Deutsche Post Ag S/Adr

Ladies and gentlemen, thank you for standing by. I'm Vicky, the 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 privacy notice on dpdhl.com. Throughout today's presentation, all participants will be in 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 touch-tone telephone. Press the star key followed by zero for operator assistance. I would like now to turn the conference over to Martin Ziegenbalg, Head of IR. Please go ahead, sir.

Thank you and a warm welcome and good morning to everyone out there. Thanks for joining on our Q1 call. Well, it's less than nine weeks ago that we sat here talking you through Q4. So here we are this time around with Melanie Kreis, our group CFO, who will take you through the presentation. And after that, we're looking forward to your questions. Melanie. Thank you.

Thank you very much, Martin, and hello and good morning to all of you also from my side. Thank you for joining our Q1 call today. As Martin said, it was only nine weeks ago that we gave the guidance for the full year and talked about what to expect. So when we look at our Q1 results today, the quick summary is that the Q1 developments have actually been very much in line with our expectations. as we discussed in March. So I think the first key message is no surprises. Looking at the bigger picture and kind of like where do we stand in the whole macro development, there are some encouraging signals, but we have so far not seen any strong and dynamic acceleration in end demand. And that, again, is totally in line with our guidance assumptions. And on that basis, we fully confirm our guidance today. Against the current macro background, capex and cost control remain our main focus for now, but as we always have done in a balanced way, meaning that we also continue to invest into attractive future growth opportunities and that we implement cost actions with the aim of structurally improving productivity so that it's not so much just a short-term focus, but also positioning as well for the medium and long-term perspective. And this balanced approach is also made possible by our financially healthy position. Yes, earnings and cash flow numbers are down from pandemic peak levels and year over year, but we are posting very good earnings compared to 2019, especially with regard to free cash flow. And I think that is a very encouraging sign also in light of the prolonged cycle low in the industry. Talking about the industry and the cyclical movements, turning to page 3, we are showing the B2B volume development in our most cyclical businesses, air, ocean, freight, and the B2B volumes in express. And on the next pages, we will talk about how have we reacted to these movements. So now, we have seen a nice rebound in air and ocean freight volumes with plus 5% growth and plus 7% growth respectively, and that shows that our global forwarding division is participating well in the volume rebound. However, for the market itself, the growth is mostly reflecting the double-digit declines seen in Q1 of last year, when inventory destocking was still in its most pronounced phase. On a sequential basis, And that is something you can also see in our DGF chart on page 14 in the appendix. There is no real dynamic acceleration in end demand just yet. So year-over-year growth, but also impacted by the comparison level in Q1 23. When we turn to the express B2B volumes, They have shown, as usual, a much less pronounced swing over the cycle. So when you look at the yellow line, the whole volatility was much less than the red and dark gray line. But here we see no underlying acceleration in growth yet. That does compare well to growth rates seen in TDI equivalent products in the industry. So it is really, for us, the market, the fundamental express engine is fully intact and ready to ignite again when volumes come back. Turning now to page 4 and our short-term priorities on the cost side. So what is different about this fight cycle is the prolonged length of the downturn. For us, this means that we are executing our well-established earnings protection plan, EPP, since late 2022. And that is clearly not an enjoyable experience for the organization, but the colleagues understand why we are doing it. EPP has, among other effects, brought down our FTE numbers in express and forwarding, and that now drives a significant improvement in DGF productivity now that the volumes swing back. Driven by these measures, we can also see a bottoming out in express productivity metrics. I'll talk about that again in a couple of minutes when we take a look at the overall express flow through the network. Besides the classical cyclical countermeasures, like adapting our air fleet to the volume development, We have also continued to drive structural improvement in our indirect costs across the group. That's what I already mentioned on the first page, that we are really looking for opportunities also through digitalization to fundamentally improve how we do things, which will also benefit us going forward in the upswing. Now turning to page 5 and CapEx, you will have seen in our free cash flow development that we flexed down our CapEx spending. And like with the cost measures, we are here as well acting out of a position of strength, meaning that we have cut capex on those projects that would have secured more short-term volume growth. However, we have not implemented cuts that would harm our long-term positioning. So we have pursued investments in structural future growth along the examples shown on this page. I think nothing new, you've seen that before, but it is worth pointing out that as well. All these measures, turning to page 6, have supported our Q1 performance, which developed overall in line with our expectations and guidance assumptions. I've already mentioned that a couple of times, but that is really one of the key themes, obviously, for Q1. So now when you look at the different divisions on page 6, starting with the DHL division, which had, again, nice year-over-year EBIT growth supply chain, this division continued its steady earnings growth path. In the current macro context, that is mostly driven by its strong pipeline of new contract startups. The other division, which posted year-over-year EBIT growth P&P, that is, of course, quite pleasing to see. We have seen a rebound from the strike-impacted