Deutsche Post AG

Thank you, and hello out there, everyone. And don't you worry, we don't want to bore you by running through the Q2 numbers again.

We're going to do, of course, today, the Q3 set of numbers, which I take you have in front of you. And as you have seen in the invitation, we've got the group CEO, Frank Appel; and the CFO, Melanie Kreis, here with us.

And without any further ado, over to you, Frank.

Yes, thank you, Martin. Thank you for joining us today, and of course, I'm more than happy to share, myself with you, what our perspective is, and Melanie will later on talk a little bit more about the details.

So let's turn to Page 3. The key summary for this quarter is everything is in line with our expectations.

We have continued to make good progress in the DHL divisions, and we see first sign of getting traction on the PeP recovery. Overall, there is some concern with the markets are getting more challenging, but so far, we haven't seen any impact on our trading volume.

That's the reason why we are confident that we deliver our 2018 numbers and can reconfirm the 2020 targets. If you go to Page 4, you see that we had a good growth rate.

In Q3, all divisions have grown organically. PeP, only a little bit.

I come later on to the reasons for that because we had, last year, the election, as you might remember. Express, very strong growth.

DGF is growing as well on top line. And Supply Chain has seen some growth despite the challenges we face in the U.K.

So overall, if you go to the right side, you see that the trajectory of the 3 DHL divisions is continuing. We see a very healthy development of the Express margin now to a new record high.

DGFF and Supply Chain are moving in right direction, supply Chain, already for a while. And DGFF has achieved already the level which we had in 2010, but that's not the record level, but there is still more to come.

So overall, very good. And PeP, you can see here as well, the impact of the challenges we face at the moment.

On Page 5, you see our portfolio overall. You know that our portfolio is very well balanced and diversified, even if there might be high risk from trade war or Brexit or other activities, that we believe that we have a very good portfolio.

And we can benefit due to our global footprint, whatever happens, because we can act on this from a perspective of strength. And of course, some business are more volatile and more cyclical against the GDP volatility and others have a structural growth anyway, like the B2C Parcel, and the B2C Express business.

That brings me to the uncertainty, which is increasing without a doubt. The biggest impact we have seen so far on our numbers is the currency impact.

We had significant headwinds from currency in Q3, mainly in Express, but as you easily can recognize from the numbers, that was mitigated very well by the team. We are very good in Express and yield management, and I think the other divisions are learning now on the run.

Also in Global Forwarding, Freight, we are doing better. And also in PeP, we have started the journey now pretty well.

On trade wars and Brexit, yes, there is some uncertainty and there might be responses from some customers. We see that already in some places, that customers are moving or considering moving out of the U.K.

or even out of China to avoid any impact from trade barriers. The good news for us is we are always a very visible and highly welcome partner to help them, and if they do that, so that's good news for us as well.

Fuel prices are going up as well, but as usually, we will push that further on to our customers, and therefore, the EBIT impact on the long run should be minimal. So you see all other measures.

If things are getting worse, of course, we have experience how we treat these, despite that we have not seen tremendous impact yet. If we now go to the divisions.

Express continues to do very well on top line and volume growth. Yes, we had in Q3, as you might remember, a significantly increase in volume due to the cybersecurity attacks which had impact on some.

So there is little -- less growth than in the previous quarters, but still a very strong growth on a very strong last year's quarter. So that's all fine.

We see the regions are changing from one region to another, but overall, there is very good growth across the portfolio. And that is, as I already said, strength of our portfolio.

Page 8 shows you the progress in DGFF. Tim is very focused on profitability, that's the reason why gross profit and GP per ton and TEU is up, despite volumes are down.

And that has led to a significant improvement in our conversion, both on GP conversion, but also on the EBIT margin. And we are now getting back to the levels we have already seen before we started the NFE activities, and that's a very goodness.

That's supported by focus on the right customers and the right profitability. It's driven by the indirect cost reductions, and also, it is driven by our renewal on the IT front.

That brings me to the next page, Page 9. We are making very good progress with our Transportation Management System.

But not only that, also other systems are rolled out. But of course, the core is the Transportation Management System.

We are now live in 14 countries with ocean freight. We will be done by the end of the year with Ocean Freight -- next year.

Not this year, next year. By the end of the next year's end, we will be done.

And we have started now air freight as well. First country is live, and we will continue to see more deployment coming next year.

So overall, that's good. The benefits are only very little reflected so far in our numbers.

As you can see in the right, there is still double data entry because we still had core existence with the legacy stem. The end-to-end visibility is only in place, of course, if you have full-fledged deployment in other aspects.

So there's more to come, but the good news is the system is well perceived by the organization, and it's pretty easy to implement it now with all the learnings we have taken on the journey. On Page 10, one chart on Supply Chain.

As you have seen, we sold our business in China, Hong Kong and Macau to S.F. with a good price, as we believe that on the other side, we stay together somehow.

We have created a partnership. We will get an ongoing income stream from that activity.

We believe that this is the right choice for the China domestic market because we have seen that we have the perfect partner for multinational customers, and S.F. brings a lot of expertise for domestic customers in China.

We believe both parties will benefit from that, and that's definitely only the first step in a potential broader cooperation. So that's good news.

Then PeP, which, as you know, I'm still heading. We see -- visible on Page 11, we see a decline in volume and revenue, which is slightly higher than what you had expected, but as I already said, that has significant impact from the last year's federal election.

If we carve that out, we are perfectly in line with our 2% to 3% decline, which we have expected for a long time and have communicated for a long time. Parcel is continuing very strong.

The same is true for Europe and e-commerce. On Page 12, it shows we have progress on our measures.

There are two elements to the pricing measures. In Parcel, we really see further implementation of our price measures.

And we are very optimistic that we will see a good price increase this year in parcel. On the postage, you have seen the regulator announce that they are not done yet with their assessment.

The reason for that is that, of course, due to the profit warning, they had asked for which measures we will take? How likely is their business plan now?

You have to give us more information. And of course, in a certain measures, we only have developed in due course as well.

And they take the perspective if we have not fully explained all the measures, it's difficult for them to judge if a business plan is right because that is the basis for their price adjustment. Overall, we are still confident that we will see a reasonable price increase next year.

And if there's any later implementation, we will compensate it for that, as the regulator already announced, commercially. On the direct cost, we get more and more ideas what we can do to improve.

