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.