Speech by Dr. Klaus Zumwinkel and Prof. Dr. Edgar Ernst
At the H1 Earnings Press Conference 2007 on August 3, 2007, in Bonn
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Ladies and Gentlemen,
I would like to warmly welcome you to our half-year press conference here in Bonn.
Overall, we have been successful during the first six months of 2007. All divisions boosted their revenue and, thus, our consolidated revenue.
In terms of earnings, I would like to stress that the Express division made major strides and that the Logistics division pressed forward with its earnings growth. As a result, consolidated earnings grew at a faster rate than revenue.
One particularly pleasing development was that we succeeded in doubling our operational cash flow.
For the fourth straight year, economic conditions are favorable. With the exception of the United States, whose economy started slowly in the first six months of the year, all regions exhibited strong growth.
China, which once again made its mark by achieving 11.5% growth in the first half of 2007, is becoming a stronger and stronger economic force. It is also playing an increasingly important role in our Group.
In Europe, we are experiencing undiminished growth of about 2.7%. Companies remain positive about the future. As a result, we can expect this growth to continue.
The situation in Germany is similar. The economy here is achieving 2.6% growth.
Now, I would like to give you a short overview of developments in our Company during the first half of the year. My colleague Mr. Ernst then will provide you with detailed information about the performance of our divisions.
Overall, we can say that the first half of 2007 went quite well and that we even experienced an extra boost of growth in the second quarter of 2007.
In the first six months of the year, consolidated revenue climbed 5.4% to about EUR31 billion. In the second quarter, revenue increased at an even higher rate of 6.5%.
Operating profit grew by 9% to EUR1.7 billion in the first half of the year. We achieved this level in the second quarter as well.
Consolidated net profit rose 7% to EUR784 million. In the second quarter, we even increased it by about 13%.
The international share of our revenue also continued to rise. It is now 60.5% and strengthens our position as a global company.
We are continuing to develop our international presence. In one reflection of this drive, we plan to expand our joint venture in India with the Lemuir Group. Together, we will establish a new company in order to merge the present business activities of our joint venture. As a result, DHL is strengthening its leading position in the important, growth-intensive Indian market.
At the beginning of the year, our subsidiary Williams Lea acquired a 100% stake in the British company "The Stationery Office." This is one component of our strategy aimed at further expanding our international mail business.
We are also investing in our infrastructure. These investments are being made in such growth markets as Asia and Russia as well as here in Germany at our hub in Leipzig.
The Group’s operating profit grew by 9% to €1.7 billion. In this connection for 2007, I would like to mention the non-recurring gain from the sale of the waste-disposal service provider VfW AG. Adjusted for non-recurring effects, we achieved growth of 12% to more than €1.6 billion.
Ladies and Gentlemen, I would now like to ask my colleague Edgar Ernst to provide you with a detailed look at our individual divisions.
Prof. Dr. Edgar Ernst:
Ladies and Gentlemen,
I would now like to give you a closer look at our divisions’ performance. Let’s begin with Mail.
Here, we increased profitability by 3.4% in the second quarter even though revenue dipped slightly. EBIT totaled €331 million.
For the first half of the year, total revenue amounted to more than €7.5 billion. EBIT in this six-month period fell by 6.3% to €949 million, even though revenue rose by 1.3%. One reason for this development was that we had 0.7 fewer work days in the first half of the year compared with the same period last year. As you know, we also reported this factor to you in the first quarter but it affects of course the half-year figures as well.
The trend of e-substitution is continuing. Combined with the impact of increasing competition, this development is reflected once again in the decrease in volume for Mail Communication. Overall, the mail volume dropped in the first half of 2007 by 3% to about 4.1 billion items.
The area of Direct Marketing boosted its revenue by 1.9% to EUR659 million in the second quarter. In the first half of the year, revenue remained at last year's level - hampered by the work-day effect. Still, we are seeing an increase in mail volume generated by the recovery of the advertising and marketing sector. As a result, we are confident that we will be able to offset decreases in Mail Communication with these activities.
Our international mail business once again recorded the strongest revenue growth. In the first six months of the year, revenue in the business units Global Mail and Corporate Information Solutions (Williams Lea) rose by 21% to about EUR1.6 billion. This growth significantly offset the revenue drop in our home market in Germany. At the beginning of the year, we strengthened our international mail business with the acquisition of the "The Stationery Office." The acquisition contributed to the revenue growth. But the lion's share was organic growth in this business area.
The integration of the parcel business that was transferred at the beginning of the year has largely been completed and is already paying off. Total parcel volumes rose 1.1% in the first half of the year. But because of the price cuts introduced last summer, last year's revenue level could not be achieved. Overall, revenue dropped by 2.9% to EUR1.2 billion.
