Deutsche Post AG

A very warm welcome to our Q3 Investor Presentation here in Frankfurt; I'm happy to see a few faces here. It's going to be half virtual, half physical presence for that meeting today.

And I understand that a few had seen their flights canceled, so I hope you made it back in time to the office to follow this in the webcast. I take it you all have got our little handout in front of you because that also gives you the agenda for the day.

It's been pretty exactly half a year ago now that we all met in London on the occasion of the Q1 results. This time around, we're going to take the occasion of the Q3 results to bring across two further elements.

And that's going to be firstly, within Melanie's part, a bit of an educational effort to explain to you the effects and consequences of the upcoming accounting changes. So the experts are looking forward to that one.

And then, of course, for the first time in his new function to this type of audience, I am glad that we have Tim Scharwath here to share with us his views after the first couple of month being the CEO of the Forwarding division. And without further ado, I'm looking forward to a useful time for all of us and ask Frank to start please.

Yes, also welcome from my side here and in the web. So as Martin already said, we have three pieces.

So first I want to give you some highlights of what has happened in the third quarter. Then Melanie reports more in depth stuff in particular how we want to deal with IFRS 16.

And then finally, Tim will give you his impression after he is now for a couple of months on board, how we're going and then I will wrap up, and then the floor is yours for any questions. So the highlight is pretty much that I would summarize that it's now the eighth quarter in a row what we have a record result, which is based this quarter on growth on top line and bottom line and all parts.

Also, we will show you later on some numbers which makes me pretty happy that if I take the numbers how we have shown up now, it's very much in line with our own expectations. So when we put in place and we talked to you in spring, we said these have changed in that direction, in that direction, it actually happened exactly that and that of course is for me, as the CEO, a pretty good sign.

So in detail, Express continues to grow very rapidly top line and bottom line with great service quality, gained market share, as I will show in a second, tremendously. PeP also has a good balance between contributing to the profitability by top line and bottom line growth, but also continues to invest heavily into our business model.

DGFF, first quarter this year that we are up year-over-year; still strong growth but also, I think, we see first signs of significant improvement in Supply Chain despite we have headwinds from currency we see that the measures we have put in place are getting more and more traction. Therefore, we are very confident that we will deliver our numbers this year.

On all that I mentioned, as much as we are confident that we will deliver our 2020 goals. So PeP, when we met in London and I -- you were very much concerned as the investor community about the mail decline and we said we are very confident to deliver 2% to 3%, today I can say if we take everything out the election and all this kind of stuff, we're at the upper end with minus 2% then we on the lower end with minus 3%.

So that's good news. So we kept our promises, we were at that time very confident, as you remember Melanie and I, that this will happen because we found the first month of the year was very much strange.

And we should expect similar things next year, but the base is much more because vacation break will be exactly the same, the first week with vacation, the first week of January will be vacation week, so but then year-over-year we shall see a significantly less decline that at least -- then it would even consistent. But at the moment, we see a very strong growth in Dialogue Marketing and really strong growth, as we can see here, and the decline in Mail Communication came down quite a bit.

On Parcel, continuation of strong volume growth. Revenues not that much up because the mix and match is changing and the large customers are growing faster than the average.

Despite that we put price increases in for the large customers, on balance the price per piece is coming down slightly and that's the reason why growth in volume is higher than in revenue. This is just a summary of all the activities we are doing there, constant investment into our capacity with our large sorting centers and network orchestration where we use data analytics and [indiscernible] optimization to optimize where cost is deployed.

Our Streetscooter, it's really tremendous success, our sustainable solution. We will produce probably next year 20,000 of those.

Last mile optimization is another pilot we recently launched where this Postbot is really following the career. We have different solutions with trunk delivery, also DHL4ALL.

We have now had a pilot where we deliver, we consolidate parcels from all competitors in one place and we deliver the last mile, which I think is a very interesting concept. We will now assess how that pilot worked.

I think that's a great idea. And finally, in grocery stuff, we're getting more and more traction there too.

What is important for you as well is probably not that we are growing very rapidly on top line and volume in Europe and in e-commerce, I think what is important is on the bottom left. That shows you illustrative what is happening, not with precise numbers, but actually what happens in these new startup activities we have in Europe in e-commerce exactly as we hoped for.

We see in the first quarters an acceleration of loses, described here that you see minuses and that goes further down, but it then turns a corner and we see improvement in profitability. And these dots in color are showing that we also have in e-commerce the first country who has turned the corner already and is proving profitability.

So that encourages us that what we're doing in these markets is right. We grow rapidly and at the same time we see what is expected.

At the beginning, we have to invest into losses and then it turns a corner, and it's getting profitable or less loss making first and then mid-term definitely also profitable. So that's what we have seen and experienced and that's the reason why we show that because we think the recipe we build is working according to our expectations.

So you can see more on the right, I don't have to go in all the detail, but that I think is the [indiscernible] of that page. Yes, what we have put in place is working according to our expectations.

Losses are going up first and then they get smaller and smaller and we will see definitely profitability. We have to grow still a lot and we grow very rapidly as you can see here.

Express, a continuation of a very strong development. Again, very much top line growth, volume growth is up across the -- even here.

We have higher yields. We have higher yields.

We have been very disciplined in the network. Despite that, we have a 12% growth rate.

We have increased yield, as you can see here easily. It's all over the place.

Asia the least, but in the other parts of world we are really growing rapidly. And I think that's great.

We continue with the GRI revenue increase, yield increase, rate increase but generally first to keep that momentum. All this has also let -- and I think that shows that the free bottom line concept by focus on customers of highly engaged people, delivers really great results.

This is the last research we have done and here we see how much market share gain we got in all regions of the world. And that's very consistent.

Even in the home market of our strongest competitors, we gained market share. And that in an industry, which has had very high service level already.

And as you have seen before, it doesn't come with yield deterioration, it comes with even yield improvement. So if you really make a significant improvement in service quality, you really can gain market share and improve profitability at the same time.

And I think that's the proof of the evidence and of course, Ken Allen and his team is very proud, but I feel proud as well; where we came from and what we have really delivered here is outstanding. If we now talk about Supply Chain because I will skip in my report because Tim is here.

I will not talk about DGFF, I think it's his pleasure now to talk to you about the new division, what he found is good and what -- where we have to improve, instead of I making comments. We had another quarter of strong signings in Supply Chain.

Supply chain is doing better. You will see later on in Melanie's numbers that the number is good, but we have significant headwind from currency actually as we have in all DHL divisions.

Here is one product we have developed in our company, which gives you transparency about the Supply Chain risks. That is helpful for customers, but also to operate our own operations.

We are selling that to customers and it's getting more and more attention. And by the way, then the hurricanes in the U.S.

were the best information I've got from what is really going on the ground was from this tool. It was not CNN or any German news.

This is really a fantastic tool it gives you very first hand information of what is happening and what have we to do as an operator. And we can advice customers very nicely what it means for their Supply Chain.

So that's a great tool and it gets more and more attention from our customers and we use it for ourselves to operate our business. So here the summary for the nine months, all indicators are heading in the right direction.

Top line growth is good despite we had headwinds from currencies. EBIT is up even more, operating cash flow is improving and free cash flow is most, in percentage wise, most up, but also more up than the EBIT.

So overall, I think we have really delivered solid numbers for our year-to-date and therefore we're very confident for the rest of the year, and we're well on track to deliver these numbers. So that was my perspective.

Now I hand over to Melanie to give you more detail and give you some insights how we want to deal with IFRS 16. Thank you.

Yes. Thank you very much, Frank.

I mean, it's always challenging to talk after Frank has already covered most of the important stuff and to then go into the financial details. Today it's even more challenging because I know you are all waiting for Tim and what he has to say about Forwarding.

And to make it worse, I'm actually going to talk about accounting standards. So the good news is I think the third quarter numbers in themselves are relatively self-explanatory.

So I will be relatively brief on that so that we have enough time for accounting and Tim. When you look at our group P&L for the third quarter, Frank already mentioned it, we saw very solid growth across all divisions.

And despite the currency impact, we had a reported revenue increase of 5.6%. When you look at it organically, it was actually close to 8%.

So I think there is healthy growth dynamic here. But currency has been a headwind both on revenue and on EBIT in this quarter.

Nevertheless, we have been able to increase our group EBIT by 10.5% and all of the divisions have contributed to this. I'll go more into the details of the divisions in a second.I think the other element which is interesting here on this page, is on the taxes side we have been able to reduce our full year tax rate to 13% because of the good business performance we have been able to activate more tax loss carry forward and that was one of the main drivers for the reduction.

