Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thank you for joining the Deutsche Paws, DHL group conference call. Throughout today's recorded presentation, all participants will be in a listen only mode. By question and I would now like to turn the conference over to Martin Ziegenberg, Head of Investor Relations.
Please go ahead.
Well, thank you, and a warm welcome to everyone out there. Thank you for joining us on, what is fairly short notice after last night's release our preliminary Q2 numbers. I take it you have the presentation we send out in front of you. And, as announced, we're gonna have, Frank and Melanie taking you through the brief deck. And then there will be time for any of your questions.
And with that, I'd like to hand over to you, Frank.
Yeah, thank you, Martin. Welcome and good morning as well from my side. Thank you for joining us on short notice. What I would like to do with Melanie is that we go through free, chapters in the first, showing that our Q2 was actually in good shape, we improved our operational performance quite a bit despite the corona pandemic. We have also Melanie will introduce that in new guidance or a guidance for 2020.
We also, informed today or last night the market that we will uphold our AGM end of April and have a clear dividend proposal. And then I finally conclude later on on, you know, the outlook. So let's go on page 3. Here you can see, we got operational performance on fully loaded numbers, we go up from 7.70 to 819, which is a 16% improvement. But if you exclude our announced one offs already and a new, impact, we have some, lockdown related write out or asset write downs in in 2 divisions, about 100,000,000 worth as well.
And that's in total, has impacted our fully loaded numbers. We have not any longer include other COVID impacts because it's very difficult to judge what is really COVID impact. And if you take all these one offs, our and most of these one offs are non cash. You see that we have improved the year. Your performance by 220.
So That of course is, is, and, you know, very pleasing us as well that we could hold the line so well and even improve the overall ability in a very difficult economic environment with the pandemic. On page 4, you see that it's not just based on the performance of 1 division is actually based on the performance of all divisions despite that one went down, but I come to that in a second. Because there's also good news in that. PNP Germany has continued to demonstrate the self help measures, that has led to a very healthy improvement in line with what we have seen in the first quarter. Express, has improved as well, despite the difficult volume situation at the beginning of the quarter.
DGFF has a very good performance. There you can see, our good connection to cargo airlines. The express DGF combined, of course, are a very reliable partner for cargo airlines and that enabled us to secure significant, greater capacity and that helped express NDGFF. Supply chain is down. But, you know, we had a one time hit from our UK business, delivering, beer to an liquor to to Pups.
And of course, we're was closed. If you exclude that, we had a pretty good result actually in that in a in a moment where many our customers will report heavy losses in the second quarter. So we were able despite significant volume drops coming from fashion retailers from automotive from in these these activities we have with the with the Pups are, you know, we have we we mitigated that and kept still a profitable business, which is quite encouraging. In e commerce solutions, of course, is benefiting from the e commerce boom, and it shows that we have put, you know, the right strategy in to do also domestic deliveries in other markets and of course, create a European business here as well, which is beneficial. And this number has been delivered despite that we had massive lockdowns Countries like Spain and India.
So therefore, the numbers are pretty, pretty good, I believe, on page 5, you see volume development as we have introduced it with the first quarter. You see here the development of volumes. Mail volumes are still down, more than we expected due to, a direct mailings, which are still, of course, advertising is not to the normal level. The regular mail is more or less normal with enrollment expected decline. Positive volumes are still up, not as much as they were in in around the Easter, but still higher than what we have expected originally.
So and we will see that now over the summer, how lasting that it act is, in express China, you know, we have, you know, have seen good growth already. Europe is now positive as well. And in June, we actually had global volumes were even up year over year. So we really see a recovery of volumes, of course, the beginning driven by B2C, but now we see also that B2B volumes are coming back. On that basis, we have it would be a very good sign to our colleagues around the world, that we give them an extra bonus, you know, everybody gets the same if you are a full time employee.
They have demonstrating our purpose connecting people and improving lives. I worked extremely hard to keep the world moving and and they felt as a board, it's appropriate to revert that by giving everybody a a flat 300 EuroBonus around the world. Of course, that's more valuable in the emerging countries than in the rich countries, but we felt that's a strong sign of confidence. And thank you to our people that have done an outstanding job. Nevertheless, we we, stay prepared.
We are working with the team, and I do that myself, with the CEOs of the divisions there, how can we prepare the best way for a potential second wave, even if that's not the most likely case that this happens, but I think it's not over yet. And therefore, we will stay tuned for for, you know, if tend to recover outbreak. And with that, I hand over now to Melanie to explain a little bit more what we have introduced last night with regard to the guidance. Yeah.
Thank you very much, Frank, and good morning, everybody also from my side. Thank you for joining us on such short notice. You will have seen that, last night, we introduced guidance for the year 2020, and our new guidance is in a range between $3,500,000,000 and $3,800,000,000 reported EBIT for the group for 2020. On page 8, we have tried to, better show you what that implies with regard to the underlying operational performance because we do have a number of one offs. So first of all, when you look at the starting point, you can see on the left side of the page that for us, the underlying starting point, 2019 is a bit over 1,000,000,000.
When you look at the right side of page 8, you can see that the effect for StreetScooter around 400,000,000. Most of that is non cash. In line with what we had said previously. What is new is the 300,000,000 in one off, we now expect for 2020. Those 300,000,000 include 1st of all, the 100,000,000 asset impairments, which we booked, in the 2nd quarter.
Those were asset impairments, predominantly in supply chain and e commerce solutions triggered by the lockdown consequences. And we don't at this point in time anymore of such asset impairments. So, 100,000,000 asset impairments booked in the 2nd quarter. And then 1,000,000 in staff costs related to the one time bonus payment, which we anticipate to book in the third quarter. So if you take those 40301 offs out, you will see that our target in terms of operating performance is between 4.2 and point 5,000,000,000.
