DHL AG (DHL) Earnings Call Transcript & Summary

On time, I welcome you here in the room in London and out there on the live webcast. Good afternoon, good morning, wherever you are, and happy that we have you here for today's DHL Capital Market briefing. That's how we call the concept. It's a 90-minute or so session. So the aim is to be done by the full hour at 4:00. And therefore, we are looking forward to here from our host, John Pearson, CEO of DHL Express. You heard him speak often last time around on our Capital Markets Day last year. Some may have seen on one of the tours. And we also have with us today our Head of Network Operations and Global Aviation, Travis Cobb. Thanks for making it. And you will notice that we do not have a single CFO here in the room from our side at least. So this is very clearly targeted to be an educator session for you to get a better understanding of what we're doing in our Express network on the strategy and on the network side of the game. This is not about putting out any new targets or numbers, but your understanding of the business should be growing. On the web, like for our usual formats with the quarterly reporting, any questions that you have, punch it in, I will get it up here, and we will make sure that the topic is going to be covered. And as it is part of our safety culture in DHL Group, we're not going to start this session without me giving you a very clear briefing. There is no planned fire alarm this afternoon. And in the case of an emergency, the nearest fire exit is right out of the store and then straight ahead. Okay. I should not forget to thank our friends at BNP for organizing and providing this venue. And with that, John, may I hand over to you.