As usual, you then have to correct for the new forecast for the full year in the current quarter. We have done that and that has taken the tax rate for the third quarter down to 9%.

However, last year, the correction was even bigger. Last year we went down to 5% in the third quarter.

And that explains why there is actually, despite the reduction, a slightly higher number on taxes in the third quarter '17 than in '16. So putting all this together, we have seen a bit less growth in consolidated net profit, but we're very pleased with the result of €641 million in net profit for the quarter.

When we look at the cash flow side of things, when you look at the middle of the page, you can see that our operating cash flow after changes in working capital actually improved by something like €67 million. So we had a very good translation of our EBIT improvement into OCF.

Below the OCF, we had due to timing, a bit higher cash out from CapEx and in the third quarter of 2016. And we completed an acquisition; we acquired a company in Brazil in the life science and health care sector for our Supply Chain division.

That explains why we actually had €50 million in cash out for the quarter. And on that basis, free cash flow is lower in the quarter than in the third quarter of 2016.

I think when you look at the overall perspective after nine months, we are €214 million better in free cash flow compared to last year and I think we are well on track to have a good free cash flow performance for the year. There again as a reminder, our guidance says a minimum of €1.4 billion.

So I think we're really well on our way to achieving this. A quick look at the net debt position.

I think there is really nothing surprising on this page. Net debt stands at €3.2 billion.

That is like €360 million better than at the end of June, almost €800 million better than a year ago. So I think we are, in terms of balance sheet position, in a very comfortable spot.

And on the pension funding, yes, there was a little bit of decline in the discount interest rates in Germany and the U.K. Nevertheless we stand at a funding ratio of 71%.

So we're also quite comfortable with the situation on the pension side. That takes me to a quick look at the divisions.

I mean, on the PeP side, the top line growth is impacted by the U.K. Mail acquisition.

If you strip that out, we've seen a 4.4% organic increase which I think is a very pleasing result. And Frank already mentioned that in this third quarter, also the postal revenue and postal volumes in Germany were developing quite favorably.

And that has been together with the good parcel growth and strict cost control, that has been the basis for the improvement on the EBIT side. EBIT in Germany, up 6.8%.

I think that's a very, very solid result. On the international side, as you all know, we are still in the expansion phase.

So minus €5 million here is absolutely in line with what we were planning to see here. Express, yes, the yellow machine keeps running.

I mean, Frank showed you the market share development. I think Express really is a showcase that service orientation, focus on our cross-border product with supreme quality, high customer satisfaction, motivated people, is then translating into good numbers.

We had a very strong top line growth. When you take out the currency headwind, it was actually close to 14%.

We also had quite a bit of currency impact in the EBIT, but nevertheless they were able to show a 10.4% year-over-year improvement. And also on the cash flow side it was really another good quarter for our Express colleagues.

The one number which looks a little bit funny here is the CapEx. It is comparatively low.

You know that CapEx and PeP are our bigger CapEx divisions. So in terms of overall numbers, €180 million in a quarter is quite a small number.

That is due to timing effects and there will be quite an uptick in the fourth quarter. We're in the process of acquiring, for example, some aircraft where it's always a bit of a timing thing does that happen in September or a couple of weeks later.

But so there will be an uptick in the CapEx and that is also one of the reasons why we're maintaining our CapEx guidance for the full year. I'll come back to that in a second.

Yes, I'm also skipping Forwarding, to leave that to Tim. I think on the Supply Chain side, two elements which are noteworthy.

The first one is on the revenue, you can really see the impact particularly of the UK pound here. I mean organically growth would have been 6%, you only see 2.3%.

And also when you look at the EBIT, you see an 8% growth, but we had the €8 million in restructuring costs. So if you strip that out, the growth would have been only 2.1%.

Actually, we had €9 million in negative currency impact in the quarter alone in Supply Chain. So I think the 8% is quite a good indication of the real underlying improvement.

Yes, and that takes me to one of the special topics of the day, accounting standards. A fascinating topic, but actually it's quite a bit of exciting stuff happening at the moment because we have, I think, the biggest amount of change in the accounting standards coming up over the next year which we have seen in a long time.

So we have two accounting standards where the new standard must be applied as of the 1st of January 2018. That's IFRS 15 which deals with revenue recognition and IFRS 9 which deals with financial instruments, which is for us mostly relevant in the context of how we account for our receivables.

But both those changes will not have a material impact on our numbers. So that is really going to be extremely small.

The one accounting standard which goes mandatorily into effect on the 1st of January 2019, but which can be applied already as of 2018 is IFRS 16. And that is a standard which is going to have quite a bit of impact on our numbers because we have a lot of operating leases.

That's no t a surprise for anybody, you can see it in the notes. And it's also nothing which we can change or which we would want to change because operating leases are an integral part of our business model.

So for example on the Supply Chain side, when we enter into an outsourcing contract with a customer and we get a warehouse for that customer and it's five year contract with the customer, it, in most cases, make sense for us to also do a five year operating lease for terminals with the customer contract, no. So on the real estate side but also on the aviation side, operating leases are a part of our business.

We didn't do it to keep the stuff off the balance sheet. It is just the nature of the business.

So what we are currently planning to do is we want to actually implement all three standards at the same time so that we don't have multiple accounting changes two in one year and then 16 in the next year. And so we are getting ready, as a finance organization, towards to implement IFRS 16 as of the 1, of January 2018 so that you get everything in one go.

Due to the accounting approach, the so-called simplified approach, there will be no restatement of the 2017 numbers. But we will give you full transparency on what are the material changes.

In terms of final quantification, I can only do this once we are done with really implementing it, but I want to give you a bit of a flavor for the order of magnitude we're talking about today and also about how the techniques work on this. So the basic idea is relatively simple, operating leases will now be treated more in line with financial leases.

So they will go as assets and leasing obligations on the balance sheet. This slide, I am never sure whether this is really helpful but I think it shows you conceptually a little bit how this happens.

So at the moment, we have finance leases and operating leases. The operating leases are not on the balance sheet and all you see is in the P&L line, lease expense which sits as a cost above EBIT.

So the full lease expense goes into your EBIT. There's a new change, those leasing obligations are activated as assets on the balance sheet and you create a leasing obligation.

What then happens in the P&L, going forward, is that your lease expense is split into a depreciation component which stays in EBIT and into an interest component which goes below EBIT. So just technically, you get an increase in your EBIT.

The other thing I should quickly mention because I think that's also a relevant topic, is rating agencies, is that going to do anything to our rating? No, because rating agencies are already fully taking into account future lease payments.

So in their calculations, the whole leasing topic is covered. So coming in a bit more detail to what it's going to do to our P&L.

So I already said what we currently have in the P&L, the leasing expense position is going to be split into a depreciation part and into an interest part. And depreciation will naturally go up quite a bit.

Hence our EBITDA is going to go up significantly, depreciation is going to go up, and our EBIT is going to go up. However, the interest component will still show up in the P&L, but it will go below EBIT into the net finance cost.

We don't expect any material impact on the income taxes and over time, because you're only splitting two things, it should be neutral on net profit. There is, nevertheless, a bit of a timing difference because the depreciation is straight line whilst the interest is not straight line, so that in the beginning due to this timing effect, there is going to be a little bit of a negative impact on net profit, but over the duration this is going to even out.

Okay so that was, I think, the toughest slide. So now we just come quickly to the question of what is that going to do to cash flow.

I mean, first of all the obvious statement is, we are talking about accounting changes. So that is not going to create one additional euro right?

So for us, it was important that we actually keep our free cash flow on the same level. If we had left the free cash flow definition, we haven't at the moment, our free cash flow would have gone up materially because the interest would have been in there, we have interest in our free cash flow definition.

But the redemption of the leases, that would have been in financing cash flow. Hence you would have seen a significant increase in the free cash flow.

We decided to correct for that. So we're going to take this redemption piece back into our free cash flow definition, so that on a free cash flow level the numbers shouldn't change.

Now on to the order of magnitude. And this is under the big caveat that -- I mean this is quite a complex thing.

We are talking about more than 25,000 leasing contracts covering more than 35,000 assets. We're really going through this now.

Ultimately we will have the final number once we have all that in our ERP systems. We have done a lot of simulations.

So at this point in time, our current best estimate is that in terms of EBIT impact, we will get an uptick of round about 150 million in terms of order of magnitude. Again it's an accounting change and we will make it transparent, but it is going to lift our EBIT up by something around 150 million.

In terms of balance sheet, we expect the addition of 9 billion in assets and 9 billion in lease obligations to our balance sheet. Free cash flow, I already mentioned, by adapting the definition we are making sure that that number isn't changing.

