DHL Group (ETR: DPW) reported a mixed third-quarter performance for 2024, with CEO Tobias Meyer announcing an adjusted EBIT guidance above EUR 5.8 billion for the year.
The company experienced growth in its B2C Parcel business driven by e-commerce trends, while facing challenges in B2B trade and Air Freight within the Global Forwarding sector.
Despite a volatile macroeconomic environment and competitive pressures, DHL maintained a 7% organic growth in e-commerce and a solid double-digit margin in the Express division. The Post (NYSE:POST) & Parcel Germany segment saw a strong parcel performance but a decline in mail volumes.
Management expressed optimism for a stronger fourth quarter and remains committed to shareholder returns, particularly dividends. DHL is preparing for a detailed discussion of its Strategy 2030 during a Capital Markets Day in April 2024.
Key Takeaways
- Adjusted EBIT guidance set above EUR 5.8 billion for 2024, with a stronger Q4 expected.
- Growth in B2C Parcel business due to e-commerce, while B2B trade shows mixed results.
- Global Forwarding sector sees volume growth but challenges in Air Freight.
- Express division maintains solid margins despite B2B environment volatility and B2C volume decline.
- Post & Parcel Germany segment reports strong parcel performance but declining mail volumes.
- Company aims for long-term EBIT target exceeding EUR 7 billion, with a focus on sustainable practices.
- Capital Markets Day scheduled for April 2024 to discuss Strategy 2030.
Company Outlook
- Strategy 2030 focuses on service quality, market share growth, and sustainability.
- Anticipating a significant demand surcharge in Q4, contributing to EBIT growth and margin expansion.
- EBIT of at least EUR 1 billion expected in Post & Parcel by 2025, with price increases planned.
- Management predicts global trade growth around one, despite protectionist measures.
Bearish Highlights
- Year-on-year decline in staff development in Dubai Global Forwarding (DGF) sector.
- Downward adjustment in EBIT expectations for 2024 in the Global Forwarding sector.
- Significant drop in mail volumes in the Post & Parcel (P&P) division.
Bullish Highlights
- 6% top-line growth for the quarter, with a focus on e-commerce and fast-growing markets.
- Continued investments in sustainable aviation fuel and carbon-neutral initiatives.
- Express division shows resilience with a solid double-digit margin.
Misses
- B2C volumes in the Express segment declined by 10% due to strategic focus on profitable shipments.
- P&P letter volumes expected to fall more than the previously projected 2-3% annually through 2025.
Q&A Highlights
- Company prioritizing profitability over volume in Express segment, reducing exposure to high-risk transpacific trade routes.
- Stability of demand surcharge across trade lanes, with positive customer feedback aiding retention.
- Potential customer gains from DSV's acquisition of DB Schenker viewed as an opportunity.
- Price increases for mail could bolster earnings despite volume declines in Post & Parcel.
Management at DHL Group remains confident in their ability to navigate a challenging macroeconomic environment, emphasizing cost management and service quality. With a clear strategy and focus on sustainable growth, the company is gearing up for a strong end to 2024 and beyond.
Full transcript - None (DPSTF) Q3 2024:
Operator: Ladies and gentlemen, thank you for standing by. I'm Moritz, 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. [Operator Instructions] I would now like to turn the conference over to Martin Ziegenbalg, Head of IR. Please go ahead, sir.
Martin Ziegenbalg: Thank you, and good morning, and welcome to everyone out there for our Q3 '24 call. Following last week's release, we are today looking at the full set of Q3 figures, which I take it you have in front of you. I have here with me our Group CEO, Tobias Meyer; and Group CFO, Melanie Kreis. And we will follow the usual procedure and that means we're kicking off with the presentation. And over to you, Tobias.
Tobias Meyer: Thank you, Martin, and good morning to everyone joining from Bonn. I'll start with Page 2, the highlights for the group for the third quarter. What we observe globally is still a very heterogeneous development of B2B trade. We have some trades and some modes that have been growing more and quite pronounced in the third quarter, but we also still see markets with contraction, particularly also the freight markets in Europe have been rather disappointing, given also the macro environment is falling short of the expectations that others as well as us had for this year. What is positive, we do see the e-commerce trend affecting our B2C Parcel business being fully intact. We see good volume growth in different markets where we're present with last mile delivery services and also the peak season looking quite positively from today's point of view. We had to adjust guidance slightly last week to now above EUR5.8 billion EBIT for the year from what was the lower end of EUR6.0 billion to EUR6.6 billion before. This still implies an at least 8% increase in EBIT for the last quarter, which we're confident to deliver. We have a great focus on yield management across the different divisions, particularly also Express, where we have a demand surcharge for the first time in place as have many of our competitors. Similarly, for the Parcel business in Germany, as well as some of the other domestic business we are present in, we have such a surcharge for the fourth quarter or slightly longer. So this is providing us with confidence that we'll see progress on yield. And we also are generally positive about the cost measures that we have put into place, productivity shaping up quite nicely. There are definitely areas where we could also see a bit more positive development. That's particularly true for the GP in Air Freight, which we're going to talk about in more detail later. The strong free cash flow generation is the basis to provide attractive shareholder returns. So we remain committed to that. The fourth quarter is traditionally a very strong quarter when it comes to cash, but that is important as we stay committed, particularly to our dividend policy. On the following page, you see a chart that we have shown for previous quarters as well, the progress in the economic cycle when it comes to the B2B freight market. So we do see a lift in Air Freight and Ocean Freight volumes, particularly out of Asia. China playing a strong role, especially when it comes to Ocean Freight. We've seen quite tight Air Freight markets out of Taiwan, out of Vietnam, for instance. But we also do see that the TDI market, our premium Express product on the B2B side, remains quite subdued. So here, it is particularly our yield measures that contribute to the earnings. On Page 4, you see the overview for the different divisions, starting with Express, a slight increase in EBIT year-on-year. That, again, on relatively subdued volume and weight development. We have stabilized the EBIT at a solid margin of 11%. Obviously, we expect the seasonal impact in the fourth quarter to the positive, but generally trading in line with our expectations. Global Forwarding, Freight, we saw volume growth again that also provided a positive revenue momentum for the group. We have some structural effects. We have, for instance, more exposure to beer, wine and spirits, which traditionally trades more on backhaul trades, which have been less dynamic as it relates to rate development, but also some work to be done particularly in Air Freight. We still had some contracts on the buying side that were quite elevated. On the other hand, we had some contracts that we still carried with us last year that now cycled out and particularly out of Asia, some imbalances in our buying and selling that was not as advantageous as we would have liked to see that developing, so not satisfied as it relates to the quarter in Air Freight. But overall, also, if we look at the productivity