Martin, and thank you for doing that safety briefing. That's something that every single meeting in Express and pretty much the group starts off with. So thank you for your interest in our company and being here again with Express. The slides aren't too heavy, but I walk through them slowly because I think there's some points that Travis and I really want to get across here at this particular time of year where we've reported the numbers we've reported, and we're now well into the third quarter. From a sort of state of the nation point of view, you know our formula, people, quality and cost excellence are the drivers for -- all the drivers for our growth going forward. You see the formula in the minute. There's little point in expanding upon that more. Smart industrial growth, really why we're here today, if you will, in Heavyweight Express combines the targeted Express levers with the group growth initiatives. It's a big focus for our division, Heavyweight Express. It's a big personal focus for me. I spend a lot of time on it and how we can make it more sophisticated. Global Connectedness, proxy for global trade is at an all-time high. I heard the phrase the other day, global trade is stronger than ever. It's just the destination address that has changed. So I like to use the phrase water finds a way. It's just finding a way to different places. And that's absolutely the case. Trade grew faster in the first half of this year than any other first half since 2011. So we -- a lot of the things we're talking about are riding on the back of that. And for those of you that are interested in Warsaw, in a couple of weeks' time, we'll be sharing update of our Global Connectedness tracker, which is very interesting and more hotly anticipated than ever before. That links to our [ 22 ] high potential markets, GT20, Geo Tailwinds 20. We've added two to the family. And that program I personally sponsor from a Board management point of view, and that is all very much on track. The formula, much more than just words on a wall. I think I'd like to make that point. I was in South Korea in Seoul last week, and I had it pointed out to me of how much depth there is below each of these letters. And I've been in the business 40 years. I'm quite long in the tooth. I know when people are telling me the truth and what I saw in Seoul was just outstanding in terms of how that business has taken this formula, which is pretty much the same since 2010. little bit of cosmetic change, but pretty much the same for the last 16 years and are building it into the business. That's also a country that their weight per day growth is in the 20s last 3 months and their heavyweight Express growth, which is over 50 are in the 30s. So everyone is a real lifetime example of just one country, meaningful to a point. And we continue to build and manage and measure our countries on the things that we know are under these letters, safety, as Martin just pointed out, is one of the big ones under people. You can't be a great place to work unless you're a safe place to work. We've been #1, #2 or 3 great place to work in the world for the last 5 years. You can't do that unless your safety KPIs are getting better. But what we're here to talk about is the C and the G. You can see the things that it says under those letters. And I think the point I'd really like to make here quite convincingly, if I can, is that the combination -- the strength of the discussion is in the combination of the two. So I, for my part, talking about smart industrial growth, selling heavyweight business and controlling and managing RPK and then Travis saying, right, that incremental volume is going on a fitter and leaner network than we've ever had before. So the two sides of the story, more volume, good quality volume, good yield volume lands on a network that Travis manages and is far fitter and far leaner than ever before. So I think that's the key thing there. The other way I'd say that is the network is there. The network is the jewel in our crown. It's the most important thing we have, been there since 1969. The network is there, utilization, let's monetize it. Utilization of that network will monetize. Operational leverage, call it what you will, but that's the moment we've been in for a while, and that's the moment that's bearing fruit now. So let's start with smart industrial growth and kind of say what is it? It's definitionally a simple term, but definitionally something that inquires you to say, what do you mean by that? And I guess it's got two dimensions. On a customer level -- on an Express level, it's great profile [ TDI ] business fitting into a network that's got capacity at service center, gateway, hub and in aviation. Great profile business that's palletized, stackable and full of aeronautical aviation, robotic parts, not welding rods, not potatoes, high-value parts that are going in those packages. And you may remember, we had a program in 2018 where we pulled out some heavy weights from our network, uglies, rugglies and all sorts of things, oil drums, too many Samsung badly packaged, maybe plasma screens and other things, fully assembled trampolines, not quite that far, but there were things in our network that weren't accretive to producing more EBIT. We cleaned all that out. That's what [ P300 ] was about. Now we relaunched in earnest the whole organization into finding these type of things. From a customer point of view, it's quite different. We're doing this at a time where supply chain resilience and reliability and speed and economic value are more important than ever. Customers' growth plans are getting hit every single day by global trade interruptions. The fragmentation of global trade is impacting customers' growth plans every single day. So the combination of the two is sort of going to a customer with something that is creating a situation where growth comes and business outcomes come from speed and the outcomes of speed and reliability enable is a very powerful proposition to our customers. This is not just saying, do you sell heavy weight. This is have you switched your trade lane focus from somewhere, U.S. to somewhere else because of what's happening in the world of trade. Has that brought you any supply chain difficulties? Has supply chain disruptions, which there have been many every single month for the last 5 years really, meant that you're slower to market and your customers' customer ensuring high customer satisfaction. That's not our customer satisfaction, that's their customer satisfaction. So the aggregation of a rather difficult trading world and a rather nicely controlled asset base that Travis has and a very accessible heavyweight Express product that we're offering in this -- on this foundation of smart industrial growth is what precipitates the sort of the line there at the bottom, the business outcomes that speed and reliability enable that their forwarder for certain goods that they have, they can't get that from their forwarder. And some of this will become even clearer as we walk through how things change from COVID. So smart industrial growth is a sort of banner of this phrase. It actually started with smart growth because it was smart lane growth. It was smart product growth. Travis himself wrapped that up under the umbrella of smart industrial growth. There's two sort of prongs that we're talking about today, Heavyweight Express, which I've already sort of started on and geographic tailwinds. Allied to those two diamonds are the other growth diamonds of the group growth initiatives, new energy, life science and health care, digital selling, e-commerce. The new growth diamond is data center logistics right on time. I think before quarter 4 2025, the number of people that knew what a hyperscaler was, was not very many. Now it's on every e-mail, it's in every day. So running fast on that. So it's the sixth growth diamond. The little 4 that are sort of opaque out -- also important to comment on as intra-AP, a highly profitable intra-Asian lane, a big part of our business. Intra-Europe, a staggeringly large part of our business that is coming back with TDI. And with TDI, one of the little diamonds there is blue lanes, so growing volumes with more attractive pricing on systemically unbalanced, underutilized aircraft sectors. So the U.S. to the world is one of them, and MENA, back to Asia, et cetera. So there are a number of blue lanes and one -- the other one might be sustainable selling GoGreen and our sustainable aviation product. So you see the sort of the growth architecture of our business. The focus is on communicating what this is and really drilling down into -- from my organization and even my own time, heavyweight Express and GT20. I think it's worth just having a look at this slide, which really illustrates the evolution of DHL Express. And I'd like to go through it in decades of 10 years. The first bucket, and there should be the right amount of people there, but the '70s was all about documents. If there were any parcels in our business, they were lightweight parcels going to aircraft on ground in Riyadh, in Yanbu, Saudi Arabia, vehicle off-road in probably Saudi Arabia as well, Bentley that was owned by Sheikh and the little 2-kilo part was shot over there, no expense bed, and that was the type of parcels. And think about this in the context of this type of parcels are moving. The '80s was all about more small packages sitting on top of that document network. The documents didn't go away. So I'm layering on here different things as our business evolved over 60 years. The '80s, the '90s was all about Import Express, a product that kind of saved DHL. It was billing at destination rather than billing at origin. The customer paid when he received it rather than origin. 80% of freight anecdotally is consigner routed. I'll take it from there, the factory, bring it to me, please, our offering, [ 219, 220 ] at the time because Afghanistan was included to your desk, pay everything here on one account number. It kept DHL in the black at that time for quite a long time. 1993 and was still a big product. It's probably 40% of our revenue. We're not quite an inbound company yet because outbound is slightly more, but it's a significant part of our evolution. The year 2000s, I'd like to say when I was in Asia, I launched Fast Forward. Fast forward was kind of the forerunner to Heavyweight Express. It was launching a 0 to 250 kilo, we are faster and cheaper than a forwarder product. You should never use the word cheaper in marketing, but I use that advisedly in the sense that we were cheaper. There's less money. I think you need to say it in that way, and customers didn't realize that. So the year 2000 is when we launched Fast Forward, which really made me reconsider bringing it back into the business now, which I've done. 2010s were all about e-commerce, the 21st Century Spice Trade, the work we did with McKinsey, I realized that when I went to the U.K., 7 of the top 10 customers were brands I've never heard of, and they were brands that hadn't been in our top 10, not even the year before. So absolute zero to hero, Farfetch, MatchesFashion, JD.com, big, big customers. We need to know how to manage those well. So the 10 to 20 was really -- and through to COVID is really about e-commerce. And then '20 onwards was really the machine you're looking at on the right. It started because apples fell on to our cart. Big weights fell into our bucket during COVID. Everyone said they all disappear. All of them will disappear. We went from a weight per shipment of something much lower to much higher. I'll show you that later. And we talked to our customers and said, how much will you leave with us? This is another important point because of speed, shipment visibility, reliability and customers' customer, they said, we'll probably leave 60% with you. Some of them said more because actually, I found out that you're cheaper because I've never used you before. and I had to use you, I found out that you're cheaper than enough order. In the end, we kept about 88%. So post-COVID normalization, something I said on the night our dear Queen passed away at the Capital Markets Day on September 8, 2022, wasn't really a big deal because we kept the business. So as we get into this period now, we've got a lot of learnings from COVID and a lot of those customer satisfaction stories. So let's just have a look at this and relax for 2.5 minutes to portray what we're saying to our customers and what we're doing in the market and how we're educating a little bit our sales force. [Presentation]