And on the credit rating, because rating agencies are already factoring in leasing obligations, we don't foresee any effects. So that was IFRS 16 in a hurry.

I'm sure we'll talk about it more next year, but given that, yes, we are getting ready for the implementation, we wanted to give you at least a flavor of what is coming. On this page here, we are back in the old world pre-IFRS 16, so we have not touched our 2020 guidance here because at the moment we are still in the old world.

So the only change on this page is on the tax rate. I mentioned that before that the current best assessment of the tax rate for the year is around 13%.

All other numbers are unchanged. And that takes me already to my conclusion slide.

I think that our third quarter, we have shown that we are really benefiting from the dynamic general macro environment and for that we are also able to really grow in those strategic sectors for us, for example in ecommerce. It was very pleasing to see that all divisions have delivered their share in the good third quarter.

And yes, IFRS 16 is going to change the numbers, but I think we have a good grip on what it's going to do and we are going to be fully transparent on how that impact will come into our books in 2018. So I think with that, we are on track for a successful year.

But of course, we are also keeping our eyes on our longer term ambitions. And of course, one of our very important medium- and longer-term ambitions is to get Global Forwarding to different numbers than what we have shown you here over the last quarters.

And I think we have exactly the right colleague here to do that. So Tim, no pressure but over to you.

Thank you very much.

Yes. Good afternoon, everyone, and maybe first of all, Tim Scharwath is my name.

You heard the Tim a few times already before today. Just to quantify the amount of months I've been working now for the Deutsche Post DHL Group, it's five in a few days.

And my favorite sentence in the last couple of weeks has become the sentence, no pressure, because everything's always around a bit of pressure, but I like pressure and I think we're at the right -- in the right position to get things done. So let me talk to you a bit about DHL Global Forwarding Freight.

It's says the update, but it's more of a deep dive. It's also a bit of understanding and explaining how things are, what we've done, what was done, and what has been done in the past since 2015, and to give you some ideas how we are going to tackle going forward.

So first of all, why did I join DPDHL? One could say okay being German it's good to go back and work for a German company after so many years in the Swiss company.

But for me it was always important to have a strong market player in the market next to the others and DPDHL or DHL or DGF has been a market leader in air freight and ocean freight, number one in air freight for quite some time and in my former role, I had lots of dealings with them and always felt that they need to be strong and present on the market. It's a company, based on the history of it, with unique freight forwarding history and excellent reputation, very good contacts to customers.

That's something which I've always noticed in the past and I'm still noticing today, and it's one part of a big group where you can find synergies, where you can find different ways of working together, and you can learn from it also in seeing how things can -- done in different ways, the Express example was given by Frank, and that is something we can also take into the forwarding part of things. My first impressions, and I think this is really important because there are always two things which differentiate you when you talk about freight forwarding companies.

One is people and the other one is the systems and processes you use. And on the people side, I was really, really positively surprised.

I was afraid when I came that there might be a lot of legacy and bad mood and no willing to change things, but I really have to say the team is very strong, they are very passionate, and they are freight forwarders in the way that they want to really fight and change where they are coming from and do something different going to forwards. And they went through a hard experience of going through a very rough time, which could also prove them stronger going forward.

There are wide behaviors within the organization, there are certain measurements which we're taking to bring in certain cultural aspects of training to the people. They are very nicely embedded in the company and I have to say the morale is very, very high.

And we see that also not only in interactions with the people, but also when we talk to customers, our service quality has gone up and also a lot of initiatives have been put into place, and I'll come to the IT initiative later on which was designed in 2015 and 2016, and which shows good progress or readiness, the exactly right thing to do going forward. So the business model is there, it's solid and we can just further strengthen it.

There's no reason to call this in any way a crisis situation. It's something we have to work with to develop, optimize, and make better.

Here a bit the Q3 highlights on air freight and ocean freight. You see that the tonnage, the volume is nicely developing on a year-to-day basis even better than the market in both of the main products, air freight and ocean freight.

We see also the development of the volumes in all parts of the world, which is also good, but shows the broad coverage that we have. Unfortunately, on the gross profit side, they -- it went a bit down with 3.2% on the air freight side and 7.7% on the ocean freight side in Q3.

This has to do with the margin pressure that we have from the volatile rate development. In air freight, we see the rate developments strongly going up.

I'll come to that later again in the presentation. And in ocean freight, up and down a bit more un-radical than in the past and we weren't strong enough and able to bring those higher rates to our markets, to our customers in the short-time span that we had.

But we're seeing improvement on this and we also see this already in the peak season we're in right now on the air freight side. But I will come also to that in the later part of the presentation.

DHL Freight, we sometimes forget to talk about our colleagues in Freight, they're doing an excellent job. Good things have been done in the last two years and we see the positive outcome now in 2017.

Both revenues and EBIT on Q3 and in the first nine months are exceptionally good. The big numbers, of course, in the percentage come from the low absolute numbers that we have here, but it's a very good improvement in quality and productivity, sales effectiveness has really become much better and I have to say the way the team is motivated and how they work on these things is a joy to see in a very rough market which we are in.

Also on the side of disruption utilizations, Saloodo! is our trucking platform which is closely connected to the DGF subdivision in Europe and it's also having good progress there and it's a nice development to add on to our customers and also to give to the market.

So if you go to the numbers for Q3, you see the revenue is up by 5.1%. Would have been 8.3%, but due to the FX headwind that we have and which was described by Frank and Melanie, it's a bit lower than what we -- it's a bit lower there but we would have been without the FX headwind.

The gross profit, as I mentioned already, is down a bit. This has to do with the problems of making sure that we get the GP or the margins or the rates up towards our customers.

But the EBIT is better in Q3, 2017 than '16. So overall, even though we have a GP decline, we're able to bring the EBIT up.

Cash flow isn't [indiscernible] has gone up in line with EBIT and the CapEx is low because, as you know, this part of the business compared to PeP and Express is lower on CapEx because we don't -- we are more asset-light than anyone else within the group. So why are we in this business model?

Why is it so important for us to be there? Well, you can see on the left hand side the development of the EBIT margin, also of the ROCE, and you see taking the dip in 2015 which you all know into consideration, it's a very promising and good business to be in.

On the other hand, on the right hand side, you see also the fragmented structure of the market itself. If the top six players have 33% of market share, you can imagine how much more you can grow the business when you go into the tier two and the other tiers of competition that there is in the market.

And also in ocean freight, for example, you're probably aware that the majority of the businesses are still controlled today by ocean freight carriers and that's something also we can grow into as a freight forwarder. So the markets are there for us to develop and we're in a good position to deliver for the overall group, a decent EBIT margin and a good return on capital invested.

So what do we have to look at right now after these five months? And there are two aspects we have to look into.

We have to look into short-term measurements in 2017, and I'll come to that in the first part of this exercise within the presentation, and then some strategical mid-term parts, how to get the GP EBIT conversion better into the best-in-class, well, because now we are well behind as you know. So short term, we have a very high market volatility.

Especially in air freight, we see this in the environment that based on the peak season that we enjoyed in 2016, the rates actually never went down as they would have done in the past. So we're on very high rates.

And the ocean freight market is consolidating strongly. This also has a rate fluctuation, which sometimes is not so much easy to understand, but will keep us busy going forward.

So what are we doing against these short-term challenges? So in the overall air freight environment, looking at the capacity and the all-time high buying rates that we have, we've done a few things in order to make sure that we can better buy and keep the block space for longer times.

We bought more block space agreement this year than we did the year before to have a more stable buying side. We've started going into own controlled capacity, especially now in the peak season.

This is very important than the one who has capacity in peak season is the one who can control also the flows out of Asia. And I'll talk about this around the world charter and some other charters on top of it.

And we've prepared ourselves for the last couple of months for the peak season. So my first meeting in June was actually a preparation meeting on the peak season, how we're going to manage just with our carrier partners, what are we going to do with our customers, who do we talk to, when, and what do we do on the right thing to have a minimal financial exposure on the peak season in Q4 this year.

This slide shows you the around the world charter, so the own controlled capacity. It's a 747-400 which we leased from one of our leasing partner and we deployed on two specific routes.

As you can see, they are around the world which makes sense for us because we can tip-toe through all these stations and bring cargo from one part to the other. Based on this situation, the volume growth that we have is a really low risk thing for us this year because we can fill this plane everywhere.

