Hello and a warm welcome from my side to our Q2 'twenty one conference call. As flagged, we have with us today Group's CEO, Frank Eppel Group's CFO, Melanie Kreis. Aim is to be done within 60 minutes. And therefore, right over to you, Frank. Yes.
Good morning as well from my side. Today, we are lost more or less confirming what we have said already a couple of weeks ago in our preliminary release about the Q2. Therefore, I think we can Focus on certain elements of that. So if you go straight away to Page 3, yes, again, we are Definitely in a very good spot, seeing a very strong recovery of the B2B markets, driven by the overall Recovery of the economy and B2C still continue to grow at a lower pace and in Q4 or Q1, not surprisingly. And of course, that also will continue both trends will continue into the 2nd year.
What we intend to do and have announced already that we will let our employees participate in the tremendous The company has at the moment, we believe in a service company, the difference is coming from our colleagues around the world. And we are very happy to have already announced that they will get this year and deserve it, I think, as well another €300 COVID bonus, which we will pay in Q4. We also have already, early July, upgrade our guidance now to About €7,000,000,000 EBIT. And of course, that's driven by the strong trading we have seen in the First two quarters, the utilization is great, and the improvement is driven by all 5 divisions. So overall, I think we are in very good shape.
Today, we would like to focus more on volume development because, of course, that's important to understand as well. So what happened, if I go to Page 4, in the last quarters, we have seen a recovery of B2B in The Q2 B2B growth was even stronger than B2C growth. And of course, that shows the benefit for us That we are well positioned in both markets, not only in the e commerce market, but also in the B2B market. And you can see that here across the divisions that we have seen really significant growth in revenue or volume.
On Page
5, Starting with e commerce, you can see here the B2C growth in P and P. We had still quite Good growth in the Q2, not as strong as in the Q1, but not surprisingly. And you see that the line is now getting closer to 2020, this is what we have said already in the Q1 that we are expecting a normalization of growth rates through the year, And that trend will continue. So I said even in some sessions before already that we might see even in certain months Client in volume. But overall, we believe that we will see in 2022 and 2023 higher volumes than we will see this year.
But of course, it's easy Significantly impacted by the lockdowns we have seen in the last quarters in Germany. So overall, good shape. We're happy with the growth, but of course, the growth rate will not continue at the same pace as we had before. On Page 6, you see similar pictures of That development in Europe and the U. S, here you see that Netherlands is still very strong, Asia and Europe strong growth, U.
K. Parcel had already some months where the U. K. Fledge was slightly negative. And this is fully in alignment with our expectations.
U. K. And the U. S. Are probably were earlier out of lockdowns and that had impact as well.
We believe that we will see a normalization in other markets as well, but we also expect in the markets where we have seen no growth, we should see too low later again growth because the fundamental trend we're going into e commerce is is still intact. Page 7, the balance between B2B and B2C shows as well in We have seen a good growth in Express through the quarter, 20%, more driven by B2B. So it's really great to see we have obviously a good balance. And if you have had seen the same growth in B2C in 2nd quarter as we should be probably our network had been quite overwhelmed by the volume. So what we now see is really it's manageable for the network.
The additions of airplanes is helping us. You see that later on with the profitability as well. So I think we are now really in the right balance by using our networking. Of course, B2B will benefit more than eCommerce Solutions of TMP from the strong global B2B recovery. You can see that across the regions.
I think it's great to see this is really a great model for us that our global footprint that we are benefiting from all these underlying global trends. On Page 8, starting with Express again, there's One element interesting as well, and that's a reflection of what I've just said, that the shipment growth is now lower than the weight growth. B2B has on average higher rates, but it's also because stuff moved up from ocean to air freight and air freight to express. So we fly more heavyweight, which is, of course, good for the revenue line somehow. And therefore, we expect that Shipping growth will be slower than revenue growth in the coming months.
But overall, as I said already before, Express still We benefit from very healthy growth on both. On all five divisions, I will show you now some examples of our digitalization agenda, which is in full Swing, here we have, for instance, Vista is our new tool to manage our capacity better by having more visibility. Taleo helps us to recruit Faster colleagues to getting on board. And yes, we added significant amount of people in the last year. Anyway, if you compare End of June of last year, we probably have around 25,000 people more on board.
So we are in the market and we could not only in Express and all divisions, People and customers classification with artificial intelligence is important. A good example is that we lost the de minimis in Europe. And of course, that is a challenging number. But I think these kind of things helped us that we haven't heard anything about that. I guess that this was a problem because we were well prepared to have management very well despite this operation quite a challenge.
So overall, Expressing good shape, very good digitalization agenda. Global forwarding freight, we show here as well that we are now ahead of Even 2019 before the pandemic, I think that's a consequence of what you see on the right, the rollout of TMS. If you look into the detail, we have added significant volume without adding people that shows that the systems really help us to gaining productivity. And on top of that, we have, of course, very high yield as all the players have. So I think in airfreight, we are really In great shape, and we have grown our GP in ocean freight as well, and we are now back to the level we had before.
The second element of digitalization on the right side is my I customer portal where they can book, track their shipments. It's well received by our customers, and We are rolling it out to other markets as well as we speak. Supply chain, Very strong recovery. We are now significantly ahead of the margins we had in 2019 before the pandemic and also the ups Profit, excluding even in 20 nineteen 'twenty where we had one offs. So this is really now these 3 years one offs in 2021.
We don't have Any sizable one off here. So it shows that the agenda, Oskar De Bock has driven, is really now getting traction. Standardization, the automatization is Leading to significant improvement. I have no doubt we will see that in the next quarters as well. This is mainly a B2B business, yes, we have e commerce quite sizable as well.
But as we believe that e commerce will continue to grow, We should benefit in that area as well. We have a lot of digitalization and quite busy digitalization agenda here as well, just to name the collaborative robots, which of course are giving us productivity gains, which should help us improve our margin server. So Good activities here, and I'm very happy about that development. It was an excellent quarter, and I think There are more to come because the agenda of Carefoot in place is really working well. Ecommerce Solutions, I talked already about the growth and the pattern we see.