So if you aspiration absolutely is to get our shipments through to destination at the same time as our documents arrive and that absolutely is what Travis is working on. So what is it really? Well, it's the big boxes and pallets and crates that you saw in that video. It's not this. This is a thing called the jumbo box. I launched in Australia in 1997, 25 kilos. And our average weight per shipment for B2B is kind of here at 12. You know that from the stat box. But COVID, it was kind of -- so we're putting on weight as a business. We're putting on weight kilo by kilo by kilo over the last 4 years, nearly a kilo a year or 0.5 kilo a year. So we're sort of up here now. But we're a long, long way from what's already in our warehouses, what's already moving with us and what Siemens and Robert Bosch and Kuwait -- oil company in Kuwait are moving with us. So whilst that is kind of the business that we grew up on and whilst it took us 56 years to get here and sort of only 2 or 3 years to get here, the business has so much more potential with the speed, the quality, the use cases, the urgency drivers and the fact that we are more economically viable up to a weight that most customers don't realize. Most customers think it's over 50 kilos, give it to a forwarder and then they find that up to 125 kilos or cheaper or 130 kilos. So that's kind of what it is that the competitive pricing that goes without saying, the right sales approach is not can I move your heavy weights. The right sales approach is do you have shipments that will increase in value if you move them via a network with more speed and reliability or ultimate customer satisfaction. So if we look at some of those, they are the obvious ones, and I let you read them for yourself. Those are the urgency drivers that we're communicating to our customers in our sales conversations with logistics managers of all sorts of different skill set and experience. And these resonate well in the customer calls that we have. But there's 1,000 more. there's literally no end to the number of things. It's my shake is arriving back and we need this there. It's not there. That one is not there, but it's #7. And #8 is I used you for one of those, but then I learned that you're actually cheaper until 129 kilos. So I'll use you a bit more. And that's why we kept the ATK 80% plus. And if you said, well, what sectors are they? They're all the normal sectors. They are our group growth initiatives. They are significantly these ones. The componentry and what's in the box is exactly, as you might imagine, robotic parts and life science and health care equipment and server racks. And just talking about DCL for a second, no one was talking about hyperscalers 2 years ago, no one. No salespeople have never heard the word. Now it's in every single deck and every single document kind of thing. And our salespeople, we've got dedicated win rooms and war rooms and we collaborate with DGF and the whole collaboration story is so much stronger. But we are in the upstream world of the ecosystem of the upstream world, spare parts for something that's already been set up and established with things that Oscar in DGF moved 6 months ago. So this whole ecosystem world is enormous, and that's why we've added it as our sixth growth diamond. But that doesn't detract from life science and health care or anything else in there that is -- we're also focusing on. And then the result of that is, as you see here, nothing that I didn't expect. We maybe had some tailwind from the Iran-U.S. situation and capacity constraints and supply chain pressures. And -- but when I was in London in April at the Capital Markets Day, I made this point that interruptions play into our system. We control the aircraft Travis will talk to you about. We have our own facilities. We can find more aircraft quickly. We can put aircraft on the ground. We can move aircraft tails around. The types of things that are going on in this fragmented world of global trade and very quickly changing global trade when de minimis suddenly shuts you out of one market, play into those assets. So it's no surprise to me that we're at the 9.4 weight per day. You see the transition between quarter 1 and quarter 2 play back against the comp of 2019. You can read for yourself on the right-hand side why that matters. We're 2/3 of the way -- a little bit more than 2/3 of the way through quarter 3. I would expect the number, I'm sometimes a bit more open than Martin, but high level, I would expect the number to be quite similar. That's how it's playing out. And I say that in the sense that this is -- going back to that point about, this is a decade of commercial strategy. We didn't do this for 3 months of better volumes. We did it for the next decade like we did the documents and the [ IMP ]. [ IMP ] is still an enormously valuable product today because it's got a higher revenue per kilo and a higher weight per shipment than outbound business. So it's propped up the whole commercial KPIs of our business. So that's how it's performing. And we deal with more in Q&A. So where does that take us to? It takes us to GT20. I think the query code works by all means. There are publications just about every year from us. There's the global connectedness report, it was called the index, and there's a global trade Atlas. The world that you live in and the world definitely that we live in, these are more hotly anticipated and read and understood 3.5 million data points, and they tell you a lot about what is going on. One of the things they tell you is that globalization is not giving way to regionalization. Global trade still moves 5,322 kilometers on average, through the Malacca straits, I used to be on a boat, survive over from the East to the West. And if a lot of onshoring and nearshoring and friend-shoring and reshoring was happening, then mathematically, that number would come down. Trade, as I said, grew faster in the first half than any year since 2011. Trade is -- there are trade policymakers and business people and CEOs out in markets looking for new customers, looking for new trading routes, almost with "I Love Global Trade" T-shirts. And that's kind of how it is. They lost a major destination market, but most people pivoted very quickly in their marketing efforts, which is why we send the message we can pivot equally quickly in our operational efforts to help customers get their products or samples to new markets, then ultimately get their finished goods. And if any of these things that people, these naysayers would tell you about global trade and globalization, nothing is true. After the Iceland eruption in 2011, I said global trade will never be the same again. What changed? Nothing. Nothing. A thin veneer of goods and parts that were highly sensitive and value might have been moved closer to end consumption. But by and large, the economics and trade is built on economics and efficiency. The denim jean industry is not going to move from Bangladesh to Stuttgart. And denim jeans are still made in Bangladesh, which is one of our new GT20 countries. So a few things changed, but I'm pretty sure that as global trade emerges and the map of global trade evolves, it will fit our network uncannily well. And that's what's proving to be the case with these countries that we put into it. And let me go on to that. I don't really get into any detail. I've already sort of shared that Bangladesh and Morocco are going to be 21 and 22. But I want to say from this, they're evenly distributed around the world. This isn't just something in Asia. So they're evenly distributed. These countries grow fastest on an axis of speed and scale between now and 2030, as defined by NYU Stern, who is our partner, BCG, McKinsey and some other people that helped us. They are