On the short term, we have already started to deploy the best practices across the network, and we see already financial benefits coming from that. Of course, that has been started also in the Q3.

So therefore, the impact for the bottom line is still not very large, but the measures are getting traction. Indirect cost, more progress here, also visible in our numbers.

We are really now taking indirect cost out. The first people for the early retirement left already.

We booked the whole provision already because we got more than enough applications to support the early retirement program. That leads me to Page 13, other indirect cost spend.

We are reorganizing the division even further, which will help us to make it leaner. We have disposed AllyouneedFresh.

And of course, we are very intensively focusing on our marketing, IT spend. Next page shows you the split we have recently announced.

I'm very happy that Ken is now helping me to focus on the international e-commerce and Parcel arena. With his experience, he definitely will help us to get a clear plan, what we should do with our e-commerce solutions business.

And at the same time, I can exclusively focus in my second role on Post and Parcel Germany. On Page 15, that's just a reminder of our bridge.

We still see the bridge well intact. We see that the measures are feeding these different boxes, and therefore, we are very confident that with this -- what is shown here is deliverable.

The last page I would like to share is Page 16. In a year where we have a profit warning and some uncertainty, it is very encouraging and reassuring that our organization globally gave us an increase in most indicators.

We are measuring, in total, 10, and I think we got improvement on 7. You see here, very -- pretty important ones, with employee engagement, active leadership and customer centricity.

So that is very reassuring because great morale is providing great service, and that drives, finally, financial success. To be honest, that was a positive surprise for us because we have seen drops when we had uncertainty in the past.

This year, even in PeP, we had seen a good improvement. PeP actually had, in total, the best improvement from all divisions.

Yes, we still have Express as the superstar in our portfolio with the highest mark, but it's important that we have seen good progress, and the increase in the satisfaction and engagement came, particular, from operations. So that's very encouraging.

And with that, I would like to close. So solid quarter, no surprises, and the measures we have installed in all divisions are getting traction.

That's probably the summary from my side. With that, Melanie, it's now up to you to talk a little bit more about the detailed numbers of Q3.

Yes, thank you very much, Frank, and good morning, good afternoon, from my side. Yes, I think actually, Frank has pretty much covered all the relevant topics.

And what I'm going to talk about in the numbers is just going to confirm the messages Frank has already delivered. And I will focus on the main point on the following slides.

So when me turn to Page 18, you can see our group P&L for the third quarter. I think the first important message on that page, and Frank said that already, is our underlying organic revenue growth continues with the healthy growth rate of 4.7%.

Obviously, on the EBIT side, we can see the effect of the PeP division restructuring booking in the third quarter with close to €400 million now, obviously, having an impact here. The important thing to note is that, that has no impact whatsoever on the DHL divisions.

They continue to deliver despite the drag from currency, and that drag mainly stems from the emerging markets developments. Tax rate is unchanged at 14%, which is still our guidance for the full year.

And on the financial results, you can see, again, as in the previous quarters, the impact from the implementation of IFRS 16, which we have highlighted again on Slide 19. On that page, you can see the IFRS 16 effect in our P&L.

And quite frankly, like I guess, some of you as well, I'm looking forward to next year and will I finish the IFRS 16 implementation exercise and the numbers will be clean year-over-year. But for the moment, as in previous quarters, we try to give you transparency on what's the impact of IFRS 16 in the different lines of our P&L.

And obviously, when you look at the EBIT impact from IFRS 16 for the full year, you may have some questions with regard to our full year expectation, given that the year-to-date effect already stands at €145 million. On that topic, I would like to point out that going into Q4, we are expecting some real estate sales from our Supply Chain division, which is a normal part of their business model, real estate venturing, we have talked about that in the past.

Under IFRS 16, however, the recognition of the gains from such a transaction will be accounted for differently. And this will most likely lead to a negative IFRS 16 effect for Supply Chain in the fourth quarter.

And this explains why we still expect around €150 million as a full year IFRS 16 effect on EBIT, even if the current run rate indicates a higher number. That takes me to the group cash flow on Slide 20, which is, as usual, a busy slide.

And I think there are some special topics to point out now with the Q3 numbers. The first thing is that, obviously, the restructuring provisions which we booked in PeP in the third quarter, particularly those for the civil servant early retirement, means that we have an unusual positive movement in the change of provisions line as this addition to the restructuring provisions is reducing EBIT, but it's not cash-relevant.

You can see the line changes in provisions on the page here, but the effect is visible in the operating cash flow before changes in working capital. The utilization of that provision has actually already started as we had the first 2 civil servants moving into their early retirement phase.

But the utilization, overall, will continue for some years until they actually go into retirement. Further down the cash flow statement, the line to point out this is obviously the CapEx development.

You can see here that our CapEx is significantly higher than in the prior year quarter, which is fully in line with our announced plans. And when you look at the 9-month figure, you can also see for the 9-month, that we are spending significantly more, €566 million compared to last year on CapEx.

You have the 777 impact in there that account for €128 million year-to-date. And I would say from our perspective, the third quarter cash flow is in line with our expectations.

But I understand that based on the year-to-date free cash flow performance, it looks like a really massive step up will be required in Q4 to get to our full year guidance of more of €1 billion in free cash flow excluding the 777s. So let me make a couple of statements on why am I actually confident that this is achievable.

When you look at our year-to-date free cash flow number, it stands at minus €248 million. And that includes the €128 million from the 777s.

If I strip those out, year-to-date, we are at minus €120 million. Which means in order to get to the above €1 billion, we have to end up somewhere between €1.1 billion and €1.2 billion.

When we look at what we have achieved in the fourth quarter of 2017, the reported figure was €975 million, but that included the Williams Lea Tag on disposal gains of €286 million and the U.K. pension funding of €495 million.

So the underlying free cash flow generation in the fourth quarter of 2017 was €1.184 billion. So order of magnitude, the €1.1 billion to €1.2 billion in the fourth quarter is doable.

What gives me additional confidence, however, is the whole CapEx phasing, what is now burdening our cash flow year-to-date, the earlier spending on the CapEx compared to what we saw last year gives us a rough upside compared to the Q4 2017 CapEx of around €200 million. So I think that should just give you a feeling that whilst it looks quite ambitious to get to the more than €1 billion, that is still our aspiration, and that is why we are confirming it on the guidance page later on.

