Deutsche Post World Net reports double-digit growth in first half
- Underlying EBIT rises 12 percent, with 19 percent growth in second quarter; reported EBIT down 11 percent
- Organic revenue up 8 percent; Reported revenue gains 3.4 percent, held back by negative currency effects
- Both Logistics divisions showing strong worldwide performance in new contracts and renewals
- 2008 guidance of around 4.1 billion euros in underlying EBIT reiterated
Deutsche Post World Net reported double-digit growth in its underlying EBIT for the first half, despite challenging economic conditions. Underlying EBIT, or earnings before interest and taxes excluding non-recurring effects, gained 12 percent to 1.9 billion euros.
Reported EBIT declined by 11 percent to 1.5 billion euros due to one-time charges at the Group's FINANCIAL SERVICES division and costs to restructure its DHL U.S. Express business. Revenue gained 3.4 percent, with growth being held back by negative currency effects. Excluding those effects, revenue grew
"Our healthy operating performance in the first half demonstrates that a well-balanced portfolio like ours and a global presence can show more resilience to an unfavorable economic environment," said Chief Executive Officer Frank Appel at Deutsche Post World Net's half-year earnings press conference in Bonn.
"We're particularly happy about the robust performance in the MAIL business given we're now seven months into full market liberalization in Germany, and the growing stream of significant new business wins in our logistics divisions." The Group reiterated its full-year guidance of around 4.1 billion euros in underlying EBIT, assuming that the economic environment won't worsen significantly.
Net income and Cash FlowNet income after minorities fell 16 percent to 661 million euros in the first half, mainly due to 317 million euros in writedowns at Postbank tied to the turbulences in the financial markets. Earnings per share fell to 55 cents from 65 cents a year ago. Operating cash flow (Postbank at Equity) fell to 623 million euros from 789 million euros due to lower earnings and higher consumption of provisions.
Roadmap to Value
Deutsche Post World Net made good progress in its Roadmap to Value capital markets program in the first half of the year. The initiatives to improve operating profit are on track with 140 million euros in savings reached in the first half. A reduction in working capital of 125 million euros and capital expenditure on the level of the previous year also mark good progress, with spending on acquisitions remaining at a minimal level.
The Group also stands by its commitment of increasing payouts to shareholders and expects to raise its dividend broadly in line with underlying earnings in coming years. That corresponds to an annual increase of around 10 percent on average.
To increase transparency, the Group is now for the first time reporting along its new management structure with the Corporate Divisions FORWARDING/FREIGHT and SUPPLY CHAIN/CORPORATE INFORMATION SOLUTIONS (CIS) and has provided restated figures for the previous year. In regard to its focus on organic growth, Deutsche Post World Net made further progress as well. In the second quarter alone, DHL's organic growth rate in fast-growing regions was almost twice as high as worldwide.
Second Quarter DevelopmentUnderlying EBIT gained 19 percent to 862 million euros in the second quarter, with all divisions meeting or exceeding their previous year's levels. Reported EBIT fell 4.4 percent to 672 million euros, burdened by 47 million euros in costs to restructure DHL Express U.S. as well as 143 million euros in writedowns at Deutsche Postbank. Second-quarter net income after minorities declined to 254 million euros from 285 million euros, with earnings per share standing at 21 cents compared with 24 cents.
MAIL Corporate Division
Deutsche Post has been able to maintain its strong position following the full opening of the German letter mail market on Jan. 1, 2008 with the impact of a worsening economic environment remaining limited. Total volumes in its Mail Communications unit increased by 3.2 percent in the second quarter, with the number of customer contact points being raised further.
Revenue in the MAIL division rose 1.6 percent to 3.4 billion euros in the quarter. EBIT gained 1.9 percent to 321 million euros in spite of the new market environment and higher costs.
EXPRESS Corporate Division
In the EXPRESS division the leading position in most markets outside the U.S. was maintained, helped by strong growth in its cross-border Day Definite and Domestic businesses. The division also benefited from its strong presence in fast-growing regions such as Asia/Pacific and Eastern Europe/Middle East/Africa (EEMEA). Accordingly, Asia/Pacific recorded organic revenue growth - excluding currency effects and other non-operative items - of 13 percent.