Overall, very strong growth. We are now significantly above the margin of 5% we anticipated for 2025 is So a consequence of a significant lift in volumes and you see that in these kinds of businesses if you get more volume into the network and That's the certain threshold. You should see a very good development of the margin as you can see here. So that's very positive. An example where we are working on digitalization is our cross European product, which will definitely grow faster And also in the coming years, then the underlying market will grow.
So I think we are well positioned here to capture a lot of potential. And Ken and his team are working intensively to make it even better for our customers. Finally, P&P Germany. You can see here that revenue and volume grew nicely, but in line different from the last quarters. But that is more a reflection of a year over year comparison because last year, we had a tremendous surge in private consumer products, mainly coming from smaller customers who didn't have a contract.
And of course, they pay in a retail outlet a higher price than a customer with a normal contract. So we have a slight mix change impact here. That's which is why revenue has grown in line. Already slightly faster than volume different from the last quarters, but there is an element of year over year comparison overall. Focus is still on yield.
It will continue to be on that. We have the same effect in mail. You can see that here. We have Zylog marketing has grown much faster than the 1st class mail. That leads to significantly bigger volume increase Then revenue, that, of course, leads of the short and always to some challenges with regard to how much The improvement you see, but overall, of course, we are happy to see that volumes in dialogue marketing are coming back And the revenue is growing.
Long term trend is still the same. We should expect a decline year over Here by minus 2% to 3%. But of course, we are pretty pleased that we predicted what is happening now and it does slightly better. And I think we are in good shape here as well. But as I said, there are some challenges with mix in parcel, also mix in mail.
And you can see that So also in our profitability development year over year. Digitalization and all of activities, I think we talked about some of them already before. I think we don't have We'll stick to that. They have a very busy agenda in the digitalization to make our operations more productive and more customer friendly. Finally, our ESG highlights of first half.
As you know, we have launched our roadmap in March. We are making good Headwinds there and I'm very happy that we now announced 2 days ago our first purchase of electric cargo planes. I know that They are carrying only a tonne around a tonne, but they are nice replacements of our old fleet of flights starting in the U. S. And We are also progressing with our offerings for our customers with regards to sustainable maritime fuel as you can see here.
A great place to work, of course, is important for us anyway. The second bonus, I think, sends a very strong signal. We have just in Germany vaccinated about 40,000 people in Germany. And I think that is showing as well that we are taking our responsibility So overall, also on the LSG agenda, I think good progress based on our strategy. So overall, all 5 divisions are in very good shape that has led to these record results.
And of course, we are very happy that we can enable and help our customers to grow their business as well after The pandemic has hindered them less to do good business. With that, I hand over to Valerie. Thank you for listening. Yes.
Thank you very much, Frank, and good morning to all of you also from my side. So turning to the condensed financial part of the presentation. When we look at our revenue development, I think Frank already explained all relevant trends. And on Page 15, You can see how that adds up to revenue growth of, in absolute terms, €3,500,000,000 in Q2, 22 And all DHL divisions was on an organic basis growing with more than 20% and Post and Parcel Still growing with 7%. So it was a very good quarter on the top line.
And that was the foundation for them based on very good network utilization, Translating that into a very strong EBIT development on Page 16, you can see that with €2,000,000,000, We actually had our best quarter ever. I mean, the interesting thing is when you look at the full at the half year EBIT number, Adding Q1, Q2, we are close to €4,000,000,000 A couple of years ago, that would have been a great result for the full year. Now we have achieved that after 6 months. So that's, of course, the pleasing development. And what is great to see is that all 5 operating divisions are heavily contributing to those Great number.
Of course, Express is standing out with more than €1,100,000,000 EBIT in a single quarter. When you look at the margins, it's a very strong performance for all divisions, Express 20% EBIT margin, DTFF and supply chain both at 6% and DHL E Commerce Solutions at 8%. So very strong performance across all The DHL division and also good performance on P and P side. Turning to Page 17 and the full P and L. Yes.
I think the one consequence of good performance is that we have to pay more taxes and that in combination does an increase in the tax rate Leads to a significant increase in the taxes line. I think that's the only thing to point out in addition on Page 17. Overall, when you then add it all up, you can see that consolidated net profit and earnings per share are up more than 100 40%. So we are able to translate good top line development into good EBIT progression and then ultimately, despite the increase in taxes, And a very pleasing progress on the net profit development. So that's the accounting side.
Now turning to the ultimate real thing cash flow, Page 18. So first of all, I want Pointed out that after 6 months in terms of free cash flow, we are at more than €2,000,000,000 So that again Would have been a couple of years ago a number we would have been happy with for a full year, but obviously, the exploration levels have gone up. And you look at the quarter in itself, I think there are a couple of points I wanted to comment on because when you take a first look, you may say that EBIT Up €1,170,000,000 but free cash flow is only up €300,000,000 Why is that? There are 4 main drivers, which are all fully in line with what we had expected. The first one is when you look at the changes in provisions line.
In the Q2 of 2020, we actually built provisions, for For example, for the scooter repositioning, from the positive change in provision 113 It was a bit of an unusual thing, what we now see in Q2 2021 with minus €87,000,000 is a more normal thing. That is a €200,000,000 year over year swing. Like in the P and L, we, of course, also see the impact in terms of taxes paid, that's up €140,000,000 year over year. As the business is growing heavily, we saw that in the top line and naturally that leads to a certain Expanding on the working capital side, which is something we are monitoring very closely and overlying this increase in working capital in line with our expectations. But on the cash flow statement also leads to minus €229 €1,000,000 year over year increase.