Page 21. I think nothing spectacularly new on this page.

Obviously, on that bridge, the big effect we have already seen in Q1 and Q2 is the recognition of the IFRS 16 lease liabilities. The question I get occasionally now is, "Based that your net debt number is now higher, are you still comfortable with the position?"

And my answer is a very clear yes. I know that some of the ratios now look differently.

For example, when you look at the EBITDA-related ratio, we have the additional effect that, of course, the EBITDA IFRS 16 effect, which is also increasing EBITDA, is only coming in over time. So I think, we will also see a normalization with the fourth quarter.

But overall, I think we are still in a very solid position. And we should not forget, and I've said that repeatedly before, it's accounting after all, so we don't earn a euro less or more.

And that is also reflected in the assessment, for example, of the rating agencies. That was a group overview.

Now very briefly on to the divisional pages, starting with PeP on Page 22. There, I think Frank has already covered the most relevant points.

I just want to point out that in the divisional cash flow, you see again, the restructuring costs are a significant EBIT -- impact on the EBIT, but not on the quarterly cash flow. On the EBIT performance itself, once you strip out the restructuring charges and the conscious reinvest measures into productivity of €45 million, you can see that we are still down year-over-year.

And that is shown on the next page, where you see the quarterly operational year-over-year performance. So in the third quarter, we are still €79 million below the third quarter of 2017.

This is fully in line with our predictions. So we had said that we would see a reduction in the shortfall compared to last year in the third quarter.

The expectation was that it would be around €50 million to €100 million. So it is in line with our expectations, but of course, it's not where we want to be going forward.

And the clear expectation is that in the fourth quarter, also supported by, first, benefits from the initiated measures, we're going to further reduce the shortfall compared to Q4 2017. So overall, still some way to go, but I think the path has been laid out very clearly, and it is encouraging to see that in the third quarter, yes, we have been able to come to the results we had been aiming for.

That takes us to Express on Page 24. Yes, I don't think there's a lot to be said here.

As Frank already mentioned, Express was the division where we saw the most pronounced effect from the currency headwinds, even particularly encouraging that we were still able to grow EBIT by 10%. I'm also very pleased with the overall cash flow performance of the Express division.

They're doing a really outstanding job, for example, on working capital management. And of course, on the basis of the strong OCF, it also makes the decision to continue investing quite heavily into the Express division an easier one.

And as mentioned before, of course, on the Capex increase, we also do see the impact of the Boeing 777s. That takes us to Global Forwarding, where Frank has talked about the relevant trends.

We continue our selective approach on the volume side, which is paying off in the gross profit development. We are making progress on the indirect costs and are improving the GP-to-EBIT conversion.

So we're now at 15%. That's, obviously, not yet the end of the road, but an important step into the right direction.

And on that basis, we can see a significant improvement in EBIT, where, obviously, also compared to Q3 2017, there was a bit of catching up to be done. The one line where we have to put particular focus on in Forwarding in the fourth quarter is on the cash flow.

The working capital development in the third quarter was not what we had aimed for, which is something we have also heard from peers and the industry overall. That's obviously a focus for the fourth quarter.

And as usual, CapEx, pretty much a nonevent on DGFF. So I think overall, the great news on Forwarding is we've now seen it for a couple of quarters, I think we can call it a trend.

Frank talked about the good progress on the IT rollout. I think Forwarding is clearly moving into the right direction, and the expectation is that this will continue not only in the fourth quarter, but also going into 2019 which takes me, last but not least, to Supply Chain.

Frank mentioned the important transformational deals we did in the third quarter with SF. In terms of underlying regular business performance, it was a solid quarter on the top line.

On the EBIT side, we achieved an EBIT margin of 4.7%, so we are well within the corridor of 4% to 5%. We have very good developments in most of the regions.

They one region where we see a current weakness in the business is U.K., Ireland, but this is now being addressed. And on the OCF side, I mentioned the real estate sales before.

Those are impacting us at the moment negatively on the cash flow side, but that is something which should reverse in the fourth quarter. Moving to Slide 27.

This slide is completely unchanged. So we have not made any adjustments to our guidance.

We have also not factored in the proceeds from Supply Chain China transaction because we do not know whether this will really come in 2018 or in the beginning of 2019. But leaving that aside, we are fully committed to our guidance and have hence kept it unchanged.

And that takes me to the last slide of my short presentation. And I think the wrap up is a very simple one.

On the PeP side, the restructuring is proceeding according to plan and is picking up speed. The DHL divisions continue to deliver profitable growth.

And on that basis, we are very confident to deliver on our target for 2018 and 2020. And we, of course, remain committed to our finance policy.

So thank you very much. And I think with that, over to Martin to open the Q&A session.

Right. Thank you, Frank and Melanie.

And operator, we are ready now for the Q&A round, please.

Three questions, please. Firstly, on the employee survey, which I think was an early warning -- gave early warning signals for the PeP division.

I just want to check over and above what you put on Slide 16 that there's sort of no red flags to sort of highlight across any of the divisions. And secondly, in U.K.

Supply Chain, obviously, it's pretty opaque from the outside. Can you explain actually what's happening there?

You mentioned, Melanie, in your section that you're taking steps to address the issue. And what was actually the impact on EBIT in Q3?

And then just in terms of the Chinese contract logistics business. Is it fair to sort of conclude, based on your pretty sort of well-defined finance policy, that the proceeds from that disposal, in the end, should end up or be returned to shareholders?

Yes. So Melanie, you should take number two and three.

So in the EOS, I can assure that we have seen progress in all divisions, a slight uptick. So there are no concerns in our divisions, and that's a good result.

So you are right, this is an early indicator of the mood. And despite that, our people are really impressed as well, and of course see profit warnings, the mood is up -- slightly up across all divisions.

And then let me take the Supply Chain U.K. question.

So I mean, first of all, it's not that we are losing money in Supply Chain U.K. or so.

It's just that -- I mean, this used to be the crown jewel in our Supply Chain division, and I think we just have to acknowledge that other regions have performed better in the meantime. And I think there are 3 reasons why Supply Chain U.K.

is, at this point in time, not where we would like it to be. The first one is the composition of the business there.

So we have historically quite a high exposure to retail and consumer in the U.K. And many of our customers are undergoing transformational processes themselves, and when you think about the High Street retailers of the U.K., which are struggling with the e-commerce transformation in some instances.