the right countries. You won't find Papua New Guinea in there because whilst it's going to grow fast with vanilla and all the other products it has, it's not of any scale. The reasons why these countries were the ones selected is any of the right-hand drivers or all three. A good example of inward FDI investment, the country that gets more FDI investment than anywhere other than the U.S.A. is India. So India is in for that reason. The countries that are in for the reasons of supply chain diversification beyond China is mainly the Asian countries. And the only country that's in for nearshoring is Mexico, where Chinese companies are setting up on the border and shipping into the U.S. And some are in for all three. But the fact of the matter is we identified 20, one or two could be the wrong ones. We identified 20 2 years ago, and we started doing things. What did we start doing? We started driving commercial excellence means the quality of our people, the quality of our programs, the quality of our pricing, specifically hard in all those 20 markets, but more so pushing our sister companies to get to the same level, some of which would agree, they perhaps weren't at the same level as DHL Express. We then made sure that we were collaborating better than we've collaborated before. So in Malaysia, which is one of them, that would be no surprise to you, we collaborate regularly with our sales teams and our general managers and the CEOs of the region to drive through a list of established programs. And lastly, and ultimately, actually, putting a pot of money aside Tobias was very keen that this happened to drive investment. If we identify a white spot in one of those country sessions and reviews, we need to deliver EUR 50 million or EUR 100 million back to that country and fix their problem. We can't quickly respond to their reasons why they may not be growing at full tilt, the program is really fractured in my view. And then lastly, like anything in business, P is the first letter of our formula. It relates back to leadership capability of the General Manager of the commercial team of the entire SMT. And in countries that are maybe towards the bottom of the sort of rankings, there will be some cases where it's a leadership topic that needs to be addressed. So that's the foundation of it. We've evolved things as we've gone through the 2 years, different things have been in place at different times. And one of the aspects that came out of it is our Chinese overseas sales network. There's a little bit of deja vu, I joined in Bahrain in 1986, there was a Japanese overseas salesperson and a Korean overseas salesperson. The program fizzled out after 5 years. And here we are 35 years later, populating the GT and other locations with Chinese salespeople, largely from DHL China. Now what I've learned about doing business with Chinese companies outside of China is it's best to do it with a Chinese person. And metaphorically, figuratively speaking, the concept is to meet them off the plane, to be in their diary, be in their office, be around the dinner table with them and be their lead logistics partner. They build cultural bridges. And these people are all doing that in these different places. So that gives us real traction on those Chinese companies that have established. A great example of Haywood heating in that set up a plant in Egypt and Thailand. Sure enough, when I wrote to the country manager, they've identified them. They've got capital set up, and they were building their plant to sell heating equipment, little small heaters to Egypt to North Africa in one case or to Southeast Asia. And we were first in best rest. So the program is going well, and we'll continue to drive that. The final tapestry, if you will, the bed spread of performance on this program is pretty impressive. So we look at it in different ways. We look at it by division. We look at it by GT19, excludes China. You can imagine that had a bit of a headwind for a while, GT20. But the roll-up of the entire thing for the DHL Group is the 13 of the 17 are more than 20% growth. And you can see that 3 of them are more than 40% growth. We'll add Bangladesh and Morocco to the program. I visit them within the next 3 months, and we will kick off the same processes and make sure that we're getting more than our fair market share of the automotive business in Northern Morocco and the other aspects of the opportunity in Bangladesh. Lastly, one more slide only, and I run over time a bit, but these are all important things to say and share. If anyone was in Leipzig, maybe not in 2012, I shared the pricing Blackboard for the first time. We've had two pricing leaders in 30 years -- 25 years, and they both built the pricing competence and capability in Express at a very high level. So called the steps to pricing excellence. We were at 2%. We're probably near a 4% now. This is a demonstration of how we've improved our NPC over the years in a rather tough competitive environment, NPC, you take all the shipments that were build in November, you run them through the new set of rates you've given to your customer in January, just run the same shipments through the machine, and it comes out 2.8% higher. So we get that stick rate. We get that as a base on our 24 billion, if you will. There's some attrition of that as the year goes by and so on and so forth. And then the rest of the pricing environment is managed with the red cards, where if we bring on in error a heavyweight customer that really shouldn't have been with us, probably should have been with forwarding. We'll share the lead back with them when we move them out. They'll be red carded and we'll put them up to the price they should be if that's not right for them. And we'll move that to a monthly program, not a yearly program. So we are very specific on protecting our RPK. I can get young kids to go and be a freight forwarder salesman and sell heavyweights at lower RPKs. We have to maintain our RPK. So that's the signal there. You see the NPC that relates to this. Willingness to pay in deal review is very sophisticated AI-driven pricing programs. The willingness to pay is about SMEs and making sure we don't give discounts too readily to people in the pharmaceutical business that would typically pay a higher rate to us. For example, deal review is establishing in a very sophisticated way the business that comes to us from a certain customer and how accretive it is to our EBIT through the type of network that -- and lanes and packages that they give to us. So you can imagine some people that only ship on a very transactional lane, Asia to U.S. and only give us this type of thing, and it goes to middle of Central America might be quite low on that. But you can imagine someone that ships daily around Asia, high-value aeronautical parts of 8 kilos, very dense are a different type of network value customer. Quite sophisticated, all AI on a strong AI platform got it in 20 countries. We should have it in 50 by the end of next year. But it just talks to the strength of the pricing unit that has the responsibility for maintaining RPK on heavy weights, keeping this whole SIG and heavyweight strategy in track, but also do everything else on the day-to-day pricing. So it's smart industrial growth, that's heavyweight Express, that's yield control, that's driving incremental volumes that are coming to us anyway because trade is so disrupted the customers' customer is wanting better, quicker service in these type of times and then putting it on a network that's leaner and fitter and for a long period of time and getting the operational leverage from that. So if I can, I thank you for listening, and I'll pass over to Travis, and then we'll have maybe questions at the end. So Travis, thank you very much.