And the 4th point I want to comment on, obviously, on the CapEx side. Given the continued very strong network utilization and volume growth, we keep investing in line with our CapEx guidance, And you can see that in the increase in net CapEx. So those four elements together explain why there's only €300,000,000 in free cash flow improvement. But again, for the half year, it's a free cash flow of €100,000,000 So much for Q2 and the past. Now turning to what is probably most relevant for you, what to expect going forward.
And we have included 3 slides before I come to The guidance page to give you a bit of background to our thinking about the guidance. The first one is with regard to what we expect on the top line. I mean, you can see that on Page 19. That is basically Putting together the individual slides Frank talked about, you can see here on the Bottom back of the line, the B2B development, where we see this continued recovery. And we clearly expect that Trend to continue in the second half of the year.
And with regard to the upper pack of lines on the B2C development, We obviously see the normalization in growth like we had expected for quite some time now. So we expect that normalization to continue. It is probably going to be a little bit different country by country, and We have to really see how that then adds up. But I think directionally, it's very clear what we assumed on the top line. The big discussion we then had is, okay, how do we prepare operations for the second half of the year and particularly for the peak And then you can turn when you turn to Page 20, you can see in the middle of the page our guidance principle That here we really want to make sure that we have the capacity needed in the peak and that we really want to focus on delivering Great service quality for our customers.
That means that we are going to plan for a dynamic peak, Even though there is certain risk that it could not be so dynamic, which will then, of course, lead to us having certain areas of overcapacity. That is one of the reasons why our guidance for the full year in terms of EBIT may look a little bit conservative Because that is based on the case that, yes, we are incurring the costs to be ready. If volume then doesn't come the way we are expecting, That would lead to a certain cost overhang, but that is a conscious decision. And just to kind of like explain it very completely. So for example, in Post and Parcel Germany, You saw in one of the slides, Frank talked about that in the Q2, in our parcel volumes, we were still at the same level like in Q4 2019.
So we were still running in Q2 on peak volume. Normally, the summer is, of course, always lower, and we tend to quite significantly reduce costs over the summer months. We have not done that as Aggressively as in the past in anticipation for the strong peak. We already know that this will have an impact on the EBIT margin and P and in Q3. We believe that this is the right approach to then be ready for the peak season in Q4.
So that in terms of general philosophy, how we are preparing and managing the second half of the year. On Page 21, I'm not going to go through all the words on the page. I think the basic message here is we, of course, understand that there is a lot of debate about Inflation out there at the moment. I think for us running network businesses where we have always seen cost inflation over the last years, As we are not going to develop something fundamentally radically new today with inflation, we will use our very proven Tools and the most important tool here is our standard price increase mechanism, which we have been executing over the past years And which we will, of course, do again and where we are very clearly taking cost inflation into account to ultimately pass it on to the customers. So the fact to the guidance page, which is unchanged compared to what we said on July 7, We have increased our guidance for the group to more than €7,000,000,000 That fully takes into account the 2nd COVID bonus Frank talked about.
We are taking that into consideration with about €200,000,000 So underlying, it would be more than Point 2. When you look at the medium term guidance, we have increased that to more than 7.4. So we clearly expect a normalization in growth rates, but we believe that also in the medium term, we have a good base for further Profitable growth, and that is what we're aiming for. I'm not going to go through all the details of the other guidance elements because nothing has changed here. And we can also cover that in the Q and A.
And with that, thank you very much from my side. And Martin, over to you for the Q and A.
And right over to you, operator, before
First question is from Robert Joynson from Exane BNP Paribas. Please go ahead.
Good morning, everybody, and thank you for the presentation this morning. Three questions from me, please. First of all, on the 2021 guidance, you've been clear that you consider the guidance to be reasonably Conservative, partly with respect to peak season planning and the possibility of the network may not be fully utilized. Could you maybe just provide some color on what type of volume growth you're assuming from a capacity planning perspective Versus what kind of volume growth you're factoring into the guidance. 2nd question concerns next year And specifically, one of the main debates within the investment community is whether 2021 earnings will prove sustainable.
Obviously, you provided guidance for 2023, which shows ongoing EBIT growth. But maybe could you talk about 2022 specifically and potentially whether you see a step down in EBIT during 2022. 3rd question just on the outlook for parcel volumes. You provided monthly volume data to June in the presentation, which was super helpful. But maybe just given that lockdown restrictions were eased a little bit further during July, if you do have the July volume data as yet, could you maybe just provide Some comments on whether you saw any material changes to the trends during July.
Yes. So maybe I answer this second question, and Melanie will first and third. So The overall we believe that if I look into the volume development and that is, I think, is a driver for the financials, We believe that in 2022, we still have good growth in B2B, and we will see growth year over year in parcel volume. And that should enable us to generate a positive development of our EBIT. Of course, not of Scale we have seen last year and this year, but we should expect that 2022 should be better than 2021, and that's based on the utilization of our networks.
And we are very confident that this will happen because base. I have not found any study yet, which suggests that e commerce will decline. It's obviously opposite. They might be too bullish in how much volume and growth we will see. And that, of course, drives what should be the reason why B2B volume should not continue to grow.
And In key parts of our net in our business, we have network based businesses. In other areas like supply chain, our All internal measures should help us to drive profitability further up, so profitable growth should be there possible as well. And that's the reason why we definitely believe And 2022 will be better than 2021. All what is happening at the moment is actually something we have already much earlier. We said second half will be Coming down, we will see no growth year over year.
Maybe we see decline in certain quarters. None of that is actually surprising. It was always And some people said we are too conservative. If you look into our guidance development for this year, we only upgraded that on the delivered numbers, but not on Anything greater for the future. And that's the reason why we feel comfortable to above €7,000,000,000 because we still expect that we will see certain months where we foresee a decline or a mix change or something like that.
But our mantra is the best And the most important thing is keep going with the service quality. And that will pay back next year. That makes me confident, Robert, to coming back to the original part of Your question, why is 2022 better? I'm very sure that we will deliver outstanding service quality in Christmas not knowing what would really happen with volumes. And that is a great base to then gain market share on top of all the underlying growth next That makes me very confident that we will see a good continuation of EBIT growth next year.