development in Global Forwarding, I think that is developing on a very continuous and positive trend. Supply chain, very steady positive development despite some lower economic activity that we do see with existing customers. So a lot of the growth, both in revenue as well as in EBIT, is based on new business wins. The pipeline there continues to be strong also in the right sectors with the right GP. So again, a good quarter for supply chain. E-commerce, 7% organic growth, similar volume growth. So we do see still some yield pressure. We have some very strong markets, the Netherlands and the US included. We have some other markets where we still have a lot of competitive pressure. And us building out B2C network, where we still have some scale effects to overcome, so that will continue for a while. But the volume growth in e-commerce, again, shows that the trends there are fully intact. On Post & Parcel Germany, we had another very good quarter as it relates to parcel. It has generally been a success story in the last years, as many of you are familiar with. On the other hand, we had quite some shortfall of mail volumes. Some of that accelerated, decline was expected. This is also why last year, we applied for an early increase in the tariff on the stamp price. So net of one-offs, an earnings of around EUR100 million in the quarter, which is not satisfying. And we are obviously still in the process for the stamp price increase in '25, '26. So that is something which is still ongoing. If we go to Page 5, the factors influencing our guidance. You have those structural factors that I already talked about as well as the cyclical factors. I think we can conclude and you also see this in the small graph on the bottom right hand of this page that we are progressing in the economic cycle. We have seen stronger revenue growth already in Q3 after five quarters of reducing revenue, a slight growth in Q2, a 6% growth on the top line in Q3. And also on the EBIT side, we are basically flat for Q3 year-on-year, but do expect in excess of 8% increase for the fourth quarter. And based on the trading we see in October, we are confident to deliver that. On Page 6, guidance. As we have now adjusted to with the announcement last week, greater than EUR5.8 billion. EBIT for the group with a split of greater EUR5.5 billion for DHL and P&P now around EUR800 million, as well as this being reflected in the free cash flow. On the midterm, we adjusted that to bigger than EUR7 billion, mainly for two reasons. One being the slower economic recovery, especially in some of the B2B freight markets, which we obviously have a significant exposure to, not only in Express, but that is obviously an important factor in our overall earnings situation, but also the preliminary decision of the network agency that is falling short of what we should be granted as margin in P&P by law. So that is still to be seen whether that now fully materializes, but that is a factor that we came to know end of September, which now is reflected in this updated guidance. Looking a bit further into the future with the Strategy 2030 on Page 7, you have again the summary of our assumptions as it relates to that time horizon. So we assume that we return to normal GDP growth of around 2.5% to 3% in real terms, which then translates into underlying volume growth that is shown on the right-hand side of this graph. In terms of our development relative to the market, our aspirations are summarized on Page 8. We want to further, but gradually increase market share in Express. We do see that also in the last three months, we have delivered really good quality above our internal thresholds and that is a key driver of customer loyalty in this segment. So that is going to continue to be our strategy that we focus on the premium end of the market and do not compromise on quality and combine this excellent service offering with the yield discipline that I think we've shown in recent quarters. On DGF, we need to still prove that we are able to outgrow the market. We are very much aware of that. We have done, as you know, work on the system and process side. We are well underway as it relates to productivity development, but we still need to show that we can outgrow the market also in terms of yields and there are measures that we're going to present how we are going to do that. Supply chain can build on a strong track record already with a different combination of levers ranging from supporting real estate development to the extensive deployment of robotics and automation. So we'll continue that strategy with a focus on specific sectors, which we see as particularly attractive. E-commerce, again, as you know, a heterogeneous portfolio of last-mile activities, some of them performing very well, others, work to be done and also patience to be applied as we grow our market position. And then with P&P with stable market shares to continue the transformation into the leading parcel player in the German market. We are roughly three times the size of our next competitor in the parcel delivery market, which obviously is critical as economies of scale matter in this game. And we have, through our legacy in this market, a structural factor cost disadvantage. So the relative scale has actually improved in recent years due to the stronger fragmentation of volume on to our competitors with the entry of Amazon (NASDAQ:AMZN) Logistics. Page 9 summarizes what our short-term focus is. You will have seen that the CapEx flexibility continues to work out well. We flexed down CapEx in those areas where we do not grow. We are very mindful of not increasing capital intensity further. We think we're at a healthy state. We did good investments in the fleet of Express, for instance, which are paying off. But especially on the real estate side, we need to focus on purely owning strategically important assets and we'll do that. Cost management, I think, is well underway. We do this with a steady hand and we are not in favor of abrupt changes. But also if you look in the stat book on the development of staff in areas like DGF, despite consolidation of the Dubai activity, the development is down year-on-year. So I think we're showing good development on productivity. And obviously, the peak season is on everybody's mind now. It's critical, especially in those areas where we do charge a surcharge, be that the peak season or demand surcharge that we deliver quality and we see ourselves well underway to do so. As it relates to Strategy 2030, the focus for the division and the common denominator remains quality, driving customer loyalty and also the ability to charge premium yields. We would want to further accelerate growth. We've shown 6% top line growth in the quarter, but that obviously needs to be broader, less dependent on rate developments. And we want to achieve that by continued focus on e-commerce, but also markets that are fast growing from a geographic perspective and some specific sector, life science and health care and renewable energy being two of them. Decarbonization continues to matter. We continue to buy, even in this economically more demanding situation, sustainable aviation fuel and to continue to invest in carbon neutral acids, be that electric vehicles or alternative heating systems. We do see a gradual pickup of customer demand and willingness to pay for such low carbon or no carbon services, but we're obviously still investing ahead of the curve also to ensure that we have sufficient supply, especially as it relates to sustainable aviation fuel. We'll further, and you see that on Page 10, deep dive on the divisional plans and development in a Capital Markets Day in April, early April of next year, where we'll then give a granular overview of what Strategy 2030 means for each of the divisions and particularly how we're going to accelerate growth in those different businesses. With that, I would hand it over to Melanie for some more details on the developments of the different divisions.
