Deutsche Post Ag S/Adr

Ladies and gentlemen, thank you for standing by. I'm Sagar, 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 privacy notice on dhl.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 star key followed by zero for operator assistance. I would now like to turn the conference over to Martin Ziegenbaug, head of IR. Please go ahead.

Well, thank you and a warm welcome and a good morning to all of you here from a sunny summer morning in Bonn. Numbers are out. You got it in front of you. As invited, we got our CFO, Melanie Kreis, with us. And let's start with your presentation right away, Melanie.

Thank you very much, Martin. And hello to all of you. Welcome also from my side. Thank you for taking the time for us today on a busy reporting day. Let me start, as usual, with the main takeaways on page two. I think the very short version for Q2 is that the quarter developed very much in line with our own as well as in line with market expectations and that on that basis we today also confirmed our full guidance set. I think that is the very short executive summary for Q2 24 for DHL Group. One key ingredient here is of course the status of the B2B volume cycle which we show on page 3. Air and ocean freight volumes maintained mid-single digit growth rates versus the low comparison base of last year. And express B2B volumes have also moved just back into growth territory. So the curves are picking up. But what does that mean? While I would not over-interpret this, also against the background of disruptions in certain parts of the freight market, it is encouraging to see that B2B volumes are again more closely realigning with overall GDP and trade growth after a rather long period of destocking. In a nutshell, as we call it on our slides, it's not a broad-based acceleration yet, but some signals of the expected improvement in market conditions seem to be emerging. Taking a look at the divisional Q2 performance on page 4, As I already said, the trends in Q2 were very much as expected and guided for. I will talk about express and forwarding in more detail in a moment, so let me cover the other three divisions on this page here, starting with supply chain. In supply chain, we see an ongoing strong performance with EBIT eventually even coming in slightly ahead of the high Q2 base number last year. As a quick reminder, Q2 23 was due to phasing the by far strongest supply chain quarter. So it may look like only 3% year over year growth, but I think 279 from supply chain is a very good number. And the basis is that structural change events are clearly intact and feeding a very strong pipeline of new signings for our supply chain division. Turning to DHL e-commerce, The division is executing on its growth plan and we saw strong B2C volume growth in Q2, which for me confirms the structural shift towards online shopping. EBIT, on the other hand, was held back by our conscious investment commitment for this young and growing division. Overall, a solid 4% EBIT margin. In P&P, we have seen very pleasant partial revenue growth of 8.5%. You can see in combination between volume growth that we also have a good yield element in here. And that together with strong cost control will support the P&P division to deliver on the full year target of more than 800 million EBIT for the current year. I will talk about the new postal law and the outlook for P&P in a couple of minutes. But for this year, I think we are also solidly on track to deliver on the P&P guidance. Now turning to Express on page five, and I guess that will probably be also the center of many of your questions in the Q&A. And I know it's a busy slide, so let me talk about the different parts here, starting with the middle block and the volume developments in Express. We already noted that B2B volumes were back in growth territory, while B2C volume was down 8% year over year. as we had expected, and it also reflects our yield measures on China e-commerce. So we expect this year-over-year decline in B2C to continue in H2. But more importantly for the express bottom line is the uptick in B2B volume growth, which we had already shown in page 3, and the fact that this is also translating into gradual positive momentum in B2B weight. And that is what you see on the middle of the page here. There are still marked regional differences with APEC leading versus Europe lagging, but you can also see that in the course of the quarter, the yellow, the white, and the blue line all moved in the right direction. On that basis, our global TDI weight load factor, which you can see on the right side of the page, improved sequentially in Q2, but we see that also on the right side, in comparison to the historical levels, it is still on a rather low level. So overall, as I mentioned it earlier, it looks like we have started to move into the right direction, but it's not a broad-based acceleration yet, rather a very gradual turnaround. That takes me to the last element I want to mention on the page, and that is on the lower left side. And I think it's a very important element, which I will also come back to when I talk about the guidance for the rest of the year. DHL Express has announced the introduction of a demand surcharge coming into effect as of September 15th and that will clearly support the Express numbers in the second half of the year and most importantly in the fourth quarter. Now turning to DHL Global Forwarding Freight. I already talked about the volume development in air and ocean freight and on page six You can also see the GP evolution where as a forwarder, our GP per ton or per TEU is relatively stable sequentially despite the very volatile market and rate conditions through the quarter. Just as a reminder, I probably don't have to mention it. I do it anyway. We are a fully asset-light broker in the business, so we will not have the strong earnings volatility driven by spot rates like an asset owner. sometimes for better and sometimes for worse. From global trade to a topic specific to our German postal business, the new postal law on page seven. So since our last reporting in early May, political process on the new postal law has reached its final conclusion. The new law is in force since July 19th. I think that is the first good news here. We have a clear new framework, so we know what we have to deal