And it's based around a specific customer need from Norway where we have a very strong presence in the seafood market there and we bring certain seafood from Norway to Korea, and could bring the transit time down to a normal way of working and could also, in this case, make the quality of the seafood much better for the Korean market. This is really supportive also now in the peak season because it's a own controlled capacity going out of Asia and in the block out times, when we don't need to do around the world charter, we can charter the airplane and use it for different ways of working.

And we are going into certain markets and also to make sure that which are also again in the perishable side, to make sure that we can use this capacity. It's been very successful from day one.

We're now in our second month and we've had no issues when it comes to technical or when you want to look at the commercial side of these flights. Ocean freight, a different challenge.

There you know that we have a consolidation and today more or less five carriers control 70% of the market. That's on the one hand side not a problem for us because we have very good relationships with all these carriers and know them for years and we've worked together for years.

The only issue that we see is going forward, the discipline, if they get better discipline, the rates will go up, and right now the discipline is not there as it should be. So rates go up and down, it's very volatile right now.

So we had also to take a hit on the ocean freight side, but we believe that with the measurements that we have or based on the relationship, based on the strategy around it, and also once in a while, looking to make sure that we can get better spot rates outside of this five controlling mixes, we are able to manage this very well. Don't forget we are the second largest ocean freight forwarder and we have experts around the world who really understand how this works.

So from those short-term things that we've addressed this year and are working very hard this year to make sure that we get a restart getting the results in the right direction, it's now more to the question what is mid -- what do we have to do mid-term to get best-in-class or get closer to the best when it comes to the GP to EBIT conversion rate? And what I found out going through the organization, having discussions that we -- the DGF organization sometimes takes too long to make decisions quickly.

There was a lack of clear understanding who has a certain responsibility for what. Our structures and processes was sometimes not the way a freight forwarder would build them up.

So there were a bit maybe too complex. And we had the tendency, also sometimes have the tendency that certain countries work only for their own sake and don't work for the sake of the network.

And what differentiates the large freight forwarders from the smaller ones is that they have a network that they control. So we have to make sure that those countries work better together as a network and of course as you know, on the IT side we have legacy systems, which are, if you look at the age of these systems, are very good for the age that they have, but they're not any more in any way state-of-the-art and then are close to supporting things you need to do to bring your conversion rate into a better situation.

So everything which is based on the mid-term plan to do this is a strategy, which we call Easily Simplify because everything we look at now falls into the question how can we simplify things that we do, so how can we easier work together, how can we simplify processes, how can we make better -- quicker decisions. And you notice also within the group that it's becoming stronger that people make decisions on a more shorter timescale because they try to use this word more and more, and it's embedded into a lot of things that we're doing.

And I'd like to show you one part, simplifying and improving execution ownership and incentives. I believe this is an important one because only if you incentivize people to certain ways, they will act to that.

So we said that we have to adhere to a clear set of business rules among three areas, mindset and behavior, be clear on roles and responsibilities, and steering and incentives. We have to look at the structural costs reductions on all level.

That's something we've started doing in this year and we'll continue doing next as part of our budget process for next year. And the new IT system, what we call internally the IT renewal roadmap or shortly IRR.

Those are the three big topics that will bring us forward in 2018 and continue to be part of the Simplify strategy. One example here is on the business rules for steering and incentives.

So what we are doing is, in 2018 that we have strengthened the focus on EBIT. So the only reason -- the only KPI we are talking about or the most important KPI we are talking about going forward is EBIT.

We won't have big discussions on market shares, but we'll try to focus on EBIT to make sure that our EBIT goes up quickly. And we also had in the past certain different definitions of EBIT within the group, with central allocations, without central allocation, we streamlined that, simplified that all and to make sure we only have one way of seeing the EBIT and we'll bonus the people mostly weighted on the EBIT going forward.

So that is a clear understanding of everyone in the organization there is one direction they need to go. And on the other hand, we also looking at making sure that the conversion rate, so the GP to EBIT conversion rate is also the most important KPI -- or more important KPI compared to productivity which we had more in the past.

And if you ask a freight forwarder to work on this productivity, he will find six to seven ways of making sure that productivity looks right, even though his EBIT goes down. But if you look at the conversion rate, if you look more at conversion rate thinking the freight forwarder will then start thinking more in other markets, in different businesses and this will help them also then to bring the EBIT up and keep the productivity a bit behind.

So if the productivity goes down, we will accept it as long as the conversion rate goes up. Now we can measure that in 2018 also per station and department to have a better and more open discussion on all these topics.

Structural cost reduction that was point number two, we are reviewing all the activities on all levels be it globally, be it regionally, be it in a country and station, to reduce costs. At the end of the day, we are doing something which freight forwarding companies do because freight forwarding companies usually have low margins.

So you have to take every dime and look at it twice and think do you want to spend it or not. And that kind of culture we're trying to implement right now and it's part of the budget process also for next year to bring down costs, especially on the structural side.

I'll give you one example, yesterday we had the announcement that in Honduras and Guatemala we don't have country heads anymore and it's owned by line management. We are doing this out of Costa Rica and Nicaragua, just to make sure that the smart -- because those small countries don't need fully fledged line management.

So we took them out, we manage it from other parts, just to bring those structural costs down because those countries were not able to cover their costs which they had on the EBIT line. So we needed to change these things.

And those are the kind of things we're looking at right now in all different angles. Next to that, to simplifying the processes, we're also leveraging all possibilities that we have to bring operations, processes, financials, financial processes, HR processes into shared service centers or as we call them GSC centers.

As of today, we have roughly 2,000 people working in these centers and there is a clear plan to bring more people into these centers and reduce the people on the -- in the higher cost countries. One of the big events that we do is that we'll in-source finance services, which we today have with an external provider, into these shared service centers because we believe two things; first of all, we can take out the margin of the external provider and secondly, we believe with robotics and digitalization we can do much more and invest into certain capabilities going forward within the group.

Thirdly, IRR, so the IT renewal and it's -- it's a renewal of the entire IT system landscape that we have. So it's not just changing the transport management system, it's more than that, it's also making sure we have a document system in place, that we have certain management systems in place for terminals, for pickup, and delivery and so on.

So it's a huge transformation of the entire organization and ocean air freight. You might know that we're using a system off the shelf, which we have -- which we bought and which we have to permiterize going forward.

There's no program that has to be done on our side and it's something -- it's proven in the industry. Some of the other freight forwarders also large and very successful ones are using the same system as we are and we've started implementing it in this year as test of -- in certain countries which have a certain set up, so we can test it there also.

In the first country that we put in, we had some issues in making sure the organization follows the system. We learned from that, went into a bit more complex country.

There after six weeks, we are at the same productivities that we had with the old system, which is quite extraordinary because the old system was a green screen system, we could type quicker. And here it's a new modern system Internet age, you click more than taps.

So it's more difficult for the operator to be as quick as he was with the old system, but we are on the same productivity levels. And the third country we went into is a small country with different languages and different branches and we made also -- we also implemented the system there in an easy way on the different languages, having no port and everything worked fine.

And we had a meeting this week on Tuesday and there during the meeting I found out that we implemented last week in another country in Europe and nothing happened, I mean nothing -- no noise came up, implementation went flawlessly. So the things we are talk -- thinking about now is based on the experience of introducing the system into these four countries.

As they're continuing, we feel very confident that we can bring the system quickly into other countries. There will be of course difficulties on larger countries like China, like the U.S.

or like Germany, where you have systems with ports and where you have stations in the hinterland of these countries. But the way the organization is working on this, the way the people are managing this it's a really -- it's really good to see and I'm very happy for the decisions made going into this kind of IT architecture and seeing now how well the company is doing this and how the organization taking this.

And we are also investing a lot of time and also effort and money into making sure we take all the people with us because based on the history there we have, we have to sometimes hug the people a bit more and that they see the benefits of the system and it's really-really-really very good. So based on the TMS, which is the heart of course of any change in an IT environment, we will also bring in, as I said before, electronic documents systems and other things to simplify and make work easier, and make work for the clerk also better in the future.

And it's a step-by-step setup and we will see how that -- we will see how this continue. At this stage right now, we're talking ocean freight and we plan for next year to also have the first air freight station online.

So based on the TMS, of course, we will now also have to look a bit into how we use the data for own applications which we want to give to the market, a bit the digitalization disruption discussion that we're having and we're seeing of course that certain digital players are there. And we need to respect them what they are doing.

We are not too afraid of them at this stage right now because they don't own a network. They are very good with their systems, but they don't own the network to make sure that the processes are the same way everywhere.

However, on the positive side for them and that's also chases us going forward, is that our customers learned from them and our customers ask for new kind of -- a new kind of data quality, they ask for a different way of seeing things and these new platforms really bring this across. So we have to get better with the things that we do in order to meet those customer requirements.