Melanie Kreis: Yes. Thank you, Tobias, and good morning also from my side to all of you out there. I will now take you in some more detail through the most relevant business developments, focusing on Express, Global Forwarding and P&P as well as on our cash generation and capital allocation. So let me start with some overall good news, and that is for me, the Express Q3 performance on Page 11. My summary of the Express performance in Q3 is that we continue to grow well with a still subdued macro environment. B2B volumes stay volatile, hovering around a flat year-over-year development, while B2C volumes are down year-over-year, also reflecting our focus on the right TDI shipment profiles at the right price. Against this volume development, you can see on the right side that our compensating levers are effective. We have constantly flexed our total air capacity up and down through the years to adapt to the volume fluctuations. We, of course, keep our focus fully on the premium TDI segment of the market. And as a result, rate per shipment is up year-over-year, or said differently, total rate is down less than volume as we maintain high discipline on which volumes we take onboard. And this is also reflected in yield, where we see continued strong contribution from pricing also in the current volume environment with the implementation of the peak surcharge fully on track. Of course, we look forward to a pickup in volumes to drive EBIT growth again, and we expect in Q4, at least from a seasonal perspective, some volume growth. But Q3 has once again shown that we are also able to adapt the Express network to maintain a solid double-digit margin even in a prolonged volume weakness. So overall, for Q4, we expect good year-over-year EBIT growth in Express and the strengthening of the margin. That was it on Express. Let's now turn to what has not worked out as planned in Forwarding Freight on Page 12 and Tobias already mentioned some of the points. So on the positive side, forwarding volumes continue to recover from the double-digit declines last year. We have seen a good peak season in Ocean Freight and that has also driven a good profit contribution from Ocean Freight in Q3. However, in Air Freight, we have been preparing for a stronger peak season demand uplift than what we have seen in the last weeks. You see that reflected in the Q3 GP per tonne development and based on the volume development so far in Q4, we also do not anticipate that this will significantly improve in Q4. We have reflected that in our '24 guidance update accordingly. So DGF was the main disappointment versus initial '24 expectations and we have now less EBIT contribution from the peak season embedded in the new guidance. Importantly, and Tobias also mentioned that already, we are working on the more structural topics and there is good cost discipline and DGF remains focused, for example, on productivity, which you can also see in our numbers. Turning to Page 13, P&P. I want to quickly talk about what happened in P&P in Germany this quarter. On the one hand, to explicitly point out again to the roughly EUR70 million positive effect that we had in the numbers here related to positive developments in some legal proceedings. So once you strip that out, EBIT was clearly disappointing in Q3 with the main reason being a stronger than usual decline in mail volumes, in particular, in Dialogue Marketing, which means advertisement volume. While this has some cyclical aspects, it is, of course, most of all part of the bigger structural mail decline trend. So continued network adaptation and cost cutting is one part of the answer and of course getting an appropriate price increase that Tobias has already pointed out. In terms of outlook, you have seen that we took the P&P guidance down to around EUR800 million for this year, but we continue to expect to reach the EUR1 billion minimum threshold as of '25, driven by cost and yield measures and, of course, parcel growth. So to finish on a positive note on that slide, not to forget about parcel growth. Parcel performance was good in Q3 with a combination of volume and price growth, and the colleagues are, of course, gearing up for a significant peak season acceleration as we speak. That was a quick snapshot of what happened in three of the divisions, supply chain and e-commerce were more in line with expectations, so I'm not going to dive into detail here. I will turn to our cash flow statement instead on Page 14. And this is actually, from my perspective, quite simple to explain. I think the main message is the CapEx flex is working the way we had always talked about. So we are adjusting our investments to the more subdued macro environment. And in that way, we are offsetting in the cash flow statement the slower EBIT progression. One negative thing to point out in the Q3 cash flow statement is that we have seen a working capital buildup in Global Forwarding. That was partially to be expected given the revenue growth. We have also seen that with peers, but particularly in Q3, it was slightly stronger, also driven by the Ocean Freight growth pattern, which we have seen. This is going to normalize again over time, but not necessarily in the short-term. And that is why we adjusted our free cash flow guidance as Tobias showed earlier to the range between EUR2.8 billion and EUR3 billion for the year '24. Let me perhaps also add at this point in time that we have consciously decided against any short-term optimization measures that would have allowed us to uphold free cash flow and also EBIT guidance just for the sake of confirming guidance. We all know that these measures have a short-term benefit, but then quickly reverse at the expense of the '25 performance and that is not what we would consider sustainable profit or cash generation and we have, therefore, decided against such measures. CapEx management, we already briefly talked about it. But we have included Page 15 to once again illustrate the just mentioned CapEx flexibility also putting that into a multiyear context. In line with the prolonged volume weakness, we have reduced CapEx spending in the last two years with another step down year-to-date and that is also true for our most capital intense division, DHL Express. But that is done in a balanced way. This does not mean that we are foregoing investment opportunities that address attractive structural growth opportunities going forward, as outlined under our Strategy 2030. Talking about sustainable value creation. Page 16 gives you an update on our return on invested capital with two additional perspectives. Firstly, on a 12-month rolling basis, return on invested capital is declining year-to-date '24, which is actually not really surprising as we have seen this year-over-year decline in EBIT while the asset base is not shrinking, so mathematically, that gives you a small deterioration in ROIC. The key to ROIC increase will be the EBIT recovery in the shorter term, while in the long run, the metrics will, of course, help us to optimize capital returns across the cycle. The second observation is that we provide you with a kind of ROIC ranking on the right side with the three big DHL divisions being the ones producing return on invested capital above group average and a technical reminder once again, our return on invested capital number fully includes both goodwill and leases in the invested capital. Some competitors do it slightly differently, but we are taking this very, yes, harsh perspective, where particularly on the lease assets you can have a lengthy philosophical debate whether that is the right approach, but we are doing it consistently in this way. Turning to Page 17, capital and shareholder returns. I think nothing fundamentally new on Page 17 regarding dividend and share buyback numbers. However, it's important for us given our guidance update and the fact that we already had a 59% payout ratio last year to emphasize here that dividend continuity is a very important element of our finance policy. And of course, the dividend will ultimately be voted through the usual process next year. But we want to reiterate that this dividend continuity ensuring that this year's dividend is at least on the same level as last year. It's exclusively written in our finance policy, and therefore, we are not hardbound by the 60% upper end of the normal payout corridor. And I think what we also have to bear in mind is that naturally, both our cash flow and our balance sheet position are at a significantly stronger and very solid level when you think back to where we were five years ago. So we clearly have the foundation to honor the dividend continuity. That already takes me to a very brief conclusion on Page 18. Yes, there is a continued cyclical downturn out there, and it's more prolonged than all of us had expected and hoped for but we can weather this very well with all the established and sensible levers, which we have also used in the third quarter of '24, especially to protect free cash flow. And we have a clear strategy there and how to accelerate sustainable growth based on this strong basis going forward. And with that, Martin, over to you and to your questions.