Mariel, may you take the other two questions?
Yes. So on kind of like volume trends, what we see in July and what we expect in terms of volume growth and utilization for the rest of the year. So in July, we haven't seen anything fundamentally new. We see this Anticipated normalization of B2C growth, but with B2C volumes staying on a high level. And on the B2B side, across the B2B businesses, particularly in the forwarding area, we continue We see a very good growth.
And that is also what we now expect for the second half of the year. Obviously, good recovery on the To be side, for the B2C network, we directionally expect that there will be a peak. So there should be, again, an increase. I think it then really depends on the network, whether this will be above the very strong Q4 twenty 20 on the same level or maybe here and there slightly below. And that is, again, the reason why we have this relatively conservative our guide.
Okay. Thank you.
Thank you. Thanks
Rob and thanks.
The next question is from Nuala Kajani from Bank of America Merrill Lynch. Please go ahead.
Hi, Frank. You're Melanie. Just following up on July actually. So just to clarify then, Parcel volumes in July remain positive, but below the growth we saw in 2Q. Would that be Correct.
So that's my first question. Secondly, just with airfreight rates remaining strong, Can you help quantify what's the benefit of that of the strong airfreight rates in Express during the first half? And how that will Impact Express margins as airfreight rates potentially normalize over the next 2 years as very capacity returns. And then thirdly, we've heard from GXO, XPO recently on their plans. How are you thinking about your supply chain revenue and margins over the next 2, 3 years?
Thank you.
Okay. So first of all, on the July volumes, I mean, it really depends. We tried to show that a little bit on the e comm solutions slide, but kind of like the development Netherlands still significantly above U. Okay. Slightly below volumes last year.
So directionally, it is beginning to kind of like normalize more towards last year's level, But we still also have continued growth in some areas. So overall, I would say it's kind of like a normalization with a slightly different Timing pattern across the different markets. Yes, on the Express question, I think that's a really interesting one. And you saw that Maybe in the Express side, we are showing that the shipment levels are also beginning to normalize, But we see a very strong growth in weight in the network. The main driver for this increase in weight is actually We not from airfreight into Express, but the strong B2B recovery.
A B2B Express shipment has a higher average rate. So the increase in wage and Express is primarily driven by the B2B volume Growth and the volume recovery on the B2B side and the network. There is a bit of a spillover from airfreight into Express, But that is not the main driver. In terms of the one area where we do see also in Express, The significantly elevated airfreight levels that's on the ACS side, that's kind of like where we set off free capacity in our Express network into the forwarding market. Here, we still see that pricing levels in the airfreight are significantly higher than as far as the level.
And in terms of supply chain, yes, I mean, it's really nice to See that we now had a 6% EBIT margin in Q2. I think that clearly shows what is Possible. I wouldn't say that this is not going to be the case in every quarter going forward, but I think that gives you a good Order of magnitude to now aim for. Again, there may be a 5 point something quarter in between, but I think that's directionally where we want to go. And in terms of top line growth, I mean, supply chain, as you know, is our slowest moving, least networky type of business.
So what we can expect here on the top line is less than in the network businesses, but solid mid single digit growth, I think, I hope that answers your question. Just
a follow-up, please. On Express, Is it possible to quantify how much of the revenue in the first half came from selling to forwarding?
Yes. That's, I mean, a small chunk. I mean, when you look at our revenue overall, the prime revenue piece is from the core TBI, which normally is around 85% of Overall, Express revenue, we look at this ACS revenue as a cost offset. So we still I mean, Fundamental way how you're kind of like managing things and stress at the moment is we still have higher costs on the aviation side. We use the ACS volume sell off into the forwarding market as a cost offset.
And then for the delta, which is Still there. So the network costs, even despite ACS revenue, are still higher. We are passing on to the customers through this surcharge, which to be introduced more than a year ago. So that's the fundamental mechanism.
Thank you.
Thanks, Rune.
The next question is from the line of Christian Nelmko from UBS. Please go ahead.
Hi, thank you very much for taking my questions. Also 3, if I may. The first one on PEP. Looking at the revenue per unit in Q2, could you talk a little bit about the building blocks? How much you had yield increases?
How much was the headwind from mix or other effects There. And also, could you touch on your expectations for the second half of the year in terms of revenue per unit? Secondly, some of your U. S. Peers have talked about issues with availability of workers recently and wage inflation more pronounced than usually.
Could you talk a little bit what you're seeing into your U. S. Business in this sense. And thirdly, I think you flagged that at Q1 that you are looking At some of the DHL segments at the midterm target potential there and pretty much you've delivered More than your midterm targets recently. Could you elaborate a little bit in terms of the time line?
Should we expect you to revise The situation there anytime soon. Thank
you. Yes. So three good questions. Starting with the P and P Question, yes, when you look at the revenue volume development in Q2, it obviously looks as if there's No real price increase there. This is really due to the mix effect, which Frank briefly mentioned.
So in Q2 of 2020, we saw very strong growth from small customers. So in the 1st lockdown, Lots of private parcels were sent to grandmothers and so on. And lots of small shops also started sending out parcels to their customers. That had a very positive yield effect in the Q2 of 2020, which we also mentioned at this time. So what we now see is a reversal of The trend or not reverse, a normalization.
And in terms of underlying price increases, We are continuing with our yield management approach in Parcel, Germany. That has not changed, and that's the clear focus going forward. You will probably still see this normalization effect in the second half of the year. But then obviously, going forward in 2022, you should Again, see a good development on the average price per parcel. In terms of U.
S. Situation, we also see Shortages in the labor market and partially significant increases. So that is part of the cost inflation we have to deal with, one of the reasons why we included the slide on how we manage cost Station, it is, I think, for our U. S. Colleagues, one of the top priorities at the moment.