So that is having an impact on the business. The second topic is something -- yes, think nobody loves it, but we are seeing some uncertainties connected to the whole Brexit situation, be it a tightening of labor in certain areas, be it on our customers' site.

But then the third important topic is that we have some contracts, some sites which are not performing in line with expectation. We have had a major change in of our Supply Chain Management team in the U.K.

We now have very concrete plans of how we are going to address this. And on that basis, I'm confident that we will be able to move Supply Chain U.K.

forward. But as I said before, we currently have other regions, like the Americas, which are performing significantly better.

That takes me to the question on China Supply Chain. So we have signed the deal.

I think the first objective is now to get us to a closing of the transaction, which will be either at the very end of this year or potentially beginning of next year. And we will then look at how we're going to deal with the proceeds.

So on the cash side, we are, as you know, talking of about -- around about €700 million. We also expect a positive deconsolidation effect on the EBIT side.

And we will then deal with this in the broader context. So for me, that goes into the pot, and then nothing changes on what we do with the pot of money in line with our finance policy.

Okay, Andy. Clear enough, I think?

Yes.

Two questions for me, please. First of all, on German parcel prices.

You said on the Q2 conference call that you were planning significant price increases for that business from the 1st of January and were also planning some price increases from the 1st of September this year. Could you maybe just provide some more color on the extent of the price increases that did go through on the 1st of September?

And also maybe provide some color on the discussions that you're having with customers concerning the price increases, the proposed for 1st of January, please? So that's for the first question.

The second question is on the P&L benefit from restructuring measures. Also in the presentation after the Q2 results, there was a slide where you stated for the P&L benefits from restructuring would be around €160 million in 2020, and then greater than the €50 million in 2019.

I think Frank mentioned before that you've now had enough applications to support the early retirement program, and therefore, presumably, have got better visibility with regard to timing of early retirements. Could you maybe therefore provide an update on the P&L benefits for 2019, where you previously estimated greater than €50 million?

Yes, so let me talk about parcel pricing. So what we have started in September is mainly on very small customers, which are our rate card customers.

Because in there, we can implement that straightaway. Response so far is driven by acceptance.

We had very few complaints about the whole and we have not seen any losses yet. The rest is coming more January 1.

Some might -- a little bit earlier, depending on when their contract expires. so -- but we are on a very confident journey that this is doable.

Our competitors' announcing similar stuff, so we believe that we will see a significantly higher price increase than we have seen in previous years. So on the postage for mail, if I understood that correctly, Rob, you asked for that, that doesn't happen in our January 1.

So slightly later, depending on when the regulated takes the decision. But we are confident that this will happen in the first quarter.

On the restructuring measures, I think it's too early to really finalize the numbers because there is not -- there's a process behind that. Now we have to select the people.

There's also linkage to the organization because the people can only get for an early retirement if the jobs are redundant, and that is linked to reorganization. And then there is a process to do that afterwards, which takes a couple of weeks.

So I think we can definitely give you more indication when we report about the annual numbers in March. It's too early to say, but it definitely has not worsened against what we have said originally.

And just maybe to add from my side. so I mean, we said is that out of the €500 million which we're investing into restructuring, €400 million will go into the early environment of civil servants.

We have now fully booked the €400 million. And over time, we expect to get exactly the same things we had anticipated.

How that phases out over the years depends now on the final selection of civil servants which are going into early retirement. So for example, if you have a slightly lower average rate -- age of the people going into retirement, the saving is spread out over a longer time period, but the integral overall things stays the same.

I think the important message is that with regard to the benefits we want to get out of the indirect cost area, of course, 2020, is the €200 million, where we indicated that around about €160 million should come from the civil servant bucket. I think on that, we are very confident that the €200 million then will be achievable.

And we can also confirm that we will see a significant portion already coming into 2019. And as Frank said, the more detailed guidance, we will provide in March with our guidance for the year 2019.

Great. Maybe just one quick follow-up question, Melanie.

Could you just explain what caused the tax rate guidance to come down for this year?

Yes, so the tax rate was one thing we adjusted in the second quarter. That is actually, yes, the cynical upside from the shortfall in earnings in Germany, which is a high-tax country for us.

And on that basis, we were actually able to adjust the tax rate downward because we will make less money in 2018 in Germany. Now in the third quarter, it has remained stable at the 14%, and that is still our forecast for the full year.

Neil Glynn from Crédit Suisse. If I could ask 3 questions, please.

Following on from Rob's question on parcel pricing. I hear the comment in terms of expecting a significant price increase for next year.

But just interested in your thoughts on the mix effects. We've seen clearly negative mix effects to the tune of around 1% on pricing in Germany this year.

We had a bigger one last year. Have you any reason to expect that those negative mix effects will change at all as we get into 2019?

Just I think it's important to balance expectations in terms of what your P&L will actually show on the parcel revenue line. Then the second question, on Express growth.

I understand, I think, the TNT cyber attack might have had an impact on the year-on-year volume growth in the third quarter. But you've also clearly, at times, in Asia in particular, balanced volume growth with a need for high-quality pricing in Express over recent years.

Just interested in your take as to -- as we go forward in Asia, as well as Americas, should we expect slower volume growth and stronger pricing as you prioritize quality? And then just a final question on working capital management, and tallied to the comments on free cash flow, Melanie, earlier in the conference call, do you need a very strong recovery in working capital in the fourth quarter relative to the historical norms in the fourth quarter?

I'm just interested in your take on working capital intensity as a theme because, certainly, among peers, it seems to be rising in terms of intensity.

Yes. So let me take the two first, and then Melanie on the working capital.

So on the pricing, we are working with all our customers on price increases. They have different length of their contracts.

There will remain a mix effect for 2019 bigger, that should be then weaker in 2020. Nevertheless, we should definitely see that volume and revenue growth gets closer and closer, and we will see in due course if there is even opportunity that revenue growth is growing faster than volume growth.

But that is too early to say. But of course, the intention is that their numbers are getting closer to each other.

So there will remain a mix effect, but it should be -- get weaker. In Express, definitely, that has been our strategy all the time.

We are a premium provider with the best service quality, and we will continue to do so. So we will go more for the right yield instead of trying to outperform on lower prices on volume.

