positive note to that. Eventually, volumes will come back, and then we will see the same operating leverage turn into a tailwind again. So when volume comes back, we will see the reversal of what is now a headwind. Talking about growth and turning to page 12, we actually had even in the current situation one division where we did see growth, and that is why we added a slide on supply chain to this presentation. Not because there were any special surprises in the quarter, but we really want to point out the structural growth and also highlight that supply chain delivered the 11th quarter of year-over-year EBIT growth. So 11% growth, 6% margin, 5% organic revenue growth, good numbers in the quarter. But what is perhaps even more important, when you look at the left side of the slide, supply chain also continued to sign strong new business wins. And that is, of course, something which will give us a good basis for business growth going forward. And for me, this confirms this structural tailwind towards more logistics outsourcing, for example, driven by e-commerce fulfillment, but also driven by the diversification of global trade, omnishoring, all those buzzwords. That is really something where our customers appreciate the strength of our overall logistics portfolio, but also particularly the competence of our supply chain colleagues to support them in making their supply chains even more resilient going forward. So that was a quick run-through of what is happening in The divisions, and when you turn to page 13 and look at the main group numbers for the third quarters, they obviously reflect the just described divisional developments in the P&L. I think there are no other significant topics to highlight in the P&L for the third quarter. It was very straight forward. What I want to point out here is free cash flow, because that is obviously of the utmost importance. I know for you, but also for us here as a management team, So we are very pleased that the free cash flow was holding up strongly in the third quarter, 1.1 billion euros. So yes, the overall normalization on the revenue and EBIT side in the P&L also drives lower numbers in the cash flow lines, also in working capital and also in taxes, while the change in provision line also turned around from the unusual positive number last year. What you can also see is capex control, very important. You will also see that in our guidance in a second. And particularly in PNP, we have a very clear focus on capex control, and that supported our free cash flow generation in the third quarter. And on that basis, we have today confirmed our guidance for free cash flow for the full year, $3 billion, excluding around $500 million anticipated M&A spend. And I think that is, for me, a very good indicator for the resilience of our group. We keep generating good levels of cash flow, also in challenging conditions, while at the same time being ready and staying ready for the next cyclical upturn, which will come eventually. With that, turning to the guidance scenarios on page 14, So as you know, we started the year with three macro scenarios, the L, the U, and the V-shaped recovery scenario. The V-shaped scenario had assumed that there would be a recovery starting around mid-year. That has obviously not materialized, and that is why we have crossed out the V-shaped scenario. That leaves two potential outcomes for the development in the rest of the year. If we were to see no recovery in the remaining weeks of 2023, we would be in the L-shaped scenario. And on that basis, we would still anticipate to deliver at least $6.2 billion in EBIT. Should there be a late pronounced peak, end in the U-shape scenario, we would expect to end at around 6 billion. With that, on page 15, you can see the guidance in full detail, talking first about the left side of the page, the 23 guidance. We have left the P&P guidance unchanged and have now reflected the two remaining macro scenarios which I just talked about in the updated DHL guidance. As already mentioned, on the free cash flow, based also on the development of what we have achieved after nine months, we are confident about 3 billion in free cash flow before around about 500 million anticipated M&A spend. Nothing surprising here. I mean, you have seen that we did the MNG cargo acquisition in Turkey. We've announced the buyout in the Middle East, so that is anticipated for the fourth quarter. On the CAPEX side, We have now reduced the guidance to the lower end of our initial range at around 3.5 billion. That reflects the obvious volume development where we are slowing down where it makes sense in the DHL divisions whilst keeping investing into a future uptake, and we are very cautious on the P&P capex. So much for the 23 guidance. Now looking towards the midterm guidance, we had to take into account the factual observation that there has been no market recovery yet. So when you look at the length of the market downturn with slow volume growth, that is now lasting even longer than what we experienced in the financial market crisis in 2008 and 2009. So things are dragging on a bit longer. At the same time, we are convinced that eventually we will see a cyclical recovery following the current cyclical downturn. So we do expect to get back into growth trajectory towards 2025. but it would probably, from the current state of affairs, be too aspirational to go for more than $8 billion, and that is why we now indicate that by 2025 we want group EBIT to be back in the range between $7 and $8 billion. And accordingly, we have adjusted the related capex and free cash flow outlook to take into account the current situation. So much for our guidance. And with that, I hand back to you, Tobias.