But the feedback we are getting is that So far, they have been able to manage that carefully. Yes. And last but not least, on what should be our margin Aspirations going forward in both divisions like the Ecommerce Solutions, which are significantly Better than what we had originally aimed for. We are now in the second half of the year going through our regular process for the budget and the new 3 year midterm plan. That will be the basis for our guidance, which we are going to give next March.
And I think that is then also the right point in time to talk about potential changes to our margin aspirations. But I can assure you that it will be like every year a very intense discussion between the group functions and the divisions. And You will, of course, take into account that they are doing much better than what we had originally aimed for in setting new targets.
Thank you very much.
Next question is from the line of Andy Chu from Deutsche Bank. Please go ahead.
Thank you and good morning everyone. And Just one question for me, please, and that's around capital allocation. The cash flow generation of the group clearly is in a very good Position, you're already sort of covering your dividend and generating excess liquidity this year. And obviously, you have Excess liquidity sort of accumulated from prior years. Given the sort of positive outlook out to 2020 3, I think you're halfway through roughly halfway through your share buyback program, so that could complete by the calendar year end.
Would it be possible for sort of further share buybacks by the year end given the Strength of the cash flow generation and outlook. And if not, why not, I guess, in terms of And another sort of share buyback program.
Yes. So A really good question. And I think given how well we're doing on the cash side also quite natural one. So 1st of all, in terms of where do we stand with regard to the current share buyback program, we are roughly onethree through A bit over €300,000,000 And so that is being executed in the way we announced it. I think our focus now is to really see how the second half of the year plays out.
That will then be the basis for our decision on the regular dividend. And then we would kind of like to take a look at the holistic picture once we have really closed the books on 2021.
Okay. Thanks very much.
Thank you, Andy.
Next question is from the line of Satish Sivakumar from Citigroup. Please go ahead.
Thank you. Actually, I've got a couple of questions. One is actually a follow-up on pricing and Express. The division has actually seen a quarter on quarter improvement in pricing. So if you could actually comment on the exit rate, right?
What are we In June and also what are you actually seeing currently in the pricing in Express and what is actually driving? Is it like Underlying yield improvement or is this also driven by surcharges given the disruptions that we are seeing right now? And secondly, again pricing but in air and sea freight, what is your expectation in terms of normalization levels for both GP per tonne and GP per TEU, where do you expect it to normalize? And when do you also start to see that normalization levels? Thank you.
Yes. So on the expressed pricing, I think 2 parts in The first one is, I mean, our fundamental pricing mechanism in Express has always been our annual GPI process. And I think that is still the fundamental driver for getting up the yield in a very continuous Fashion and of course also compensating for cost inflation. We then introduced in Q2 of 2020, our emergency surcharge due to the tightness in the aviation market and the increased costs that brought with that. And we have been relatively stable and consistent That surcharge.
So we haven't modified the surcharging mechanism materially over the last 12 months. It is still in place, and it is working really well to offset the additional costs we have on the aviation side. So that is giving a boost to the top line over the last 12 months, but it is really offsetting the cost. So that is not the real driver for the margin development We are seeing. In terms of airfreight, ocean freight rate development, yes, obviously, rates are still at very elevated levels, both on the air and on the ocean freight side.
We do expect a normalization, but it will be a normalization over time. Obviously, on the ocean freight side, it is probably going to be a bit faster than on the air freight side. But the clear expectation is that levels They'll stay high for the rest of the year. I think the next interesting point in time to really see a movement in the Russian freight rate development The post Chinese New Year, so towards the end of the Q1 of 2022. And on the airfreight side, clear expectation is that particularly on the intercom side, it will take even longer for rates to normalize.
Thank you. Just a follow-up actually on the annual GPI process. So is it like any particular time line that you do it at a specific point in time? Or is it more of a rolling contracts or depending upon the customers? And with the inflation expectations going into next Yes.
What do you see the potential impact from that GPI would be?
Yes. So the general GPI process is a very Established mechanism in Express that always happens in the second half of the year, where we then also very Country by country, announce our average price increase so that our customers can plan for that also for their budgets for the next year. We take a number of factors into account. Of course, cost inflation being one of the most Important ones. There are also other elements in the Global Express network like, for example, currency developments.
If you have a local currency, Which depreciates in a more lasting way given that the aviation network is paid in hard currency. You then also have to Take the currency development into account. So there are a number of factors. It's a really well oiled machine, and that is Also what will now happen in the regular way in the second half of the year.
And if you take Express, P&P and E Commerce Solutions, where we have more rate card process anyway. We should you should always think of these will remain for the next coming years capacity constrained industries Because the process to build the capacity for the tremendous volume growth we have experienced and now we're continuing at that pace, we'll limit the capacity everybody has in the industry and total has. Since in Express, we have seen Great price discipline already in the past, but we had not that situation. But I can't see why we should not have price Price increases in the future. And that means if we are faced with price inflation, of course, we will look that the customers are paying for that because they You have to pay for the fantastic service we provide.
In E Commerce Solutions and P and P, the same situation. P and P, we have seen over the last few years that we are leading the pack and our competitors have followed us. And in eCommerce Solutions, we will definitely follow their respective incumbent where they are larger And they will do something as well. We will follow that as well because this is still a supplier market. So there will be more demand than capacities available.
And therefore, it will lead to price discipline. And that's the reason why inflation will be converted back to customers. I have no doubt. And we have seen that due to different reasons. And therefore, I'm not worried about that because we will find a way to push it back to the customers.
You talked about and asked about that, but that's a different model. There the areas, yes, the rates will come down, as Melanie Jet Ocean first and then airfreight. But we have also here, nice element. Our TMS is now in full swing, and we have not even captured we have started to capture the Potential, which that offers for us for GP to EBIT conversion. So even if the GP growth is not continuing, we have still an opportunity to Improve our GP to EBIT conversion.