We believe that we will gain volume by high quality as we have done the last years. And we were obviously able to increase prices and gain market share in many consecutive years.

And that's our strategy going forward again.

Well, on the working capital, that's, indeed, a very interesting question, where I think the situation is a little bit different in the different divisions. So I think the one division which is doing extremely well on the working capital side is the Express division.

I think that's the division where we're also most advanced, for example, in holistic O2C management, optimization of the O2C processes and so on. So I'm not concerned about working capital in Express.

In PeP, we have a structural challenge on the working capital side because, of course, the payment dynamics on the postal and on the parcel side is different. That's a headwind we have had for years, and that is a structural challenge where we have identified a couple of measures which we now have to implement in the fourth quarter.

I think on Supply Chain, we have a very big swing factor at the moment. We had a significant buildup in inventories due the real estate venturing activities, where the plan is that this will now be reversed in the fourth quarter.

And I'm very confident that this will be achievable. I think the division there, in terms of general trading, the working capital headwinds are most pronounced at the moment in Global Forwarding and Freight.

After the 6 months, I think it was looking quite okay-ish. But as I mentioned before, the third quarter was not in line with our expectations.

So that is probably the division where we have the longest way to go. I think if you put all this together, what we have in our forecast for the year, and in terms of working capital, is not super aggressive and unrealistic.

We need a contribution, but that is in line with what we generally expect. So I think the big drivers for the fourth quarter will be the underlying business performance, the CapEx phasing, where we have just digested more in the first 9 months of '18 than we did in '17.

As I already said, venturing in Supply Chain and then the general working capital management. So I think it's nothing out of the ordinary.

I think the working capital is just something, which needs constant attention and it has to be confronted in the third quarter.

Three questions from me. First of all, you've given us the number, the EBIT FX headwind for Q3.

Could you say, roughly, what that was for the first 9 months, so we have an idea of how the year is shaping up? The first question.

Second question is at what point will you want to or need to start vying for volumes in Forwarding and Freight? I think if Martin is right, you can't grow your way to victory, but when you think, naturally, you will start to see volume growth?

And then the third question is just looking at the OpEx increase in PeP, the €150 million. How would you measure and how would you be able to show us the return that you're progressively going to get from that higher OpEx spend?

So on the currency, I think, Melanie, you can say something. We've -- yes, we -- of course, we can't continue to shrink the DGFF volume forever, and that's clear understood.

We definitely will not see growth coming back in that division in this year. But of course, what you have to demonstrate is whether we can now gain with the current level of profitability, where we gain market share, and that's definitely our objective.

I think to now -- tell exactly which quarter it will be is too early to say. But of course, the team is working on that.

So for the €150 million, to earmark that and say that is definitely -- the €150 million its investment in stability of quality, training and all this kind of stuff. It's not straightaway a productivity measure.

And therefore, it is very challenging to quantify whether exactly. That's the reason why we put in place into the underlying profitability.

So the increase, which we want to see between this year and 2020, is including every year, these measures, because we think we have to enable people in the field much more. To really now say, if we do more certified training, what the benefit for better performance is, is very challenging.

And I would say, if we start trying to do that, we will be hopeless anyway. So it is more a fundamental belief that if we give people the proper tools and devices and training, we will see a significantly better follow-up from standard operating procedures.

And our lessons from the other divisions are telling that very clear, that this is very wise. We under-invested to certain elements, and therefore, we had negative impact.

To quantify the positive impact is hardly possible, and that's the reason why we not put it as a deduction of a target. It is included in the target for this year and as much as in -- for '19 and '20.

Okay. Then on to the currency question, which is, unfortunately, as usual, a bit complex.

So overall, we have seen an increase in the currency headwind over the quarters. So there was already a negative number in Q1 and in Q2, but order of magnitude, Q1 was half of what we now had in the third quarter.

Why is that? So when we look at the beginning of the year, we actually had a euro strength position, which was helping us, for example, vis-à-vis the U.S.

dollar. So in the first and also in the second quarter, we were still, compared to last year, positive compared to the U.S.

dollar. What we have now seen is the strengthening of the U.S.

dollar, and that was a strengthening vis-à-vis the euro, which hurts us on the buying side because we are dollar-short, but what is hurting us even more so is the weakness of many emerging market currencies vis-à-vis the dollar and the euro. And this combination has led to the increase in currency headwind in the third quarter.

Okay, but is it fair to say you'd probably expect the net of the headwinds for the year to be north of €100 million?

Yes. We are already, after nine months, north of €100 million.

Hey, Damien. Damien, you may want to unmute.

Okay. Yes, sorry.

Your line went absolutely quiet then. Thanks for the rapid and punchy run-through of the prepared presentation.

I've got 3 questions, please, 2 on DHL and 1 more general one. First, on DHL.

Could you help us get to the bottom of what real underlying pricing there did? If we look at the 9 months revenue description in the interim report, it looks like fuel was about a 3% impact on revenue there.

And then when we look at the 9 months, TDI volume today up nearly 10%, and -- or sorry, revenue per day up nearly 10% and the volume up nearly 8%, it would appear that sort of pricing, without taking account of weight to mix effect, was slightly down. So clearly, there is a weight to mix effect there.

So if you could give us some help on that, that would be fantastic. Secondly, just on DHL again.

The quarter-on-quarter build of FTE count into Q3 looks larger than normal. Is there anything we can read into that about what you're expecting to do in Q4?

Or is there anything else going on in the business we should be aware of? And then very finally, on the other operating income.

I appreciate this is a minor item, but given the profitability at the moment, it is still material. The run rate of expenses that appear to have been capitalized as a consequence of taking income from capitalization in that line appears to have gone up significantly.

The run rate in 9 months 2017 was about €45 million per annum. In H1, it is €61 million; and now in Q3, it's up over €100 million.

So can you explain what's going on there and how that will trend in future?

Okay, let me start with underlying pricing effect in Express. So the key measure I always look at is the base revenue per kilo.

And when we look at that, it is solidly up both for the 9 months and for the third quarter. I think what we are seeing as input factor in the numbers is that we have focused very much on the right weight bracket.

So we had quite a bit of heavyweight stuff going on out, which, of course, in terms of revenue per kilo, is not so attractive. And I think when you strip out the fuel impact and the currency and all that stuff and you really look at base RPK, that is moving solidly in the right direction, as we have now seen for quite some time.