You will have noticed that different from the first quarter, we no longer differentiate between COVID facts on the operating results and underlying, operating results because we saw in the course of the second quarter that this distinction became increasingly official and less and less meaningful. I don't think anybody would be able to say what the air freight market would have looked like under normal circumstances in June, 20. So we have abandoned this distinction. The 4.2to4.5 include all operating COVID impact also the 210,000,000 we showed you in the first quarter. On that basis, we have, quite a wide range, still for the guidance for the rest of the year, which again, I don't think is surprising.
There is still a lot of uncertainty out there. When you look at the development in the different divisions, we have some divisions where the market obviously still enormously distorted like an airfreight, where it is difficult to predict how the second half of the year as we play out. But as a management board, we feel quite comfortable with this underlying range between 1000000000 and 1000000000 for 2020. Turning to Page 9 and the other elements of our 2020 guidance, When you look at the free cash flow number, 1,000,000,000, that's exactly the same number we had given you in our old guidance. But they are, of course, the number of moving parts.
In the old guidance, we had included 1,000,000 for the 777 Express re fleeting exercise. That number has now come down to 1,000,000, because we have been able to do some alternative financing structures for 3 of the 777s, which came into service this year. At the same time, you also have 200,000,000 additional personnel expense due to the bonus. So those 2 effects are neutralizing each other. And I think on that basis, the 1.4 is quite an encouraging, statement.
And you will see, in a couple of slides, what this is based on. It's actually based on the very good cash flow performance we have now seen in the 1st 6 months of 2020. Looking at CapEx, the old guidance was 2.6 underlying core CapEx plus 500 for the 777. We have now put both things together into one bucket. It's 2.6+300.
So our underlying core CapEx guidance is unchanged. Because given the strength of our balance sheet, the continued growth in the business, we actually plan to carry on with our investment projects and no changes to the tax rate compared to the previous guidance. Turning to Page 10 and our 2022 guidance, you will see that we have now introduced, a wider range of scenarios because obviously nobody knows what 22 will look like. If things recover relatively rapidly and we see a V shaped type of recovery, we are still confident that we will get to the minimum of 5,300,000,000 in EBIT for 2022. Should the recovery be more slowly, more of a U shape, should we be in 22 more around the 2019 global economic level we would anticipate to be more in the order of magnitude of 5,100,000,000.
And should there be a really slow recovery setbacks, more of an L shaped type of recovery, yeah, the range of around 4,700,000,000 On the right side, the cumulative free cash flow and the cumulative gross CapEx guidance, that has not changed. Compared to our old guidance. So, also based on the good free cash flow performance we have now seen in the 1st 6 months of 20, we are still aiming for free cash flow cumulative between 1,000,000,001,000,000,000. That already takes me to what happened with regard to cash flow and where do we send with regard to liquidity. Page 12, In the first quarter, we had a a reported, free cash flow of, a bit over minus 400.
That was actually underlying a EUR 500,000,000 improvement compared to Q1 2019. And we're very pleased that this positive development has now continued in the 2nd quarter. Our free cash flow in the 2nd quarter was more than 1,000,000. And on that basis, we have achieved a positive free cash flow for the 1st 6 months 2020. Most of you follow us for quite some time.
So, I guess most of you are aware that this is quite unusual for us. We normally tend to have a negative free cash flow in the 1st 6 months of the year due to some seasonal effects. So we're really happy that, in the year 2020, we managed to get to a positive, free cash flow for the first half year. I think no, totally surprising news with regard to the rest of the balance sheet. We did the bond issuance mid May.
That's on a very favorable condition, two point 5,000,000,000 as an additional safety buffer. So we felt that at the end of the second quarter, we were really in a very stable and safe position with regard to liquidity. And that was, of course, an important factor when we discussed, the dividend, again, in the corporate board and supervisory board yesterday. And the proposal is to pay a dividend, at the same level as last year, 1.15 per share. This is fully in line with our finance policy.
We're honoring dividend continuity. It was very important for us also in the COVID year, to pay a dividend to keep it on last year's level. But I think it was also important that we took a balance decision with regards to the different stakeholders, which is why we are now proposing a dividend on the same level as last year. Which corresponds to a 55% payout ratio fully in line with our finance policy. Last important information on Page 13 is that we indeed have a new date for our AGM.
We plan to hold it on, 27th August, in a virtual form and invitation for that will go out shortly. And with that, I hand back to Frank for the conclusion.
Yeah. Thank you, Melanie. So on page 14, what we already said, you know, EBIT is back to growth in in the second quarter. We have introduced a 20 20 guidance because we believe we have now more visibility. We have given now, a date for the AGM and a clear dividend proposal as is in line with our policy.
So if you now move forward on page 15, I set you know, months ago already that, you know, we are in great shape or better shape than ever before, and we really now see the strength of our for you as much as the strength of our workforce. And as you know, we have invested heavily in trainings to become an employer of choice. The priorities going forward remain the same, protect our people, provide great service, manage liquidity in the best possible way so that we have the strength to continue to invest in to our operations. We are, you know, believe that with the guidance we have never given and significant one offs you exclude them, we have a pretty healthy 4.2to4.5, which would be, I think, you know, without the one offs of StreetScooter and the other like the the bonus payment. I think that would be a very good result.
And our strategy is very robust against the situation. So we have the purpose and the values and they have worked, and we have, as we can see on page 16, also a very clear strategy for any scenario, regardless if it's l u l v, we believe that, you know, our purpose, our vision, our values are spot on, and we have from our people in the last months. The excellent safety day leverage, being focused on performance and execution is is the right one. The focus on our profitable core is the right one and the digital agenda. They definitely only accelerate We have seen that having 150,000 people working from home and that works very well.
