Deutsche Post : 2023 Half-year Report

Interim Group Management Report

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2023 HALF-YEAR REPORT

1	INTERIM GROUP MANAGEMENT REPORT	17	Cash flow statement
1	General information	19	Statement of changes in equity
2	Report on economic position	21	Selected explanatory notes
11	Expected developments, opportunities and risks	38	Responsibility statement
		39	Review report

13	CONDENSED CONSOLIDATED INTERIM
	FINANCIAL STATEMENTS			40	FINANCIAL CALENDAR
13	Income statement
14 Statement of comprehensive income		40	CONTACT
15	Balance sheet
SELECTED KEY FIGURES
			H1 2022	H1 2023	+/- %	Q2 2022	Q2 2023	+/- %
			adjusted			adjusted
Revenue	€m	46,622	41,012	-12.0	24,029	20,094	-16.4
Profit from operating activities (EBIT)	€m	4,485	3,331	-25.7	2,326	1,693	-27.2
Return on sales1	%	9.6	8.1	-	9.7	8.4	-
EBIT after asset charge (EAC)	€m	2,882	1,607	-44.2	1,494	827	-44.6
Consolidated net profit for the period2	€m	2,804	1,889	-32.6	1,453	978	-32.7
Free cash flow	€m	468	1,433	>100	665	450	-32.3
Net debt3	€m	15,856	17,614	11.1	-	-	-
Earnings per share4	€	2.29	1.58	-31.0	1.19	0.82	-31.1
Number of employees5		583,816	586,404	0.4	-	-	-

1. EBIT/revenue.
2. After deduction of noncontrolling interests.
3. Prior-yearfigure as of December 31.
4. Basic earnings per share.
5. Headcount at the end of the quarter, including trainees.

GENERAL INFORMATION

Organizational changes

After more than 15 years as CEO, Frank Appel's term of office as a member of the Board of Management expired at the end of the Annual General Meeting on May 4, 2023. Tobias Meyer, who has been a member of the Board of Management since April 2019, has been the new CEO since that date.

Deutsche Post DHL Group changed its name to DHL Group with effect from July 1, 2023; its stock market ticker is now DHL. The adoption of this new name does not have any influence on the services offered by the divisions. The Deutsche Post and DHL brands will continue to be used as before. The change of name does not have any impact on the names or characteristics of the Group's legal entities, particularly Deutsche Post AG, or on the internal and external relations with these entities.

Research and development

As a service provider, DHL Group does not engage in research and development activities in the narrower sense and therefore has no significant expenses to report in this connection.

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REPORT ON ECONOMIC POSITION

Economic parameters

The following data describing the general economic parameters of the global economy stem from S&P Global Market Intelligence (S&P Global).

The interim recovery of the global economy following the end of the pandemic continued to lose momentum in the second quarter. At the same time, activity remained much more robust in the service sector than in industry of late, but dampened real purchasing power linked to historically still-high inflation rates and dwindling accumulated savings from pandemic lockdown periods has dampened matters here, too. The unsettledness caused by the ongoing war in Ukraine and the structural upheaval in the energy sector remained a burden for both business and consumer confidence.

Notwithstanding weakening economic activity, leading central banks like the US Federal Reserve (Fed) and the European Central Bank (ECB) have tightened monetary policy even further during the second quarter, in order to prevent core inflation (excluding food and energy) from stabilizing at levels far above the proclaimed target of 2%.

In the end markets relevant for DHL Group, B2B volume development was negatively affected by the reduction in inventories in addition to the general economic parameters. In contrast, B2C volumes in parcel business proved to be relatively resilient. This confirms the structural trend of a shift in consumption toward e-commerce even in a weaker economic environment.

Significant events

As part of the completed second and initiated third tranches of the 2022-2024 share buyback program, we had repurchased a total of 7.5 million additional shares in the amount of €302 million as of June 30, 2023.

On June 26, 2023, we placed a sustainability-linked bond with an issue volume of €500 million and a term through 2033. The interest rate is coupled with the achievement of our targets for the reduction of CO2 emissions. Payments in conjunction with the bond will not be made until after the reporting date.