So the overall yield focus in Express continues also in the third quarter. With regard to the FTE development, so yes, I know what you're talking about when we look at the number there.

It looks up a bit more than you would have expected. When we discussed that with the Express colleagues, they put it on the quality protection measures, which has been continued focus in the Express division.

So I wouldn't over-interpret it at this point in time, and it's clearly not the expectation that we will see an over-proportional build-out in the fourth quarter. Which takes me to the last question on the net other operating.

So that, for -- sorry. I have to say, I have to look at this package in particular myself.

And you're quoting the stat book, right?

Yes, definitely in the other operating income, the first line on the interim report.

In Express? Or in...

No, within the interim report, it's -- sorry, apologies, I can't...

Well, the income from work performed and capitalized.

Yes, exactly.

Is that what you're looking for?

Yes. So what was €240 million in 9 months '18; versus €137 million, nine months '17.

Yes, okay. I think this is the impact from the StreetScooter which you're seeing here.

So this is how we do the accounting for the StreetScooter, for the internal production.

Okay. And can we be clear?

How much in total over the life of StreetScooter is being capitalized in there? And therefore, if you sold that business or found some sort of exit for it, how much of that would come out of the balance sheet?

This capitalization relates to the states where it's still not fully sold, but still sort of inventory, right?

Exactly. Yes.

That is purely volume-driven right now.

Yes. So this is -- I mean, the old StreetScooter accounting is a chapter itself where you really have to differentiate between what is produced and in inventory for external sales and what is produced internally, but which has not been taken over by the PeP division yet.

This is what is impacting this number. But I see that more as a phasing topic.

So those -- I mean, ultimately, both cars which are being purchased internally from StreetScooter are capitalized as if you would kind a like buy them from another external automotive manufacturer. And the rest of the stuff, once it's sold to the external world, it doesn't stay on our balance sheet.

So I think this is really the interim phasing effect that you see here, but I think maybe as you continue with the StreetScooter story, eventually, we probably have to kind of, like, to write slide on the whole accounting. It is giving our accounting colleagues a very interesting time because it's very different from our usual business.

That is why it shows up so prominently in the line you've quoted.

Yes. Obviously, no real inference on the profitability side of the gain, but for the accounting connoisseurs.

One question for me left. I'm just curious about the decision to effectively, if I interpret this correctly, exit in China.

Clearly, that has been an area of focus for many people in terms of the opportunities in China. How does this -- what does this say about your strategy for growth in Asia?

Could you perhaps provide a little bit more color of how you propose to grow in the future in that region, now you've, I guess, sold the business?

I think the first important comment here is that we have sold the Supply Chain business in China, Hong Kong and Macau, which is very different from our network businesses. So of course, with Express, Global Forwarding, e-commerce, we are still active in China and we expect to grow our business.

I think the Supply Chain situation in China was a very special one. We had a very nice, very profitable business, but if it's predominantly driven by multinational customers which we are serving in China.

And this strategic partnership with S.F. has actually been very much driven also by our local management team.

We've seen limitations to growth going forward because, in this domestic Supply Chain business, winning domestic Chinese customers has been more difficult for us than for local players. So the fundamental idea behind this strategic partnership with S.F.

is that they, as a Chinese company, will be able to grow this domestic Supply Chain business in China more rapidly than we would be able to do that ourselves. They will take over our management team.

And for us, the financial benefit is, obviously, that we get the onetime payment at the closing of the transaction, which is already quite attractive financial deal. But then, we will also participate through a fee based on revenue going forward from the now accelerated growth of the Supply Chain business.

So I don't think we can read anything into that for the other businesses in China, nor can we read anything into the other -- the Supply Chain business in the other markets in Asia, which are very different.

A couple from me, both on PeP. Just firstly, just looking at Slide 15 of the presentation.

Obviously, your flagging up the term on the cost side, that staff costs will be the biggest headwind to reach 2020. Can you just maybe discuss how much visibility you have, particularly on the sort of -- what you might call the quasi-costs -- I'm sorry, quasi-labor side, which is in the material cost?

I know particularly, obviously, haulage rates, et cetera, going up. How much visibility you have for '19 and '20?

And what is sort of the risk factors there? In particular, because I'm just thinking because wages, I think, are only by 2.1% for you next year.

So I'm just a bit surprised about the mix of that. And then the second thing, on the stamp pricing sort of element.

Can you just maybe discuss -- maybe if there are any sort of lessons to be learned? Because I suppose, to my reading the situation from a couple of years ago, was that there was going to be a much more simplified process for price rises going forward.

Is -- do you feel that's maybe not -- maybe everyone assumed it was going to be a bit too easy after the last price rise?

Maybe on the cost, of course, first of all, the staff cost is a material cost, the majority of our cost is still 2/3 roughly, is own cost -- staff cost. That's the reason why the absolutes impact would be higher.

We have seen, just October 1 this year, 3%. And as you said, next year, October 1, 2.1% in addition.

Material cost is going up as well, but to a lower extent. That's our prediction.

That might change. I think you should not over-interpret exactly the boxes business, it's just more illustrative.

But overall, we will see definitely more cost increases happen in other cost.

And we have the 3% price increase now in October 1.

The cost increase in the staff costs, yes.

Yes, yes.

So that's 3% this year somehow. And inflation is currently not higher than 2% in Germany overall.

So there is an impact, but transportation is only one part of many which are impacting that. The other one on price.

I think we have not underestimated the complexity. It's still a complex process.

I think we made the process more complex through our profit warning. If we had not had the profit warning, the numbers we have provided earlier this year had been the same and then we were already done.

But as you know, we changed it. And therefore, they started again and they asked questions, "What might happen?"

And we couldn't answer all these questions straight away because we didn't know the exact, precise measures for 2019 and '20 yet, either. So that's the reason.

I think there is not an underestimation, I think the complexity is the same like in the past.

Three questions for me. Firstly, staff costs in PeP, could you give us an underlying cost development in the third quarter?

And also looking into some of the issues that many in the markets seem to have in terms of finding headcount in delivery, how do you look at the fourth quarter and the cost inflation there beyond the standard labor cost increase? Secondly, following up on Damien's question on the regulator.

I mean, talking to you a month ago, it sounded like it would be a pretty straightforward decision from the regulator when you read through the base statement from the regulator. And you said also, Frank, that they wanted more information than you could provide.