Thank you, Melanie. On page 17 on the outlook, you see what we do in the short term, which is nothing too surprising. We obviously need to control cost. We do that. in a structured and continuous way. We don't believe that it's good to build things up to then cut them down, but we certainly still have areas of the organization where also this part of the economic cycle is good to do a bit of a fitness program, get on the treadmill, lose some weight, so that is definitely going on. Similarly, on the CapEx side, we do invest where there is growth, but we just need for now less capacity expansions, particularly in express. But we do continue to invest in quality, but at more moderate levels. And obviously with P&P, we need to keep that in line with what the business can afford. The yield side, similarly, we have, I think, developed good capabilities there, a professional pricing regime across the divisions, especially in express. So you will continue to see that as well. On the more long-term side, e-commerce is a structural growth driver for us that remains very relevant. And as I mentioned, the last weeks have indicated that we'll have on the B2C side a normal peak and generally that the trend to spend more online is intact. The B2B side is still, I think, more uncertain where that goes from the cyclical development. Supply chain especially benefits from the omnishoring. We have great customer demand in those China plus one markets, Mexico definitely being most pronounced, but also others. And then the global trade recovery, we believe, will certainly come. Probably take one more two quarters for interest rates impacts being absorbed by the broader economy. Page 18 shows that we believe the house is in order with good feedback on our employee side. We have progressed quite a bit in terms of the structural transformation away from a declining male business with now 86% of 22 EBIT already being DHL. and also in post and parcel Germany, half being a growing parcel business. Digitalization and sustainability, you know, are high on our agenda and we continue to pursue both. So there is no real change in that. Similarly, the structural megatrends that we often talked about in this round and other occasions, we do still follow. We aim for accelerating growth. We do see an opportunity. in the current circumstance where capital, particularly when it comes to last mile markets, has dried up quite significantly. And for those of you who are following the industry closely, you see that that has an impact and that is good for us and offers opportunities for accelerated growth. And our capital allocation will reflect that, but it will also reflect that we have good rewards for our shareholders and have the balanced approach that we have laid out in previous calls. Page 19 then summarizes this. So we confirm the free cash flow guidance and think the third quarter was a good indication that that is going well. We see that the recovery of global trade will come, but it will probably take a little bit longer. And as Melanie alluded to, Given that in the cyclical part, the supply chain and DGF earnings typically take a while until the cyclical uptrend translates into profits. That is the reason why we have portioned our 2025 outlook. So it's that cyclical element that brings that change. It is not really a change in our structural view. We see the group very well positioned in the logistics market and see also opportunity to take market share in the coming quarters. With that, I thank you. I think we still have an invitation on page 20 that if you have interest, you can visit one of our DHL hubs. Brussels, I think, is the more impressive location, but also Hamilton, Toronto, for some of you might be closer and is also nice. So be welcome to visit up there. And I think with that, we turn it over to questions.

Thank you, Tobias. Thanks for the advertising. And George, if you initiate the Q&A then, please.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star and 1 at this time. Our first question comes from Alex Irving from Bernstein. Please go ahead.

Alex, good morning. Alex, can't hear you.

Your line is open.

George, there seems to be a problem. We'll try Alex later.

Our next question comes from Paris Jane from HSBC. Please go ahead.

Thank you. I have two questions. If you can talk us about how will be your 2025 target bridge will look like. Is it fair to say that the growth will largely come from express and supply chain while all other businesses probably find some resilience at these levels? And my second question is more of a shorter term. Into the fourth quarter, I mean, there's a lot of euphoria about the Chinese e-commerce players are penetrating into the U.S. market. whether it's a Taimou, Cheyenne, or TikTok shop. We have seen the air freight rate reverting or rather increasing out of Hong Kong and China. Are you able to gain larger market share in this? Is this trend visible to you? And do you think that could basically surprise the market in going probably at the end of the fourth quarter? Thank you.