Thank you, John. Good afternoon, everyone, and good morning to our colleagues that are dialing in virtually. My name is Travis Cobb. I'm the COO of DHL Express, and it's a pleasure to be here with you today. And it's good to see some of you again that I met 4 years ago when we had our Capital Markets Day in the tower and then toured our Cologne facility. So as John said, I'm here to talk about the cost excellence portion of our strategy. You will have heard a lot from Tobias and from Melanie and from John over the last couple of years about fit for growth and making sure that we're getting our platforms really optimized and ready to capitalize on the smart industrial growth that John just took us through. So when we talk about Cost excellence, I'm going to talk about a couple of key elements. I'm going to talk about our aviation network, and then I'm going to talk about our ground network, which includes all of our hubs and all of our country operations for our pickup and delivery and for our customs operations. I'm also going to give you a preview of some of the things that we're looking at from a digitalization and from an AI standpoint that we see as the next cost optimization levers in our business going forward. So let's get started talking about the aviation network. And internally, we often refer to this as aviation, the perfect network. And there's a lot of characteristics that describe why we believe our aviation network is the perfect network. Some of these are extremely important to us, safety and security, obviously, high quality, obviously. But what's going to be more interesting, I think, for all of you today are the second, the third and the fourth points that you see listed there, the flexibility that we have in this network, how it's designed from a resiliency standpoint, certainly, how sustainable our aviation network is. And then lastly, how we've been able to, over the last couple of years and going forward, really cost optimize that aviation network. And let's start there if we can. So here on the left-hand side of the slide, you see a 10-quarter history. So quarter-over-quarter, year-over-year going back through 2024, where we've been able to demonstrate that flexibility that makes up our perfect aviation network. We flexed down our capacity. We've been able to flex down our cost base overall for those 10 consecutive quarters, in line with what we were seeing with our [ TDI ] weight development and overall result. I think on the right-hand side, you also see an important element here that is good to understand going forward is not only we've been able to flex down that cost base, but we've been able to actually structurally change it, and we're delivering a unit cost, which we measure as our aviation cost per kilo at a material lower level than where we were just 2 years ago. So if you take smart industrial growth and you take that net price change that John just showed you on his last slide and you bring that volume on to a more efficient cost aviation network that's producing a fantastic flow-through into our results that you saw in the second quarter. So you can see that's really fit for purpose and set up going forward. Now what's the size and scale of our aviation network? You see it here. We published this once a year. So this was at the end of 2025. We have over 275 aircraft operating over 2,400 flights a day. But I think the most important part on that slide is we're not one single airline. We don't have one DHL airline hotel and operate that airline around the world like our competition does. Instead, we are 19 airlines that we own and partner with around the world. And that configuration, we call and bring it together to call one big virtual DHL airline. And that virtual airline has some really interesting characteristics to it. One, it gives us a fantastic geographical coverage that we need to operate in 220 countries and territories around the world. But importantly, it gives us operational flexibility. So again, as we need to increase capacity in the short term or decrease capacity in the short term, with one phone call, we can flex up or flex down with our partnerships that we have around the world. This is one of the key principles that we build into that fantastic aviation network. We are not overly fixed in leverage. We keep a very targeted amount of flexible capacity in our design of our network. And you can see at the end of last year, that flexible amount was 20% of our total capacity. We could flex it down with in less than 1-year short-term contracts. But also importantly, in periods of higher demand, like we've recently seen in the second quarter, we can also make one phone call to our partners around the world and add capacity on in a very variable and quick basis to support our customers' shipping requirements. Yes, those 19 owned and partner airlines that you see listed there. Geographically, these are the countries that those airlines are domiciled in. So you see it's a very healthy spread from the Americas into Europe, across the Middle East and over to Asia Pacific. And that geographical spread is critically important, particularly in the geopolitical times that we operate in today. And I'm going to give you an example of how we've leveraged that over the last 6 months to our benefit. So obviously, the Middle East conflict has been disruptive in the industry. But again, because of our geographical spread of our partnerships that we have, airlines, when they assess security threats and airspace closures in different parts of the world, there's not one universal jurisdiction that says, this is how we're going to operate. Every airline follows their country and their national regulations and assessments in that particular geopolitical situation. And in the Middle East, in particular, we were able to leverage 5 of those partnerships and our own airlines that we have, and we never missed a beat in terms of being able to provide fantastic service into our Middle East part of the world. And we already have a healthy business in the Middle East, but to be able to quickly and nimbly set up short-term contingency hubs in Muscat and in Riyadh and then leverage those fantastic aviation partnerships to fly in there, connecting into our ground network has provided us benefit and a tailwind into our second quarter result that you saw noted in our second quarter results. I'll move on to another element of our perfect aviation network, and that is the fact that it's very sustainable. You look over the last 7 years on the investment that we've made into our intercontinental fleet, we have the youngest and we have the most fuel-efficient intercontinental network of anyone in the industry, largely made up of 777-200 freighters. We completed our Boeing order last year with 28 of those new production freighters. And that gives us a fantastic capability to deal with these additional volumes and leverage that volume that's coming into our network with a high level of utilization of those assets. I think on the right-hand side, I want to make a critical point here. When we look at the aviation network in that fixed flex ratio of 80%, 20% flex, we look at that on a multiyear forward horizon. We don't have a CapEx backlog. This recent volume growth that we've seen, all we're doing is leveraging those investments that we made and the decisions that we made back in 2018, 2019 and bringing that modernization of the fleet on. And that's a critical important point to understand. So that's the first element of sustainability. I do want to talk about sustainability because it is an important part of the perfect aviation network. I want to read this slide kind of your right to left here, those 777s that we talked about, why did we make that decision 6, 7 years ago? Well, a 777 operates with 18% less fuel burn than a 747 operates with. And if you look at the annual utilization of a 777 and what that equates out to, that's over 4 million gallons less of fuel that gets burned on a like-for-like basis, a 777 versus a 747. You then multiply that times the 34 additional 777s that we brought into the network over the last 7, 8 years, and you can do the math on what that means in terms of the efficiency that's delivered into our business. But importantly, it's also helped us to decarbonize our aviation network, and it's one of our key pillars and key strategic aspects of the sustainability piece. We combine that with our fuel optimization program. Most all of you will drive a car. Well, the way that you drive a car, you do have a direct impact on the efficiency, the kilometers per gallon that you're able to deliver and drive in that vehicle. It's no different in the aviation network. How we load that aircraft, how we trim the aircraft from a weight and balance perspective, the procedures that our crew and our pilots fly those aircraft with all make a material difference on the efficiency. So we have a fantastic optimization program to fly those aircraft very efficiently. And then in John's opening, he talked about our GoGreen Plus product that we launched a couple of years ago. That's been a fantastic offering for our customers with significant uptake and their usage of our product offering. And we take all of that revenue that comes in on our GoGreen Plus product offering, and we just reinvest that back into sustainable aviation fuel. And I'm incredibly proud that as we stand here today and what we released at the end of 2025, we are the largest user of sustainable aviation fuel in the industry with greater than 10% published in 2025. And I can confidently say when we publish our results for the full year in 2026, we will have grown higher than that this year. So that's sustainability. The last comment I'll make about our perfect Aviation network is with a filler product that we have, which is called ACS or air capacity sales. There's a couple of key points that I want to make with this specific product. This is a great product for us to deal with the ebbs and flows of the TDI volume on a day-to-day basis. We have allocations on the aircraft. We use predictability to indicate what those allocations are going to be needed for, for our TDI Express product. And any remaining space that we have available on the aircraft, we monetize by taking that space out and selling it in the open air freight market. And that ACS product helps us to drive a great utilization on