Deutsche Post World Net: Business on track in the first nine months of 2007
- Revenue rises by 5.3 percent
- Reported EBIT slips 2 percent to 2.5 billion euros; Underlying EBIT growth at 10 percent
- 2007 EBIT outlook raised slightly from 3.6 billion euros to 3.7 billion euros; new EBIT guidance of 4.2 billion euros for 2008
- Dividend increase of 20 percent for 2007 planned
"The first nine months of the year were right on target," Chairman and Chief Executive Officer Klaus Zumwinkel said at a press conference in Frankfurt. "We succeeded in our efforts to further increase the profitability of the EXPRESS business; and the LOGISTICS division has also made positive strides in terms of growth and new customers." In addition to that, FINANCIAL SERVICES with Deutsche Postbank had a strong quarter and recorded a substantial increase in profit despite the turbulences in the financial markets.
All in all, Deutsche Post World Net now expects EBIT excluding non-recurring effects of around 3.7 billion euros for the full year of 2007, slightly more than the at least 3.6 billion euros forecast earlier. Therefore, the management board will propose to raise the dividend for 2007 by 20 percent to 90 cents per share from 75 cents per share.
As part of its capital markets program also presented today, Deutsche Post World Net plans to change the way it will report its business prospects in the future. Deutsche Post World Net will communicate specific earnings targets for the following year. "This change will allow us to give a more precise and reliable earnings outlook," Chief Financial Officer John Allan said. "It's an important step to help improve transparency." For 2008, the Group expects EBIT to rise 14 percent to around 4.2 billion euros.
Consolidated net profit and Cash FlowThe consolidated net profit after minorities fell by 10.5 percent to 1.1 billion euros in the first nine months. In the third quarter, consolidated net profit was 350 million euros, a drop of 35 percent. Last year's figure included a 276 million euro gain from the sale of bonds exchangeable into shares of Deutsche Postbank. Operating cash flow after changes in working capital rose 15 percent to 1.3 billion euros from 1.1 billion euros. Free cash flow almost tripled to 570 million euros from 198 million euro in the first nine months.
Revenue at the MAIL division rose slightly by 1 percent to 11.2 billion euros in the first nine months, proving yet again that the strategy of outweighing anticipated revenue declines in the German mail market with growth at other segments is paying off. Revenue at the Mail Communication business in Germany declined 4.6 percent to 4.5 billion euros in the first nine months.
In the Direct Marketing business, the trend toward higher-quality services is continuing. Like in the second quarter, volumes in the unaddressed advertising mail business continued to rise in the months July through September, resulting in a 2.7 percent revenue increase at the Direct Marketing business unit. In the business units Global Mail and Corporate Information Solutions (Williams Lea), revenue climbed by 15.7 percent to 2.4 billion euros in the first nine months.
EBIT in the MAIL division was 10.3 percent below last year's level at 1.3 billion euros in the first nine months. The loss of 0.7 work days and the rate cut in the German parcel business in 2006 had a negative impact here.
Revenue in the EXPRESS division increased by 1.9 percent to 10.1 billion euros in the first nine months. Shipping volume continued to grow both in the international and the national business. Because more than half of the revenue was generated in countries outside Europe, the result was burdened by negative currency effects of almost 325 million euros. In local currencies, the EXPRESS division achieved organic growth of 6.3 percent.
In Europe, both revenue and shipping volume rose, with significant improvements being recorded particularly in the third quarter. Revenue decreases in France were stopped and improved results achieved. In the Americas region, organic revenue rose 2.5 percent in local currency terms, driven by strong business in Latin America.
The U.S. business also posted a modest increase in revenue in local currencies as rising revenue at the Ground and International product business outweighed lower shipping volumes and a reduced product yield in the Domestic Air business. However, the recovery in revenue in the Americas business slowed down in the third quarter, with the Domestic Air business being particularly affected by weaker demand in the U.S. market.
EBIT in the EXPRESS division increased by 60 percent to 246 million euros in the first nine months.
The LOGISTICS division developed favorably in the first nine months. Revenue rose 7.3 percent to 19 billion euros. Organic revenue growth was at 9.7 percent in the first nine months, propelled by the 10-year contract with the British health service NHS. In the business unit DHL Global Forwarding, volume increased significantly, a fact that did not have a proportionate effect on revenue growth due to lower freight rates in the air freight business and negative currency effects. Revenue at DHL Global Forwarding matched last year's level of 6.9 billion euros.
DHL Exel Supply Chain once again generated double-digit revenue growth. Year on year, revenue rose 13.3 percent to 9.7 billion euros, boosted among others by the NHS contract. The business unit DHL Freight generated stable revenue of 2.7 billion euros, with most countries developing favorably. Especially in Germany, the overall economic situation and increased contracts from the automotive industry had a positive impact.
The LOGISTICS EBIT grew by 25 percent to 618 million euros, with the sale of VfW AG contributing 59 million euros.
FINANCIAL SERVICES division
The FINANCIAL SERVICES division, which consists primarily of Deutsche Postbank, boosted revenue by 8.8 percent to 7.7 billion euros in the first nine months. Earnings grew as well, with an EBIT increase of 24 percent to 864 million euros.
Despite intensive competition in the retail banking business and turbulences in the financial markets, Deutsche Postbank was able to raise pretax earnings 25 percent to 806 million euros in the first nine months. Excluding the positive effects from the disposal of its insurance holdings as well as one-time charges tied among others to the integration of mortgage lender BHW Holding as well as the retail outlets of Deutsche Post, pretax profit rose 8.4 percent to 752 million euros. Pretax return on equity for the first time exceeded the 20 percent mark. The rate rose to 20.9 percent on Sept. 30, 2007, from 17.5 percent a year earlier.
The cost-income ratio dropped to 65.5 percent in the first nine months from 69.6 percent in the year-earlier period. In the classic banking business, excluding transaction banking, the cost-income ratio was at 63.2 percent in the first nine months compared with 68.0 percent in the year-earlier period.
The SERVICES division, which includes Global Business Services, the Corporate Center and the retail outlets of Deutsche Post as well as non-operating income and expenses of Deutsche Post AG, reported a 7.7 percent increase in revenue to 1.7 billion euros in the first nine months.
The division recorded an EBIT loss of 450 million euros compared with 131 million euros in the year-earlier period. The main cause for the change was the exercise of exchangeable bonds into Postbank shares in the third quarter of 2006. In addition, non-recurring effects stemming from the arbitration proceedings with Deutsche Telekom and the divestment of McPaper were booked in the first nine months of 2006. Excluding those non-recurring effects, the EBIT loss narrowed by 11 percent.
For the full year of 2007, Deutsche Post World Net expects EBIT before non-recurring effects to total around 3.7 billion euros.
The MAIL division continues to expect stable to slightly higher revenue. Expected revenue declines in the national mail business are likely to be more than offset by the other segments in the MAIL division. EBIT should remain stable at 2 billion euros.
In the EXPRESS division, EBIT is forecast to total at least 400 million euros for the entire year of 2007. This figure contains costs related to the new air hub Leipzig/Halle.
For the LOGISTICS division, the Group expects EBIT to rise by around 15 percent, a figure that does not include income from the sale of VfW AG.
The FINANCIAL SERVICES division expects an increase in EBIT of at least 5 percent.