And supply chain is different anyway. We have significant open book contracts. And of course, The context will reflect that as well, typically, that if there's labor inflation that customers have to pay for it. So it's different by division. But overall, To be honest, inflation is not my biggest worry because the industry, I think, is in a good spot to push it further onto our customers.
Okay. Yes. Thanks,
thanks, Malini. Thanks very much.
You're welcome.
Next question is from the line Alexia Dogani from Barclays. Please go ahead.
Yes, good morning. I had 3 questions as well, 2 on DHL And just one on their cargo. Just on DHL Express, I mean, clearly, margin of 20% It's extremely impressive. We understand that network utilization is really what is driving the performance Here, can you just give us a bit of an indication of where load factor is at the moment? And whether you think there are any Structural reasons why you couldn't close the gap to sort of Industry leader.
And then secondly, again, On DHL Express, your recent decision to commit to 12 aviation planes, Is that is this within the CapEx guidance already? And can you just give us a little bit of your thinking behind that? And then finally, On the air cargo market, do you believe that post these past 12 months of Sort of significant disruption in belly and ocean. Has there been any structural changes in the market that will be sustained, Be it, I don't know, the share of express operators or dedicated freighter networks, just keen on your thoughts whether we are Seeing a step change in structure post this period. Thank you.
Okay. So on the load factors, it's really difficult to give an aggregate number here because that Totally varies from lane to lane. I think for us, the important number we always look at Judge, the overall performance in our aviation network is a number which we call cost per kilo. And this cost per kilo is kind of like including the offset by selling off the excess capacity. And when you look at the development we have seen in this CVK, it really moved up significantly in 2020.
And that was the reason why then on the revenue side, we had to introduce this merchant surcharge. We now see a beginning positive trend. So when you Look at the lines for 2020, it's significantly above 2019. We are now really getting closer to the 2020 and more normal levels. So it is moving in the right direction.
And one important impact factor for that It's quite good overall load factor we see.
We don't see any structural change in the industry. What we see at the moment is that Adjust because the integrators have capacity, they are also used for more airfreight capacity. Historically, we always have seen if the economy gets weaker, And you have an up trading for airfreight to Express and a down trade from airfreight to Ocean. And That probably will happen over the next cycle as well. But Express will remain a niche in the whole airfreight market.
Also from a decision making point, a niche people expect for this niche a superb quality, which we Provide and that's the reason why the margin is so healthy. Yes, we can Lenfried discuss if We had our own view on the margins. We believe we are best in class and better than UPS margins. It's a little bit how you look into the best numbers what you combine. But I think we are providing now and you can see that also in the second quarter in the total numbers.
I think The total profitability of Workgroup has never been more close to UPS total numbers despite that they have A big machine domestically. We are less dependent on any major market. You had the question earlier about the labor market in the U. S. Yes, it's a challenge.
It's for everybody a challenge, but it's for us a tiny challenge in comparison to others. But we have it in the U. K. Some challenges, yes. But if you ask me, yes, it's also a tiny challenge for us in comparison to the group.
So that is the benefit of our portfolio somehow. And you see that in the second quarter, you easily can see that We are getting more profitable across the divisions and closing, even in absolute terms, the gap to the largest, This is UPS. That is based on our overall portfolio. And I don't see any structural change in that. I think we are So well equipped because we are benefiting in around the world from B2C and B2B, and that makes me confident.
We had a question around Future outlook, that's the reason why we deliver next year more profit than this year and afterwards more because of the lower growth rate. The questions are all linked somehow to each other. So we are pretty confident that we can keep a good margin. We are not guiding for margins, but also in our Express division, I think we are in
The Ellis question.
The Ellis question is, of course, included in our SEK7 billion guidance. It will not materialize in partially, I think, in 'twenty three, there's still a lot of lead time, but of course, it will be accounted for in our €7,000,000,000 The incremental additional cost, not the total cost, because we have to buy airplanes and replace current fleet of flights anyway. So we will accommodate that. But I think we are not allowed to talk about the pricing yet.
No, we're not going to talk about Rama, but I think to put things into perspective. I mean, we are totally excited about this very innovative new technology and that we can really pioneer here in using electric planes. But those are small feeder planes, yes? So they carry a ton. So in terms of overall CapEx, that is really, from a group Not a very significant number.
I think you also have to be realistic in terms of Q2 reduction, we will get through this. This is Going to be a step in the right direction, but it's not going to be the big thing. I think for aviation for the next decade, Given that it depends on the bigger aircraft, it is still about sustainable aviation fuel. And that is the biggest driver of our €7,000,000,000 and nothing has Changed here. But I'd like to thank you for the question.
Maybe that gives me the opportunity to say one more thing on the whole UC thing also in terms of expectation management. So when we gave our guidance and committed to science based targets and the absolute reduction in our Q2 footprint till 2,030, We already had taken into account that we would not see a reduction in absolute CO2 footprint in the early years Because again, it's depending on sustainable education fuel being available in sufficient quantity, and that's just not the case. And so what we clearly now expect for this year is that There will be an increase in our CO2 footprint, and that shouldn't come as a surprise to anybody given the very significant volume growth we see in Express and Airfreight particularly. Just wanted to give you the opportunity to clarify that. Okay.
Thank you.
Next question is from the line of Alex Irvin from Bernstein. Please go ahead.
Hi, good morning. 2 from me, please. First one on margin development in P and P into the medium term. So we've seen GLS announce their ambitions to grow in the B2C market. Does that mean rising competitive intensity in Germany and could there actually be pressure on parcel pricing in that event?
If so, are there any offsets to this you can accomplish? And where are you seeing margins in the medium term in that business? 2nd, one question on DGFF, please. The rollout of CargoWise is done, conversion margins are starting to improve. Is there therefore now a case Starting acquisitions in this business, which you've seen being quite accretive at some of your competitors, how are you currently thinking about that, please?