previous year's numbers, so a good start into the year, and with the Q1 results, P&P is now well on track towards the full year guidance. But I think that also has been mentioned not yet on a sustainable earnings level. We will need the new postal law to provide us more flexibility on mail pricing and costs to get to a sustainable earnings level for PNP. That is in the making. So a good start into the year under the conditions of the old postal law for PNP, well on track also for the guidance 24. But the big future factor is the new postal law. Yeah, forwarding EBIT is, as expected, down versus the still elevated post-pandemic levels of last year. But the quarterly run rate is stabilizing, supported by the return of volume growth. And e-commerce is seeing continued top line growth from the structural shift to online shopping. So the business model is intact. When you look at the year-over-year decline, I think what you have to bear in mind is that we keep investing into the growth of this division. So the biggest element in this decline in EBIT is actually the increase in depreciation, and that is, of course, this conscious decision to invest into future codes. Yeah, that takes me to Express, which I know is in the center of your attention. I think here the clear message is that express division delivered on expectations for Q1. We have repeatedly received the question why the prolonged downturn seems to have an incrementally worsening effect on express, and that is why we have now included two extra slides to explain where we currently stand in express and what drivers will be supporting our growth path towards 26. Look, page 7, he called it express deep dive. What we have tried to show on this slide is the typical path of a TDI express shipment through the network. And I think what this graph illustrates is that the countermeasures can mitigate but not fully offset the negative operating leverage across the network. Of course, we have significantly reduced our air capacity and But we also want to maintain a premium quality transit time in our network. And that is why we don't flex down even more on the aviation side. We could, but that would then have a detrimental effect on service quality. So I think we are currently taking the conscious decision to run at these low weight load factors in both the intercontinental and the regional air networks. On the positive side, when you look at kind of like local operations, we are beginning to now see a turn into the positive direction. So, for example, daily pieces per FTE in our hubs, stops per on-road hour in pickup and delivery were again slightly up over here in Q1. That is where we see the impact of our cost countermeasures taking effect, but also a slowdown in the volume decline. So when you look at it overall, the whole network is currently still less utilized than it should, but key KPIs are now bottoming out. And I think the most important news is that operating leverage will return and will work in our favor once volumes come back and volume grows, we accelerate. That takes me to the midterm perspective. As we show on page 8, our current measures and the improvements implemented over the last years allow us to post a higher EBIT level today than pre-pandemic. That's what you see with the yellow bar. And that, despite the comparably much lower weight load factor, that's the red line. We also do support the expected cyclical turnaround by further dedicated actions to leverage additional growth opportunities on the one side and to foster incremental sustainable productivity gains, notably supported by digitalization on the other side. Not very much different from what we are also doing in the other divisions and across the board. So the common feature, both with regard to the short-term countermeasures as well as with regard to our mid-term EBIT growth expectations, is the established yield management toolbox. That's an element which is important both short and in the long run. And here our general price increase is of course extremely relevant and we see here again a very good stickiness in the first quarter of 24. This brings me to our guidance discussion and slides 9 and 10. And these pages are actually totally unchanged compared to what we showed you in March. But the current market development confirms our expectation that the first half of 2024 will not yet benefit from any dynamic market acceleration. At the same time, the return of volume growth in forwarding, as well as the uptick in economic indicators and growth expectations, can be taken as encouraging signals that should point to an improvement in the second half of the year, again, as we have assumed in our guidance. So, what does that mean for the current quarter? It's obviously still early in the quarter, and there are mixed signals, but for now, I would not expect significant quarter-over-quarter EBIT improvement yet, i.e., I would expect Q2 to be more in line with Q1, but that as well is in line with our full-year guidance assumptions. Yeah, so page 10, assumptions look right so far. Guidance on page 10 is fully confirmed across all metrics. And that already brings me to the wrap-up on page 11. There are probably three key messages I hope you will take away from today's call. So the first one is, as industry metrics have not yet accelerated dynamically, we remain fully focused on cost and capex control, but we do that in a balanced manner. And that means that we always take the structural perspective and do what will really make us more efficient in a sustainable manner. So that we exit this downturn in a structurally better cost position. And the third message is a message which we also strongly push internally. We just had a town hall, we have another one this afternoon. And I think here one clear message to the colleagues is, Yes, the current market is not entirely easy, but there are opportunities out there, opportunities which will allow us to drive growth, for example, in areas around e-commerce sustainability in attractive regions and verticals. So in that sense, and that's the third headline here on page 11, 2024 is also a year of opportunities. Overall, we are fully confident that we are finding the right balance to manage the short term, while we will clearly benefit once markets re-accelerate. And with that, I look forward to your questions. And Martin, over to you.