Results of operations

SELECTED INDICATORS FOR RESULTS OF OPERATIONS
		H1 2022	H1 2023	Q2 2022	Q2 2023
		adjusted		adjusted
Revenue	€m	46,622	41,012	24,029	20,094
Profit from operating activities (EBIT)	€m	4,485	3,331	2,326	1,693
Return on sales1	%	9.6	8.1	9.7	8.4
EBIT after asset charge (EAC)	€m	2,882	1,607	1,494	827
Consolidated net profit for the period2	€m	2,804	1,889	1,453	978
Earnings per share3	€	2.29	1.58	1.19	0.82

1. EBIT/revenue.
2. After deduction of noncontrolling interests.
3. Basic earnings per share.

Changes to the portfolio

The portfolio has not undergone any noteworthy changes.

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Group revenue below prior-year level due to economic factors

In the first half of 2023, Group revenue was €41,012 million (previous year: €46,622 million) due to the current economic environment and the expected normalization of the freight markets. Currency effects reduced revenue by €925 million, 74.7% of which was generated abroad (previous year: 77.0%). In the second quarter, revenue declined from €24,029 million in the previous year to €20,094 million, also curtailed by negative currency effects in the amount of €669 million. At €1,299 million, other operating income fell short of the prior-year period (€1,333 million), which also included the disposal of the StreetScooter business.

Significant decrease in material expense

Material expense decreased significantly by €5,292 million to €20,935 million, largely due to lower transport costs in the Global Forwarding, Freight division in particular. Wage and salary increases along with the increased number of employees raised staff costs from €12,820 million to €13,483 million. Depreciation, amortization and impairment losses increased from €2,028 million to €2,155 million, due particularly to investments. Other operating expenses came to €2,602 million, thus slightly exceeding the prior year (€2,566 million), also driven by increased travel and entertainment expenses.

Reduced consolidated EBIT

In the first half of 2023, profit from operating activities (EBIT) declined by 25.7% to €3,331 million (previous year: €4,485 million). Due to higher charges from the valuation of stock appreciation rights (SAR), among other factors, net finance costs of €-445 million were also higher compared with the prior-year period (€-269 million). Profit before income taxes fell by €1,330 million to €2,886 million. As a consequence, income taxes decreased by €357 million to €866 million. The tax rate was 30.0% (previous year: 29.0%).

Consolidated net profit for the period in line with EBIT

At €2,020 million, consolidated net profit for the first half of 2023 was below the prior-year figure (€2,993 million). Of this amount, €1,889 million is attributable to Deutsche Post AG shareholders and €131 million to noncontrolling interest holders. Earnings per share amounted to €1.58 (basic) and €1.55 (diluted).

EBIT after asset charge (EAC) declines

EAC declined from €2,882 million to €1,607 million in the first half of 2023, primarily due to the decrease in EBIT. The imputed asset charge rose, primarily due to investments in property, plant and equipment in all divisions, partially offset by a decrease in net working capital in the Global Forwarding, Freight division.

EBIT AFTER ASSET CHARGE (EAC)
€m	H1 2022	H1 2023	+/- %
			adjusted
EBIT	4,485	3,331	-25.7
		Asset charge	-1,603	-1,724	-7.5
		EAC	2,882	1,607	-44.2

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Divisions

Express: Effective yield and cost management

Revenue in the division decreased by 7.2% to €12,403 million in the first half of 2023, also due to negative currency effects of €416 million, partly offset with higher fuel surcharges. Excluding currency effects and fuel surcharges, first-half revenue was down 5.8%. Due to the weak macroeconomic situation, TDI daily shipment volumes declined by 4.5%.

To counter this, there was a focus on effectively managing costs and optimizing network capacity. We addressed the ongoing effects of inflation with general price increases that are being systematically implemented. In the first half of 2023, EBIT in the division was €1,804 million, 12.9% below the level of the prior-year figure. The return on sales was 14.5%. In the second quarter, EBIT in the division was €901 million and thus 18.2% below the prior-year figure, while the return on sales amounted to 14.7%.