that aviation network. In the middle slide, I think this is also a really important point to understand. Any time that there's periods of these geopolitical disruptions and the airfreight supply-demand disruption takes place, you see a constraint driving higher charges into the RPKs of the airfreight industry. This particular product for us does not drive the Express result. If you look over the last 7 years, it ranges between 5% to 7% of our total revenues. So certainly, there is some tailwind in there, but the size and the scale of it is pretty small in comparison to our overall revenue stream. And then the last point I'll make here is the same pricing discipline that John articulated on net price change on our TDI Express product. We apply those same principles into our ACS product, and we're seeing healthy improvements from a revenue per kilo as a result. And that ACS revenue helps offset the cost of that aviation network. That's the aviation story. I think next, I'll move into the ground structural reset that we're calling it. Again, this is all of our hubs and gateways. This is our country operations with our pickup and delivery and our customs aspects. And then I want to give you an example of one of the overall European resets that many of you who would have joined us in November in East Midlands last year would have heard Mike Para, our CEO of Europe, articulate on the journey that we were doing to structurally reset our cost base in Europe. So we have seen success there. So I note John's comment about our aspiration is to deliver a fitter and leaner network. Here's a great example of how we've been able to achieve that over the last couple of years. Again, 10 quarters here that are reflected 2024 quarter-over-quarter. We've been able to demonstrate a reduced FTE result in our hubs and in our gateways around the world. So as those TDI volumes were slightly coming down over the last couple of years, again, this is a great reflection of our ability to flex down our cost base to make sure that we deliver a healthy EBIT margin into the business and for the group. I think the other point that I'll make here is look at quarter 4, 2025, quarter 1, 2026 and quarter 2, 2026. As we've seen weight growth come in, we've been able to take that leaner platform that we have in our hubs and gateways and deliver some pretty healthy improvements in productivity with that rate growth coming online. And again, that helps us with our operating leverage to really bring value into the financial result of the business. So that's the hub in the gateway story. I did change slide here, although it looks very, very similar, and this is a reflection of our country view. Again, this is for country operations, this is largely our pickup and delivery or our couriers that are making the first mile and last mile deliveries. This is largely our customs clearance FTEs that are clearing the shipments in our business when they import into a country. And again, you see the same quarter-over-quarter, year-over-year improvements as we've executed on cost excellence, as we've executed on all these fit for Growth initiatives across all the countries in the world. This is how the results of that have been achieved. Same point that I made in the hubs on productivity and efficiency. As we see weight growth now coming into the network for the last 3 quarters, look at the productivity that we've been able to leverage with that weight growth coming in. And again, that's helping to flow through into the bottom line of the business. Again, on the European reset. So for those of you that know us, you know that we have the world -- under John's leadership divided up into 6 different regions: Americas, Europe, Asia Pacific, excluding China. We have China separate as a region. Middle East and then Sub-Sahara Africa. This is a fantastic example of our European Fit for Growth and cost excellence initiatives. You see a variety of work streams that are listed there from aviation to ground line haul, hub and pickup and delivery operations on the ground, our customs work streams and just our efficiency and productivity work streams. And what I'm pleased to say is what Mike articulated that we were going to do in that East Midlands meeting in 2025, we did achieve that last year. So this Europe reset has been largely successful, delivered over EUR 200 million of benefit into our result last year. And again, those other 5 regions of the world that I mentioned, all have very similar well-orchestrated cost excellence, Fit for Growth programs that they are executing on. So we are, I would say, well through those last couple of years of exercises. We're not completely done. You'll still see benefit flow through in the second half of 2026 and into 2027 from those initiatives. But we also do believe that with the additional technology and advancements that are taking place in AI, we're going to see some acceleration in some key areas of cost excellence in that next midterm horizon. So midterm horizon, 1 to 3 years out. Some of these are already in place, and some of those are going to continue to accelerate over that time frame. I'm really proud of our colleagues in customer service. You can see they, from a function perspective are probably a little further out in front than the other functions in terms of leveraging technology to drive efficiency and quality into their function. Again, similar results from an FTE optimization taking place quarter-over-quarter, year-over-year. And with the significant advancements on conversational AI and agentic AI, we do see this accelerating and continuing going forward regardless of the volume growth that's taking place because it's just modernizing and coming along so, so quickly. You can't tell the difference whether you're talking to a human being when you call into one of our customer service agents or where you're talking to a conversational AI agent at this point. So that's fantastic and a great illustration of using technology to deliver optimization. I think there's a couple of other areas that I want to highlight here today. I was with our aviation leadership team yesterday in Belgium, and we spent a part of that day talking about some new IT systems and new digitalization programs that we're rolling out right now. And this AI and as we apply it into aviation management is going to deliver much quicker decision-making and much more accurate decision-making, which ultimately leads to higher quality and a lower cost position. I'll just give you a couple of examples of that, that first column, aviation forecasting. We forecast every one of those 2,400 flights that we do a day, and we provide a forecast on how much of that flight is going to be utilized with our TDI Express product and how much allocation on that flight we have available to take out, to sell with our ACS product to drive that high level of utilization. And we would have a team of analysts and managers that would look at the data, they would look at the historical volumes, and they would manually forecast out and statistically model out what those allocations would be. And that would take them weeks and sometimes even months to do to really get to a level of accuracy. And now with AI, you can press a button with the models that we're doing and that computing power that used to take weeks can now be done in minutes and hours. And that information from a management decision standpoint really allows us to drive accuracy on what we provide to our ACS colleagues to sell, which they can drive up the RPK on, which delivers a higher level of optimization into the network. So it's just a quick example there. I think the same thing is happening and going to continue to happen in the space of customs. So obviously, the regulatory environment in the industry has been extremely dynamic over the last 6 years. Go back in -- particularly in this part of the world, Brexit in 2019, VAT22 in Europe, Liberation Day in the U.S. last year and then even up through the removal of de minimis in July in Europe this year. So the customs environment from a regulatory standpoint is extremely complex. And if you go back 6 years, the only way that we had to respond to that was to add people to it. And we did that back in 2019, 2020. You can see over 3,000 employees were having to be added to deal with that complexity. We recognize that back then. We've been investing in automation, investing in our IT systems. We've been working with our customers to collect data and to improve the accuracy of that data. And now with the advancements made in AI, we can automate and apply that technology into really streamlining that customs clearance declaration process. And we're already seeing significant efficiencies take place, but we see another step change that will take place over the next 3- to 5-year horizon. So that's the cost excellence portion of the presentation today. I want to summarize it by saying we do have a fantastic aviation network. It is structurally different than some of our competitors. The way that it's set up, we can respond in a very nimble way in a very flexible way to periods of high volume demand or periods of contraction and that flexibility and that resiliency with the Middle East example that I gave you perfectly positions us to deal with the next horizon. I think you combine that with the cost excellence and fit for Growth initiatives that we've taken in the hubs and in the ground country operations, and it just puts us in a fantastic leveraged position going forward. And again, we're not going to stop there. We're going to take the advancements in AI and the advancements in technology over the next 1 to 3 years and come up with a whole another series of optimization programs to execute over the next 1- to 3-year horizon. So you get to the end there and you think about what John said on smart industrial growth and what we saw in the second quarter continuing now into the third quarter and into the next decade with that Heavyweight Express program. You leverage that on to a fitter and leaner network that I just talked to you about that we've been able to achieve and we're going to continue to achieve going forward. And that leads to what we see as a continuation of the great 2Q results that you will have seen. So thank you very much for your attention, and I'll invite Martin and John back up on stage for the Q&A session. Thank you.