So the digitalization will only accelerate. So to conclude, we believe that we have a pretty solid, investment case along all the three dimensions, be it earnings cash flow and shareholder return. And with that, of course, I'm I'm happy to report to Jay that he really had a pretty strong second quarter. And with that, interesting to hear from you, your Q and A. Thank you very much.
Ladies and gentlemen, at this time, we will begin the question questions. Comes from the line of Andy Chu with Deutsche Bank. Please go ahead.
Good morning, everyone. Three questions, please, if I could. Frank, maybe just could do for the first question just to sort of maybe talk a little bit about your sort of view on how far you can push air freight rates in the future. I think you've made comments at, presentations, including q 1 that you wouldn't really want to push freight rates up too sharply, but I wondered why that would be the case. Surely, you want to sort of maximize profitability.
It's a sort of around a fringe. It's quite a commoditized industry. So maybe just some views around, air freight rates, please. Secondly, in terms of, the union negotiations with with Verdi, I understand that they sort of kick off days. I just wondered what your view was on that process.
And and importantly, when when do you think that process could be, concluded? And then just a a a sort of a point on on the final point on on a DSC on the supply chain business. I think you have got quite a big that you renewed with the Jaguar Land Rover last year. And then there are some talks in the UK about some quite heavy redundancies on that, Jaguar Land Rover contract in the UK. And I just wondered if that was material.
Had anything been booked into Q2 And could there be any impact, therefore, in Q3? Thank you.
Yeah. Thank you, Andy. So first, on Alfred what we see at the moment that rates are coming down, again, and we have not overstretched the envelope. You know, the demand for cargo space was very tight and of course that leads to significant price increases. You know, now the rates are slowly coming down again.
Volumes increasing because there are some some passenger flights coming back as well and even some some passenger airplanes which are converted what we should assume for the 2nd half that rates will remain higher and that there's, of course, an opportunity, you know, for forewarners, it's always good if the insert uncertainty is high and in and transparency is low. You know, these are traders and you have seen that with your own trading decks as well, know, at the moment, it's, you know, nobody knows what happens tomorrow, and that is, of course, good for people who have, you know, potential better insights on house. And, of course, for what I have, my insights, because we know what is happening in the market, and we know what people are willing to pay we didn't overstretch that, and we will not follow a different strategy. So this year is not a year to maximize EBIT. What is important is liquidity, but we will not push the envelope.
You know, we know that we will see customers later on again and we will not do the maximum yield management just to disappoint customers because they know that there will be also a normalizations who are all late but the markets are tight and that's the reason why customers have to pay for this space if they have urgent needs. And of course, stuff has been flown, which is usually on shipping vessels. On the union negotiation, actually we start only, you know, the contract lasts until end of August. So it starts later. This year, they are not starting now.
And we have to see what is happening, in that situation. You know, I'm modestly optimistic that we will get a reasonable approach, in from the union as well. So well. But the bonus is independent from that, you know, because we felt we should appreciate the hard work of all our our frontline people anyway and and, you know, we do that because I think it's a ride signal. And we have talked about free bottom line now for more than a decade.
And and that's a moment where you have to demonstrate that as well. You can't only say, thank you. You have to let participate and what we have so far seen in our internal, you know, you know, communication rooms is very positive. It's very well received. And and that's the idea.
You know, it's an investment into our workforce. And the last one, Mary, Melanie, you can can elaborate about the Jaguar Land Rover situation a little more.
Yes. So I mean, as you know, any supply chain is a bit different from our network, of operations because we have dedicated sites for customers. And so if a customer takes a decision, to restructure the business, for example, because volumes, are down that also has implications on our sites and our workforce. So on that specific case, we are in negotiations with the social partners, and we're not going to comment on any specific numbers. But obviously, JLR is an important customer of ours and we will work very closely with JLR to jointly get through the current situation.
Happy booked anything on JLR, nothing material in the second quarter. The, 60,000,000 asset in and supply chain, was related to the that was a root cause for the $60,000,000 asset impairment in the 2nd quarter.
And and Melanie, that is that the trade team business that you're leading to when you say the pub? Okay.
Yes.
Thank you
very much.
Thanks, Ann.
Thank you.
Next caller, please.
The next question comes from the line of Christina Delco with UBS. Please go ahead.
Hi. Thank you very much for for taking my questions. Free, if I may. Firstly, on your fy20 EBIT guidance, it it seems to imply that in the second half, the EBIT in DHL will be flat year over year. Now we we do have some some tailwinds here, I guess, on the 100 same volumes recovering.
Also looking at the commercial airline flight schedule. It looks like the air freight market will continue to be tighter than usual. I guess, can you elaborate a bit on the headwinds to EBITs you are seeing in the second half? Is it still concerns on supply chain, for the second half or anything else in there that we should keep in mind. Secondly, maybe a question on express.
Could you offer a bit of color on the service levels for TDI over the last few months? I believe historically DHL Express was using a bit more commercial airlift in contrast to UPS and FedEx. So I guess I'm I'm trying to get a glimpse of how you're seeing the market are developing these days. And I'm asking this as one of your competitors recently reported a 10% volume growth in international priority. Which seems to be a bit better than TDI.
And lastly, looking at your parcel business in Germany, what times would you would you need to see to to believe that the acceleration in online sales is more structural in nature? And therefore, it it makes sense to invest more more CapEx in capacity there. Thank you.
May may may let me take the first and I take the second and third. So on express, the service quality has been great. And and, you know, we have covered the shortfall in commercial Alice by, you know, more ACMI agreements for our cargo airplanes, which we actually were able to secure. We also fly more rotations on certain routes, and using airplanes for other destinations. But overall, service quality has been outstanding have to say the team has done, you know, magic magic stuff somehow, if I look into the details, and, you know, I'm really pleased by that.
