Deutsche Post DHL Group: Further important steps taken in line with Strategy 2020
- Group revenue in second quarter 2015 grows by 7.3% to EUR 14.7 billion
- Group EBIT declines by 18.1% to EUR 537 million
- One-time earnings impact of EUR 100 million in the second quarter due to postal strike in Germany; 2015 guidance adjusted to EUR 2.95 to 3.1 billion
- Express: EBIT margin at record level of 10.9%
- Outlook for 2016 and 2020 confirmed
- CEO Frank Appel: "Over the first six months, we have taken important steps towards the successful implementation of our Strategy 2020"
Deutsche Post DHL Group, the world's leading mail and logistics company, has taken further steps in recent months to position its business units for long-term success in line with its Group Strategy 2020. This has significantly impacted earnings in the second quarter of 2015. The Post - eCommerce - Parcel division was able to reach a sustainable wage agreement that lays the foundations for long-term growth in the German parcel business, despite the one-off earnings impact of strike activities that resulted in a EUR 100 million reduction of EBIT in the second quarter. As a result of the unsatisfactory earnings development in Global Forwarding, Freight, the management team has initiated a comprehensive turnaround program with restructuring measures. The Supply Chain division, supported by positive one-time effects, was able to accelerate its planned optimization program. The Express division has continued its outstanding revenue and earnings development in the second quarter, further improving its operating margin to a historical record high for the division of 10.9%. In order to further strengthen this position as part of Strategy 2020, the division continued to invest significantly in its already comprehensive network.
These combined effects contributed to a decline of Group EBIT in the second quarter of 18.1% to EUR 537 million (2014: EUR 656 million). To reflect the one-off earnings impact of EUR 100 million from the strike in the second quarter, Deutsche Post DHL Group has adjusted its 2015 guidance accordingly, with the EBIT for the full year now expected to reach between EUR 2.95 billion and EUR 3.1 billion. The previous forecast had been for Group EBIT between EUR 3.05 billion and EUR 3.2 billion.
Group revenue in the period between April and June, including positive currency effects, grew by 7.3% to EUR 14.7 billion (2014: EUR 13.7 billion). Adjusted for these effects, organic revenue was 0.6% higher than the prior year period. While the international express and e-commerce-fuelled parcel businesses continued to develop dynamically, stronger Group revenue growth was held back by declines in the Post segment, mainly due to the strike action, as well as lower fuel surcharges in the DHL divisions.
"After the successful execution of Strategy 2015, the current year represents a year of transition. In the second quarter we worked very hard and took important steps towards the successful implementation of our Strategy 2020. With that, we want to ensure the long-term, profitable growth of the Group. To achieve this, we have recorded some short-term impact on our results. At the same time, we are convinced that these measures will contribute to accelerated earnings growth in the next year and enable us to achieve all our targets set for 2016 and beyond," said Frank Appel, CEO, Deutsche Post DHL Group.
Outlook: Earnings guidance for 2015 adjusted, forecast for 2016 and longer term targets confirmed
Deutsche Post DHL Group has adjusted its full-year 2015 guidance downwards and now expects Group EBIT between EUR 2.95 billion and EUR 3.1 billion. The adjustment reflects the one-off impact of EUR 100 million in the Post - eCommerce - Parcel (PeP) division in the second quarter as a result of strike activity. PeP is expected to generate operating earnings of at least EUR 1.2 billion in 2015, while the forecast of EUR 2.1 billion to EUR 2.25 billion in EBIT for the DHL divisions remains unchanged. The Group expects costs for Corporate Center/Other to remain stable at around EUR 350 million. In addition, the Group continues to expect sufficient free cash flow to be generated to cover the dividend paid out for financial year 2014.
For 2016, Deutsche Post DHL Group confirms its forecast of a rise in EBIT to between EUR 3.4 billion and EUR 3.7 billion. The one-time nature of the strike-related effects incurred in the current year and the expected positive impact of structural improvements undertaken within the individual divisions should drive a more dynamic earnings growth trend in 2016. The PeP division is expected to contribute more than EUR 1.3 billion to the 2016 target and the DHL divisions between EUR 2.45 billion and EUR 2.75 billion.