Great. Thanks, Travis. Thanks, John. Now come to third of this session for the Q&A. We got a couple of questions that we got in from the web. But obviously start here in the room. Jamie, Alexia [indiscernible], if that's the order, please?

Arthur from Citi. Two, if I may. So question one was what do you think a sort of peak cycle margin looks like in Express Down? I mean clearly, you're talking more about higher weight, better network utilization. So if everything is sort of fully stacked up and utilized fully, what could the margins go to? Obviously, that's not a through cycle margin, that's a peak cycle margin. Second question, more short term, what are you seeing in terms of peak season? I'll stop there...

Okay. So I'll take the margin. Travis might want to comment on peak season. I don't know whether the peak season was linked to margin or just peak season. But anyway, yes, I think we always talk in Express about absolute EBIT generation year-on-year. We talk about incremental margin improvement that generally comes with that. Sometimes foreign FX and fuel can blow us off course or help us a little bit there. If you remember in April in the Capital Markets Day, I said we'd do on the first page to all these things to drive us back to a 15% mid-teens or 15%, I think the slide said. We're obviously tracking at that -- in that area already. And with the things, Martin can overlay on what I'm saying, but where I sit as a senior line officer in Express and thinking about our business and with a little bit of hope of global trade and everything else, we can continue to build on that. In the peak of COVID, we got up to our 18s. And yes, I think we all say that was sort of over-earning and it wasn't going to be there. But over-earning or not, it did demonstrate what this network can produce if you're pulling the cost and the revenue levers in the right way. Those were excessive because revenue was really excessive and cost was really excessive the other way. So we got up to 18 or something. So I think we carry on building on where we are now in a rather incremental fashion. There might be some quarters where we sit back a peg. And as to peak season.

Yes. I mean optimistic and bullish on a normal peak this year. I mean we're planning for a historical peak. For us, with the focus on smart industrial growth, it is going to be more of a B2B focused peak than it's been in the past, and we're sizing and scaling the capacity to support exactly that. And you would have seen us release our peak surcharge table about 2 weeks ago, 3 weeks ago or so because we are having to go out and bring in additional higher cost third-party capacity, and that's how we help maintain that margin that John was just talking about as a cost offset is passing that along.

And capacity is pretty tight for other.

Capacity is tight in the industry. I think we're in an excellent position going into fourth quarter to be able to capitalize on the growth that we're going to see.

Just two thoughts to add to your comparison to what happened under COVID. I think two elements are different. I mean we have seen volume in the network under COVID that really doesn't belong there. On the other hand, that was produced on a network, which was still a long way away from where we are in terms of cost efficiency and effectiveness. So let's see how these two play out.

Alexia? Alexia, that's very kind of you. She's a lovely girl. James Hollins from BNP just sneaking in with two. My first question is, is there any particular reason based on your network and what you've sort of evolved the network, you're talking about it being clearly an evolution over a very long period and your historical global focus where maybe you think you could outperform or underperform others in any of those sort of key growth engine subsectors like hyperscalers, life sciences? And maybe if that is the case on any underperformance where you need to invest in this business, in particular, geographically or network-wise. And while I'm here, the second one would be, I mean, clearly, you've talked a lot about, I guess, taking some of the lunch from the forwarders. If we had like a panel of pure-play forwarders, what might they say in response to that and your ability to take some of that business? And I guess a sub-question would be, given you have a forwarder within DHL Group, how is the competitive tension with that division?

Maybe I'll take the first question, and you can take the competitiveness with DGF question, John. Well, yes, I think the illustration of what I showed in terms of the geographical diversification of our airlines and our owned airlines around the world put us in a very nimble position. So as growth takes place, whether that's in Southeast Asia, whether that's in the Middle East, whether that's out of the U.S. or into the U.S., we have that capability to scale each of those partnerships up or down as we need to. And we've been able to demonstrate that over the last couple of years. And yes, actually, with Cargo fax a couple of days ago, I was quoted there by saying we're adding a couple of 777s into a Chinese partnership that we have exactly around that point. So we can size and quickly move where we need to from a capacity standpoint to support growth.

You play back the freight one to me?

Well, in a way, I mean, you remember as well when the whole idea came up, the initial reflex was what are the forwarding colleagues going to say about it? Now I know what they're saying today. But you mentioned the collaboration overall within the groups being...