And I hear that from customers as well. You have seen that we have seen a good positive development in, in course of the quarter. And that is I think, very encouraging, and I think that we'll go in the second half in the same way. On PNP, I think we need still to see the summer breaking. We had a lot of new customers, marine consumers who were first you know, first time e commerce customers, the other people in particular, were still going to shops and they started.
They probably have put their credit cards now into the machine. So, and they are now trusting the system. If that is lasting, we have to wait until the summer is over. I think the 3rd quarter will tell us if we see a structural acceleration of e commerce or if that's just, a period, which was just driven by the the pandemic. And and, you know, I think, you know, with a free quarter, third quarter numbers, I think we can really say if that's a structural change what is structural acceleration or is that just, you know, a temporary effect?
Yeah. Then with regard to the 10 2020 guidance. So when we when we look at the state of affairs in the different DHL divisions, We have some very encouraging trends, at the end of the second quarter, but there's also still a lot of uncertainty out there. So when you look at the Express volume development, as Frank showed earlier, we really saw, that we are back in growth territory in June. That is driven, by, commerce, to a very large extent, but we also see, the B2B volumes, slowly getting out of the very depressed date we had in April, May.
So if that trend continues, that should clearly be a very positive for the second half of the year. But that obviously depends on how the pandemic is going to play out. On the forwarding side, the market is the huge redistorted, demand is the, down, capacity on the airfreight side, is down even more, which led extreme situation in the second quarter. How that is going to develop in the second half of the year is difficult, to predict So I think it's better to view it on the conservative side here. With regard to supply chain, we don't packed a very fast recovery here because we have a number of customers, a number of industries like automotive, where there's still not too much good news so, we are more on the conservative side with regard to the supply chain numbers for the second half of the year.
And last but not least, eCommerce Solutions, very encouraging development, in the second quarter, they achieved breakeven this 5,000,000, asset impairment, and we clearly see e commerce as a structural growth driver in the second quarter. Here, as, Frank just mentioned for the German parcel business, we probably have to see in the course of the third quarter, how much of this, acceleration is going to be there for, the longer term and how much was was temporary. And I think given all those moving parts, we had a quite wide range now for the DHL, divisions for the rest of the year.
Yeah. And for the macroeconomics, I think so despite that we feel comfortable that the guidance we're giving you, there is still significant uncertainty So if the consumer demand is not coming back, that will definitely will impact as well as us as many others. If a massive second wave of lockdowns comes back, that will undermine the trust citizens have in their respective governments because they say, you know, they said it's getting better now, and and that will lead to significant increase in unemployment you know, we'd probably see that as well, but the second wave will impact that even more. And then my people say, okay, we better keep the money in our bank coincidence spend or spending there at Christmas. So that's the uncertainty we are living in.
I'm not saying that this is very likely, but, you know, if we say in three months, you know, we we gave you a higher number and now these things are happening to say, well, you have not participated before. Yeah. You're right. You had better you had better anticipating that this could happen. How light years do you see?
So that's the reason I think we have to say, prudent in what we are doing. And I think we are doing that with our guidance we are giving today for 2020.
Thank you very much.
Chris, helpful enough. Totally good. Next caller, please.
The next question comes from the line of Neil Glynn with Credit Suisse. Please go ahead.
Good morning, everybody. If I can ask 3 quick ones, please. The first one with respect to express, I think this year, you had expected about 30% of your volume to B2C. Just interested given the dynamics in the 2nd quarter, could you help us understand how big a proportion of the 2nd quarter B2C he actually was for express. Then, second question, as, obviously, air freight rates strength has been a key feature in the second quarter, and I think with, capacity on the passenger jet on the wide body side remaining pretty scarce through the rest of the year.
I wonder to what extent you're getting feedback from customers about, shifting from air to ocean as they plan the second half of the year or leading up, for example, towards the Christmas period. And then a third question on disposal proceeds within your cash flow guidance for the full year. Usually, we have around 200,000,000 plus of disposal proceeds, annually. I guess it's not a great time to be selling assets even if they are small assets within the portfolio at the moment. So just interested do you have anything significant in mind for disposal proceeds for the rest of the year?
Thank you.
Yeah, sir. I saw this for second and then Melanie answer the first and third. So on, you know, what what will, you know, the the tightness of the airfreight market due to the missing, intercontinent flying will remain tight. You know, even if customers are now starting to divert volumes, to ocean, there's still that will still be a very tight market. Certain stuff has to be flown.
You know, certain products have too much high value that people say to have them 4 weeks on vessels is not a smart way to finance my supply chain. So that will pay the price without a doubt. And therefore, what we will see is we will see a a pretty strong demand for, you know, capacity and express and DGF in the air and prices will stay higher than they are normally. So that's what, you know, despite that we tell you the customers, you have to be smarter and preparing for the Christmas season. And we see that now that ocean volumes are coming back now, replenishment of of warehouses needs to happen.
So we see that coming back, I still think that we see in the second half definitely a very strong, you know, price or a very high price level relatively high price level for express, product as much as forward.
Mhmm. And with regards to the first question, B2T share and press, 30%. It was clearly higher than that, in terms of volumes, in, the 2nd quarter. When you look at the overall volume development, and we will give you the usual, set of details, when we come out with our regular of figures on August 5th, but just directionally, in April, shipments were down. BC.
So B2B was in decline in the course of the second quarter, less so in June than in April, obviously. But the growth element now in in June, towards the end of the quarter was driven by B2C. And, as a consequence of that, the share of B2C in the second quarter will be more than 30%. And we will provide some more color on that, on August 5th. With regard to the disposal proceeds, yes, so I mean, I said normal roundabout 200 between gross CapEx and net CapEx in the cash flow statement, This is a lot of small stuff.