Martin Ziegenbalg: Thank you, Melanie, and the operator will now please initiate the Q&A round.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Muneeba Kayani from Bank of America (NYSE:BAC). Please go ahead.
Muneeba Kayani: Good morning, Melanie and Tobias and Martin. Two questions, please. Firstly, just on e-commerce. So in Express, B2C volumes are down over 10%. Can you talk about what's driving that? Is it kind of all the Chinese e-commerce volumes coming out from last year? And why do you think this, it's underperformed parcel volumes in P&P, which are up 5% and e-commerce, which are up 8%. So that's my first question. And then, secondly, you talked about clearly the guidance being lowered for this year and '26, and I know you don't have a guide for next year. But can you talk about just building blocks for next year and trends for each segment and your expectations currently? Thank you.
Tobias Meyer: All right. Thank you, Muneeba. I will take the first, Melanie, the second question. In terms of the development of B2C volumes and the difference that you rightly observed between Express and the Domestic segment, I think it's two elements that play out here. In the current situation, we still see a lot of e-comm players being rather focused on cost, and this has to do still with the after COVID situation of capacity and fulfillment and other areas being built out and markets not being as strong yet and thereby being quite some pressure in the system also on the side of the e-tailers, which then often and again, we have seen this in previous cycles as well, leads to a greater focus and cutting more premium shipments and in this part of the cycle, putting more into the deferred space. That is definitely something that we do observe also for some domestic express shipments. You're aware that we are also in some domestic markets even though not a volume player, but again, at the high end. The other is indeed that we actively have focused on what's profitable for us and also not went into risks for the peak season being burdened particularly with volume on the transpacific, which is high risk as it relates to its volatility and then the resulting need to procure Air Freight charters at very high prices. So we have reduced our exposure very consciously in some of those trades and that is reflected in the Express B2C volume figures.
Melanie Kreis: And I would have said, overall, I think, I mean, whether it's now 8% or compared to 10%, I think there is clearly good growth in the domestic e-comm businesses. So I think the fundamental structural growth driver here has proven its validity both in parcel Germany as well as in the e-comm division. Yes, with regard to guidance '25. I mean, as usual, we will give the guidance in March. We are now very much focused on concluding the year '24 with a strong fourth quarter. As Tobias already said, the lower end of our new guidance range implies that we will grow in the fourth quarter again with 8%. And I think now with Q3 being roughly on last year's level in terms of EBIT getting back into EBIT growth and finishing the year '24 on this positive dynamic will, of course, then also give us a good basis into '25, and then we will give you the guidance in March.
Muneeba Kayani: Thank you.
Martin Ziegenbalg: All right, Muneeba. Great. Next (LON:NXT) caller, please.
Operator: And the next question comes from Tobias Fromme from Bernstein. Please go ahead.
Tobias Fromme: Good morning, Melanie. Good morning, Tobias. Good morning, Martin. I have two questions, please. The first is on the P&P letter volumes. In 2022, you still expect that market letter volumes to decline between minus 2% and minus 3% per year through to 2025. But now according to the regulator and your numbers, it appears that the decline will be substantially above that. What exactly was driving that? Maybe could you comment on that? And do you expect sort of a catch-up decline of volumes in Germany that have a significantly sort of underground or that declined less than other European markets? Do you expect the catch-up decline of those volumes going forward? And then are you going to buy GXO? Thank you.
Tobias Meyer: So thanks, Tobias, for both questions. As you know, we generally don't talk about acquisitions, taking your second question first, and specific targets. However, if you go through our criteria list, and I think we had an earlier case, which had similar characteristics, you will find that it's not matching our criteria very well and we feel quite attached to those criteria. So that might address that question regarding GXO. On the letter side, I think we need to distinguish between mail communication and advertising mail. On mail communication, we see a gradual increase due to also certain government agencies getting some progress underway with digitalization, which has been extraordinarily slow in Germany, which has a lot to do with our federal and, yes, our structure of public administration from community level to state level to federal level with the community level and district level also playing an important role as a lot of the rule setting there is not aligned and making it difficult to have standardization and thereby digitalization across those. So we've seen some areas where this is now progressing and this is leading to a faster decline than we traditionally had. I don't think it will lead to a catch-up effect that we make step changes to the level that other countries have already achieved because again, if you look at the digitalization of particularly public services and authorities, in the Nordics, for instance, is a completely different level than what we have achieved here. On the advertising mail, it's more also on our hand and it has always been quite cyclical so and also volatile. But obviously we need to look at pricing there to make sure that it remains profitable. And we have taken certain yield measures to also elevate the yield in this segment, which then is a conscious decision that we know drives also some substitution, the elasticity to pricing is significantly higher for advertising mail given that you have also digital alternatives there than it is for mail communication. So this is more in our hands as well as influenced by the economic cycle. We don't expect for advertisement such a sharp decline as we have seen in Q3. But going forward, we'll also see more decline than we have historically observed.