And probably going forward, these requirements will become greater and greater. So there is something which we have to do, we have to learn from this and there's a lot of money in the market right now to invest into these kinds of companies, and we have to keep a pure eye on them.

But as I said before, we don't believe the pure digital is going to work alone, because the physical handling of freight and the problems that you have handling it is still one thing that what we will be -- we have to keep in mind. And we believe that with our IT renewal and -- that we can deliver once we've rolled out more similar and better functionalities based on the network that we have and the new system.

And we have the forwarding expertise of course also and we are closer to most of -- we're closer to the customers over the years to build a superior solution for the market. So the summary that -- this is my summary slide now, I mean I've been in freight forwarding all my professional lifetime.

So it's for me the question if to be in freight forwarding or not to be in forwarding actually is not a question because this is a very interesting and it's a business and industry which is really going to be there for a long time. And it's attractive and we have been a very, very good brand name in this in the past.

And we need to come back to be another good brand name of this also going on the future -- in the future. We have people.

We have the motivated staff to do this. The organization is geared up for it.

And the setup of the organization and everything is geared is steered at the right direction to do these things. We have made some mistakes in the past.

We've got a bit disillusioned [indiscernible]. So we also based on that, we know our weaknesses.

But we're really, really committed as a group within DGF to bring everything back and to make sure that we have best-in-class practices levels and also results going forward. And we have a pretty ambitious plan going forward, that's why no pressure is one of my favorite sentences because I always get questions and asked again on certain things in the next two or three years.

But I really believe that this is doable, to make sure that the DGF stands and comes back to the position it used to be in and what also you are used to. And we will do this in such a way that we do the right steps at the right time, not overarching and not overstretching the organization, but to make sure this is reliable and you can see a nice track record going forward.

So we remain committed to the goals and the benchmarks of the conversion rates and profitability which you know. And I have to say it's really joy for me to work in this environment right now because it's really, really fun with the group and also especially with the group within DGF but also in the corporate side to take this up and bring this forward.

So thank you very much and I hand over now the last time to Frank.

Thank you, Tim for that. [Technical Difficulty] The microphone, now it's working, yes.

Because otherwise the people on the web can't hear. So before I conclude on the quarter and how we have treated so far, so if you have listened carefully to what Tim said, it's quite a significant criticism of his predecessor, so that's myself, because the detail is quite challenging.

So what he showed us in the short term and mid-term challenges, I have recognized as well. The challenge not [indiscernible] experience forward or I struggled to find the right answers because from the team I heard different things.

What Tim brings to the party is that there is no doubt what is right and what is wrong, and that makes me very confident that there is no silver bullet, but a lot of detail which we have to improve and he showed that in his mid-term perspective and mindset, how we incentivize people and whatsoever. So there are a lot of stuff which I think is a very important and this describes the right answer.

I'm very happy that you said that the IT platform is working and I'm very happy that we have now four countries live. So that was a major decision to go forward.

I think we have chosen the right software and you confirmed that with the experience you have seen by your former employer. So I think we have really now the right person who understands in-depth what has to happen.

And I said him, Tim, whatever's wrong on what we have not done, please say that. He said it in very polite words, but if you think about what he said, it is a heavy criticism of what we have done so far.

But I think we have to face reality and therefore we will definitely see improvement. So in summary, I think we are in good shape in many dimensions.

E-commerce definitely will help to continue to help us to build our business. But the world economy is in better shape than in the last five years at least.

We see constant growth around the world, which is good for a trading company or a logistics company which supports trade very much. So we have both e-commerce and global trade.

Second, the divisions have a very clear plan to grow the top line and the bottom line. Third, we will continue to be very innovative and bring even more ideas to the table.

And that I think will enable us to deliver our 2020 aspirations. So lastly, investment profile.

We are a market leader in all what we are doing. We have a clear CAGR how we want to improve EBIT.

We have significant growth momentum now. Our margins are getting better consistently and will continue.

We are investing in further growth and we see first benefits coming. And finally, we of course have a nice dividend to pay to you as well.

So that's it. With that, we will all come back on stage and we'll answer your question.

Thank you very much.

Exactly that's the plan. Thank you Frank.

Melanie, Tim join me up here. So it's going to be a mix of questions from you guys here in the room, but also officially we got a couple of questions coming in via the push button, the Q&A push button.

But let's start here. You must have some advantage of making your way over here.

So why don't we start on the right hand side and then move over?

Adrian Pehl from Commerzbank. Actually two questions for Melanie first.

Maybe just to get an indication at least roughly, if you could strip out the TNT effect in Express and what would the margin have been finally? Because it looks like a little bit that you got some nice volume growth, but not too much on additional earnings here.

And on -- I'm sure you did the math on IFRS 16, maybe you could give us some quick indications on how the equity ratio, net debt to EBITDA, and gearing will change then? And then I have some questions for Tim later on.

Okay. So I mean on the TNT numbers, I'm not going to give you a precise number, but maybe let me just describe a little bit off of what we have now seen in the course of the third quarter.

So I mean very clearly we saw a strong volume increase end of June into July and August. By September and now into the fourth quarter, it was more normalizing.

And quite frankly, we always saw that more as a temporary surge. I mean there were customers there which have a dual sourcing policy.

So for them it was quite easy to shift volume over to us and it was clear that they would go back to a dual sourcing strategy. Quite frankly, there was also some stuff in there which we weren't keen on keeping.

So I think we are now back into a normalized mode. It has clearly had an impact on the volume and the revenue side in Europe.

It also incurred some additional costs. I mean when you look at the volume, we had to put [Indiscernible] which was high any way, it was quite massive.

I think overall it was having a positive impact on -- to the bottom line, but nothing which is skillding the numbers materially. I still think for example, I mean, talking again about the FX thing, the currency impact in Express was bigger than the benefit we got from TNT.

So I think if you take both out, it would have been a bit better actually, so.

Maybe before you answer the other question, I think what is important to understand as well, Ken and his team is so dedicated to service quality that they said, before we drop service quality for these miserable customers, because they were in a mess, we help them whatever it takes. And that is I think that's the reason why we are quite defensive on saying how much we got from that.

I think at what we got from that is that we really provided great service to customers who were not our customers, only partially our customers before. And if they come overnight with volume, we have to deal with that.

And that has been the focus and not to increase our profitability from an incident which was painful for one of our competitors. We want to win our customers' hearts and we want to win on a equal playing field and not by gaining from cyber security attacks to our competitors.

Yes, then to your second question, yes, of course we have simulated how IFRS 16 is going to impact the numbers and we will talk you through that in more detail. I think the one obvious number where you could ask yourself is that going to be a concern is the equity ratio.

When you look at where we now stand after the third quarter we are actually at 31% of this equity ratio. And yes, an increase of the balance sheet by 9 billion is going to take that down into the mid-20s, but it will leave us in a very comfortable position.

So in terms of KPIs, there will be some changes, there will be some need for explanations, but it's nothing which is going to lead to any concerning, completely out of rec numbers.

And so that shouldn't have an influence on your on your dividend kind of thinking, right, what you think there?

No.

And then three questions for Tim actually from my side. A short-term question.

I perceive at least, maybe I'm wrong, but nevertheless Q4 last year was a little bit un-normal, I would say, in terms of freight rates. So is there chance actually that this year's Q4, you will have a better chance of managing the costs or downloading the higher expenses to your customers but on the other side realizing lower input costs if you want?

So is that a possibility?

No. I think the buying, if you look -- if you talk about air freight, in particular at the buying rates on the air freight side are actually higher now than they were last year in the fourth quarter.

But we've prepared ourselves much better towards the other market itself, was much better prepared and we prepared ourselves also much better in this foreseen peak season. So I don't think the -- I think the -- it's going to work out better for us.

We can't really judge now because the peak season is not over yet. We're right now in the midst of the most hardest time when I get daily updates on how things are looking out and how well we are performing or not, and how we can up sell to customers.

So it's an ongoing very operational discussion which we have now on a daily basis.

This is also not the case for ocean?

No, ocean is much calmer right now than air freight.

And the slide you had on the digital side of things that possible disruption, is it part actually of your strategy going forward that you contemplate acquiring one or a couple of these players that could add value? Is that an integral part of the strategy or not?

Well, on the freight side, we have a disruptive with Saloodo! That is something which is just disrupting the normal freight forward or the trucking market or the freight market right now.