But is there, in that process, anything where you think there's a big disagreement, where there could be a completely different outcome than what you expect? Or is it really just marginal numbers that we're talking about?

And lastly, on the Supply Chain side. Melanie, you highlighted that there's going to be some asset gains in the fourth quarter, but it makes quite some difference to the quality of your forecast, whether that's going to be €50 million or €150 million or something.

Can you give us any ballpark figure, what you expect for asset sales in the fourth quarter?

So, I may -- really, I have not these numbers at hand. Of course, maybe you can comment, but if we find delivery people, we have just launched weeks ago quite successful strategy where we really advertise, now using even our sponsorship in certain cases, that has been Very successful to find people for the peak period, but also for longer-term, which is good.

Since our people are typically under a collective bargaining agreement, we don't expect a significant increase by the tightening labor market. So the key challenge is to find the right talent, and this is happening.

With the regulator, this is always a little bit a challenge because, of course, we only know at the final stage if they change something. And they are not very transparent about their whole thinking.

We believe if we continue with the process they have established, we should come to a reasonable price increase. So -- but -- that's not in 100% our control, as I already said.

But of course, I can look into our numbers, and our numbers are showing that if there is a potentially different outcome, that's a risk always, but we don't know yet. And therefore, we continue to believe that we would get a reasonable price increase next year.

Okay. So then maybe to complement on the staff cost development.

I mean, staff costs are up year-over-year. When you look at the stat book, that number for the third quarters is, of course, heavily impacted by the restructuring booking, which goes into staff cost.

So if you take it out, I would say that underlying would be, as we were talking, right around 3% increase. I think importantly...

The entire restructuring is in the staff cost? The entire restructuring charge rate is something in other operating?

So the whole civil servant early retirement is in staff cost, so that is 100% in staff cost. Out of the rest, they have tiny bits which are not in staff cost.

But overall, out of that €392 million we have now booked in the third quarter, the absolute majority, including the complete early retirement of the civil servants, is in staff costs. That is heavily discording the staff cost numbers.

Nevertheless, when you look at the fourth quarter, we also have continued underlying challenges to tackle, and the first one is that on the 1st of October, we get the next wage increase, that is 3% compared to the 2.1% we have had now running through the year so far. And that was a price increase which came into effect on the 1st of October, 2017.

I think the important fundamental topic is what progress will we make on the productivity development? I think when we look at the overall trending in the PeP numbers, where we really see a clear trend in the right direction is on the indirect cost side.

I think on the productivity side, there are first encouraging signs, but I think we need some more months to say that this is really a solid trend which we can then also share with you in terms of hard numbers. So I think overall, it is moving in the right direction, but the fundamental challenges of increasing staff costs remain, and the key lever will be to improve the productivity.

On the Supply Chain real estate venturing, I've mentioned that so explicitly because it is having a big impact on the cash flow side, where -- I mean, like, we are now building up those properties to be sold as inventories, and we will have a very significant positive cash in. In terms of real estate gains, we get out of that in the P&L and which are then under IFRS 16, now spread out more over the duration of the lease contract, then this was the case.

I would say that this is in line with the normal Supply Chain trading, where we also had, in the past years, real estate venturing benefits in the fourth quarter. So I don't think this is an abnormal, yes, element in the EBIT, which would hint to a poor quality in the underlying Supply Chain earning.

Tobias? Good.

All right. So we are now a bit more than 1 hour into the call.

Only a few more callers left, I think.

Okay. David, you may want to unmute as well.

Can't hear you.

We lost him?

All right. Operator, we either lost or any other problem.

Maybe we want to see the next caller first and then see what happened to David.

Three for me, please. Maybe first, a little bit unrelated to what we talked about so far, the rate of German mail decline.

Just wondering, Frank, with your -- a few months under the belt looking at PeP, is there anything that makes you question the medium-, longer-term outlook for mail decline, volume decline in Germany that you've provided so far? So as you're thinking also, do the changes to the federal tax system, where you're basically fully online this year for the first year and we've seen that in other European geographies, this is kind of a domino that starts mail decline in some geographies.

Secondly on the parcel pricing, if I could focus on the peak period. I think here, the plan was to hold customers more accountable to the volume they actually commit to both under- or over-performing against that volume within a certain bandwidth.

Could you comment on how successful the renegotiation with the clients have been to kind of penalize customers that delivered too many or too few parcels into your network, and how that exactly will work. If you could give us an indication, kind of how that best been going, and how would you plan to enforce kind of the over- or under-delivery into your network.

And then you commented on the parcel -- general parcel price increase, you're planning from January 1. Maybe just a flavor on how many of the volumes or contracts that start again in January 1.

If you look at the total volume, think of your contracts in January 1, how many of those have been renegotiated already? How many of those are still open and need to be renegotiated either because the contract term takes longer or you're still negotiating with the client?

And what the average increase is you're aiming for in that general price increase on those B2B contracts.

Yes, let me start with the rate of mail decline. I don't expect an acceleration.

I feel even encouraged to see that e-commerce, our customers are starting to do mailings. We have great products.

I think the market has not fully understood yet how important direct mailings are to feed the sales pipeline. And therefore, I feel even encouraged.

I see very good examples with some clients with tremendous success rates. And that encourages me, if we educate the market more, that we will even see there some opportunities.

And of course, I see that there, are on the other side, some activities from the government. But don't forget, Germany is a federal state with a three-tier structure: Local counties, federal state and then the federal government.

And to align that across the board is quite a challenge. It took us, I think, a decade on the tax side.

So that's good news for us. That's very different in some other European countries, where you have such significantly more central steering.

So that is -- on this -- on the...

Compliant in the peak.

Yes. So we have success with these.

I think it's confidential, the terms and conditions of these. But we have been successful.

We got an agreement with some customers on that, so I'm very confident that we will definitely not be penalized. The purpose of that is not to make money out of that, the purpose is not the lose money through that.

And I think we have done that pretty well, and therefore, we are well protected now for this year's peak period. General price increase, to be honest, I don't know the details.

So that is moving over time. And you can now ask many different questions, volume weighted and all this kind of stuff.

It's more anecdotal evidence I hear, we are monitoring that, somehow, there is a majority of contracts has the potential that we do at January 1. By far, the majority of contracts have their clause that we can increase prices.