Deutsche Post DHL Group continues to forecast that operating profit will increase by an average of more than 8% annually during the period from 2013 to 2020 (CAGR). The DHL divisions are expected to contribute to the improvement with average EBIT growth of 10% per year. At PeP, operating profit is expected to increase by an average of around 3% per year. The Group additionally plans to keep expenses for Corporate Center/Other at less than 0.5% of consolidated revenue by 2020.
Second quarter of 2015: Revenue growth of EUR 1 billion
The second quarter saw a year-on-year revenue increase of 7.3%, or EUR 1 billion, to EUR 14.7 billion (2014: EUR 13.7 billion). The DHL divisions grew by 9.1% and the PeP division by 1.9%. Adjusted for currency effects, Group revenues increased by 0.6%, with lower fuel surcharges limiting stronger growth.
Group EBIT in the period from April to June fell by 18.1% to EUR 537 million (2014: EUR 656 million). Operating earnings at the PeP division contracted by 60.3% to EUR 75 million. This development principally reflects an impact of EUR 100 million from strike activities during the wage negotiations, in addition to further investments in the expansion of the international E-Commerce business. EBIT at the Express division increased by 13.6% to EUR 376 million, supported by continued strong growth in international time definite shipments (TDI). Global Forwarding, Freight saw its operating earnings decline to EUR 40 million (2014: EUR 102 million). Supply Chain delivered an EBIT increase of 9.2% to EUR 119 million. The division realized higher positive effects (EUR 53 million) from real estate-related transactions, which allowed it to accelerate its restructuring program with an investment of EUR 55 million during the second quarter.
Consolidated net profit declined by 29.3% to EUR 326 million (2014: EUR 461 million), mainly against the backdrop of the negative impact of the strike in the PeP division. This equates to basic earnings per share of EUR 0.27 (2014: EUR 0.38).
First half of 2015: Revenue growth in all four divisions
In the first half of the year, Group revenue increased by 8.1%, or approximately EUR 2.2 billion, to EUR 29.5 billion (2014: EUR 27.3 billion). Adjusted for positive currency effects, revenues increased 1.3% over the prior year period. Organic revenue growth in all four divisions contributed to this increase, with lower fuel surcharges holding back stronger growth. The operating earnings of the Group in the first six months declined by 9.1% to EUR 1.26 billion (2014: EUR 1.38 billion). Reported one-time factors that impacted the second quarter also had an effect on the half-year results.
Consolidated net profit was EUR 821 million for the first six months, 14.7% below the prior year level. (2014: EUR 963 million). Basic earnings per share were also correspondingly lower at EUR 0.68.
Capital expenditure and Cashflow: Group strengthens its foundations for growth
Deutsche Post DHL Group invested significantly, again, in the second quarter of 2015 in order to strengthen its base for future success. Investments were made in all four divisions with a focus on positioning the Group for future profitable growth. In total, the Group increased its Capital expenditures by more than 25% to EUR 421 million in the second quarter (2014: EUR 335 million). These investments were principally directed towards expanding the domestic and international parcel infrastructure, expanding global and regional express hubs in Leipzig, Cincinnati, Singapore and Brussels and developing a more efficient aircraft fleet, as well as for new contract start-ups in Supply Chain.
Free cash flow for the second quarter declined from EUR 208 million in 2014 to EUR 67 million in the current year period. This reflects the lower operating earnings and higher capital expenditures (net cash capex). Net debt for the Group was EUR 3.0 billion at the end of the second quarter of 2015, which reflects the usual seasonal increase over the year end period, mainly related to the dividend payment of EUR 1.03 billion made in May. Due to higher discount rates, the Group's net pension obligations reduced by EUR 2.7 billion in the second quarter over the end of the first quarter.