Martin Ziegenbalg: Tobias, thank you for your questions. And we continue with the next caller, please.
Operator: Next question comes from Nedelcu Cristian from UBS. Please go ahead.
Cristian Nedelcu: Thank you very much. Hi, thank you for taking my questions. Maybe the first one on the 2025 moving parts in terms of profitability. We had this mail volume weakness that you've discussed and as well as the air GP per unit. How should we think of the potential headwinds to profitability from these two factors in 2025? And equally so I think some of your peers have also admitted that GP per unit in Ocean has been maybe artificially high due to the Red Sea (NYSE:SE) in Q3. So how do you think about the development into 2025 here? And secondly, just zooming in on Express. Could you give us a bit of color on what you're seeing or your expectations in B2B and B2C volumes into Q4, excluding the China e-commerce players. And moreover, how you're managing your resources there, your capacity and number of employees going forward in Express. Thank you.
Tobias Meyer: Yes, thank you, Cristian, for both questions. On the moving parts for 2025, especially mail, I think it is important to note that we will see, we'll be allowed to increase prices in mail. The current proposal of the regulator is 10.6% for the, yes, bucket of private mail across all buckets, which also then includes parcel shipments from consumers. So out of our retail networks, that is roughly 9.6% what we would be allowed to increase in prices. We do not think that this is all that we would be due by law, so there is still an ongoing debate. But we will see a price increase and that will obviously support 2025 earnings for P&P relative to this year even if we have a continued, slightly accelerated decline in mail volumes. As it relates to the GP development in Global Forwarding. First of all, in the cross comparison, many of you know that but just to remind everybody, it is important to see not only the GP we report under the product Air Freight and Ocean Freight, but we, different from some of our competitors, only report transport-related GP there, whereas custom clearance handling some of the haulage is in others. So for those of you who do a comparison there, it's important to take the other bucket into account. Nonetheless, as Melanie said, we are not particularly satisfied on the Air Freight side and that effect is going to continue in Q4. As it relates to the GP per unit on Ocean and the Red Sea effect, it is always the case that a very calm undisturbed Ocean Freight market with a gradual influx of overcapacity is not good for forwarder yields. A topic we have, and this is now continuing since many years, is that there's always one or the other disruption coming, coming back, be that port disruptions, and we definitely have a lot of infrastructure constraints, not only strike related, but also structurally that lead to more waiting times of ship and thereby capacity absorbed. We obviously have the significant detour of the Red Sea. We have some carriers who have accumulated quite old vessels that are due for scrapping. So there's a long list of things. If you believe that the world is going to be calm and without any disruptions and the Red Sea situation being resolved that will not be good for Ocean Freight Forwarding. It is very difficult for us to predict that. Experience shows that there is one or the other disruption and volatility is in tendency good for the Global Forwarding business or the forwarding sector at large. So that's all I can say. It's very difficult to forecast Ocean Freight rates and it's also rather difficult to forward our development of GP per unit in that sector.
Melanie Kreis: Then on the Express question. So clearly we expect volume decline in the fourth quarter, very clearly also driven from the e-comm development, which we also expect already early in the year. And we don't bank on a very dynamic B2B development in the fourth quarter. What we are focusing on is, first of all, having great service quality. So you will have seen in our stat book that the headcount is down in Express, but we are doing that in a balanced way because we are asking our customers for significant demand surcharge in the fourth quarter and that is why good quality is paramount. At the same time, we are, of course, managing cost and capacity in light of the volume and weight development. On balance, the clear expectation is that we will see good EBIT growth in Express in the fourth quarter and also a margin expansion.
Cristian Nedelcu: Thank you very much.
Martin Ziegenbalg: Thank you, Cristian. And on to the next caller, please.
Operator: The next question comes from Sathish Sivakumar from Citi. Please go ahead.
Sathish Sivakumar: Thanks again for the time today. I've got two questions here. On the demand surcharge, obviously, in Q2 results you did say that it is based on different trade lanes. And can you like comment on the evolution of this demand surcharge across the trade lanes, where it has been a bit more sticky and where it has seen a big increase? And then the second one is around the potential for DHL Freight Forwarding from say potential gain in customer on the back of DB being bought out by DSV. Can you quantify what is your expectation on like volumes or customer gains from that transaction? Thank you.
Melanie Kreis: Maybe I'll start with the first one on the demand surcharge. What we have said from the start is that our approach in Express is that we don't do piecemeal. We have announced the demand surcharge, which is, of course, differentiated by trade lane, as you rightly pointed out, and we have held that stable. What we have seen in competition is that they have now gone through multiple rounds of adjusting their demand surcharge. So overall, on most lanes, when you now look at it, the orders of magnitude are quite comparable. The feedback we get from our customers is that they do appreciate the fact that we told them early on what to expect and that they were able to plan on that basis. And with that, together with a good quality, is one of the reasons why we see a very, very good stick rate on the demand surcharge.
Tobias Meyer: On Schenker DSV, I think it's too early to tell. We do see this as an opportunity. I think we have a lot of the homework done and are ready to onboard additional customers on the global forwarding platform. We do see a lot of talent being in the market, maybe more, getting more knocks on the door than we would naturally expect or maybe even like. So there is some disruptive element of that. I think to be observed currently as it relates to talent in the sector. How this translates into customers diversifying away from a combined DSV Schenker entity, I think is too early to tell. We do see some customers that are concerned about this, but I cannot yet quantify to which extent we can benefit from this. I do see that we will benefit, but the amount is difficult to quantify.