Now all our contracts have that. But the majority, how's that?

I can't tell you because they are several discussions always, and therefore, I can't tell you how much have already gone through. What I hear from the sales force is that the reception of that is not by happiness, but at least my understanding, and they take it serious because they hear the same from our competitors.

Great. Maybe just one follow-up on the peak pricing.

Is that kind of an automatic increase? So if the customer delivers more, you'll automatically charge more?

Or is there another discussion involved, kind of post fact, when he over-delivers volume?

That's different. In principle, we are more protected because that's a bigger risk that we -- they -- where volume promise and they would deliver at different places and other places, and then we have extra cost in both dimensions.

So we are protected against that. If the volumes are going above a certain threshold which was committed, we have another discussion around about who takes the cost up, and quality-wise, we are off the hook somehow.

So that is more a protection against that we are generating cost and have no volume. I think we, obviously, will find a way that we get -- if we get additional volume, of course, we will find then extra capacity.

If the quality is not a problem, there should also be a decent price due for that, but that's another discussion we'll have with customer then going forward.

And I see there's one further call on the queue.

Yes. Just a quick one, actually.

Just, again, coming back on the parcel pricing. I'm just curious, of the price increases that you put through in September on rate card customers, what proportion of your volumes are accounted for by that customer group?

And can you say roughly what the sort of average price increase on that group was? And that's my first question.

Maybe just a quick one also on stamp pricing. My understanding is that you won't lose out financially from the delay in the pricing decision.

Is it your expectation that when that announcement comes out from the regulator, it will contain some sort of clause that says, "This is the price increase of x, plus, there will be a further €0.01 or €0.02 on the average stamp price to reflect the delay", or do you think it will just all be wrapped up into a single number?

That's a good question. I'm not sure.

I think what will happen anyway, they will give us an headroom for increase, and then we have to allocate that to the basket of products. So it might not even change for a certain product.

And there's, of course, always a focus on the standard letter. That might still be the same as we are -- we said so far, but we get some flexibility to increase prices for others.

If they will give us separately, I'm not 100% sure. So the customers we have started in the September 1st, they are in the mid-single-digits percentage points of the total revenue in Parcel.

So the impact is relatively modest. And I'm a little bit hesitant to give a number because that number might end up with other customers again, and therefore, we are not disclosing that.

But it a significant increase for these customers.

And one more caller, I see.

Yes, Matija Gergolet from Goldman Sachs. Two questions for me.

Firstly, going back to the mail increase. I mean, we talk a lot about the regulated mail, which is €3 billion of revenues.

What about the other €7 billion? Are you planning say, to implement a price increase as of January on some of these products, advertising mail, marketing mail?

Or will you wait to have the regulated price increase and then increase the prices simultaneously? I think this quite -- can be quite material.

My second question, just going back to the Supply Chain capital gains on IFRS 16 comment. It's a little bit unclear to me exactly what should we expect for impact for the fourth quarter for Supply Chain.

On one hand, I think it was mentioned that now, the IFRS 16 positive impact will be effectively so -- slightly negative or much smaller in the fourth quarter, kind of suggesting that there will be, like, an offsetting impact on capital gains. So can we just be a little bit more precise about what you expect for the fourth quarter from either IFRS 16 or capital gains, please?

Yes. So price increases for business customers are typically linked, if -- but -- they are separate, but they are typically linked, for most customers, to the price increase we would see in general because these are rebates we give on the list prices somehow.

And that will continue to be the case. On certain areas like the press, we will start already in January 1 with some price increase.

So there will be elements we will see already price increases by January 1. And other products, they will be aligned more with the regulator price regime because this is very closely linked to each other.

So on the Supply Chain stuff, sorry if I confused you more. So I think, really, the most important element is first of all on cash flow side, I think, on the whole EBIT impact.

I mean, those real estate venturing activities have been part of the Supply Chain business forever. And in terms of phasing, we had it pretty much every year that most of the real estate venturing transactions closed in the fourth quarter.

And that always led to a gain which we saw as a positive impact in the Supply Chain P&L in the fourth quarter. Now under IFRS 16, simplistically speaking, we are no longer able to take the gain in the quarter where the transaction closes, but it's being spread out over the duration of the associated lease contract.

And that leads to a lower number than we would've had under the old IFRS 16 regime. And in our -- what is the impact of IFRS 16 comparison calculation, this is probably going to lead to a negative calculated impact from IFRS 16 because it would've been a higher effect if we still had the old accounting world.

Now in the new accounting world, the benefit will be lower. It will still be a positive benefit, yes?

So I hope it's getting more clear on the technical side. We will show you how the whole thing works in the fourth quarter once we have the final numbers.

So what used to be lumpy income in the given quarter is now spread...

Spread out over time, yes. So it is still a positive effect in the fourth quarter, but it's a smaller positive effect than what it would have been under the old accounting rules.

And that shortfall, compared to the old accounting world, will be reflected in a negative number from IFRS 16.

Okay. Okay, got it.

I'm sorry, on the same price increase on the same business customers, is it possible to for you to have, like, a rough idea of now what percentage of the €7 billion of revenues might get a price increase in January? Just ballpark figure.

No, I don't have it. I can't remember exactly what the revenue is.

It's a higher 3-digit millions, I think, the revenue somehow which is related press. I have that but in my mind somehow.

But I can assure you that our whole journey until 2020 was not based on significant price increases for business customers anyway because that's a quite intensive competition going on anyway. So nothing has changed materially with regard to the price increase for business customers.

Great. Operator, any luck in reconnecting us to David Kerstens we lost earlier on?

Yes. All right.

Good. Well, then I think we have no other callers waiting in the line for the Q&A, operator, right?

Good. Well then, that concludes our call.

Let me hand over to Frank.

Yes. So thank you for participating and thank you for all your questions.

As I said already at the beginning, that the quarter was well in alignment with our expectations, which is -- was very good news, not only for you. And we are very confident that we are on a very solid path to deliver our full year numbers.

In addition, I think we have good visibility about all the measures we need to take to go for 2020. And that is the reason why we gave, again, reassurance on that we are still on our journey to deliver the 2020 results.

And with that, I would like to thank you again. And see you soon somewhere.

Thank you very much and talk to you next time. Bye-bye.

Thank you.