Thank you for these two questions. I start with the latter. on the Chinese e-commerce market. We do indeed see this very strongly, these players being aggressive and successful in established market like the US, but also Europe. So we see it in different parts of our business, express, global forwarding, particularly provision of air freight, but also our last mile businesses where a lot of these shipments are also injected directly. So whether we gain market share and that I think is very difficult to say because these are often campaign based sales which lead to certain spikes and thereby it's relatively hard to judge the size of the market. But again we do have exposure to this and it is definitely a relevant growth driver. As it relates to 2025, we do expect different divisions to make a contribution. Next to the ones you mentioned, express and supply chain, this would also be e-commerce. It's a small child, but we expect it to grow in terms of revenue, but obviously, and maybe a bit staged, then also making a contribution on the EBIT side. Exact panning out of the ocean and air freight markets, I think, is still too early to judge how that will translate into the different quarters and what that will add up for 2025. But as I already alluded to, we have become a bit more cautious when the ultimate cyclical upturn will happen and when it translates into profits. And that is typically where forwarding being the most cyclical of our businesses makes the biggest, at least relative, difference.

Thank you so much and have a good day.

Our next question comes from Alex Erwing from Bernstein. Please go ahead.

Hi, good morning Tobias and Melanie. First of all, how is the global inventory correction progressing? Are inventory levels back to normal and we're just waiting for the macro to get better? or is there further restocking, further destocking, I'm sorry, yet to go? Secondly, can we dig a bit more into the 2025 guidance, please? You said a few times that eventually volumes will come back, but your guidance seems to imply that either they come back to a lower level than previously thought, or they don't really start coming back until partway through 2025. If that's right, it is more the timing of the recovery or the target level. And then finally, you talked about a peak season on air this year. Is that likely to be a similar sequential increase as in previous years or a more muted one? Thank you.

So thank you, Alex, for these questions. I start with the inventory restocking. To be honest, it's very difficult to judge. And I think it highly varies subsegment by subsegment. And we are also surprised. Even if you look at customers who have consumer exposure and the B2C sales, as I mentioned, online sales are generally picking up. There are certain durables which have been in high demand during COVID, you know, do-it-yourself stores and equipment, for instance, where people have stocked up. And we have multiple customers that we talk to that have a lot of inventory and I think similar on beverages, you see that wine consumption having gone down and there also, you know, we see in the warehouses that we operate that there is still a lot of inventory. But there are other parts, even in B2B change, where that isn't the case. So I think the level of differentiation is higher and I think that's quite plausible given that this is now lasting so long and it's not a uniform macro shock. where people buy less across different or all commodities basically, but it is quite differentiated. Where it overall comes out is hard to say whether we have reached a long-term average already, but for us it doesn't really matter that much because we ask our organization to particularly focus on those areas where obviously there is opportunity. And again, there are these segments. As it relates to your questions on the 2025 guidance, as I alluded to, it is primarily a matter of timing and also volume taking some time to translate into profits, particularly on the global forwarding side, where you need to cycle through contracts that are typically six, nine, 12 months. So that is what is driving our slight caution on the 2025 number. The third question, I believe, was on the Q4. I would currently say that the early signs make us believe this is a very normal peak and not a muted one. Now, it is early, and as I mentioned We need to be cautious what element of that is now driven by a change of behavior of our customers doing more advertising, more campaigns earlier. So that might be an element of that, which does not exclude that then December is going to be a bit more muted. We don't know that yet, but what we have seen in recent weeks is encouraging. Very clear. Thank you.

Thanks, Alex, and I think it's Rob joins us next in line.

A couple of questions from me, please. So first of all, on P&P Germany, you asked the regulator for a stamp price increase for 2024, which was turned down a few months ago. Could you please provide an update on the latest thinking in terms of when the next increase will be, how much it's likely to be, and also whether going forward it may make sense to incorporate some kind of inflation linkage. And just an aside on P&P Germany as well, when you were talking about the bridge to 2025 when answering a previous question, I don't think you mentioned P&P Germany, but presumably that will be a source of higher EBIT as well with stamp price increases by then. And then just the second question on DHL forwarding. If I look at ocean volumes, They're down in the mid-single digits versus 2019, which is pretty consistent with the trend being reported by some of your peers. But if I look at container volume data more generally, irrespective of where I look at global volumes or east-west volumes, the development versus 2019 is up in the mid-single digits. So just in that context, are you seeing any evidence in general that the large forwarders are losing market share? Thank you.

