"We're seeing stronger growth again - and there is still much to do"

Tobias, how do you rate DHL Group's performance in the third quarter?

Tobias Meyer: The macroeconomic environment remains very challenging. Germany has slipped back into recession and no significant growth impetus is coming from Europe, either. Due to our high revenue share in Europe, this affects us more severely than competitors who have grown more significantly in the USA. Of course, we would have liked to have seen an economic boost. But in view of the overall situation, our result for the third quarter is in line with expectations. Particularly challenging were the developments in mail volumes and the performance of the air freight forwarding business. We posted revenue increases in all divisions. Operating profit is on par with the prior year. Previously, we had gone through seven consecutive quarters in which EBIT declined following the Covid boom in 2021 and 2022. We are now seeing a stabilization here - and at a much higher level than before the pandemic. This shows once again that we are very well and resiliently positioned with our broad logistics portfolio.

The core of the new "Strategy 2030," presented in September, is faster and sustainable growth for the Group over the next few years. How have your plans been received?

Tobias Meyer: The feedback has been extremely positive - both from internal and external stakeholders. We are receiving a lot of encouragement from customers for our plans to support them even more actively in decarbonizing their supply chains. The capital market acknowledges our aspiration to invest even more in the fast-growing markets of the future. At the same time, key assumptions of our strategy are currently being confirmed by reality: Many industry sectors are experiencing challenging times, and economic growth is coming primarily from the United States and Asia. Our new strategic focus on high-growth regions and sectors with a structural tailwind, such as Life Sciences & Healthcare and New Energies, will pay off in the medium term.

Let's take a look at Germany: Although Post & Parcel Germany reported a slight increase in revenue, earnings fell significantly. What was the reason for this?

Tobias Meyer: The fundamental challenges for Post & Parcel remain unchanged despite the new Postal Act. The most recent postage increase was almost three years ago. Since then, letter volumes have fallen significantly and the costs for staff and energy have literally exploded. It is becoming increasingly apparent that not only the volume of mail communication is dropping, but dialog marketing is also on the decline. In dialog marketing, volumes are almost 40 percent below the pre-Covid level. This means we are missing out on considerable volumes that previously supported the system. This will become a problem, especially if the regulatory authority turns a blind eye to these realities and we are not allowed to increase postage rates appropriately.

But DHL Group has a growing parcel business...

Tobias Meyer: It is true that the parcel business has seen satisfying growth in recent years. This also underscores that investing in the parcel business and expanding joint delivery is the right strategy for the division. However, despite the positive developments in the parcel business, we cannot ignore the declines in the mail business. Against this backdrop, we critically view the recent preliminary decision by the Federal Network Agency regarding pricing in the regulated market from 2025 onward. We had expected a proposal that would consider inflation and the decline in letter volumes. In our view, the now granted price increase is far too tight and does not adequately take into account the high inflation of recent years. To illustrate why this is the case: we expect cumulative inflation of just under 21 percent between 2022 and 2026, with a simultaneous decline in letter volumes of around 36 percent. However, the regulatory authority has only granted us a price increase of 4.6 percent (2022-2024) and provisionally 10.5 percent (2025-2026) - a cumulative 15.6 percent - for individual letter mail shipments over the same period, which is not even enough to compensate for inflation.

Let's take a look at the international DHL divisions. How do you rate the development here?

Tobias Meyer: Our teams in the DHL divisions are also doing a very good job, especially considering the macroeconomic situation. Express increased revenue and EBIT in the third quarter despite a continued subdued volume trend in B2B activities. Global Forwarding, Freight has increased its revenue, but the market remains volatile. Supply Chain continues to shine, with a respectable increase in revenue and double-digit earnings growth. The eCommerce division is also developing well, with double-digit revenue growth and an appropriate contribution to earnings. The EBIT development here is primarily due to investments in the quality of our network.

What does this mean for your expectations for the fourth quarter?

Tobias Meyer: The final quarter is traditionally the busiest time of the year for DHL Group. We expect a typically positive seasonal business trend. Our primary goal is to deliver the best possible quality for our customers, even in this phase of high shipment volumes. Good preparation is particularly important at this time. Express, for example, is using additional Boeing 777 cargo aircraft to serve the important routes between Asia and Europe. Supply Chain plans to deploy almost 500 additional robots and around 5,000 temporary workers. At the same time, however, we also want to translate the higher shipment volumes into a positive earning development. Among other measures, we have introduced a demand surcharge for international express shipments. Accordingly, we are optimistic about the peak season.

So, the peak season can begin. But what do you expect from the final stretches of fiscal 2024, given the overall lack of economic growth impetus?

Tobias Meyer: In the domestic parcel businesses, the seasonal acceleration of e-commerce deliveries to consumers appears to be materializing as expected since the end of September. However, B2B volumes continue to be characterized by weak economic dynamics. In addition, the structural decline in the mail business with its high fixed costs accelerated in the third quarter.

As of today, we still expect the Group to benefit from a seasonal increase in B2C shipment volumes until the end of the year. However, based on trading in October, there is currently no indication of an improved development for B2B and mail volumes. And, despite some seasonal acceleration of volumes, air freight business margins are below expectations.

Accordingly, we have decided to adjust the EBIT forecast for the 2024 financial year from 6.0 to 6.6 billion euros to now more than 5.8 billion euros, and the free cash flow forecast from approximately 3 billion euros to 2.8 to 3.0 billion euros. Due to the now lower baseline, the same applies to our earnings expectation for 2026. Here, we now expect more than 7.0 billion euros instead of the previous 7.5 to 8.5 billion euros. The expectations for free cash flow in the same period remain unchanged.

As we cannot influence economic development, we continue to focus on the quality of our services, price adjustments, and high cost efficiency. The effectiveness of these measures is also demonstrated by the stabilization of revenue and EBIT in the third quarter. So, while we are seeing stronger growth again, there is still much to do. Combined with our good preparation for the peak season, I am confident we can close the demanding year 2024 on a positive note.