So what was a collaboration within the group? Good question. Yes. So I think -- yes, and I think that's good that you asked that because when I launched Fast forward in 2002 in Asia Pacific, and maybe it was in the naming, fast forward, but it is how I see it at the time anyway. And there was a fair bit of acrimony, but the group was in a totally different position. We've had leadership changes that have gone through the business. Tobias has brought a level of intensity and collaboration to the organization. If you said, what two things as Tobias Meyer brought in, I would say, intensity, bite and collaboration and getting the best result. And then we started this heavyweight Express initiative and change of leadership also in -- at the sales commercial level in DGF. And the collaboration has been daily and very positive. And in both ways, I would add. So I've always known that in our business in Australia in 1993, I had a friend and foe campaign with forwarders, where we identified them as a friend, they would give us their smalls. Where we identify them as a foe, we would sell against them and take business from customers that they were giving to a forwarder a little bit on this fast forward model. There were many forwarders that gave us the less than 50s, they're less than 100s. So I've had this mindset, this sort of two hearts in my chest for forwarders. I know there's a forwarder in our group, and we collaborate very well. And on the rest of the story, just imagine sometimes a box far bigger than the one on the floor there, but 200 kilos, call out Kuehne+Nagel and you're not a very -- you're not really a repeat shipper you're a bit of an ad hoc shipper. You call out Kuehne+Nagel, they turn up and they're semitrailer, the his of air brakes and they jump out the cab and say, is that it? Well, a lot of these shipments should be on our heavyweight -- dedicated heavyweight routes that are coming to pick up something that is 8x that size, but maybe a forwarder is not really what they want. So there's quite a lot in this. And when you link it to the urgency drivers and the use cases, I'm just very comfortable with how we're selling against the forwarder, how we collaborate with our forwarder and where we partner with forwarders for just moving their smalls.

And I'll add one thing. You think about the market share that DGF has in airfreight, the two of us are working together to go grab market share from our competition, DGF on the airfreight side. But where we're going after Heavyweight Express as well is not taking volume from our sister division, DGF. It is going out into the airfreight industry and taking it from there.

Also, when speaking to Oscar, who has his strategic 5-point plan in execution and a very clear focus on growth. I think in terms of timing, it was good to see that coming together with your sales campaign on finding growth in the heavyweight and joint approach of the identified accounts and were you are not successful, well, he will be. So I think that's a lengthy answer. So I'm a bit confused now on this side. Alexia, is it you?

Yes. I'll ask three, but I'll ask them one by one to make it easier. So firstly, on the net price change, thank you for sharing that information. We now can see kind of more clearly the stick rate that you've historically had. Why would you say the stick rate post-COVID has been double what it was pre-COVID? So the...

Which stick rate?

The pricing, net price the 2.8%.

So why did it double in COVID or...

No. Why has it doubled today versus pre-COVID? I think you showed...

Yes, I think, you're right. There was some 2.8. There was a 4 and there were some 2.8 on that chart. I mean it's very easy. It was only -- I might be a year out here, 7 or 8 or 9 years ago that we could properly measure NPC. We manage sort of in a fairly crude fashion, GPI stick rate. The ability to manage it and have a phrase and it be on the pricing backboard means that we've got great commercial reporting every single month right down to what our NPC is for local decision, what our NPC is for the big global CSI customers. So a country like Netherlands would say, well, my NPC is five on local decision, my customers, but there's these big CSI customers where it's lower. So there are all these different cuts of it. all the leader boards that come with that. And I'll just say it's leadership focus on -- from the pricing team, the ability to measure it right down to sales territory level, the ancillary programs that relate to NPC. I'll give you a very good example, Alexia. One of the things we measure is when we give a -- at our TRB, which meets in every region once a week for the last 15 years to talk about large customer pricing requests. Sometimes a salesperson comes in and says a need to give a 10% discount. We say, what more volume will you get? One of the aggregated or by customer or by region, by country, by whatever, KPIs that fall out of this NPC reporting is we gave -- and we've done 62 GPI calls over the last 2 days. Every single one of them has presented their net price change down the 10% that they gave back to the customers, and then we expect a 4:1 ratio. So we expect 40% growth for a 10% type reduction. We had more than that, and we had a few that were less than that. So that type of sophistication, what I call one of these ancillary measures to NPC, and we put that all in the pot of every salesperson knowing it's the most important thing we've got. I had this whole campaign 2 years ago that 4 is the floor, and we ended, I think, at 3.8 that year. So it's one of the things to round out the question for everyone's interest that Express does very well. We're in 219 countries. We can talk to those 219 countries either overnight directly or through 6 regional sales leaders and say, "this is the big deal", maybe at Express or NPC. This is what we want in a month. This is when we're going to do a webinar with all your customers. This is when we're talking to you and we're coming down to your region and we're going to review these things. We can talk to the network in that way. And NPC is a great example of that, even though it's become a little bit harder to hold it as those years have gone by.

I had two more, Mark. Can I ask them quickly. Yes, weight load factor, can you give us a sense of where we are on the range? Because when you talked about the box, 25 kilos, you're now 12, it kind of assumes you can double your weight without adding extra cost. How should we think about utilization? And I'll leave it there.

Yes. So maybe I'll take the weight load factor. So we have been able to achieve a plus 1% weight load factor year-over-year in our aviation network and 1% aviation weight load factor improvement equates out to about EUR 80 million to EUR 100 million bottom line flow-through in our business. And so I think where the smart industrial growth that John spoke about, where we grow also makes a material difference. And so the blue lanes that he referenced, growing faster out of the Americas, growing faster out of the Middle East back to Asia were the two examples that he gave, that has a significant flow-through and improvement into our weight load factor.

Okay. Muneeba from Bank of America. So following on from the question Alexia just had on weight load factors, and you seem quite comfortable on the capacity side of it. Like when will you need to add capacity? How much can you keep growing? -- help us understand, like if I put in 9% growth in weight for the next couple of years, when do you hit that capacity ceiling is my first question on capacity. And then on data centers and hyperscalers, what we've heard from the forwarders and maybe, John, you can talk about that is that they want to take more kind of long-term capacity. They want to have visibility on the capacity they're taking and want to know that they can actually get their shipments. Is that something you're seeing in Express as well? And kind of what's the behavior of this customer base? And is that any different from the rest of the shipments you see?

The behavior of the forwarders or...

The hyperscalers, the hyperscalers...