thank you for these questions starting with pnp so indeed we do assume that we have an increased contribution compared to where we are now in 2025 based on a vision of the postal law which then also leads to a revision of the stamp price where the inflation that we have seen in the last two years is not adequately reflected you might know that that in the last price setting round, the regulator had assumed end of 2021 an inflation of 1% per year for the regulatory period of 22 to 24. That clearly did not materialize and that is part of the issue that we have as it relates to the current earning performance of P&P. But what is very clear, we need a reform now of the postal law where The government is behind its own schedule. We don't have perfect visibility on how this is going to unfold over the next weeks and months, but I think it is very clear that that reform needs to happen, and we would assume that we can have a revised stamp price by at least January 2025. It is difficult to see how it would happen earlier. Maybe there is a possibility for that, but that would require the postal law being passed on quite quickly. As such, the mechanism already is inflation linked. So the inflation forecast plays a role. And traditionally, this has also been handled very professionally. So we hope that we have a return to a very professional handling of that price cap process. That is at least what we're used to in this country. The second question on ocean freight, we do not see that large forwarders lose market share, but I agree with you there's a bit of, let's say, and clarity how exactly now which type of commodities are trading in which markets. We are traditionally not so exposed to, let's say, bulk type of commodity markets that are also containerized by now. Stuff that has in 20, 30 years ago still be traded as bulk has been increasingly containerized, including you know, foodstuff, grains, liquids. So that is something that traditionally forwarders are not very engaged in and we wouldn't necessarily consider a part of the forwarding market in the first place. And that seemingly has become a bigger share. So that would be our explanation. The classical forwarder market is more focused on finished goods Certain types of fruits and vegetables, so on the temperature-controlled side, forwarders also are engaged. But we do not see that larger forwarders, for instance, would loot market share against smaller forwarders. That is something that we would not see in the current trading and how our customers behave.

Thank you. Oh, good. Thank you, Martin. Thank you to both. Good. And we continue with Christian from UBS, please.

Hi. Thank you very much for taking my question. Just two from my side. In Express, you mentioned the robust start in B2C volumes in October. Just to confirm, by that you mean growth year over year in Express B2C in October? Yes. And in that regard, could you talk a little bit more about how you're setting up your cost base in Express for the peak in terms of FTEs, in terms of capacity, air capacity versus last year? And the second one, just on the EBIT guidance for the full year, you mentioned earlier during the presentation that a late pronounced peak will get you closer to the $6.6 billion. Just in terms of better defining what a late pronounced peak would mean, would that be volume growth in express, you know, mid-single-digit volume growth or just low single-digit volume growth that would be equivalent to a late pronounced peak? Thank you.

So it was a bit difficult to understand, so we tried to answer as best as we could. As it relates to the express B2C comment on October, that would indeed be a positive, so growth year on year, but on B2C only. I think that's important to mention. On the cost base going into the fourth quarter, we remain cautious. So we have adjusted the network to a cautious outlook, but we are able to flex up as we have shown in recent weeks. That will then lead to some higher flying costs on those charters that we might have to do short term. But overall, that is a robust financial setup and also operationally, the team has proven to be able to handle that very well. But we remain cautious as it relates to the fixed cost base, given that on the B2B side, we have not seen yet a recovery that will ultimately come, but that hasn't really started yet, which also leads to the third question. The difference between the two scenarios that we have out will largely depend on how B2B is developing. As I said, we now see a relatively normal peak in B2C. I think that is what we expect based on where we stand. How the B2B trading on capital goods, on heavier air freight shipment goes, that is, I think, the uncertain part of it. And you will have seen that in Q3, air freight was still down in the market, but also with us quite a bit. And that obviously can quickly lead to a relatively big swing, given that this business is cyclical. So that is the difference on the reason why we also have these two scenarios still out, whether on the B2B side we see some more life in the fourth quarter. Thank you very much.

Great, thanks. Chris and Monziba should be next.

Yes, good morning. Thanks for taking my questions. Tobias, I just wanted to go back and clarify on your 2025 outlook. Am I right in understanding that the change in guidance is mainly because of forwarding? Can you help me understand how you've thought about express in 2025 in your change in guidance? And then secondly, you know, the MNA that was proposed has been talked about quite a bit in Germany. Where are things on that and where is your interest at this point? Thank you.

So regarding the question on 2025, we just see that this economic cycle, the truck phase, especially when it comes to global trade, takes longer. And we're basically shifting the curve forward. That's the way we think about this. That has some impact on Express, but we obviously still expect 25 to be better than 23, but maybe not to the same extent than with a quicker recovery. And the same and more pronounced for global forwarding, because again, for forwarding, we also have a stronger time lag. of movements in volume and rates flowing into GP and EBIT. There is a time lag because of contract length. And if we now basically shift the curve three, four months forward, that has that impact on the 25 numbers.