In the EEMEA region, organic revenue rose 26 percent, helped by higher fuel surcharges and strong performance of almost all products. In the Express Americas division, organic revenue increased 4.2 percent, due to increased demand for Day Definite products in Latin America, Canada and the Carribbean.
Measures to restructure the Group's DHL Express U.S. business are on track, despite deteriorating market conditions and the weakening economic environment in the U.S. Deutsche Post World Net in May presented a plan to restructure DHL Express U.S. to cut losses by 1 billion dollars in 2011. By that time, the Group expects the contribution to the global network to exceed the losses incurred by the business. Negotiations about a planned air lift agreement with United Parcel Service (UPS) are making progress.
Overall organic revenue at the EXPRESS division gained 8.4 percent. On a reported level, revenue increased 2.7 percent to 3.5 billion euros. Underlying EBIT rose 20 percent to 78 million euros. Reported EBIT dropped 52 percent, due to the one-time costs related to the restructuring of U.S. Express.
FORWARDING/FREIGHT Corporate Division
Following the split of the former LOGISTICS Corporate Division in March, the Group reports its first-half earnings for the first time according to the new structure.
The new FORWARDING/FREIGHT division was able to raise revenue and improve profitability in the second quarter, despite negative currency effects due to the strength of the Euro. The division benefited from flexible products and services as well as its low asset base, which allowed it to respond swiftly to increasing demand for a shift of transportation modes to ocean freight from air. Growth in both air and ocean freight outpaced the market with 5 percent and 10 percent, respectively.
Revenue at the division grew 11 percent to 3.5 billion euros in the second quarter, with organic revenue gaining 17 percent. Reported EBIT rose even faster at 36 percent to 109 million euros in the reporting period. The improvement in profitability was reached by efficiency measures as well as lower overhead expenses.
SUPPLY CHAIN/CIS Corporate Division
The SUPPLY CHAIN/CORPORATE INFORMATION SOLUTIONS division was able to make further progress in the second quarter, again against the backdrop of adverse currency effects. Supply Chain showed strong progress in new contract wins with gains of 550 million euros in the first half. New Supply Chain contracts were awarded from all across the globe supporting industries ranging from oil sands in Saskatchewan, Canada, to garment production in Italy and leisure operations in China.
In the second quarter alone, Supply Chain generated new business of around 300 million euros in annualized revenue. The contract renewal rate was 90 percent. CORPORATE INFORMATION SOLUTIONS also showed good organic revenue growth despite challenges in the financial services industry.
In total, revenue at the division grew 4.4 percent in the second quarter, excluding negative currency effects and other inorganic items. Reported revenue fell by 4.4 percent to 3.4 billion euros. Reported EBIT dropped slightly to 126 million euros from 127 million euros.
FINANCIAL SERVICES Corporate DivisionThe FINANCIAL SERVICES division, which consists largely of Postbank, boosted its quarterly revenue by 15.2 percent to 3 billion euros. EBIT before non-recurring items rose by 20 percent to 328 million euros. Reported EBIT dropped by 26 percent to 185 million euros amid charges tied to the turbulences in the financial markets. Postbank reported its quarterly results separately on July 30.
Assuming no significant worsening of the global economy, Deutsche Post World Net reiterated its full-year guidance of around 4.1 billion euros in underlying EBIT, around 3.1 billion euros in underlying pretax profit and around 1.65 euros in underlying earnings per share. The outlook for 2009 was also confirmed.
The MAIL division maintained its underlying EBIT guidance of around 1.95 billion euros, even after splitting off Corporate Information Solutions, marking a minor upward revision. FORWARDING/FREIGHT and SUPPLY CHAIN/CIS expect around 500 million euros in underlying EBIT each, slightly lower than the previous around 1.05 billion euros for the former LOGISTICS division.
For Corporate Center/Other a loss of around 500 million euros is forecast compared with the earlier forecast of around 550 million euros. The guidance for EXPRESS and FINANCIAL SERVICES remains unchanged at around 400 million euros and around 1.2 billion euros, respectively.