KEY FIGURES, EXPRESS
€m	H1 2022	H1 2023	+/- %	Q2 2022	Q2 2023	+/- %
Revenue	13,366	12,403	-7.2	6,993	6,122	-12.5
of which Europe	5,469	5,546	1.4	2,817	2,730	-3.1
Americas	2,959	2,964	0.2	1,561	1,492	-4.4
Asia Pacific	4,836	4,329	-10.5	2,531	2,176	-14.0
MEA (Middle East and Africa)	762	757	-0.7	400	378	-5.5
Consolidation/Other	-660	-1,193	-80.8	-316	-654	<-100
Profit from operating activities (EBIT)	2,072	1,804	-12.9	1,101	901	-18.2
Return on sales (%)1	15.5	14.5	-	15.7	14.7	-
Operating cash flow	2,591	2,364	-8.8	982	1,141	16.2
1 EBIT/revenue.
EXPRESS: REVENUE BY PRODUCT
€m per day1	H1 2022	H1 2023	+/- %	Q2 2022	Q2 2023	+/- %
Time Definite International (TDI)	84.5	82.2	-2.7	88.4	83.5	-5.5
Time Definite Domestic (TDD)	6.6	6.2	-6.1	6.6	6.2	-6.1

1 To improve comparability, product revenues were translated at uniform exchange rates. These revenues are also the basis for the weighted calculation of working days.

EXPRESS: VOLUME BY PRODUCT
Items per day (thousands)	H1 2022	H1 2023	+/- %	Q2 2022	Q2 2023	+/- %
Time Definite International (TDI)	1,144	1,092	-4.5	1,166	1,123	-3.7
Time Definite Domestic (TDD)	571	502	-12.1	563	491	-12.8

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Global Forwarding, Freight: Lower revenue in air and ocean freight as expected

As expected, revenue in the division decreased by 33.5% to €10,323 million in the first half of 2023 due to lower volumes and normalizing freight rates. Excluding negative currency effects of €333 million, revenue was down 31.3% compared with the prior-year period. In the second quarter of 2023, revenue fell 40.7% short of the prior-year figure. Revenue in the Global Forwarding business unit decreased by 40.3% to €7,728 million in the first half of the year against the backdrop of the general ­normalization of freight markets. Without taking negative currency effects of €278 million into account, the decrease was 38.1%. Gross profit in the Global Forwarding business unit was down from the previous year by 22.3% to €1,976 million.

We registered a drop of 15.9% in air freight volumes in the first half of 2023, particularly on trade lanes between China and the United States and between China and Europe. First-half air freight revenues dropped by 43.2% and gross profit by 38.3% due to lower volumes and selling rates. In the second quarter of 2023, revenue was down 46.8% and gross profit down 45.8% on the prior year in air freight. Ocean freight volumes were down 7.1% over the prior-year period in the first half of 2023 due to a decline on trade lanes from China. Our ocean freight revenues decreased by 45.6% and gross profit by 20.4% in the first half of the year. The second quarter of 2023 saw corresponding declines of 55.8% and 31.1%, respectively.

Revenue in the Freight business unit increased slightly by 0.3% to €2,654 million in the first half of 2023 due to positive price effects. Volumes declined by 6.6% compared to the prior-year period. Gross profit in this business unit improved by 3.0% to €690 million. In the second quarter of 2023, revenues declined by 5.2%, while gross profit remained at the prior year's level.

In the first half of 2023, EBIT in the division decreased from €1,336 million to €777 million due to the lower revenue. The EBIT margin of 7.5% remained at a good level. EBIT in the division thus corresponds to 29.1% of gross profit and 35.3% for the Global Forwarding business unit. In the second quarter of 2023, EBIT in the division stood at €388 million.

KEY FIGURES, GLOBAL FORWARDING, FREIGHT
€m	H1 2022	H1 2023	+/- %	Q2 2022	Q2 2023	+/- %
Revenue	15,515	10,323	-33.5	8,156	4,839	-40.7
of which Global Forwarding	12,937	7,728	-40.3	6,824	3,570	-47.7
Freight	2,646	2,654	0.3	1,369	1,298	-5.2
Consolidation/Other	-68	-59	13.2	-37	-29	21.6
Profit from operating activities (EBIT)1	1,336	777	-41.8	735	388	-47.2
Return on sales (%)1, 2	8.6	7.5	-	9.0	8.0	-
Operating cash flow	1,113	1,342	20.6	695	485	-30.2

1. Prior-yearfigure adjusted due to final purchase price allocation for Hillebrand.
2. EBIT/revenue.

GLOBAL FORWARDING: REVENUE
€m	H1 2022	H1 2023	+/- %	Q2 2022	Q2 2023	+/- %
Air freight	5,633	3,202	-43.2	2,777	1,477	-46.8
Ocean freight	5,829	3,172	-45.6	3,230	1,429	-55.8
Other	1,475	1,354	-8.2	817	664	-18.7
Total	12,937	7,728	-40.3	6,824	3,570	-47.7

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