Maybe just to clarify, because that is sometimes a bit confusing. So in the forwarding business, we always have a time lag in the adjustments for our GP, because we normally have longer contracts. So you now see that the spot rates in air and ocean are already much more down than what you see in our GP per ton and GP per TEU. So there is a time lag in the downturn, which we're currently benefiting from. But also when volumes come back, it will take a little longer on the forwarding side until you also see that flowing through in the rates. And that is why Tobias pointed out this time lag on the forwarding side. In general, for the 25 recovery, we of course assume that we will see a recovery in express. We are obviously given the overall size of EBIT in terms of contribution to the group numbers. That will also be a very important element of

And to your second question on M&A, there isn't really anything new. We continue to be interested in those areas that we have laid out according to criteria, particularly in growth areas like e-commerce and emerging markets. But there is no update to that.

and i think that is also what you have now seen with the recent announcements so we closed the mng cargo acquisition the e-commerce business in in turkey in october so you will see the cash out for that in our fourth quarter numbers and we also announced the buyout of a long standing partner in the middle east for global forwarding So this is what we mean with the roundabout $500 million for M&A, which we now anticipate in the fourth quarter.

All right. Thank you. And we continue with Satish, please.

Hi. Thanks for taking my questions. I've got two questions here. Firstly, on the Express, you did flag that underlying EBIT as more like $727 million. And if you assume that, actually, there is no peak season. So the base case for Q4 should be at least $727 million EBIT in Express. So if you could actually clarify that, that would be helpful. And secondly, around the freight forwarding, there are two parts, actually. So if I look at some of your peers have said that they're seeing lower volume, but more transaction, i.e. the transactions have gone up relatively versus the volume, what are you actually seeing on your network? And secondly, within trade forwarding, the cost reduction, obviously you said 2% FTE quarter on quarter, or should we think about going into Q4, what will be the impact on EBIT actually in terms of cost going up? Yeah, thank you.

Okay, so I think on the first question, yeah, so I mean, we fact very clearly in Q1 and Q2 that we had this tailwind from the fuel side, which has now turned into the headwind, and the combined net impact of fuel effects and the tax benefit are in the order of 100 million, which is why 770 is kind of like the underlying number. which is for the third quarter in express a very decent number. On the fourth quarter, it will now really depend on A, the volume, which we already talked about, but of course also on these moving parts, fuel and FX. So we saw a 30% increase in fuel in the course of the third quarter. Let's now see what really happens in the fourth quarter. That is next to the market dynamic, the determining factor, and that is included in our DHL guidance. And I think for good reasons, we don't give a specific divisional guidance for the fourth quarter.

I think on the second question, I think this was particularly referring to GGF volumes in terms of kilos in air freight and TUs in ocean freight related to files, as we would call it, so the number of transactions. It is very typical in this part of the cycle that the kilos per file, the kilos per shipment in air freight and the TEUs per file in ocean freight go down. So we confirm that we also see that. Again, very typical for the cycle, also in express to some extent, you do see that in the B2B segment overshadowed by the B2C, B2B mix that we obviously also have as a determining factor that we can confirm. Again, very typically for this part of the cycle that the shipments get slightly smaller. This is typically in a pronounced trough where people need to order, but when also interest goes up, there's more focus on inventory management, and that leads to this effect that orders go out, but the volume per order is a little bit smaller. I think the third question was on the, if I understood it correctly, the EBIT impact on this kind of seasonal cost ramp up?

I think if I understood correctly, it was about kind of like forwarding again and what they're doing on the cost side and the FTE development. So when you look at that book, you can see that for DGFF, the number of FTEs was down by 3.5% year over year. On the pure forwarding piece, it was actually down by 5%. So we are, of course, making adjustments given the volume reduction. We have to focus on productivity. We have always done these kind of measures without making big announcements, but there is a clear focus on cost control in global forwarding, and that is also what we continue now going forward. because even in the U-shaped recovery, we don't expect all of a sudden a surge in volume, so we will remain cautious on the cost side. And that is also part of our kind of like multi-year getting the benefits of the new IT systems, improving productivity, also through smarter processes and systems. So clear cost focus, and you can indeed see that in the FTE numbers.

Thank you. Okay, thanks, Satish. I hope you all got a few more minutes because we've got a few more callers. It would be Nicholas from Kepler next, please.