Yes. So maybe I take both. On the P and P margins, I think you should and I said that already before in calls, GLS, we're not particularly that's a small business in comparison. So that's another player. And it, of course, has some challenges for them as well in the German market to serve that market, digital structure they have.
You should fundamentally think, we always said around 10% margin is something we are going for much Significantly more long term is probably difficult because then the regulator might say why we should increase pricing on same price. So I think a sustainable margin around 10% is, I think, a long term ambition and I think realistic to achieve. We have seen that as well. DPD went into the market. As I said already earlier, there will be more capacity constraints than enough capacity to Few of the growth and therefore we I expect to have a good volume.
So on the M and A, we obviously say the same. Of course, if there is a good opportunity, so there is no strategic must have to do something. I think if there is a good opportunity to augment our capabilities. We will do that in supply chain. We would also do that in DJF.
But we don't have A need. We don't we have the biggest and most global network in the industry different from some of our players who were more active recently. And that's the reason we don't have any. But if there's a good opportunity, we would consider that as well because that is what you should expect as well as shareholders that we are looking into and make good use of the free cash flow we generate if there is a good target. So It's a generic answer, unfortunately, but I can't say more about that.
But in principle, if there is a good target which will help us to grow our business faster, We definitely will go for it. Is there a need to do that? No. So it's driven by it's opportunistically by opportunity and not Strategic move. I think that is what we have said already before.
And we have looked in the past and to look into the future And then same
way. Okay. Thanks.
You're welcome.
Next question is from the line of David Kerstens from Jefferies. Please go ahead.
Hi, good morning everybody. Three questions on the P and P, please. First of all, I was wondering if you Seen any impact on your volume trends following the end of lockdown, which I think was in the middle of May, so right in the middle of the second quarter? Seems like your parcel volumes held up very well after the end of lockdown. Was there any impact maybe on the recovery and dialogue marketing?
And also mail communication remains very, very resilient. I was wondering if that number might have been helped By some one off mailings in the 2nd quarters, for example, such as vaccination levels. And then finally, you continue to expand the pack station network Now to 12,500 pack stations. I was wondering, can you give an indication of how much volume is going to these stations today? I think at your Capital Markets Day, you were aiming 10% by 2025, how much would that be with 12,500 pack stations?
And what is the optimal number of pack stations in Germany longer term? Do you expect that this could become the dominant parcel delivery method longer term in Germany? Thank you very much.
Yes. So on the volume trends, I mean, first of all, on the parcel side, as you saw, we are still at Very high levels in the second quarter on what was the peak in 2019, Way more than 7,000,000 parcels on average per day in the network. And We are now seeing this normalization in growth, but it is clearly also after the end of the lockdown staying at this elevated level, which we had anticipated. We indeed believe that there is a bit of a temporary boost with the Dialog marketing volumes. When you look at the year over year comparison, I think that is, a, impacted by the really extremely low volumes we had in Q2 2020.
But we believe that there is also a little bit of, yes, advertising boost to get people back into the shop. When you look at the volume growth overall and the trends in both, We believe that as we got key substitution, COVID has clearly pushed us to a lower level than before the pandemic and also kind of like the Q2 mail communication numbers are not meaning any significant change And trends, we believe that we have gone down to a lower level. And our best expectation is that the normalization over time will take us back to the historical decline rate. And I think that is what we will now be gradually setting in probably not so much in the second half of the year, but more than towards And with regard to the pack stations, yes, indeed, we are aiming to over time get about 10% of the parcel volume into The tax stations and the build out and the continued build out is, of course, creating the infrastructure for that. But The Germans love their parcel to be delivered to their homes.
So we don't think this will become the dominant Way off deliveries like we are seeing in some other markets. I think the 10% aspiration is Still an ambitious target. We still have some way to get there.
Yes. Maybe coming back to the first question, We don't know yet because summer season is not over. But personally, I expect more impact from that people are going on vacation again than on The end of the lockdown on the volume growth. And I always reflect what I see doing myself and my families. And you are also have you gone in the same way back to the stores that you have done before or your partner or your kids?
Probably not. Are you going on vacation again? Yes. Are you ordering a lot on your vacation? No.
So therefore, the indication which we now see in July, August September, I believe, will have a significant bigger impact year over year than the end of the lockdown. But that's a speculation and observing myself. I was already on vacation, and I have not ordered anything during occasion. And I have probably not had any 2 weeks in the past year where my family or I didn't order anything. So that's the reason why that impact is bigger than the lockdown.
And to be honest, if I see not only my direct family but also friends, I say it's so convenient to get stuff home. Why should I go for that stuff in the city now? They go there for restaurants. They are busy. I see that as well here.
So that is what humans are doing. And vacation is so fundamental. That's the reason why we probably will see relatively weak summer period, not only in P and P, And Melanie referred to that already. And knowing that, we say, okay, but now cutting capacity would be weird because then We might miss the service quality in autumn and that will be better in Christmas and that will be better digestible and say, okay, we compromise on EBIT for a certain month or 2. But then we are well prepared.
And next year, of course, We will be brought back to enrollment and then we will do what we have always done, learning from the past. So it's not a lasting effect even if we compromise. But we did actually you might remember, I said last year in May, we will compromise on EBIT. We will not compromise on service quality. And I think that was a good advice to the organization and has worked very well for us.
And I have no doubt that this will work in the future in the same way. So We are living still in volatile times. I think the priority for us is to focus on the best service quality and to protect all people.
Understood. Thank you very much.
Next question is from the line of Sumit Mehrotra from Societe Generale. Please go ahead.
Good morning. Good luck with Alice. We all want this to succeed, yes. So fully conscious of Frank's responses earlier, but still delving into the earnings durability aspect a bit more in Express, Yes, 19% EBIT margins in first half. Can we expect similar levels in 4Q peak?
And what and from what can we draw confidence that 2022, we won't see any Steep step down versus the 2021 levels in Express. That's for Express in freight forwarding conversion rates. Yes, quite impressive. How can you assure that the conversion rates will stick and they won't come down To say 15% to 16% levels earlier we saw in 2019 2018. Thank you.
