Deutsche Post DHL CEO Appel looks back at a satisfactory year 2008 amid difficult economic environment
- Strategic tasks of DHL U.S. Express and Postbank sale ticked off
- Dividend of 60 euro cents per share proposed for 2008
- First-quarter reported EBIT slightly positive despite falling demand; MAIL Corporate Division burdened by sluggish economic environment
- Strategy 2015 to focus Group on two pillars, strengthen operating business
Speaking in front of shareholders in Frankfurt, Frank Appel, Chief Executive Officer of Deutsche Post DHL, offered a generally positive overview of 2008 in spite of the difficult market conditions. The Group successfully tackled the critical issues of restructuring its DHL Express business in the United States and preparing the sale of its stake in Postbank, and sharpened the Group's focus on mail and logistics, Appel said at this year's Annual General Meeting.
Thanks to its early focus on efficiency and liquidity, Deutsche Post DHL also succeeded in reaching the 2008 earnings targets that it revised in the fall. "Last year, we cleared the decks and now believe that with our Strategy 2015 we will be able to sail relatively smoothly through the stormy seas lying ahead," the CEO told shareholders.
In light of the dramatic downward trend that seized the global economy at the beginning of the fourth quarter, the Board of Management and Supervisory Board are proposing a dividend of 60 euro cents per share for the past year to the Annual General Meeting.
"Particularly in times of economic crisis, it is of extreme importance for us to further strengthen our financial flexibility," Appel said. The Group also expects that the implementation of its Strategy 2015, a plan designed to unleash the company's full potential, will produce satisfactory returns for stockholders over the midterm, he said.
"Even if market reactions are in part irrational and the general mood may shift just as quickly again, we're prepared for the economic crisis to continue," Appel said. "In particular earnings at the MAIL Corporate Division have been directly affected by the current slump in demand, so that we're forced to focus even more on reducing our cost base."
Key financial figures
During the past year, Deutsche Post DHL generated underlying EBIT (earnings before interest and tax) of 2.41 billion euros and a 0.8 percent increase in revenue to 54.47 billion euros. The net loss after minorities was 1.69 billion euros for the entire year of 2008 compared with a profit of 1.38 billion euros in the previous year.
Costs to restructure the Express business in the United States, non-cash writedowns in the SUPPLY CHAIN Division and losses at Postbank hurt results. On the other hand, the repayment received in connection with the EU state-aid proceedings had a positive effect. The results of Postbank are reported under discontinued operations and therefore are only included in the consolidated net profit.
In 2008, operating cash flow after working capital changes totaled 3.4 billion euros (previous year: 2.8 billion euros), and free cash flow amounted to 2.4 billion euros (previous year: 1.5 billion euros).
The Strategy 2015, which CEO Frank Appel announced on March 11, 2009, is based on two pillars: The first is a strong mail business that is clearly committed to carrying out the universal service obligation of Deutsche Post and that plans to add new value-added electronic services to its range of offerings. The second is an integrated international logistics business that vigorously focuses on quality and customers.
The name Deutsche Post DHL and a new Group structure that includes an additional overarching DHL executive committee further reflect the two-pillar strategy.
The core aim of this strategic shift is to unleash the company's unexploited potential following the aggressive phase of expansion pursued in recent years. The objective is to achieve growth in all divisions that exceeds market performance by 1 to 2 percentage points. At the same time, the Group is committed to ensuring that these growth targets are reached in accord with its responsibility for the environment and society.
The MAIL Division strives to counter the effects of a shrinking overall market by introducing new products in the areas of dialogue marketing, electronic communications and parcel. These measures are aimed at strengthening Deutsche Post's unique position as an integrated service provider of safe, reliable communications.
At DHL, the individual divisions in the future will work even more closely together in order to better address customer needs and to improve profitability of the entire business.
The Group has also introduced a new guiding principle for employees with the aim of increasing employee involvement and commitment and of ensuring swift implementation of the Strategy 2015. The strengthening of the First Choice customer initiative will also contribute to this end.
The world's economy has been experiencing a tailspin of historic proportions since the fourth quarter of 2008. Throughout all regions and sectors, many customers of Deutsche Post DHL are seeing unparalleled decreases in demand, which then result in lower shipping volume.
In response, the Group is gearing up for a further deterioration of the economic environment. With rigorous measures aimed at taking at least 1 billion euros in indirect costs out of the organization by the end of 2010 as well as the initiatives of the capital markets program Roadmap to Value - with its focus on maintaining a strong cash position - Deutsche Post DHL expects to emerge from the crisis stronger than ever.
In the United States, the restructuring of the Express business continues to make good progress. The termination of the entire domestic business was carried out on schedule at the end of January. The remaining international express cargo will be shipped by DHL's current carriers ABX Air and ASTAR Air Cargo. The talks between UPS and DHL about a potential airlift agreement have been terminated.
The Group's overnight package sorting operation will be located at its Cincinnati/Northern Kentucky (CVG) facility in order to further improve DHL Express's cost base over the long term. All current DHL employees in Wilmington will be offered positions at the CVG facility.
Despite having to master major economic challenges this year, the Group will remain fully committed to its responsibility for the environment and society. As presented in its Sustainability Report 2009, the Group has introduced various initiatives in all Corporate Divisions covering the areas of fleet, buildings, innovative technologies and employee motivation to help improve carbon efficiency. Deutsche Post DHL a year ago launched its GoGreen climate protection program aimed at improving carbon efficiency by 10 percent through 2012 and by 30 percent through 2020.
As a founding partner and largest sponsor of Teach First Germany, the Group earlier this year laid the foundation for intensified support of education and plans to expand this effort further on.
First quarter 2009
In the first quarter volume declines increased across all products and divisions compared with the fourth quarter of 2008. However, the rate of decline has stabilized suggesting that overall flows are bottoming out.
Overall profitability toward the end of the quarter increasingly benefited from the restructuring of the DHL U.S. Express business. In the EXPRESS Corporate Division all regions outside the U.S. recorded profitable business. All other Corporate Divisions showed positive underlying and reported earnings before interest and tax. However, only the Corporate Division SUPPLY CHAIN recorded an improvement in underlying EBIT compared with the year-earlier period.
Despite one additional working day, the MAIL Division could not mitigate the negative revenue impact mainly driven by the economic downturn and an increase in wage expenses. Underlying EBIT in MAIL hence was approximately 150 million euros below the level of the first quarter 2008.
Despite significant U.S. restructuring costs, Deutsche Post DHL in total recorded a slightly positive reported EBIT in the first quarter. On an underlying basis, Group EBIT declined less than 50 percent. Continued progress in the Group's efforts to cut indirect costs and cost measures in response to the volume declines in the divisions mitigated the heavy economic headwind.
With close to 1 billion euros, Deutsche Post DHL's first-quarter net income was considerably ahead of last year's number as the financial result was positively impacted by the market valuation of the Group's put options on Postbank shares. In addition to that, discontinued operations benefited from deconsolidation effects.