Sathish Sivakumar: Okay, got it. Yeah, thank you.
Martin Ziegenbalg: Great, Sathish. Thanks and we continue please.
Operator: The next question comes from Kulwinder Rajpal from Alpha. Please go ahead.
Kulwinder Rajpal: Yes, good morning, everyone. So I just wanted to come back on the demand surcharge. So when you say high compliance rate, how high is it? Are there any pockets of reluctance across your customer base? And then how does it relate to your 2024 EBIT guide? Obviously, you have said that you will get the EBIT over EUR5.8 billion. But is there a possibility where the demand surcharge takes you maybe towards EUR6 billion? Or is EUR6 billion not at all possible now?
Tobias Meyer: Well, thank you for that question. I think the demand surcharge surpasses our expectations. There's always reluctance with customers to pay more. That's quite natural. But generally, this is fully in line or better than our expectations and we don't see that now changing in the weeks to come. The hot weeks also for Express are yet to come. And as you know, after the Christmas season in the Western world, we have Chinese New Year, which creates, particularly out of those head haul lanes, the additional demand that typically then also leads to customer stickiness. And so again fully in line or exceeding our expectations and thereby not a big variable from our perspective anymore. Whether we'll do better, I think more depends on the general economic development across all divisions. We discussed the global forwarding, Air Freight and Ocean Freight. I think there is a lot of volatility in both of these markets. We do see the Shanghai Freight Index last week picking up to Europe, nearly 10% week-on-week. So I mean we have seen volatility like that before, but it's uncertain how this will unfold until the year-end. And similarly, Air Freight markets like Taiwan, Vietnam being extremely tight for some weeks, which at times also, and we've seen this in Q3, on the negative side also leaves us exposed to some very expensive buying. But obviously, on some lanes also presents significant opportunity for us. So this is more what still drives some potential upside in the fourth quarter.
Kulwinder Rajpal: Okay. Thank you.
Martin Ziegenbalg: Wonderful and we continue with the next question please.
Operator: The next question comes from Andy Chu from Deutsche Bank (ETR:DBKGn). Please go ahead.
Andy Chu: Good morning. Two questions for me, please. Good morning. Two questions, please. The first one is around the guidance and can you just confirm whether Q4 is going to be a clean quarter? Should we expect any sort of one-offs? And when I look at your bridge in terms of Q4 requiring more than 8% year-on-year. I'm a little bit confused. Maybe I'm running the wrong numbers. But Q3 last year, I think you had an underlying EBIT close to EUR1.5 billion. And I think you need close to EUR1.8 billion to hit the EUR5.8 billion minimum for the full year. So that kind of implies maybe double the sort of 8% growth year-on-year. So maybe you could please clarify what I'm missing. And then secondly, on the Air Freight buying patterns, I guess, typically, Air Freight is asset light. You shouldn't really be exposed to kind of forward buying. What's actually happened this time around? And is that definitely going to be rolled out going forward? Because typically, you try and match obviously, your revenues to your cost in terms of purchasing. Thank you.
Tobias Meyer: Yes. Thanks, Andy. I'll start with the second question first. So while it's asset-light, it's not uncommon, not for us and not for competitors to have different exposures on the buying and the selling side. We specifically here had some contracts still out of COVID that are at relatively elevated rates, which are not entirely back to back with customer commitments. So that is one factor. But it's also on the other side that we had some quite favored buying where we had carriers walk away due to the Boeing (NYSE:BA) issue, which leads to a force majeure for us, so that is, for instance, also a piece of that. We, as we said, are still not satisfied by the GP development in the Air Freight business also relative to our competitors for the quarter and we've obviously spent time to look into this and to define corrective actions. We'll carry definitely some of that into Q4 as well. So it will stay with us on this level pending other market developments this year. Else on Q4, Melanie might add to that. We're generally expecting a clean quarter with that reported growth that we mentioned.
Melanie Kreis: Yes. So I can confirm that clearly, expectation for Q4 is that this will be a clean underlying increase. I think you're making reference to the one-off effects we had in the fourth quarter last year from the revaluation following the Danzas Dubai acquisition, which gave us about EUR114 million in positive tailwind on the Global Forwarding numbers. And mathematically, it's of course, correct. If you take that out, we expect even higher EBIT growth in Q4. But again, that's based on underlying growth.
Andy Chu: Thank you very much.
Tobias Meyer: Thank you, Andy.
Martin Ziegenbalg: Thanks, Andy, and still five names in the queue. Next caller, please.
Operator: Next question comes from Alexia Dogani from JPMorgan (NYSE:JPM). Please go ahead.
Alexia Dogani: Good morning. Thank you for taking my questions. I have three if possible. Just firstly on Express. You have helpfully talked a little bit about the B2C development and your expectations for volumes in Q4. But if I look at the third quarter being flat Q-on-Q, it's actually quite an improvement versus normal seasonality. So then can you just help us extrapolate that in Q4, given you are doing self-help on cost and yield management volumes. I infer from what you were saying should be kind of broadly at same kind of year-over-year levels. And then the demand surcharge. Yes, can you kind of discuss the building blocks if we are starting from a flat Q-on-Q this year -- this quarter? Then secondly on the Post & Parcel. Can you just discuss whether you're still confident in recovering EBIT to EUR1 billion in 2025? And do you think, given kind of the advertising mail comments you made, you will be able to capture the full price increase with the business customers? And then just finally, maybe a quick comment on clearly, it's a big day today. Should there be some protection measures potentially in the cards for global trade. How should we think about the multiplier to GDP going forward? Thank you.