Post - eCommerce - Parcel: Further strong growth in parcel business despite strike
Revenues in the Post - eCommerce - Parcel division grew by 1.9% in the second quarter to EUR 3.7 billion. The eCommerce - Parcel units accounted for EUR 1.5 billion of this figure, an increase of 12.2% over the prior year period, thanks to further dynamic growth. The increase was based on revenue gains of 26.3% in eCommerce, 9.3% in Parcel Germany and 8.6% in Parcel Europe. This positive development confirms that Deutsche Post DHL Group continues to profit from its strong market position in the dynamically growing e-commerce segment. Through investments in infrastructure and new, innovative offerings, such as Parcel Boxes, the Group is continually strengthening this successful position.
In contrast to eCommerce - Parcel, revenues in the Post unit contracted by 3.8% to EUR 2.3 billion in the period from April to June. This development reflects further volume declines in the Mail Communication and Dialog Marketing segments, a trend that was exacerbated by strike activities in recent months. Price increases for postal products in Germany were able to partially offset these effects.
Operating earnings in the PeP division contracted in the second quarter by 60.3% to EUR 75 million (2014: EUR 189 million). This development principally reflects the one-off impact of EUR 100 million from the postal strikes, as well as investments in the international expansion of the eCommerce business. As a result of the strike, the Post unit saw revenue and volume declines, as well as additional costs for measures to minimize the impact on customers.
Express: Further significant growth in revenue and earnings
The Express division was again successful in delivering revenue and earnings growth in the second quarter of 2015. Revenue climbed by 11.8%, or more than EUR 350 million, in the period from April to June to EUR 3.5 billion (2014: EUR 3.1 billion). Adjusted for currency effects, the increase amounted to 2.7%, held back by lower fuel surcharges. Once again, the main driver of the sustained positive trend in the Express division was further strong growth in the TDI business, where second-quarter shipments per day rose by 8.6% compared with the prior-year period.
The division performed even better with respect to operating profit: EBIT rose by 13.6% to EUR 376 million (2014: EUR 331 million). This was mostly attributable to profitable volume growth, which also saw the EBIT margin increase by 20 basis points to a historical record high for the division of 10.9%.
Global Forwarding, Freight: Turnaround program initiated
Revenues in the Global Forwarding, Freight division increased by 3.8% to EUR 3.8 billion (2014: EUR 3.6 billion). Adjusted for currency effects, revenue decreased by 1.5% compared to the prior year period. This mainly reflects lower air freight volumes resulting from a stronger focus on margin improvements within a weak overall market environment.
The division's operating profit experienced a sharp decline from EUR 102 million in the prior year period to EUR 40 million in the second quarter of 2015. This reflects a number of factors: the turnaround program, including comprehensive restructuring measures that the division is undertaking and ongoing transformation costs, as well as continued margin pressure in the overall market. A positive one-off effect of EUR 99 million from the partial divestiture of the Group´s stake in the Chinese logistics company Sinotrans was mostly utilized to support these restructuring initiatives.
The management of the division is focusing on improving the operating performance of the business and has already introduced a number of changes to structure and processes within the division to address this goal. This includes, for example, giving the management of individual countries more autonomy and enabling a renewed strong focus on customers. Measures have already been initiated to improve the division's cost structure and service quality. The future of the transformation program will be defined in the coming months.
Supply Chain: Optimization program accelerated
Revenue in the Supply Chain division increased by 11.8 % to EUR 4.0 billion in the second quarter of 2015 (2014: 3.6 billion Euro). Adjusted for currency effects, revenues rose by 0.7 % over the prior-year period, held back by lower fuel surcharges. Despite its more selective approach with regards to the profitability of new contracts, the division was able to win new business contracts with a volume of EUR 266 million (annualized), particularly in the Technology, Consumer and Life Science & Healthcare sectors.
The division's operating profit rose by 9.2 % to EUR 119 million (2014: EUR 109 million). Higher positive effects from real estate-related transactions (EUR 53 million) enabled an acceleration of its restructuring initiative, with non-recurring costs of EUR 55 million in the second quarter of 2015. The division intends to take advantage of the optimization program to drive further standardization, greater efficiency and improved utilization of economies of scale in order to increase its operating margin to 4% to 5% by 2020.