with. The new postal law is particularly relevant for us with regard to more operational flexibility in how we deliver on the universal service obligation and with regard to price regulation. Overall, the new law better reflects the changes in consumer behavior by allowing for longer delivery times and it creates a more stable basis for mail pricing. as our benchmark is going forward no more linked to the profitability of listed postal peers, one of the issues with the old postal law. So overall, even if the law also has a series of drawbacks for us, the new framework should allow P&P Germany to continue serving the USO on a financially self-sufficient basis, which means in numbers with an annual EBIT of at least €1 billion as of full year 2025, That is what we as a group have always asked of that division so that they are self-sufficient and not burdening the group. Let me complete my Q2 review with a somewhat more detailed than usual look at our quarterly free cash flow. The reason for that is that there were some movements worth explaining line by line in the quarter, which we do on page 12. At the end of the day, It's all quite normal operational development. The main observation for me on that page is that the EBIT change of around 360 million year over year led to only 100 million reduction in free cash flow. And the main offset here came from our active CapEx steering. Beyond the details explained on the slide, Q2 was, for me, a good testimony on how we managed to stay on track to deliver, again, a strong free cash flow, full-year guidance excluding M&A, of around $3 billion. We have put our capex evolution in a broader multi-year context on page 9. We start with the capex peak in 2019. Some of you may still recall that that was related to our bigger fleet order. to replace long-distance leaf planes with brand-new 777s. And we also know that this worked out rather well for us in terms of timing. In hindsight, that's a different story. So coming back to the page here, in terms of capex, we have, as promised, come down pretty quickly from the 2019 peak towards our more normal run rates. And since the volume growth, especially in Express, turned negative in 2022, we have actively flexed down capex spending even further. which is, as we have just seen on the cash flow side, strongly supporting our cash flow generation again in this second quarter of 24. In H1, expressed capex as a percent of revenue was only 3%, in line with the group number overall. Small caveat here, for expressed and the group overall, capex is always higher in the second half of the year than in the first half, so don't expect the 3% for the full year. This brings me to our guidance assumptions on page 10, a slide which we first introduced in March when we gave the guidance for the current year. And on this slide, everything is unchanged from our initial version, except for the status assessment in the bottom right corner, which says what I mentioned earlier and repeatedly already, markets and our performance developed in line with our assumptions so far. And therefore, there is no reason to change assumptions, no guidance. That being said, I'm fully aware of, and I guess we will get a couple of questions on that, fully aware that our full year EBIT guidance of course implies a significant acceleration in EBIT run rate for the second half of the year. And we have therefore included page 11, a bridge which tries to explain the main positive drivers which should help us to deliver at least on the lower end of our guidance. The biggest impact on the way to this low end of our guidance range is very simply seasonality. Here we have applied the basic historic H1-H2 EBIT pattern, the 4753, which you can see on the slide. The second element leading us to the 6 billion are incremental benefits from our cost and yield measures. On the cost side, we expect further productivity increases in H2. And on the pricing side, this bucket also includes our new yield measure, the demand surcharge to be introduced by Express for the peak season as of mid-September. The final step up is related to the improvement in economic conditions part of our guidance assumptions. I think it's pretty obvious how a cyclical volume acceleration would lead to operating leverage effects on our EBIT, in particular in Express. This is the element and EBIT contribution which is obviously not under our control and therefore the remaining variable in our guidance range with potential outcomes still in a wide range as of today. Still, let's be clear, and we also mentioned it on the slide, the positive but slow momentum at the moment points to the low end of our guidance range, which I think is also adequately reflected in current consensus. which stands at $6.57 billion as per our consensus tracking, which we also regularly update on our IR website. Finally, with regard to phasing Q3, Q4, both seasonality and yield measures, like the demand surcharge, are much more relevant for Q4 than for Q3. So for Q3, we will also have to see how the macro component develops. August is always a weak summer month. So particularly in September, we have to see how the volume trend actually plays out. I think for now, to be on the conservative side, I would expect Q3 to be more in line with the 1.3 billion-ish quarterly run rate we saw in Q1 and Q2. After that long guidance introduction, I can actually win time back for your Q&A by just saying that page 12, nothing changed. The full guidance set is unchanged and untouched. And that brings me on page 13 to the wrap-up. Q2 developed as expected. There is some progression visible on the current freight volume cycle. For us that means keeping the right balance between cyclical cost and capex control on the one side and ongoing investments to tackle the attractive structural growth opportunities in our industry on the other side. That's the balance we're aiming for and I think that was the balance we achieved in the second quarter. Talking about structural growth opportunities, please note down September 24th when we will introduce our strategy 2030 and when we will talk more about growth going forward. We already look forward to seeing you there live in Frankfurt or online. But that's the outlook. Now turning back to the second quarter and your questions. Martin, over to you. Thank you. Excellent.