Tobias Meyer: Yes. So on the different questions on starting with Express. I think your observations are correct and we do expect basically a normal seasonal development in Q4 topped up by the demand surcharge, which we didn't have in previous years. And that is obviously a big contributor to the EBIT growth that we've talked about. So I mean, the developments by region and B2C versus B2B are all a bit different. But if you look across Express, the seasonal pattern that we do observe is normal. It's not excessive, but it's also not as it relates to the seasonal pattern subdued and we are very well prepared for that in terms of the capacity deployment across the different lanes, but also the required flexibility to shift if needed, that especially is clearly visible in the good quality that we've had in recent weeks. Also with seasonal surging volumes across all the lanes that we are present. But again the demand surcharge obviously plays a big role in the financial performance of Express in the fourth quarter.
Melanie Kreis: I mean just, sorry, just one technical clarification. So we are tracking very thoroughly the development of the peak season region by region compared to historical patterns and we do see that there is a typical peak season volume development. However, because of the many times discussed pricing measures we took on some of the Chinese e-comm players, we will see a volume decline in Q4 year-over-year. We saw that in Q3 and we will see shipments per day down in the fourth quarter, but that is fully included in our guidance. Sorry to interrupt.
Tobias Meyer: I hope that was understood. Elsewise, please reask that question. In terms of P&P, yes, we are confident to at least meet the EUR1 billion level in 2025. And the price increases, obviously, that are relevant go across. So we have also the business customer parcel, which obviously has also in the recent years played a strong role, but we will get a price increase also for the regulated product and we will apply also a price increase for advertisement mail and that will all contribute on the yield side to achieving the EBIT number for 2025. In terms of protectionist trends, this is a very difficult question. And I think we shouldn't, I mean, obviously, the big trade lanes, Asia, Europe, Asia, US do matter. But and we do see that protectionist measures, they have an impact. You could argue that trade is astonishingly resilient if you see how much trade is left despite high tariffs. And we also obviously do see that some of the trade finds different routes via Mexico and other places to circumvent direct exposure to such tariffs. But it's also important to see that in the part where we are quite well represented, maybe even stronger than on trades like the transpacific, the trade from Asia with the rest of the world and the trade from China with the rest of the world is growing. It's growing this year. It's a key driver of the volume trends that we have seen, but it's also structurally growing in the last four, five years and that is obviously something that will influence the multiple going forward. So we would, I think, expect with protectionist measures potentially coming into place if they would come into place that on those trade lanes, we fall below a multiplier of one, but we do see on other trade lanes, especially China trading with the rest of the world at a multiplier above one. So that leads us to the belief that on a global average, even those measures we will stay with the multiplier of around one, but it's not going to go back to the 2, 2.5 that we've seen earlier.
Martin Ziegenbalg: Alexia, does that answer your questions?
Alexia Dogani: Yes. Thank you very much.
Martin Ziegenbalg: Next caller please.
Operator: The next question then comes from Parash Jain from HSBC. Please go ahead.
Parash Jain: Thank you for taking my question. I have two. First, on the Express. And it's obvious, I think around the full year result or around the first quarter results, there was a hope that we will see a B2B recovery going into the second half of the year. The volumes have flattened out. Could you talk about like which region, which industry segments need to deliver for us to see the recovery in a B2B volume, and as a result, help us with the operating leverage for the Express business? Secondly, for the Freight Forwarding business. I mean, there's a disruption time to time. But is it fair to say that your sea GP per unit has found a floor? And as we go into 2025, 2026, even with an expectation of sharp decline in the Ocean Freight rate, you are comfortable maintaining these kind of GP levels and probably somewhat improvement in your air GP? Thank you.
Tobias Meyer: Yes, so on the Express side, I do think that we see on the one hand side, progress in the economic cycle. So we do see lanes also on the B2B side that we're getting out of the trough and slowly back to growth. For us, some lanes, they matter more due to their profitability than others. So on the transpacific, for instance, due to a high share of Air Freight costs as well as our structural disadvantage through delivery density or lack thereof in the US, that is a lane which is not as contributing than some of the intra-Asia volume, some of the Asia to Middle East, intra Middle East and Africa, and also Europe has a high contribution margin given the relative fixed cost of a regional air network. So those areas, seeing growth in those areas is particularly important for us. And again on intra-Asia B2B, I think we have seen progress now quarter-over-quarter. This all being said with the caveat that you need to see the B2C overlay that we now repeatedly talked about, and that is obviously impacting shipment count in particular. With DGF, I do think it depends on the product and again, comparability is not easy. If we start with Ocean Freight, we have a beer, wines and spirit business that we are structurally very happy with, but that has a different cycle than the typical dry cargo given that it's a backhaul business and does not benefit from rate spikes like we've recently seen on the Transpac in particular, but also on the Asia-Europe trade. So this is a bigger component in our portfolio than for some of our competitors. And on this side, I definitely see the floor being found and progression going forward. On some of the head haul lanes, that might not be the case, especially the Transpac, I think, is more questionable. But it's for us also not the biggest exposure, especially relative to some of our competitors. On the Air Freight side, this very much depends also on the development of different sectors. Generally, I would agree that for 2025, the outlook should be more positive there. But again, we've seen this again and again, freight markets are volatile and certain events, developments of single customers, don't want to remind everybody what fidget spinners once did to the Air Freight market. So these type of things we have seen again and again. And that obviously is an element that is hard to forecast.
Parash Jain: Thank you so much and have a good evening and good day.
Tobias Meyer: Thank you, Parash. We're almost there.
Operator: The next question comes from Cedar Ekblom from Morgan Stanley (NYSE:MS). Please go ahead.
Cedar Ekblom: Thanks very much. Thanks. Hi, everyone. Can you talk about what recourse you could have if the pricing in your Post & Parcel business in Germany isn't aligned with your assumption of more than EUR1 billion, particularly if we continue to see cost inflation and only limited efficiencies that you can put through there? Like what can you actually do with government or the regulator to get you over the line there? And then just on Freight Forwarding, what kind of visibility do you actually have in that business? Because it feels like some of these shifts in the Air Freight market out of Asia might have been a bit unexpected. And obviously, there's stuff that's in your control and stuff there isn't. But I'd just like to understand a little bit more on sort of the reporting robustness in Freight Forwarding, so that this kind of stuff maybe doesn't happen as much in the future. How regularly are you getting reports from your guys on the ground? How dynamic are they in terms of contracts? That would be really helpful. Thank you.