A a big chunk of that is a disposal of vehicles. We expect that number actually to be lower, this year. So for example, here in Germany, we are holding on to more vehicles, a, because of the market, but b, because we need them, to cope with the parcel boom. So the number will be lower, than the average trend over the last years. And we don't plan any significant disposals at this point in time.
Great. Thank you both for the color.
Great. Thanks, Neil. Next caller please.
The next question comes from the line of David Kerstens with Jefferies. Please go ahead.
Hi. Good morning, everybody. Also three questions from my side, please. First of all, with on on on Neil volumes, with mill volume may be coming back a bit slower than expected. Do you see an, a risk of accelerated e substitution with body working from home and and digitalization picking up as you indicated.
Then secondly, I was wondering if you could provide maybe a bit more color on the drivers for the much than expected turnaround in earnings momentum in DHL forwarding and freight. Particularly what you did see, in terms of air freight, yield development. And then finally, with regards to the 2022 guidance, the difference between the fee shaped and the use shaped recovery is is only 4%. I was wondering what businesses do you would you expect to be most affected on their end use shaped recovery? And then are there also offsetting factors elsewhere that explain the relatively small difference of only 4%.
Thank you very much.
So so with regard to, the mayor's substitution, so currently the volume drop, which is faster than we anticipated is coming from, you know, direct mailings, which, you know, is not, you know, that that is a situation we have seen for for a while. That doesn't come for from retro mail.
I
think it's too early to say we will see that in the third quarter as much as I said earlier both parcels if that is a structural acceleration of the decline. But on the other side, you're right. The second and the third quarter are also a good stress test for how well we can mitigate a faster deceleration, etcetera, the faster decline in mail volumes potentially because we have seen that in the 2nd quarter and might we see that as well in the 3rd quarter not going yet. But at the other side, we see a significant faster increase in parcels. So the conversion from a mail business to a parcel business is is potential accelerating.
And therefore, it's a good stress test for the longer term outlook, which I think is good news actually for investors to see We are testing already something at the moment, which maybe we had anticipated more in 2 or 3 years' time. But as I said, we don't know yet, maybe volumes are coming back to the normal level, on the upgrades, the the, yes, the yield has been better. Course. We don't know the final numbers yet. You know, it's it's preliminary numbers.
We are communicating, so I can't say too much in detail. I have not seen the final numbers either, but I would assume that we had a pretty good yield, in air freight. And that's driven by, of course, by the market. But just if you, you know, that's your old problem. You know, if the rates are very much down, the markup is not much higher.
And of course, the markup might be the same, but relatively if a rate is higher, your market is higher. So that's somehow where we're benefiting as well from from that situation, and that's true for both for an ocean somehow. So with that, I hand over to Melanie with
Yeah. So, I mean, of course, we have done a lot of internal scenario planning and and modeling and such, but I think what it boils down to the the the fundamental, essence is, that a lot of, the improvement we see for the next years is still driven by our sales health agenda. Which is, of course, easier in an environment where you have better volume growth. So for example, getting the GP to EBIT conversion up in Global Forwarding is easier when you have better volumes. But, a bit, a big chunk of, the roadmap to 22 is driven by our internal improvement agendas, and that explains the relatively small difference between the V and the U shape a scenario.
Understood. Good to hear. Thank you very much.
Thanks, David.
The next question comes from the line of Mani Bakhayani with Bank of America. Please go ahead.
Hi. A number of my questions have been answered, but on free cash flow. So you've maintained the 1,400,000,000 guidance for this year, but your EBIT guidance, is lower versus what you had earlier this year. So can you explain the moving parts here and specifically what you're seeing in terms of, customer payments, and and, if you've seen any impact from that yet and how you how you're seeing that, going forward, Secondly, on, the air freight benefit, can you explain the how it's impacted the express or the portion of the benefit on the express versus the DGFS businesses, in terms of rates and yields, please. Thank you.
Yes. So first of all, thank you very much for this question on the free cash flow because I think that is indeed one of, the encouraged messages we wanted to share with you that we are sticking to the 1.4% despite the lower EBIT guidance. What is that based on? I think it's based on the fact that we have now also seen the 1st 6 months of the year, that we are able to really EBIT performance converted in a much better way into free cash flow. And then what we did in the past, that is really based on the work we have done over the last year.
To drive up our cash flow performance. And it is also based on the fact, that we have extremely focused on the whole working capital and particularly on the receivable side. Since the beginning of the crisis, a has led the operational task force and, we have had a finance task force focusing on the receivable side. So far, we have not seen a material deterioration in customer payment behavior. We're watching this like a hawk, because obviously we are still, concerned that there may be some customer insolvencies in the third quarter.
So I wouldn't say that we are out of the woods yet. But, looking at, what we have seen in terms of aging and receivables development so far. It has been amazingly stable. To, the air freight, express, a question. So, in air freight, with us being a broker, we have obviously passed on the increased freight rates, to customers.
I think what has really helped us here is that we secured capacity quite early on. And given our size as a forwarder, our good relationships with the carriers, we have been in position to get capacity in this extremely scarce market, and that has really helped us on the forwarding side. In Express, we always sell off excess capacity, into the forwarding market. The expressed colleagues think about that as a cost offset. And this is also how we think about it in the second quarter.
Where we actually had additional costs on the flying side. We had to compensate for the non existing passenger flights on certain routes. We had to deal with the extra demand outbound from Asia by putting on extra carriers, in the express, dedicated network. And, here we have then been able to offset part of this part of this extra cost through ACS sales into the forwarding it. I hope that answers your questions.