We are supporting also this in a way. So you could say on one hand that we are cannibalizing ourselves, but on the other hand if we wouldn't do that we wouldn't learn from that and how can we, as an organization on the freight side, become better with these kind of threats.

On the DGF, international forwarding side, I see that we -- because as I said before, I think the network is the biggest, the most important asset what our customers are looking for. You can do certain things on a one-to-one basis, but you can't -- what you can do from China to the U.S., you can't do from Gabon to the U.S., for example.

So you need to have a network. And I think that's our strength, our asset and we need to use the IRR project based on the TMS system as the basis to then be able to generate the same kind of functionality what some of the digital player are showing right now, especially those virtual freight forwarders.

And if I could just add to it, I mean obviously when you look at the valuations of those player, they are quite interesting. And I think really the interesting thing is that the first ones have now said that they are going to invest into physical infrastructure.

So I think for us the much smarter way is, what Tim just described, we built of our strength and see to develop on revenue that the true offering of ourselves.

And I have been pretty close to the Saloodo! case personally and particular -- after Tim took over because I have now more capacity to look into the digital work.

I'm deeply impressed how easy this is to build a portal. The challenge is to get liquidity on it and that's our advantage.

So I'm less scared now than I was probably a year ago that somebody will take our market easily if they build just something which is magic. The magic thing to build such a portal is pretty straightforward.

The rocket science is how you bring liquidity on that and we have a significant unfair competitive advantage because we control so much volume. So based on this Saloodo!

experience so far, if it ever flies, we will fly our old stuff as well and we will get traction on that and that is a good base to learn from that and then export it or bring it up to global forwarding. I'm very confident that this is a very important learning for us and we take that and you see that some of the players are looking for liquidity and they start to provide stations to provide service because it just doesn't come just because you have a nice portal.

This is not the way to go. You have to build the portal and we have the skills to do that as we can see with Saloodo!

So I'm very encouraged what we see with Saloodo! And we will continue to do that journey whenever is DGF ready.

Don't forget air and ocean freight is at least one power more complex, if not even two power more complex, than the trucking business.

I think that took care of your high priority targets then it would be Tobias next.

It's Tobias Sittig from MainFirst. I have also five, if I may.

I ask them in one go. Firstly, Melanie, on the minorities, it's down 30% year-over-year.

That's mostly Sinotrans and Blue Dart. Is that the business going backwards or are there any other effects in there?

Secondly, e-commerce growth and perhaps have been slowing to 9% given the ventures that are in there, that's relatively slow I must say. Is there anything in there that's holding it back or why this slowdown and what do you see for that going forward?

And then for Tim, three. The IT side of things, I mean, when I look at what Kuehne is doing and also fast forward in terms of predictive analytics, APIs, portals, my fear is that basically what you're implementing now once you've implemented it, is where they are a year ago and then they'll be five years away in three years time.

And so how do you look at that? Secondly, perishables, DHL stayed clear of that business for some reasons in the past.

Now you bring the perishable-is-great DNA to DHL. Will you go into that business as well?

And lastly, when do you think you'll be in a position to communicate more precise margin targets or conversion ratio targets to us?

Let me start with the first two. So on the minority part, indeed it looks interesting.

But it has nothing to do with the underlying situation and there was actually also an accounting effect in there, which is quite complex to explain but we have our head of accounting in the room. So I would propose that really it is nothing to worry about in terms of technicalities, but I think it would go out of the timeframe here.

In terms of the normal part, I mean the biggest chunk in all minorities is Sinotrans and that is not changing on the business and content side at all. In terms of the e-commerce growth, I mean there's also a currency impact in there in terms of underlying growth.

We are quite pleased and I mean you saw in Frank's slide that also on these most startup types of e-commerce businesses we are beginning to move in the right direction and so I think of Wallet, it's really doing well. But I mean, for example, one of the sizable chunks in e-commerce is also our more mature U.S.

business and there you see the currency impact quite heavily. And that to Tim, over to you.

No pressure, three questions, three answers.

No pressure, especially your question five.

So on the IT side of things, I mean going back to my former employer, I can compare the systems there and they are totally comparable. So I'm not afraid of that.

The question is only how quick can these be rolled out because the functionality is very much comparable and there are these buzzwords like one fire concept and workflows on top of that and that's totally comparable. I think some of the companies who have been doing this now for quite some years in the market, developing these systems themselves, that they would have had the chance seven or 10 years ago to buy the software we've bought, they would have bought the software.

But at that time, it just wasn't on the market to buy something like that and that's why they chose to do it themselves. So I wouldn't share your worry.

Our problem is that we have to could probably more quicker implement the system into the organization and also take more, but on the other hand make sure the organization follow those implementation also because we are in a different situation from our past. And that's why we also invest and put a lot of things into this and the entire structural cost issue is outside of this project.

So we're not taking any of the investments away on that to make sure that we get this up and running. And we need it quickly to also -- coming to your last question but I will do the perishable one first.

Perishables has been done with DHL in the past, it's nothing new. So there has been the perishable business around, but it hasn't been promoted in such a way like others are doing it.

We're building up a global network. If we want to go build up a global network, I'm not quite sure at this stage right now because there are others doing it right now and if you also go into this now, then if you want to buy companies, the prices go through the roof.

We're looking at different ways of using it, so there's around the world, for example, is one specific requirement to one specific market. But we have a solution which works fine, which is nice and which is good also for us.

So that is something we can do going forward and looking for these kind of things is what we probably do as a normal business development phase as we do in other parts of the business too. But I don't foresee as now at this stage going to something comparable.

And then on the conversion rate targets, I think it's right now still a bit early. I understand the question and I fully support the idea of doing these things.

However, I think right now, it's still a bit early. We need also the system stability more to get into those kind of projections and my friend to the left here is already asking me these questions also all the time.

And I think we need a bit more better feeling on what we can achieve and then we will probably be a bit more open on these things too. But right now it would be, for me, a bit too early to do it.

And, Tobias, even in the case that we know where to go and I think we have a clear plan, we have been notoriously rejecting to answer these questions for the [indiscernible] division. So why should we change now because then the next question is what is your target for Express and what is the target for Supply Chain.

So I think when we put our neck out quite a bit in 2014 in telling you that we want to deliver 8% CAGR until 2020. After 3.5 years, we're still very confident that we're on the right track.

I have sympathy for more information. I'm very confident that we will see a significant improvement in the margin pretty rapidly.

But what the goal is, is described verbally and we will stick to that as we have never said -- we always said we will close, we'll get closer to the UPS margin, but never precisely to at what level because at the end of the day, for me the absolute on EBIT number and the absolute free cash flow is for me more important than the margin. And then if I give a margin target, then I end up to slow down potentially the growth potential because it might dilute my margin, then you will say we missed it.

And I'm more intrigued to say let's deliver more EBIT number in absolute terms and more free cash flow. And many of you have heard that from me saying as well.

Not everybody is happy about that because it makes it more difficult for you to model your models. Enough.

So but that's what I would say and that has been my approach to that for a while, I think.

On that context talking about best in class margins, just to clarify because we've got a few questions coming in there. And we were talking about a comparable company performance with a similar global footprint and not a small local or otherwise niche player.

Okay. Then we continue with you, Neil.

Neil Glynn from Credit Suisse. I'll keep it to three, I don't have five.

And if I could ask Tim two and then maybe one on Express for either Melanie or Frank. And the first one with respect to steering, Tim.

I guess your -- clearly your former realm you broke air and sea profitability down to the EBIT level. We certainly can't see that from this vantage point.

Can you see that today? And how comfortable are you with the transparency of that GP-to-EBIT conversion by mode of transport at the moment?

Second point, the balance of share growth or volume growth versus profitability, clearly the third quarter saw very impressive volume growth in air and ocean. I guess if the business is a lot more manually intensive now relative to what it could be, how do you balance the hope that eventually that will figure itself out versus chasing share which is clearly required to optimize profitability?

And then the third question on Express, yes clearly you've updated the market share numbers which is very helpful. The U.S.

is obviously lower than Europe and Asia which is obvious, but just interested in terms of how you think about that as a proxy for profitability? And as you grow into the U.S., does greater density improve your returns there or does your global footprint negate that theory somewhat?

Okay. So I'll start hopefully.

Yes.

So on the steering, today we don't have this transparency on air freight and ocean freight to see the EBIT per department, but we'll have that next year. So that will help also in all the things I talked about when I talked about making sure people understand the conversion going forward, they see it now then better as they do today.

So today it's a bit lost so, but in future as of 2018, we'll have that. So we'll have a clear P&L where you see in the product your EBIT, which you deliver as a department, station or country or region on the product.