Tobias Meyer: Yes. So on the P&P question first, I think it's important to note that the law foresees or translates into an earnings level for P&P of EUR1.3 billion to EUR1.4 billion. If you go through the details, particularly also the justification of the law, that is what you come out with. The regulatory margin is after a share of corporate overhead, and that's 6.5%, which then translates into a margin around 8%, 8.2%, depending on that allocation of the overhead for P&P. So with EUR1 billion, we are already quite a bit away from that. Now the recourse is not so easy. It mainly lies in the next regulatory round to look into the assumptions that the regulator has made. And obviously, if the actual numbers are deviating from what we are granted by law that requires then adjustments going forward. There's also the theoretical maybe also practical potential of legal actions. We'll look into that once we see now the final decision. This is tricky in multiple ways. So it needs careful consideration whether we would pursue that. I think in DGF -- and I think that is also important to be said. We are satisfied on the productivity development and also on the system development, you always also in the past, you have good calls on the market and sometimes not so good calls in terms of where you buy capacity from which carrier and how reliable a customer is in his volume commitments because customers hardly ever give us a fixed commitment that they always want to obviously have flexibility depending on how much product they sell. So to have some volatility in that is not unusual. I think our transparency on this is quite good. But again the third quarter had some calls and also some external developments that were unfavorable for us. And we'll obviously, with the team, look into that and try to avoid that going forward. But it's not a matter of transparency. It's more a matter of making a call in a certain market for buying and selling one or the other way.
Cedar Ekblom: Okay. That's helpful. And sorry, just on the P&P point. So the EUR70 million benefit from legal claims that you had benefits in the quarter, is that linked to recourse on previous legislative frameworks that didn't go in your favor? What I'm trying to understand is if you don't get to the EUR1 billion and it sounds like you should be actually getting to more than that. But if you don't get to the EUR1 billion, how long do we have to wait before there is any potential negotiation with government? I mean it just kind of feels like you guys are not in a winning position here like government has it all and you just have to hope that you get paid. And maybe if you don't then in the future, you can get the money back. It like just seems like a very disadvantaged position for the division, but maybe I'm being.
Tobias Meyer: Well, I think we still, in this country, believe in the application of law and the law was passed in July that foresees the margin that I've mentioned. So I think that is -- there's no ambiguity around that. It wasn't easy to get there and get the modernization of the postal legislation took us 25 years. But there is a new base and it's now about the application of those base. And if you have a change in law, there's always a bit of uncertainty how certain things are treated. So that is what we see in this round. But I do think that, obviously, the regulator will look also at the actual numbers and compare that with what is in the law and I have no doubt that the regulator and the authorities here will aim to fulfill what was the will of the legislator in passing this law. The next the period that we've now applied for is two years. So it's 2025, 2026. And so next to the question whether there could be changes within the period, which is naturally difficult, but not impossible. The next regular cycle would then be '27 onwards. It is upon us to apply for one year, two year, three years, two and three years being more common, also more welcome so that there's not too often a change in the stamp price.
Cedar Ekblom: Got it. Thanks so much.
Martin Ziegenbalg: Thank you, Cedar. And if I'm not mistaken, this is the last caller now on the line.
Operator: The next question comes from Marc Zeck from Kepler Cheuvreux. Please go ahead.
Marc Zeck: Yes, good morning. I've got two questions, if I may. One on Express B2B volumes. And in relation to the automotive sector, I guess, companies like Volkswagen (ETR:VOWG_p) have kind of shocked the German government, maybe German people by announcing maybe some plant closures. I would be interested in to what extent the development of the German auto sector and Volkswagen announcement have changed your B2B volume assessment going into 2026? That's my first question. And second question is on what in Germany is called the [Foreign Language]. A, is there a proper translation for this term and B, I would be interested what's the, let's say, market of business invoices currently in the mail division that might be lost until next three or four years? Thank you.
Tobias Meyer: So on the Express question, automotive is not a dominant segment. It plays a certain role. But as you know, Express is extremely diversified across multiple sectors, in sectors like automotive, but all the industrials were typically more part of the spare parts type of value chain rather than to the inbound to manufacturing. So while any decline in a major industry has a negative impact, we don't see this as pronounced, and it was not any way an explicit factor in our midterm guidance viewing. On the second item, we don't know and we're not allowed to know so what is the exact content of each letter and whether a letter, that an invoice that would now going forward be potentially be affected by that [Foreign Language] electronic invoice obligation that applies to a certain subsegment of invoices. We do see, obviously, as in the past, that digitalization gradually progresses. We had that with the declarations of the certificates that medical doctors send to employees for kind of sickness confirmation for their employer. So that is something that came into effect last year and is surely having is one driver of the structural decline in mail volume that we observed this year. So we do not see major discontinuities through a single change, but more these things as in other countries gradually progressing in substituting certain business communication mail.
Marc Zeck: Thank you.
Martin Ziegenbalg: Great. Well, operator, I think that concludes our Q&A round.
Operator: Yes, ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Martin Ziegenbalg for any closing remarks.
Martin Ziegenbalg: And I'm handing over to Tobias for his closing remarks.
Tobias Meyer: Yes. So first of all, thank you for this great set of questions. I hope we could address them in a transparent way that is helpful to you. I think what you see in the third quarter, whilst the environment continues to be challenging, that we are progressing in the economic cycle, that we have returned to solid top line growth and also are now at the same level of earnings than in the previous quarter with an outlook of returning to growth also on the earnings and EBIT side in the fourth quarter based on that progression in the economic cycle, but also a set of self-help measures, including the demand surcharge, but also many others. I think especially on the cost side, we see this continued gradual progress with a steady hand that we apply to this topic across our divisions and that is important because that's a lasting lever and positive element also going forward. So with that we're looking forward to putting all our attention to the peak season now, delivering great quality for our customer, which is the basis for growth in 2025 and beyond. Thank you very much for your attention.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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