K. Then The
next question comes from the line of Alex Irving with Bernstein. Please go ahead.
Hi, good morning. Two questions for me, please. So first in TNT, we had the EBIT growth that was quite strong year on year. By the fact that in parcel, you will have had a b to b to b to c mix shift. Just to know what actions you've been taking to offset this margin dilution, please.
I know you experimenting with planning for making any longer term changes to your operation, in readiness for a different, profile or demand profile in the years ahead. And then secondly, on DGFS. So I'm just trying to understand it a little bit better. We have EBITDA up year on year while market cargo volumes down what looks like, let's call it, 20% ish rate, but less than a bit more on air. We should know that contributors to the better performance work, please.
How much of this is unit gross profit. Are you taking volume share? Do you expect this to continue? And how much was any cost savings or conversion improvements. So basically trying to get a feel for what would be sustainable in the in the better DGF performance Thank you.
Ma'am, on P and P, you know, the effect we see here is the consequence of all levers we have, you know, established in the last 18 months. It starts with proper pricing. And of course, you know, we have seen a good healthy development as well for many small customers who are new as well because they they their stores were closed and they started to go online as well. We have seen, and we helped even some of them to get connected to some some, websites where you can really sell your products that helped as well somewhat. Then if the indirect cost, I coming further down.
The operational performance is, productivity improvements that has many different aspects. One is, for instance, that We have transferred the light products from from parcel delivery to joint delivery or even to mail delivery, which helped to keep productivity, up. So it's a whole range of activities. So in in PNP, despite the changes in the mix, we have seen exactly what we have expected as well. And you can see that in our guidance, 1.5 is a logically consequence, despite that we are paying a bonus, that is very close to the original number.
We have given you, when we had the old guidance of 1. So that's a consequence of a great performance to be as my end team is doing there. On DGFF, you know, these are several factors. We have not seen the final numbers. If we have really gained market share, we don't know.
We believe that we are well equipped and some smaller fall waters will suffer by having not access to, cargo airplanes. As I said, we have a very good relationship to many of them due to the scale we have and the DHL operation express operations we have, and therefore, we believe that we have get we had better access and more capacity than many of all competitors because we have more control of more cargo airplanes. And that's the reason why we have trouble pretty good yield in comparison to others. We had good capacity and that's and we, at the same time, have improved conversion as well about a doubt. I I would guess so.
But I have not seen all these detailed numbers, because, you know, when we saw the number of preliminary numbers yesterday, we felt, okay, they are so good we have to say something. And the detail has to we have to wait until early August, but, you know, you know, from from looking into the monthly numbers, this is what I've said. It's probably what happened, but more detail, please, wait until early August.
That's great. Thank you very much.
Thanks, Alex. Still a few callers left. Let's see where there are still some questions left.
The next question comes from the line of Robert Johnson with Exane BNP Paribas. Please go ahead.
Good morning everybody, Art. Just two questions from me, please. I first of all, on the finance policy, I on slide 13, you reiterated but excess liquidity will be used with the share buybacks and or special dividends. Could you perhaps just indicate roughly how much excess liquidity Deutsche Post has on the balance sheet at present. And also if and when you may start to more formally disclose the excess liquidity number going forward.
So that's the first question. 2nd question on the 2022 outlook. From a volume perspective, could you maybe just talk, about how you define a V shaped recovery u shape and l shape, and in particular for the v shape scenario, could you maybe just talk about what that assumes for freight volumes, broadly speaking, maybe just kind of reference that to the 2019 level, for example, does it mean but freight volumes globally are back to the 2019 level or maybe ahead of the 2019 level. So I any color would be appreciated. Thank you.
Yeah. So these would be 2 great questions for Melanie, but maybe I answered the second. Probably, Robert, you said already more or less So the U shape is we expect, similar economic activity like in 2019. And we believe that be with our cell cape measures, we can still move the 2009 to result by about a billion which is that scenario. The V shape is that our global economic activity is north of the 2019 by quite a bit.
So that means we should have seen growth already. At least we should be on the same level already next year and then see growth at 2022. And the L shape is that, you know, we will we will see a quite a lasting recession. That means there would be no volume recovery, but you know, why we are still thinking that we can deliver that scenario at 4.7 because there would be just hardly no intercourses that are flying until 2022, if if, you know, that happened. And we will benefit them from e commerce search as much as a tight, cargo market.
That's that's the basis of these scenarios somehow. And and I hope that this gives you a little bit more color on how we think these three different scenarios.
Mhmm. Yeah.
That's helpful. Thank you.
And with regard to your first question and, the access liquidity, I mean, nice to now get such questions again. That shows that things are beginning to normalize, but obviously, given all the uncertainty for us, the important first milestone was now get clarity on the regular half of the year on really delivering on our free cash flow guidance and see where we stand at the end of the year as a company and globally.
And just in terms of potentially disclosing the excess of liquidity number going forward, Melanie, is that something that that maybe you could do or or not really planning to
We haven't discussed that. So I think we are trying to give a lot of transparency at the moment on the whole balance sheet liquidity situation where obviously now particularly after the new bond issuance in terms of liquidity, to safely get us through whatever type of scenario we are in a good position, to really disclose access liquidity we haven't discussed. So I would now focus really on delivering solidly on the free cash flow.
The next question comes from the line of Sam Bland with JP Morgan. Please go ahead.
Good morning. Three questions, please, if I can. The first one is on, PMP. Obviously, the trend there has been parcels up, letters down, that's been a problem for some peers, but doesn't look like it has been at your side. Do you see much of a sort of difference in profitability or drop through margin left some parcels in your business, or are they fairly similar in PMP?
