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"We once again demonstrated the resilience of our business model"

Deutsche Post DHL Group has started the new 2023 financial year as expected. In a challenging environment, the Group achieved revenues of EUR 20.9 billion and an operating profit (EBIT) of EUR 1.6 billion. In an interview with DPDHL Group News, CFO Melanie Kreis discusses the current business performance and explains the Group's prospects for the rest of the year.

CFO Melanie Kreis

Ms. Kreis, what is your view of Deutsche Post DHL Group's start to the year?

Melanie Kreis: Our start to the year went according to plan and we are satisfied with the first quarter overall. Revenue and operating profit remain at a very high level - although we did not quite match the outstanding figures of the previous year. As expected, we felt the slowdown in growth momentum and the associated normalization of the freight market. We recognized these developments at an early stage, which allowed us to react accordingly. Our teams achieved a peak performance to deliver these results. Furthermore, we again benefited from our well-balanced portfolio of logistics services and from our international positioning. Briefly put, we got off to a robust start to the year and once again demonstrated the resilience of our business model.

You mentioned the macroeconomic conditions - what does this mean exactly and how has the Group responded?

Melanie Kreis: At the start of the year, we saw exactly the developments we forecasted in the fall of 2022. B2B volumes continued to decline, and international transportation markets further normalized as a result of weaker demand. In air freight, the decline in volumes was particularly noticeable on the Asia-United States and Asia-Europe trade lanes. In ocean freight, volumes fell especially due to the decline on the trade routes coming from China. At the same time, inflation has weakened consumption and dampened online commerce. We continue to monitor this situation very closely and use proven management tools to mitigate risks. This means that we are keeping a close eye on our costs and ensuring very disciplined earnings and cash management. At the same time, we continue to see attractive structural growth opportunities in the long term in the entire e-commerce logistics chain. Therefore, we are also continuing to make targeted investments in our networks.

What does this mean for the annual forecast? You have deliberately defined it broadly due to the aforementioned uncertainties...

Melanie Kreis: We decided on an earnings forecast along three possible scenarios. The reason for this was the continuing uncertainty about the course and recovery of the global economy. We also wanted to ensure maximum transparency and clarity. This approach also proves itself today, as the most important question remains: How long will it take for the global economy to regain momentum? If this is already the case by the middle of this year, we believe we can achieve EBIT of around EUR 7.0 billion in 2023. In the worst case, there will be no recovery this year. But even in that case, we would be prepared and able to achieve EBIT of at least EUR 6.0 billion. Accordingly, we still expect our operating profit in 2023 to lie within a corridor of EUR 6.0 to 7.0 billion. We want to grow again by 2025. As a result, we have also fully confirmed the forecast for 2025. I am convinced that we are ideally positioned to benefit from a future economic upturn, structurally higher growth rates in e-commerce, and continued outsourcing of logistics solutions. The focus on our profitable core business will also pay off here.

Let us now take a look at the divisions. How did DHL Express start the year?

Melanie Kreis: DHL Express performed well in the current market environment. Revenue held steady at the strong level of the previous year. This shows that demand for express services remains more resilient, as usual. EBIT, on the other hand, decreased compared with the prior-year period. These declines mainly reflect the volume development due to the economic situation. We have anticipated this and adjusted our global network accordingly. Through effective cost and earnings management, we were therefore able to mitigate the EBIT decline for the division well. This forward-looking planning also enables us to continue investing in the expansion of our sustainability offering. For example, the division launched GoGreen Plus in February 2023. This new service allows our customers to truly reduce the CO2 emissions associated with their time-sensitive express shipments - using sustainable aviation fuel. This is a first for global express companies and further proof that, as a market leader, we are playing a key role in driving the green transformation of logistics.

DHL Global Forwarding, Freight had a challenging start to the year. What is your view of the division?

