Deutsche Post DHL Group significantly increases operating profit and confirms 2016 full-year guidance
- Third-quarter Group EBIT improves to EUR 755 million (2015: EUR 197 million)
- Guidance for full-year 2016 confirmed: EBIT forecast to increase to between EUR 3.4 billion and EUR 3.7 billion
- CEO Frank Appel: "We are successful despite weak economic tailwind"
CEO Frank Appel: "We are well on track to reaching the ambitious goals we have set for 2016 and beyond."
Deutsche Post DHL Group increased operating profit significantly in the third quarter of 2016, continuing the strong earnings momentum seen in previous quarters. Group EBIT increased to EUR 755 million, representing the strongest third quarter in company history1. The sharp rise over the prior year (2015: EUR 197 million) is attributable to sustained organic growth in operating profit in all divisions in addition to the non-recurrence of substantial one-time effects. Group revenue decreased by 3.9% to EUR 13.9 billion between July and September 2016 (2015: EUR 14.4 billion). In addition to negative currency effects and lower fuel surcharges due to falling oil prices, the decline reflects a change in the recognition of revenue generated from a key customer contract in the Supply Chain division, which took effect in the fourth quarter of 2015. Adjusted for the above effects, Group revenue rose by 2.4% year on year.
"The strong trend in operating profit in all four divisions shows that we have set the right priorities with our Strategy 2020. We are taking an increasingly active role in the dynamic development of e-commerce all over the world and are continuing to invest in this segment. Thanks to the targeted investments and strategic initiatives we implemented in prior years, we are now enjoying success despite weak economic tailwind," said Frank Appel, CEO of Deutsche Post DHL Group. "We are well on track to reaching the ambitious goals we have set for 2016 and beyond."
Outlook: Earnings forecast for 2016 and long-term objectives confirmed
The company anticipates only moderate growth in the world economy for the remainder of 2016. Despite the continuing lack of economic tailwind, Deutsche Post DHL Group still expects to reach its objective of significantly increasing EBIT for full-year 2016 to between EUR 3.4 billion and EUR 3.7 billion based on the Group's very positive operating performance in the first nine months.
The Group has also confirmed its targets for the coming years: Deutsche Post DHL Group continues to forecast an average increase in operating profit of more than 8% annually during the period from 2013 to 2020 (CAGR).
Third quarter of 2016: EBIT rises by EUR 558 million
Both the Post - eCommerce - Parcel (PeP) division and the DHL divisions contributed to the substantial EUR 558 million increase in third-quarter Group EBIT to EUR 755 million. This improvement was supported by the fact that the one-time effects posted in the prior-year period did not recur in 2016.
Operating profit at PeP more than doubled to EUR 295 million, with the prior-year EBIT figure (2015: EUR 142 million) impacted primarily by the consequences of the postal strike in Germany. The DHL divisions reported a combined, strong increase in EBIT to EUR 536 million (2015: EUR 127 million). The Global Forwarding, Freight division contributed in particular to the increase with an improvement from EUR -337 million to EUR 63 million. The negative figure reported in the previous year was due to one-time charges of EUR 384 million, primarily associated with the renewal of the division's IT systems. The Supply Chain division increased EBIT by 35.6% to EUR 137 million. The Express division registered a decline to EUR 336 million (2015: EUR 364 million) based on non-recurring income posted in the previous year. After adjusting for that effect, divisional EBIT improved by 19%.
Thanks to the absence of charges that had been incurred in the prior year, along with the increase in operating profit and lower financing costs, consolidated net profit improved to EUR 618 million in the third quarter of 2016 (2015: EUR 49 million). Basic earnings per share saw a similar increase, rising from EUR 0.04 in the prior year to EUR 0.51 in 2016.
Capital expenditure and cash flows: Group further strengthens foundation for growth
The Group invested EUR 498 million in the third quarter of 2016 (2015: EUR 547 million). Investments continued to focus on positioning the Group for future profitable growth in all four divisions. For example, Deutsche Post DHL Group made further progress in extending its national and international parcel infrastructures and invested in the production of its StreetScooter electric vehicle, in addition to expanding global and regional hubs in the Express division and modernizing and expanding the aircraft fleet.
The Group continued to focus successfully on cash flow in the third quarter: Operating cash flow rose by 12.0% to EUR 887 million (2015: EUR 792 million), and free cash flow increased 65.0% to EUR 543 million (2015: EUR 329 million). The increase was a reflection in particular of the improvement in the Group's operating profit.
- In the current corporate structure
Post - eCommerce - Parcel: E-commerce growth driver remains intact
Revenue in the Post - eCommerce - Parcel division increased by 4.0% to EUR 4.0 billion in the third quarter (2015: EUR 3.8 billion). In addition to the postage stamp price increase implemented at the beginning of the year, the division's positive performance was driven above all by volume and revenue increases in the eCommerce - Parcel business units.
