"We are growing in all segments"
Deutsche Post World Net today released its report for the first half of 2007. The Group reported an increase in revenues in all segments. Group revenues rose 5.4 percent to 30.9 billion euros with the EBIT increasing 9 percent to 1.7 billion euros. In contrast to the previous year's figures, the current results include the British company The Stationery Office, acquired in January 2007, and stakes in ASTAR Air Cargo Holdings LLC and Polar Air Cargo Worldwide, Inc., both of which were acquired in June 2007. Chief Financial Officer Edgar Ernst talked about the development of business during the first six months in an interview with DPWN News.
DPWN News: Prof. Ernst, after getting off to a successful start this year, Deutsche Post World Net continued to grow during the second quarter. How do you view the development of business during the first half-year?
Prof. Dr. Edgar Ernst: We grew even faster during the second quarter than we did during the first quarter. Following the first six months our revenues are up 5.4 percent - a development to which all segments contributed. Our earnings dynamics again improved during the second quarter. I would especially like to highlight the cash flow from operations, which more than doubled in the first half.
DPWN News: What are the reasons behind the positive development of the operating cash flow?
Prof. Dr. Edgar Ernst: In addition to our higher EBIT, the sharp increase was due primarily to a reduction in the outflow of working capital. We also managed to turn the corner with respect to the free cash flow, which amounted to a favorable 359 million euros during the first half of the year.
DPWN News: Why are you emphasizing this development?
Prof. Dr. Edgar Ernst: The increase in cash flow is one of our highest priorities. We want to make it clear to our investors that we are able to transform the improvement in results into cash. Our intensive efforts here are now beginning to bear fruit.
DPWN News: You are not planning to make any larger acquisitions in the foreseeable future. Just what do you plan to do with this additional money?
Prof. Dr. Edgar Ernst: We ultimately want to let this money flow back to our shareholders. There are several options available here such as higher dividends or a stock buyback. But it is still too early to consider concrete measures. We have not yet attained what we would like to attain.
DPWN News: Let us take a look at the various segments. LOGISTICS, which is the strongest segment with respect to revenues, enjoyed sharp increases in both revenues and earnings. What was the reason for this?
Prof. Dr. Edgar Ernst: The growth in revenues enjoyed by LOGISTICS is attributable primarily to the positive development of business at DHL Exel Supply Chain. The important growth drivers during the first half were the 10-year contract with the British health service provider NHS and increased earnings in Eastern and Northern Europe as well as Asia. The LOGISTICS segment as a whole saw its EBIT shoot up 28.2 percent as the result of organic growth and the nonrecurring gain from the sale of the waste disposal company Vfw AG.
DPWN News: Can one conclude from this that the integration of Exel and DHL has now been completed?
Prof. Dr. Edgar Ernst: The integration process has gone better than expected. The synergies have already exceeded the original target, and the costs of integration are lower than anticipated.
DPWN News: Market conditions in the freight business have somewhat deteriorated. Won't this hurt business?
Prof. Dr. Edgar Ernst: We are feeling the effects of the decline in freight rates and lower fuel surcharges, especially in the area of air freight, where revenues have declined. But the volumes of both air and sea freight have risen sharply. Sea freight revenues rose 12.3 percent, which is higher than the market average. This led to a slight increase in revenues in Global Forwarding.
DPWN News: Have you achieved a sustainable turnaround in the EXPRESS segment?
Prof. Dr. Edgar Ernst: There is a clear upward trend with respect to earnings. The EXPRESS segment achieved a sharp rise in EBIT during the first half-year from 19 million euros to 161 million euros. EXPRESS saw its profitability improve across the board in all regions, which is a very important development for us. The greatest increases in earnings were recorded in the Americas, Europe and EEMEA, which comprises Eastern Europe, the Middle East and Africa. Our efforts to improve service quality and reliability have been rewarded. In June DHL Express was voted Best International Express Service Provider in 2007 by a panel of industry experts.
DPWN News: Are you satisfied with the 2 percent increase in revenues in the EXPRESS segment?
Prof. Dr. Edgar Ernst: This figure was heavily affected by adverse currency effects. The EXPRESS segment enjoyed a 6.2 percent increase overall on a local currency basis. Certain regions such as Asia and EEMEA even experienced double-digit increases.
DPWN News: Despite the well-known challenges on the US market, you acquired stakes in companies in the United States during the second quarter. How will this benefit you?
Prof. Dr. Edgar Ernst: In June we acquired stakes of 49 percent each in the US air freight companies ASTAR Air Cargo and Polar Air Cargo Worldwide. Both purchases are good additional investments in our infrastructure with a limited size. The acquisitions give us increased capacities on important international transportation routes such as between North America and Asia. By the way, we already announced our intention to acquire a stake in Polar Air Cargo in October 2006.
DPWN News: The MAIL segment recorded a slight increase in revenues coupled with a lower EBIT. What was the cause of this?
Prof. Dr. Edgar Ernst: We had the effects that led to a reduction in earnings during the first quarter, where there were 0.7 fewer work days compared to the previous year. The effects of the reduced rates for packages implemented last year were also felt here. But earnings were stable during the second quarter.
DPWN News: How did the MAIL segment develop at home and abroad?
Prof. Dr. Edgar Ernst: International business is still the engine driving growth in this segment. Revenues in the fields of Global Mail and Corporate Information Solutions grew 21 percent during the first six months as the result of the consolidation of Williams Lea as well as organic growth. Our domestic Direct Marketing business also saw revenues rise. Our objective in the field of Mail Communication was to manage costs in light of the declining volume. And we were successful.
DPWN News: Deutsche Post World Net shares rose to a new alltime high during the second quarter, but they were unable to sustain this level. How do you view the current valuation?
Prof. Dr. Edgar Ernst: In my opinion the current share price reflects primarily investor uncertainty surrounding the complete liberalization of the German mail market. The situation with respect to future conditions will become clearer during the course of the year. Investors will also look at the progress being made in the EXPRESS segment.
DPWN News: What are your priorities for the second half of the year?
Prof. Dr. Edgar Ernst: It is of utmost importance that we get a clear picture of the future framework on the domestic mail delivery market. We are therefore calling upon the German government to make those decisions well in advance. We want to cement the positive developments in the EXPRESS segment in all regions. We will continue to exploit the potential synergies offered by the LOGISTICS segment while taking advantage of market opportunities. And we will strive to become the first choice of customers in all segments throughout the Group by providing outstanding service and quality.