The other question was the question on volume and profitability and with the question of market share. I believe in the situation we're in right now, we could use 2018 to concentrate on the volume that we have to make it more profitable because we are not always the best trade forwarders as is outlined when I talked about not being a network more being agents.

So we can probably route better, we can probably consolidate better and we can probably get the volume that we have, get the GP in a more positive or north direction. So that's why I would say that.

Is there something for three to four years or two or three years? Probably not.

You would then have to go into a growth mode again, but you need to be better on the base and on your operational baseline in order to do these things. So volume alone, that that's what we see also this year as you rightly said.

The leverage effect is not there right now. So more volume or EBIT, we need to get to this leverage effect again and that's what '18 should show us.

So and on Express, of course, more market share will help us from a profitability perspective as well in the U.S. I think the growth is impressive and the core market of our competitors to gain two percentage points is a lot.

If you make the math in an excel spreadsheet, you have to grow significantly faster than your competitors to gain the two markets percentage points and again we were successful, why we have these tremendous focus on overnight deliveries in this market. So more volume will help us as well from a profitability point of view, but that's true for all regions of the world.

And maybe just one small side anecdote, I'm a collector of old paper and I recently went through some of the modeling we had done in 2008, 2009 when we were kind of like retrenching from the U.S. domestic business where we had made assumptions on what market shares could we actually get in the U.S.

and to what market shares could we actually get in the U.S. and to what profitability levels we could get.

It's a completely different story. I mean yes, it is in terms of market share, our weakest region, but different from where we were 10 years ago, we all know also in the U.S.

in a financially solid position and we see more upside potential from additional volume.

And then we continue over to the left, Allan Smylie.

Allan Smylie from Davvy. Just two questions actually from me.

First on the Express side related to Neil's question, the step up in market shares, I think we understand the dynamics in Europe quite well, but the step up in Asian market share, perhaps you could tell us who the net donors of market share to DHL have been. And I guess shorter term as well, given your growth rate in that region was still respectable, has been lower for the last few quarters.

Has there been any changes in that competitive dynamic in the last three to four quarters? And the second question for Melanie on IFRS 16 step up of 9 billion on asset and lease obligations, can you broadly quantify whether it's by division?

It's pretty hard at this stage how much in the particular is driven by Supply Chain for these?

I know Melanie is probably better equipped to answer the first question as well having been the former CFO of Express. So you know all the answers, what happened really in detail there much better than I.

Yes. I think I mean Asia is I think region where the brand of DHL and Express really has a unparalleled flavor.

I mean people in many Asian countries use the term DHL [indiscernible] and so I think what UPS and FedEx have in the U.S. I think we have in Asia.

I think quite frankly what has helped us in the last three years has been that both our big U.S. competitors have been quite busy with the domestic growth opportunity due to the e-commerce boom in the U.S.

And I think what is really paying out here in the Express numbers overall, but also very particularly in Asia is our focus on, yes, high quality, time definite, international shipments. Our Express team wakes up and thinks about what is happening in Indonesia and how can we kind of like grow in Africa and in these places.

I think, just given the different rates of business when you compare to the competitors, they probably first single out what's happening in the U.S. and I think there is the e-commerce boom that was even more pronounced in the last years.

And I think we've made good use of that opportunity. With regard to IFRS by division, I don't want to give you a precise quantification at this point in time because we're just refinalizing the numbers.

I would say directionally, not surprisingly, Forwarding the division, where the impact is the lowest. For the other three divisions PeP, Express, and Supply Chain, it should be roughly equally split across the three.

And maybe because I understood the question, should you be concerned that our growth is slowing down in Asia. So the point is actually first of all, we are five times larger, is the fastest growing at the moment there.

That has been absolute terms that we're still growing faster than them. And second, the team has been pretty selective in taking certain products out because we felt this doesn't add any value and it has been picked up by somebody else.

And that of course on a lower base fuels then their numbers. So I think there is a strategy behind that, we are not concerned about that.

I think we're just focused on what we are best at and let's grow in that area. And this business is growing very heavily, but if you take another business intentionally out in the mix and match, it shows now for a couple of quarters lower growth rate.

But in absolute terms, we are five times larger in Asia. So that means they have to grow five times faster to reach even our -- the total volume number.

Yes, thank you. I had forgotten that part of the question.

Let me just add one other thing, I mean you probably saw that in the Express numbers that yet again this quarter actually the revenue growth was stronger than the volume growth. And yes there's an element of fuel in there, but we are also seeing that our underlying revenue per kilo is improving because we have worked a lot on yield management and Asia has been one of the areas where we put particular focus on this.

I mean also with the volume surge, which we are also seeing in Forwarding and generally in the market I think for us in terms of putting stuff on our airplanes, it was the right strategy to focus on yield that has led to a slightly lower volume growth, but there was really a balanced and conscious decision and I don't think it's going to impact our market share in the medium term.

Okay. Then we continue here.

It's Robert Joynson from Exane BNP Paribas. So I have got a couple of questions both to Melanie and Frank and then a couple for Tim, if I may.

So starting off with Frank and Melanie, first of all on CapEx, you mentioned that the CapEx on the air fleet is expected to rise in Q4. Is that a trend that we can expect to continue going forward?

I am a little bit mindful that the CapEx on the hubs has been quite plentiful in recent years and maybe the air fleets would have been a -- maybe somewhat under invested in? And then the second question on international PeP, there was a useful chart on the Slide 6 which showed some useful detail on the EBIT trajectory of the different geographies.

Can we expect to kind of get some kind of more clarity on the trajectory of the different geographies going forward which will help investors to think about potential EBIT for that business by 2020, let's say? And then for Tim, first of all on unit profitability on both air and sea, since NFE started in 2013, both gross profit per TEU and gross profit per ton have significantly underperformed peers.

Could you talk about potential for that underperformance to be reversed during the years ahead and therefore for unit profitability to actually outperform peers going forward? And then on the final question.

If you look at the Forwarding EBIT specifically since 2013, it's roughly halved or a little bit more than that. I appreciate it's too early provide EBIT margin targets, et cetera, but could you talk about maybe how realistic it is just to get EBIT back to that 2013 level and maybe to push my luck a little bit, maybe some timeframes around that?

And may I start with the geographies and Melanie you talk about CapEx. So this is one step in the direction you are asking for.

So we tried to balance that we get create more visibility without raising concerns on the other, we have there something which is heavily fast growing on a small scale and of course generates significant losses at the start point and we want to balance that we don't confuse the market by "Oh God, what is this, and why so much losses and whatsoever?" And therefore this is the first step into that direction.

I think we have something under our wings now, which really will demonstrate tremendous growth opportunity and if you value that in the same way as some of the other companies, which are close and have that same model, if you would apply it would apply it would create significant upside value for the company, but we are now progressing into that direction when the time is right to really tell us more detail, we have to still to consider. But I understand the challenge because it's very difficult if you have it all mingled into the big numbers how you want to evaluate that and how you can compare the other activities for single countries and whatsoever.

So we are on the journey, that's the first step into the direction and of course we are considering that carefully because we don't want to end up in a noisy situation I don't understand it fully and whatsoever. So I understand, I have very much sympathy for that because I think we have to build a business model, which works to just really build these businesses and you can better value that if you know more about the detail of that.

And I think what I would add to this is what we also try to show with this picture is that there are countries where we are already producing quite nice positive margins. So whilst we are managing the portfolio and we keep the portfolio around the zero line at this point in time.

I think we can show that those who are more mature and who are delivering against the business plan are getting into this positive margin territory and I think that reconfirms that we are moving in the right direction. On the CapEx question I'm glad you asked that, so I didn't want to kind of like to say, "Oh no, there's a big wave on the Express aviation CapEx coming."

Not at all, that was really a comment on timing, if you look back at a slide which I think we showed in May in London, you'll see that for the Express division the CapEx is relatively balanced between hub investments, between aviation investments, and station vehicles and so on the rest they are. So what we have seen now is that particularly on the aviation side there it really depends on the availability of the aircraft we want to buy.

There has been a timing delay, which led to this very low CapEx in the third quarter but where the Express team tells me we have identified the planes and they are coming in the fourth quarter. So that was more of a confirmation of what we had previously said for CapEx in Express.

This is going to be a year where we have quite a bit in CapEx in Express, in line with our previous guidance even though you don't see it that much after the nine months.

To the unit GP question and also to the EBIT 2013 I think it's very difficult to compare what was pre-NFE and what is now because the market is already changed between these five years also. So I understand that we have benchmarks to look and look back and try to find places on investments.