The second question is on pensions. Just a quick one, you know, with where discount rates have gone to, is there any risk you could have to make another one off payment into the DB pension schemes. And the third one is on the express price increases you may be able to do in, over the next year. And I guess that air freight market's going to be tied up, particularly on the continental side for some time. So wonder whether you might be able to push pricing a little bit more over the net.
You know, I think you'd put them up in January, I think. You maybe you could put them up a little bit more time around than you would have done otherwise because of the tightness in the air freight market? Thank you.
Yes. So maybe on the and the pension. So I wrote PNP, but not the
I think on PNP, but on the profitability, I think goes back to, I mean, I think the question was, difference in profitability GP contribution between partners
that may Yes, exactly. So the answer to that is, I think we are in some dimensions pretty different from some others because we have a combined operation for quite some time. See, we, you know, the majority of our, stuff, mail, and passes go through a combined mail and parcel delivery. We have done these investments in the fleet already by some time ago. So smaller portion is dedicated mail, and I said already that we are not transferring even light product to them, give our people e bikes or try even so that they can really deliver that as a mere man.
And on the other side, we have the parcel, a dedicated parcel district becomes less and less. Some of us struggle with that because they have dedicated letters and dedicated password workforces. And that makes it significantly more complex. We don't have that challenge, and that's the reason why we believe we can stabilize the profitability quite nicely because we we use the same network for different products. And we have a competitive advantage, particularly for the lightweight product.
By by pushing that into our joint delivery or demand delivery. And that's, I think is is, which is different from some other operators, which have decided to to separate them.
And if I could just add to that, which also goes what Frank said earlier, I think one of the great messages is when we look at the second quarter, we saw a fast forward by, say, 3 years in terms of balance between mail and parcel volumes. And the P and P team under Tobias leadership has shown that, a, they get it done on the operation side. Which was quite a challenge in the beginning of the quarter when we were really swamped, with parcels. And that was due to the fact that over the last 18 months, we have systematically, for example, taking the lights, passes into the, letter sorting centers. So we were prepared to accelerate the transformation.
It worked operationally. And as you can see from the financials, it obviously also worked on the financial side. And I think that's a very encouraging message with regard to the longer term transformation from letters to partners for the P and P division.
On the last question, pricing at Express, I think that's too early to say. Let's see how the second half developed. You know, the Express division has demonstrated now for many years that they are very good in yield management, and I have no doubt that they will continue. But we also have seen by the customers never buy, over stretching the envelope either. So what that means for the new year is too early to judge rank.
Actually, it's also true for P and P. We will watch now the the development, and then we will make up our mind what we do with pricing in in, express and MPMP. And the pension scheme, the pension question maybe you whether you'll answer that.
Yeah. So, I mean, maybe just one additional on on express. I mean, you will have seen that we introduced an emergency surcharge to really now under COVID managed on the pricing side. The cost increases, I think that has been the main focus. Other than that, we will have our regular GPI process, which is well established in the Express organization.
But the main pricing focus at the moment is on the ESF With regard to pensions, as well, I mean, our big pension obligations are in size, are in in Germany, and then followed by, U. K. Switzerland, Netherlands U. S. Are in Germany where we have, by far, the biggest obligation there's absolutely no debate because there's also no minimum funding requirement, by the regulator, think the one country to watch in a broader context, is the UK.
They've given the market development a pretty all of the pension schemes, are not at the 100% funding level, which is required. So there will be discussions with the trustees on, on, how to close the gap, over time. We have to see what comes out of that, but I think that is really problem, for for the UK, overall.
Okay. Understood. Thanks very much.
Alright. The next
more calls. Yeah.
The next thing comes from the line of Matthew Gegolu with Goldman Sachs. Please go ahead.
Yes. Hello. Good morning. Three questions from my side. Two hundred numbers are one a bit more say on strategy.
Firstly, just on StreetScooter, basically, with this quarter, have we seen all the charges with free scooter, or should we expect something else also for the second half of the year? I'm just here to confirm that basically you'll be closing down the business, during the year. Secondly, on the cost side, so I appreciate that you can no longer quantify, you know, what is the COVID impact Can you just help us to understand what would be the extra costs, for you linked to COVID in particular, say, they're gonna say cost that, no, if you go back to a normal situation, unlikely, unlikely to occur such as no masks, extra protective equipment, just if you have any figure there in mind that we can say, think about, for the future years that might not recur. Sorry, there's a bit more to say it strategically. I think you mentioned that Frank mentioned that you have 150,000 people working from home.
Here, there's a big debate in the market about, you know, working from home and what does what that might mean for corporates. How are you currently thinking about that? Now will there be opportunity for you over time to really have more people working from home and that, ultimately, could lead to lower cost any color that will be, great appreciated. Thank you.
Yeah. So on on the last one I started, and then, Melanie, I already jumped to my wife. You might find it buy a a house now somewhere on a nice island, and I run the company from remote, because it works so well. But more seriously, you know, and I have no plans to buy a house on an island. So, but it works pretty well, actually, but it will not last forever in that situation.
You know, we are benefiting massively from that our senior team, even if some of them became only board member recently that they had been around for quite some time and the organization does, but if I see you know, I'm not doing country visit digitally. So I visit them. I do BRM support team, and I do town halls when, in a virtual form. And that works because people know me and my colleagues. But, you know, you can't do that forever.
So personal interaction is important. And that's the reason why, hopefully, we will come back to a normal working situation sooner or later. And, and and I believe we will still still find benefits, and we will look into them in the second half. We already have started to ask our hogs about homework. I would like it.
And if we would accept that they don't have a fixed, seat at the at at work any longer and all this kind of stuff. So that needs consideration. I believe that the amount of office space we run will go down in the late couple of years, by quite a bit, but, you know, we are not in a hurry to execute that, because, you know, we we have currently the same amount and that's full in our numbers. So we have not assumed any benefits from that until 2022, even there might be some benefits In Melanie, may you answer the other 2 questions? Yes.