Revenue in the eCommerce - Parcel business units increased by 11.6% to EUR 1.7 billion. The increase was based on revenue gains of 11.1% for Parcel Germany, 13.3% for Parcel Europe and 12.3% for eCommerce. The upward trend, once again, illustrates how Deutsche Post DHL Group is increasingly benefitting from positioning itself successfully as a market and innovation leader in the high-growth e-commerce segment. The Group has also been additionally expanding its parcel network via partnerships with postal companies in Hungary and Slovenia, which brings the number of European countries in which the Group is active to 18. Deutsche Post DHL Group will continue to advance its expansion in the United Kingdom, Europe's biggest e-commerce market, through the planned acquisition of UK Mail.
Revenue in the Post business unit declined by 0.9% to EUR 2.296 billion (2015: EUR 2.318 billion). The increase in letter postage prices at the beginning of the year almost fully offset the negative effects of the structural decline in volumes in Mail Communication and Dialogue Marketing segments.
PeP division EBIT rose to EUR 295 million in the period from July to September, up from EUR 142 million in the prior-year period when operating profit had been reduced primarily due to the postal strike in Germany. Even after adjusting for this effect, the increase in EBIT was significant. The improvement was primarily fueled by the revenue growth, the increase in postage prices, disciplined cost management and sustained growth at eCommerce - Parcel. Investments in the international parcel business held back an even greater increase in EBIT.
Express: Revenue and operating profit continue strong performance
The sustained upward revenue trend enjoyed by the Express division for a number of years continued in the third quarter. At the same time there was a significant improvement in earnings based on organic growth. Revenue rose by 2.9% to EUR 3.4 billion (2015: EUR 3.3 billion). Adjusted for negative currency effects and lower fuel surcharges, the increase was 5.3%. This dynamic performance was once again driven by solid growth in the international time-definite (TDI) delivery business, where daily volumes rose by 6.8% in the third quarter compared with the prior-year period. At the same time, Express focused on disciplined yield management.
The 7.7% decline in EBIT to EUR 336 million is attributable to non-recurring income of EUR 82 million recognized in the prior-year period, which was largely the result of an asset write-up in the Americas region. Adjusted for the positive effect on prior-year earnings, EBIT rose by 19% thanks to improvements in the network, strong growth in the international business and pricing initiatives. The operating margin stood at 9.8% in the third quarter. The margin improved from 10.7% to 10.9% over the entire period from January to September 2016 when compared with the prior-year period.
Global Forwarding, Freight: Earnings continue on an upward trajectory
Revenue in the Global Forwarding, Freight division decreased by 6.3% to EUR 3.4 billion in the third quarter of 2016 (2015: EUR 3.6 billion). Adjusted for negative currency effects and lower fuel surcharges, revenue declined by 2.2%. The revenue trend does not reflect the growth in volumes registered in the third quarter owing to the decline in freight rates over the course of the year.
Operating profit for the period from July to September improved from EUR -337 million in 2015 to EUR 63 million in 2016. Even after adjusting for the non-recurring expenses contained in prior-year earnings as a result of renewing the division's IT systems, Global Forwarding Freight registered a significant rise in EBIT of 34.0%. The positive earnings trend over the past four quarters is an indication of the success of the measures initiated last year to improve operating performance at Global Forwarding, Freight.
Supply Chain: Profitability continues to improve
Revenue in the Supply Chain division decreased by 14.7% to EUR 3.4 billion in the third quarter (2015: EUR 4.0 billion). The decline was solely the result of special effects. After adjusting for negative currency effects, lower fuel surcharges and the effect of the change in revenue recognition announced in 2015 due to revised terms in the contract with the National Health Service (NHS), a major UK account, revenue increased by 2.3% over the previous year. Supply Chain continued to generate additional new business. In the third quarter, the division concluded additional contracts worth EUR 306 million with both new and existing customers.
In addition to lower restructuring costs, the Supply Chain division's strong EBIT growth of 35.6% to EUR 137 million reflected the positive impact of the division's optimization initiative which began last year. The initiative aims to increase the operating margin in the Supply Chain division to between 4% and 5% by 2020 by increasing standardization, improving efficiency and better leveraging economies of scale in the global business.
First nine months: Operating profit increases by EUR 926 million
Group revenue fell by 4.5% to EUR 41.9 billion in the first nine months of 2016 (2015: EUR 43.9 billion). That decrease was caused by the special effects referred to previously: negative currency effects, lower fuel surcharges and the change in revenue recognition in the Supply Chain division. After adjusting for those factors, revenue increased by 2.6% over the prior year. Operating profit at Deutsche Post DHL Group climbed by 63.7% to EUR 2.4 billion from January to September (2015: EUR 1.5 billion). Consolidated net profit rose by more than 100% to EUR 1.8 billion in the first nine months of 2016 (2015: EUR 870 million). Basic earnings per share increased from EUR 0.72 to EUR 1.49 in line with the increase in profit.