Hi, good morning. Thanks for taking the question. Two from my side. From today's perspective and based on the remarks around strong cash generation, Do you consider a dividend of 185 at last year's level realistic? That's the first one. And the second one, how do you see your ability to protect the 3 billion euro free cash flow run rate for 24 and 25 as implied by the new midterm guidance there? How much cost flexibility do you still have across the important segments and also Also, how much capex can you push out maybe a bit? Thank you.

Yeah, so maybe on the first question, I think very clearly stated in our finance policy, dividend continuity is a very important factor for us. We have this 40% to 60% payout corridor linked to the net profit development. And I think that's also a nice opportunity to point out again, this normalization which we're seeing in our numbers, that was something which we had expected for quite a while, which is why in the spring of this year, when we took the decision for the dividend for the record year 22, we went to the very low end of the payout corridor to 40%, bearing in mind already that we clearly want to be able to at least hold the dividend. So a very clear commitment here. In terms of cash, yeah, I think that is also what you can very clearly see in how we've tiered the numbers for this year. So despite the scenarios on the EBIT side and despite having a CapEx guidance range, we actually targeted $3 billion in free cash flow for the current year. And our logic here was, so if business volume ticks up, We will go into growth mode again. We will see good OCF before changes in working capital, but then we will see some drain from working capital and we will invest faster and more. If we are more in a contracting period like we are at the moment, We will have less OCF before changes in working capital, but we will also have less output from working capital, and we will then be cautious on the capex side, and that is balancing out. And on the cost side, yeah, we have, I think, shown both on indirect, on kind of like what we just discussed for FTE development in global forwarding, on the aviation flex and express side, that we have levers which give us flexibility. So I think we are well prepared to deliver on the free cash flow for all the different scenarios. And that is why we have now updated our midterm guidance to the 9 to 10 billion range.

Thank you very much.

Thanks, Nicolas. And we continue with Sam.

Thanks for taking the question. I have two, please. The first is in freight forwarding. I think you said a couple of times on this call that there's this sort of contract lag before pricing gets reset to current levels. How much of a benefit would you say is still in yields from contracts that were originally agreed six or 12 months ago and that are above the sort of current spot level of earnings in the forwarding market? And the second question is on Express. I think, Melanie, you said if you adjust for all these various sort of one-off type things, Q3 profitability was lower than the level in the first half. Why would you say that is the downward trend? Thank you.

Yeah, so maybe on the forwarding side, so this is a typical thing which we always see in the forwarding business where you typically have on average annual contracts and So if rates normalize on the spot side, you are still on the higher level. And I think when you look particularly at the ocean freight side of things, we do anticipate that this normalization in rates will continue. Also a bit on the air freight side, but I guess looking also on historical levels and the market dynamic, there is more normalization expected, particularly on ocean freight, and that is also what we have included in our guidance. Yeah, so on the express side, volume trend has still been downward. It's now the ninth consecutive quarter with year-over-year volume decline. And that naturally adds up in a network business, despite all the capacity adjustments we are making. And that has created additional headwind

apart from all these um special topics um uh like uh fuel which which we talked about for expressing this okay all right thank you very much thank you thanks sam and three more in the row i can see we continue listening from subject thank you uh so belny uh i know an attempt has been made as you responded to maniba but i'll still put it slightly differently So if I focus on the lower end of your $7 billion guidance for 2025, and let's say $1 billion from PNP and the residual $6 billion from DHL, it's clear that supply chain e-commerce are growing a bit. What scenario have you actually built in for Express and EGFF? If there is volume growth or low single digits, what gives you the confidence that Express can still recover on an absolute debit basis from here. And second relevant linked question, how much of the rising burden from environmental compliance costs, SAF lending, have you built into your guidance for 2025? Thank you.