So first of all, on street scooter, I mean, as you have indicated that the impact pre scooter will be around 400. After 6 months, we are a bit over 300. So there is still a bit, to come. Where is that coming from? We have now, in the 1st half of the year, booked most of the write offs, we've booked a provision for claims and so on.
But we are, as we already said, in February, ramping down the production slowly, We still have quite a bit of stock where we are continuing to build a certain number of sweet scooters. So it's a gradual phase out which will, in terms of final production go into the early part of next year. And that explains, why we will still have come to come in, the second half of the year. But in line with the overall in around 4 100 sweet scooter impact for the year 2020. In terms of extra costs, yes, we had indeed quite a bit of extra costs for PPE and sanitizers and so on.
At the same time, we all have we also saved quite a lot of money, on travel, and those type of things. So overall, that balance out relatively well, in the second quarter.
Yeah. So maybe let me add, you know, important is in the second quarter, we had not to do a harsh cost measures. So of course, we had no travel costs because we had a travel ban. Of course, we have not hired and we had, insert functions aerial freeze, but we not really have had done massive restructuring, because we felt we better keep people on board to be well prepared. Volumes are coming back.
And fortunately, the market has shown that we will not completely roll So things are getting worse. We still, as we described already in in former calls, we have enough measures in place, which we have not triggered to do more to reduce the cost base. I think we were right in not doing that and keep the morale of the organization up you know, like you have seen in the performance. So that was, I think, the right decision. If things are getting worse and our volumes are dropping more than we are expecting at the moment or the word gets in long lasting recessions.
Of course, we have more muscle to to flag our costs, which we have not played yet.
Okay. Thank you very much, Matthew.
Thanks, Matija. That would bring us to the last Solar.
The last question is from the line of Adrian Payer with Commerzbank. Please go ahead.
Yes. Hi. Good morning, everybody. 3 quick ones, actually, from my side. First of all, on cost again, from the input side of things, in express and P and P.
I was just wondering whether you enjoyed a positive, effect from, oil actually, direct indirect transport costs. I mean, obviously, I know you're working with surcharges in express, but maybe, you could, keep some extra money if you want so in in your p and l. And if you have a figure for us, that would be pretty helpful. On the volumes in parcel in particular, as they have been very strong, obviously, in Q2, would you say a little bit about, did actually the the Amazon volumes grow in that quarter or were they actually down, versus the Q1 level. And lastly, on a regulatory topic, obviously, the postal law reform, appears to be on due to to COVID, but I was just wondering whether you had any insights on when that topic is gonna be picked up or if there are any changes, on the content, I.
E, there was this discussion on 5 instead of 6 delivery days, is that still a topic, and anything, clarifying here would be pretty helpful. Thank you.
Yeah. So let me start with the last one and Melanie event takes the other 2. So, you know, it's at the moment a little bit unclear. Yeah. It's true that currently, there is no, you know, clear plan to do something with the postal law in this year.
There was Yeah. So that it's all very clear. I think none of the themes which we're on the agenda of a table at the moment. And let's you know, we will update you when we know more ourselves. I'm optimistic that this will go, in a decent way as well as have done that.
You know, we have, support, from from the broader basically, I think, because it's appreciated that we have done a very good job. So I I think it takes longer. And of course, the the government has, at the moment, significantly, other more important priorities than the postal law. So I I doubt that something significant will happen in the next one and a half years until the next election is is taking place for 1 a half, 15 months, actually, is now. So the likelihood is pretty pretty low that something happens, but, you know, maybe we'll be surprised, but I would not take we have not taken into consideration that we get any upsides or any changes in the slowly the next 2 years.
With regard to the first two questions, so first of all, on on oil price, it is not that relevant for a post in parcel as the bigger amount is in the jet fuel in express. Where there is indeed a established tools for a charge mechanism, which passes on the price development with a 2 month delay to the customers. So given the timing of the big drop in the oil price, there was still some benefit at the beginning of the quarter, but that then faded out towards the end of the quarter. With regard to the volume development in parcel and Amazon I mean, what we indicated pre corona, there's a path to volume guidance for this year was a 0 to 5 and growth expectation, which was based on the assumption of in sourcing by Amazon. And that is the structural direction.
Paid, obviously, with a number of customers, things were a bit more dynamic, and not entirely, normal in the course of the second quarter. But I think the important message is with regard to the fundamental trend of continued insourcing by Amazon, we don't expect a change here.
Yeah. And may, you know, it's pretty volatile with this customer, but I can say for the second quarter, but having not seen the final numbers, that the growth rate we have seen was definitely not driven by Amazon.
Okay, Adrienne. And, yeah, I I think that's dealing with all the questions and callers out there. Thanks for your interest. This just got us past the full hour and I want to hand over to you Frank for the final wrap up.
Thank you very much for your questions. You know, we we believe that we have had really a very solid Q2, along all dimensions I'm particularly pleased that this is, I think, you know, the 6th quarter in a row that we have seen very strong improvement in free cash flow. And that is a strong sign of the quality of our earnings. I said that already in previous calls, think we are getting where where many of you have asked for, you know, the conversion rate from EBIT to free cash flow is improving. Every quarter, and that is encouraging to see.
Yes, the company is in good shape, and that is thanks to our great workforce. And that's the reason why we decided to keep the dividend flat and give some money to our people as a special as special dollars. And with that, I hope that you all stay health and, safe, healthy and safe, and that we can see each other sooner or later as well once in a while in person again. So all the best. Thank you very much, and goodbye for today.
Thank you.
Bye bye.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.