Lisa?
Yes. So on the Express margins, I mean, obviously, what you have now seen in the first half Q2 20 percent is really a very perfect combination of the right volume in a very mixed balance flowing through the network. I think that shows what the Express network is capable of. As explained in general, we are now really On quality and how good the margin and the utilization will be in the second half of the year, it really depends now on the volume development. It should be on a very good level for Express.
But how good it is will now really depend on how exactly Volume patterns play out in the second half of the year. But overall, I think we will also in terms of absolute numbers see a good performance from Express in Second half of the year. The good thing coming to your 2022 question is that, yes, we believe that we are now seeing The beginning of the normalization in B2C, that's probably going to impact the second half of the year and expressed already. That is then going to be a good basis for a solid performance on the B2C side into 2022. And on the B2B side, Given the general dynamic of the global economy, we also think that there is further growth potential into 'twenty two, and that should, of course, benefit the P2P volumes we'll express.
And that is the basis for our outlook for Express into 2022. Again, we will give the full 2022 guidance in next March when we really See and know how the second half of twenty twenty one has played out. With regard to the GP conversion in Global Forwarding, Before COVID, yes, there was a time before COVID, even though it feels long ago. We had very clearly said that we want to improve our GP conversion based On the benefits of our new transport management system, we had aimed for 20% in 2020 in terms of DGF core GP to EBIT conversion And then gradually taking that up by 100 to 200 basis points year over year based really on our fundamental internal process improvement and nothing has changed about that. So this underlying improvement should still continue.
Of course, at the moment, the abnormally high GP levels are boosting the conversion. There will be a bit of a fade off on that, But this underlying progression should continue.
Yes. And if you look into what can lead to What can lead drop in profitability and margin? So we talked already about volume development. We are confident that we will see volume positive volume development on e commerce B2C growth. Not even talked about B2B e commerce, which will help us as well because it takes bigger pieces, pallets and containers down to parcel levels, somehow more.
So that should help us there. Pricing, I talked already about quite intensively, but I believe we have to live for next Yes, with capacity constraints, which should be good there. So we don't expect a volume drop. We don't expect a more Price was somehow in the network businesses. And Melanie referred or EGF is different, but we have a lot of opportunities from GP to EBIT improvements.
And that's the reason why and if you look into our guidance, we of course will not continue to grow the Bottom line in the same way. And that's a mixture of maybe, yes, we see a slight decline in some margins. But we definitely will See continuation of growth. And that's the reason why our numbers for 2023, I think, are prudent and realistic and not dreaming that everything will be in the same way as it was in the last quarters. But the fundamentals like pricing, volumes, Capacity, no change.
And in the supply chain in DGF, I think we have a lot of opportunities for our internal measures to to improve their profitability further. And finally, in the network business, you have seen what scale means. We went we had a target of 5% in e Commercial Solutions. Now we had 8 trading in the last two quarters. So that shows you and if volumes are not disappearing, and I can't see any reason, That there's a fundamental shift of the margins to a higher level as we have seen.
If that's at 20% sustainable or a lower level, that's a Question, but if you take all elements together, then you probably would come up to that our guidance for 2023 is a pretty decent one.
Thank you very much.
You're welcome.
Next question is from the line of Sam Bland from JPMorgan. Please go ahead.
Thanks. I have two questions, please. The first one is on B2B volume. We've heard about how When we get through to Q4, for example, we might see some normalization on the B2C side. Can you talk about How depressed B2B volumes still were in the second half of last year?
And so could we see Yes. Although B2C is a bit lower maybe year on year, we still get quite a nice boost from B2B. And the second question is in Express, Are we right in thinking that really the main driver of the higher profit in Express is the higher volumes? Yes, so There's not some piece of the profitability that's going to unwind or isn't sustainable, whether it's the ACS, whether it's Your airfreight capacity comes back, whether it's surcharges. Is it really kind of just volume higher volume and that's what's driving the Express profitability?
Thank
you. Yes. I think it's more the ladies the search has, of course, played a role. The Express industry has not played the game like in the forwarding industry. And this, we can't do that with customers anyway.
The customers understand that our costs didn't go through the roof. We had a higher cost for traders instead of belly space. And of course, that has led to the ETS charge. And if that goes away, there are certain costs are going away as well with regard to the Because we will then let operate less freighters on certain routes, but we have value capacity and then our costs are down as well. So I think the whole express industry has treated customers with regard pricing differently from the From the forwarding industry, because in forwarding, if you buy higher, you have to charge your customer higher.
And that is fully understood by all customers that the forwarding It's different from the Express industry. And as I said already, when the prices and the forwarding industry are coming down, yes, it may be our GP per ton and GP per TEU comes down, but our conversions can still go up from GP to EBIT. On B2B, I think you're something just right. I can't see at the moment any reason why we should not have a very strong B2B growth in the second half as well. I agree to that.
Okay, understood. Thank you.
You're welcome.
There are
no further questions at this time. And I would like to hand back to Martin And Siegenbald for closing comments. Please go ahead.
Thank you, operator. And so we Sort of missed my 60 minute target, but it's for the colleagues that look sensitive to bear the consequences with that call. Okay. Thank you very much for joining. Before I hand over to Frank for his closing remarks.
Yes. Thank you for listening and for your interesting questions. I think they were all spot on. And of course, these are the questions we are discussing internally as well. Hopefully, You heard that, of course, nobody knows what will happen, but we have some quite confident that our guidance for this year is achievable and also beyond.
And yes, and the company is it feels good the company is doing the right stuff. We have 5 divisions who are knowing what their program is on the strategy as well. And that's the reason why I'm confident that we will deliver what we have promised this year and beyond. So with that, thank you very much for listening. And hopefully, You're not too far distant future.
We might see each other again, and Chris, thank you very much, bye, for today.
Thank you.