So maybe I start on the express side. We do indeed expect that once we see a certain recovery in the number of shipment volumes, but also in the way there is a stronger flow through. Melanie highlighted that. We have seen this historically, and I think that is something that we would say is very reasonable to expect also going forward. And similarly, as you highlighted, there will be bigger contributions gradually rising from supply chain and also e-commerce, obviously e-commerce a relative increase, not yet adding much on the absolute side. With P&P, we highlighted that we do expect a substantial recovery from current levels, also to be able to continue the journey of investing, investing into sustainability, which is important to the government and it is clear that the business needs to earn that. So that is also something that we do expect that will contribute towards 2025. The rising burden of particularly CO2 abatement is something that we discuss very intensively. We do see, though, that particularly in the last four months, we have been able to do deals with customers who also buy low-carbon logistic services. And that is a very important question going forward. We would obviously like to significantly increase our buying of sustainable aviation fuels, but also other abatement measures. But customers, as we always communicated, need to make an increasing contribution towards that. So we have planned for still being in the interim a gap on spending being higher than the recovery through customers, but obviously that gap needs to narrow, particularly in relative terms, and customers need to make an increasing contribution. It's early days on that journey, so it's very hard to extrapolate how that will look in 25, 26, 27. But it is something where, again, we're making progress.

Sunil, I think that answers your question. Thank you. And we continue with Joe Brown.

Good morning. Thanks for taking my questions. I have two questions as well. Firstly, on the EBIT impact in Express you experienced this year from the volatility in the fuel prices. Have you ever thought about shortening the time lag for those surcharges to adapt? Because I think your peers at FedEx, they have only one to two weeks time lag. So isn't this an obvious thing to optimize in order to avoid this short-term earnings volatility in that segment? And then secondly, can you just update us on the emergency surcharge in Express? Is it still in place? And if yes, to what extent? And when will it be gone completely? Thank you.

Yeah, thank you. Two great questions. So I think on the first one, yes, indeed, we are working on shortening the time lag that this delay, for better or worse, should reduce as of 24. And we have also made adjustments to the fuel table, which have come into effect on the 1st of November. So I think that is, for me, a showcase of kind of like the experience and the proactivity of the Express team in managing that. ESS, yeah, I mean it's interesting that at the very end of the call we get that question. I think that already shows the diminishing relevance of the ESS. It's still there, but with a reducing impact as we had always anticipated.

When will it be gone completely?

We'll have to see. When will it be gone completely? We'll have to see how it will transition into a normal state.

Thank you. Great. Thank you. And the last caller we have is Alexia from Barclays.

Thank you. Thank you, everyone. Right, I have two remaining questions, if I don't drag it too much. But on Express, can you explain, Melanie, what was the tax-positive impact in the quarter? And if you could give us an indication of what you expect, you know, these three moving parts to impact EBIT in Q4 as per your planning. And then secondly, in terms of the guidance information, adjustment for 25, have you gone to a range in order to reflect the fact that 23 has a range? And how do you see the evolution from 23 to 25? I'm more interested in your thoughts whether we trough in 23 or maybe 24 is a bit of a kind of flatlined year. Thank you.

I think on the first one, the tax effect was the reassessment of a number of long-term tax topics, some local topics, but predominantly related to the tax treatment of cross-border shipments where, based on some new rulings, we were able to make adjustments. To the second question, what have you assumed for FX and fuel for the fourth quarter? So technically, in terms of planning, given that we don't have a crystal ball either, we normally assume that things stay the way they are for the quarter. And then we do some sensitivities around that. And I think that gave us the confidence also for the DHL guidance there. obviously expressed plays a significant role. On the outlook, yeah, so how the start into the next year plays out in what trajectory we go into 24 and how I think that clearly also depends, first of all, how now the U and L shape end of 23 is. So we are focusing on this now, and based on how we then finish 23 and start into 24, we will decide on our guidance for the next year and then communicate that in March.

Correct. All righty. Alexia, questions answered? Yes, thank you. We are just still within scheduled time, so thank you for your questions out there and without any further ado, I'd like to hand over for your closing remarks to Tobias.

Thank you for the very good questions and discussion. I think what you see in Q3 A lot has gone on in the world and obviously we are a bit disappointed by the macro development, especially as it relates to B2B trade. That's why we had to take out the V-shaped scenario, as many by this time expected. But aside from that, our financials for such a quarter are, I think, astonishingly uneventful and in line with expectations. But one might argue that these are good times to be boring in terms of not surprising you with a lot of changes. We do see ourselves in good shape to still benefit from an e-commerce trend that we see intact and the ultimate upturn in the macroeconomic activity with the interest cycle, the interest cycle and the raises that we have seen in our view being significant. one key factor in this prolonged, slow macroeconomic environment. So with that, thank you again, and looking forward to seeing you soon, or at least in the next year, for hopefully then also a more positive update on the macro situation. Thank you.