Melanie Kreis: The development at DHL Global Forwarding, Freight reflects the normalization of the transport markets. As expected, revenue and EBIT decreased compared with the previous year. Lower volumes and freight rates were the drivers of this development. As previously mentioned, in air freight the trade lanes between Asia and the USA and between Asia and Europe were significantly affected. Compared to the figures before the pandemic, it is clear that the division has significantly increased sales and operating profit. Both figures remain at a good level - also in the normalizing market environment. This clearly shows that our new IT solution (Transport Management System) and the associated improved processes and transparency have sustainably strengthened us in terms of both business development and profitability.

DHL Supply Chain presented strong figures in the first quarter. What is this performance based on?

Melanie Kreis: The DHL Supply Chain Division continued its growth course in all regions. Revenue and earnings increased, and the EBIT margin was also very good at 5.5 percent. This performance was based primarily on strong new business. Here the Retail, Technology and Consumer sectors accounted for the largest share, especially with e-commerce-based solutions. In addition, long-term contractual relationships and the diverse customer portfolio make the division very resilient. To further strengthen this resilience, we are continuously expanding our service portfolio and have also successfully implemented and put into operation around 5,400 digitalization projects worldwide.

How did the DHL eCommerce Solutions division perform in the first quarter?

Melanie Kreis: The DHL eCommerce Solutions division also held up well. Revenue grew compared to the prior-year quarter mainly due to disciplined yield management and stable volumes. However, EBIT and the EBIT margin were down. This was primarily attributable to higher costs in the B2C business as well as ongoing investments in network expansion and the growth of the division. For example, DHL eCommerce Solutions has partnered with Cainiao in Poland. The goal is to jointly develop one of the largest out-of-home delivery networks in the country. We have also entered into a strategic partnership with Poste Italiane. With this step, too, we are further expanding our activities in the international parcel market. DHL eCommerce Solutions will handle the road transport of parcels for Poste Italiane to European countries. At the same time, we are investing together in a joint venture to build a state-of-the-art and sustainable Packstation network in Italy.

2023 got off to a turbulent start for Post & Parcel Germany due to collective bargaining. What does this mean for earnings of the division?

Melanie Kreis: Although Post & Parcel Germany was able to maintain revenue at approximately the same level as the previous year, EBIT was down significantly. This was due to higher costs, difficult regulatory conditions and the wage dispute. To reach an agreement here, we went beyond our financial pain threshold - above all in the interests of our employees, but also our customers. The important thing is that we were able to avoid indefinite strikes to the detriment of our customers and the company and are now looking forward together. Nevertheless, the wage settlement and the associated uncertainty weighed on Q1 earnings, and we will have to take appropriate counter actions.

How is the performance of the divisions reflected in the Group's cash flow?

Melanie Kreis: Our financial strength remains high. At EUR 2.4 billion, our operating cash flow in the first quarter was at the strong level of the previous year. Free cash flow was at around EUR 983 million. This makes it possible for us to actively invest in our core business even in challenging times. In the first quarter, we invested EUR 569 million - primarily in the renewal of the intercontinental aircraft fleet and the expansion of sustainable transportation. In the mid-term, this will allow us to respond even better to the growing demand for global express capacity, improve our environmental footprint, and provide the best quality of service for our customers. That's something we want to build on. For 2023 as a whole, we therefore continue to plan capital expenditures of between EUR 3.4 and EUR 3.9 billion.

After 15 years at the helm of the company, Frank Appel will hand over the baton to Tobias Meyer after the Annual General Meeting. What does this mean for you and Deutsche Post DHL Group?

Melanie Kreis: First of all, I would like to take this opportunity - on behalf of the Board of Management and the entire company, but also on a very personal level - to thank Frank Appel for his great performance and leadership. Over the past 15 years, he has developed the Group into the largest and most innovative logistics service provider in the world. Frank Appel hands over a very successful company that is well positioned for the future. At the same time, I am very much looking forward to working with our new but well-known CEO Tobias Meyer. Tobias Meyer is a great colleague and manager. He played a key role in developing our Strategy 2025 and aligned the Group to the megatrends of digitalization, sustainability, globalization, and e-commerce. As a result, he stands for continuity while at the same time bringing in fresh perspectives and impulses. For me, he is therefore the ideal person to continue Deutsche Post DHL Group's successful course.