But I think have to be careful doing this. So on the unit margin I think we lost a bit the plot of working as a freight forwarder in the last couple of years, because we have a very -- through the transformation, we're very much internally focused not strong enough externally focused and that's why the simplified strategy will support us and looking easier internally to be better externally.

And based on that and based on the question of what's more important right now, volume or market share, volume or gross profit development, we can use the year till the time to come now to be better at a GP per unit level. So and the other question on what the development will look like.

I wouldn't have started working here if I wanted to keep the EBIT as it is now or maybe only bring it up 2% or 3% going forward, that's not my ambition going forward. So there will be and there has to be a significant way forward on this.

But I think it's more important that we do this as an organization in the right way and that everyone gets goose bumps when they see positive numbers again, and based on those positive numbers we will try develop further. And that's why I am a bit cautious and saying this will be finished 2020 or 2021 or 2019, but you can rest assure the entire -- everyone knows that they have to do this, or want to do this.

So after this first round of high priority questions here from the floor, we still got a couple of questions, I would like to address on behalf of those following this by webcast. There are also a couple of questions that came in via webcast, which sort of 95% were answered already here, and we're going to make sure we definitely catch up with you guys.

That one question different from all the topics that we have discussed so far to Frank; we are getting closer to the next round of negotiations with our German union Verde do you have any thoughts to share on how we're going approach this or what to expect from an investor's point of view?

So again now that's challenging to predict, but of course, given the current environment in Germany, with declining unemployment, and very strong economy, and all our numbers there will be, of course, significant appetite, but I am very clearly told them already and we'll repeat that when I see the workers council conference next week. If you look into our detailed numbers all the profitability improvement from 2008 came more or less from the non-German business.

At that time we had 2 billion in the PeP and it's now 1.5 billion that is the goal for this year. So that is still a challenge but to explain that we have to repeat that.

So I look forward for difficult discussions again, but I'm optimistic as well that we get to a solution with the unions as well, because the appetite on both sides is pretty limited to have a similar fight as last time. So it will be tough, but it will be doable that's my best assessment of the situation.

And if I may add, I think what is different from 2015, in 2015 we had this very fundamental conflict about a structural topic. This time it is only a wage negotiation, which in the current environment is also challenging and interesting, but I think in times of political dimension it is more normal than what we had seen in 2015.

Okay and one further question to probably, Melanie, getting back to IFRS 16, someone out there rushing to the last year's annual report in the notes finding out that our lease expense bill for the full year was something like 2 billion, is that going to mean that our depreciation is now going to jump by that number?

Not by that number but it is going, as I said, it is going to have a material impact on the depreciation line and so significantly higher than the indication we gave you on the EBIT. That's absolutely correct.

And again we're going to make sure that you can find the right transparency that also goes to the second part of this question coming in from Matija, our 2020 guidance as confirmed today is to be understood pre any impact by IFRS.

Yes that why we have the sticker there, that's why I try to be very explicit after talking about IFRS 16 and what is coming next year. The guidance slide was of course based on the current reality pre-IFRS, and of course we understand that we have to take those changes also into consideration on the guidance side.

But I think here the attention is really to talk about this holistically next spring when we have some precise numbers, when we can really impact the full fledged impact on the different lines to you.

Okay. Still looking out here for whether you have any second rounds of questions you want to ask in the meantime then one question more please.

There must be more.

Oh you have to wait. More of a strategic questions.

The forwarders relationship to ocean liners they are modifying their business model it seems, how would you characterize that relationship going forward? Is it more of a competitive nature than in the past?

Your thoughts.

Well yes, it is going to be more competitive because they are clearly stating that they want to go and part with -- one even has a freight forwarding arm, which goes into our business model right now and others are trying to build something similarly up. It is something we really have to look into but I think it's also what I explained before, how we want to tackle as something with our system when it runs is fully capable with the data that we have in our network.

We can easily, I think be strong and proud to not be too afraid of it. On the other hand side, you are also seeing that it's not working as easy as they thought it would be.

So it's something to really look into, it is something to watch and it's something to make sure that also in the relationship that we have as a -- or that they have for us as a supplier, we as their customer and this doesn't get too much in our way. But on the ocean freight side anyway we have these problems that our suppliers are also sometimes our competition in the market.

So we just have to watch this and managed this probably the right way.

Okay and there's probably then also, sort of the answer to one of the other questions, the weight distribution within DHL Global Forwarding between air and ocean as it is right now, are you happy with that or do you see any chance to shift that to either direction?

No I think I'm happy with the way it is. I mean it's a stronger air than ocean company right now, volume and also market share wise but I think it's also something based on the customer base that we have that's where it's coming from.

I think we need to probably work more on that we get -- that we have a different portfolio mix of customers going forward but the way it's set up and the way the products are is totally, totally fine. No issue with that.

That's really good. Neal.

And just following up with that, two related questions on sustainability and looking towards the future of the delivery footprint within Germany. Can you give - I know it's early days but in terms of this Streetscooter roll out as well as the Postbot, can you give us a feel for how much fuel you've saved year-on-year by using those tools?

That's a single question.

Maybe a bit unfair but maybe more, I guess more answerable in the short term. Do the Postbot feature in negotiations with Verdi?

Do they look towards those developments and wonder how big this could be and how threatening it could be in the future?

Yes so on the Streetscooter but I don't know exactly but what I can say is that, the Streetscooters, if you take the total cost of ownership in comparison to classical combustion engine driven cars, we are breakeven already. So that means we save a lot of fuel income -- in costs actually by powering them with electricity instead of fuel.

What the total number is, we probably can check that out and Martin and his team can provide that because that's -- we tell exactly how much usage we have and how much current we save but I don't know the math and the total. It should help us quite a bit to reduce our carbon footprint for last mile delivery.

I think Postbot as obvious other things needs negotiations with the unions. We have tailwind there because whenever we introduce something, our employees are pretty excited about that because they see what we have said several times.

The next step of digitalization may not replace, it will make the jobs easier. And if you have to carry 150 kilograms or a trolley comes next to you and follows you, the employee has the obvious answer for him is of course what is better is that the trolley follows me instead of I have to carry all the stuff, that's obvious.

And that give us, I think a lot of power in the discussions with the unions and the workers councils that we should deploy that. So I'm very optimistic that these human machine combination is the next step of generation, the complexity of the jobs they do is still massive.

Now they are very smart robots but they are not affordable, I do mail delivery on a regular basis. If you just see how many citizens are not having a normed fit mailbox but just put something there for a robot, good luck.

Or you have to pay Watson IBM and this is not affordable. So I think this is a great opportunity to improve productivity and make the job for all our employees easier and that is the logic we sell and we will sell to the workers council and then they should argue why is that not the case and that will be difficult.

So I'm very optimistic that we will see that and that's not the last, we have plenty of ideas what we can do to automate and optimize. It takes time, so it will not generate significant productivity improvements next year or the next two years but then we will see probably the journey as we have seen when we started the journey in the 90s how much lift you really can do by taking better technology so.

And my job is that together with my colleagues, not to think just about next year and this year but what is really renovating and improving our performance on the long term and that is possible as one of those and Streetscooter is another one.

Maybe I can help with the numbers. The Streetscooter actually saves 3 tons of CO2 emissions per year and roughly 1,000 liters of diesel per year.

In the smallest version it should go up, it goes up to 4 tons and 1,500 liters diesel.

It's good if the head of comms is also the head of corporate social responsibility but he didn't have that in his mind he had this in his Blackberry, yes.

And we learn something as well so.

And yes, I think that brings us already to the end, I see no further answer from your end. And as mentioned, there's still a couple of questions coming in which have been answered to some extent or will be answered in the next couple of weeks when we with and without management are going to be on the road for -- there is still a few more weeks.

So with that…¦

May I --final words? So I think we had another very strong quarter as I said at the beginning.

I'm very happy with the progress I see. It's based on the improvement in all four divisions which I think is important.

It's supported by e-commerce and the improving economic environment, which we see so therefore we are very optimistic for this year and the years to come. I hope that you got the impression that we hired somebody from the DGF not just being around and say, you know, something is good enough.

I think he has clear aspirations as we talked about before as well to really become the industry leader again where we have been. I have to take the criticism myself, why I have not implemented certain things before but that's -- I can't change history, I can only change future and very optimistic that we are on the right path here.

I accept your criticism what -- that we are not very transparent yet. But as I already said, I think let's do our job well and then we will see the numbers will improve and we get to our numbers for 2020, I'm very confident.

So thank you very much for joining us here and good bye and have a nice journey or homewards or wherever you have to go. Thank you very much.