Now, let's turn our attention to the Express division.
The Express business pressed ahead with the positive development that it achieved in the first quarter. In the second quarter, revenue rose by 3% to EUR3.4 billion. In the process, we even boosted EBIT by around 29% to EUR99 million. As a result of the positive performance in the first quarter, revenue totaled nearly EUR6.8 billion for the first six months, which includes negative currency effects of EUR223 million.
In terms of local currencies, all regions contributed to the positive development.
We increased EBIT in the first six months of the year by EUR142 million to EUR161 million. As a result, it grew eightfold year-on-year.
Now, I would like to explain to you in detail what caused this very pleasing development.
Around the world, the Express business profited from the strong growth of the high-margin international express business in all regions. International shipping volumes rose by 3.7% worldwide. Domestic volume was somewhat weaker but still positive with a growth rate of 2.2%.
The European region profited in particular from the positive trends in the international express business. Shipping volumes rose in just about all countries.
In the Americas region, revenue measured in local currencies increased by 3.6%. The domestic business in Latin America was very good once again. In the United States, shipping totals remained weak in a reflection of the slowing economy but this could be offset through improved product yield. In the second quarter, our operational business picked up particularly for the products Ground and International. In Ground, volume climbed considerably as a result of the contract with Dell and even jumped 8.1% in the second quarter.
Likewise, the regions of Asia Pacific and EEMEA continued their very pleasing developments. Overall, we recorded double-digit growth in shipping volumes here. Negative currency effects were more than offset, enabling us to achieve a solid gain in revenue.
In the Logistics division, the driving force remained the strong global development of product streams.
Fueled by the continued expansion of the world's economy, revenue in the second quarter grew by 7.4% to EUR6.3 billion. In the same period, earnings rose 20.5% to EUR200 million, continuing the achievements of the previous quarter.
In the first half of 2007, revenue rose by a total of 6.7% to EUR12.5 billion. Negative currency effects totaling EUR239 million and inorganic effects, such as the previously mentioned sale of VfW AG, had an unfavorable effect on revenue that totaled EUR182 million. In pure organic terms, revenue rose nearly 10% during the first six months of the year.
We increased EBIT by 28.2% to EUR414 million. But, I should mention that this figure contains the non-recurring gain from the sale of VfW that totaled EUR59 million. Adjusted for this transaction, EBIT grew 9.9%.
In the business unit DHL Global Forwarding, volumes for both air and sea freight continued to develop positively and could make a positive contribution to the pleasing overall result.
Because of negative currency effects totaling EUR132 million and reduced freight levels on individual routes in the air-freight area, revenue rose slightly by 0.2%. In the process, it did not reflect the strong volume trends of 9% in air freight and 16% in sea freight, which exceeded average market growth.
The Contract Logistics area has achieved particularly strong growth this year. In this area, we signed a variety of new contracts. As a result, we generated solid organic growth and boosted revenue in the first half of the year by 12.8% to EUR6.4 billion. More than half of all logistics revenue now comes from this sub-segment.
In the first half of 2007, the business unit DHL Freight had revenue of EUR1.8 billion. When inorganic effects are taken into consideration, we grew 4.1%. Most countries developed very positively - above all Germany, where we are doing increasing amounts of work for the automotive sector.
Let's take a look now at developments in the Financial Services division.
The Financial Services division, which consists primarily of Postbank's business activities, increased both revenue and profitability once again.
This development was fueled particularly by the exceptional performance in the second quarter, when revenue jumped 16.8%. During the first six months of the year, EBIT rose by 6.7% to about EUR500 million.
Mr. Klein, who succeeded Mr. von Schimmelmann as board chairman on July 1, informed you at the beginning of this week about the details of the Postbank's business. I will just briefly touch on the growth drivers of our Financial Services division.
The continuing solid development at Postbank this year results from very successful cost management. The increase in the value-added tax and the one-time costs associated with the integration of BHW were successfully offset. The growth achieved in revenue and earnings was largely the result of mobile sales and the mortgage lending business.
We are particularly pleased about the findings of a study on the service quality of branch banks that the German Institute for Service Quality conducted in seven major German cities. In each city, Postbank was ranked among the top three. And it even finished No. 1 in Berlin. This underscores our commitment to provide customers with high-quality, attractively priced services, and to strive to form long-term customer relationships.
As a result of this study, we feel encouraged about our clear focus as Germany's leading retail bank.
Now, I would like to say a few words about the Group's key figures.
The Group's investments totaled EUR794 million in the first half of the year. That is about the same total as last year. This figure also includes investment costs for our new hub Leipzig, which will go into full operation in the second quarter of next year.
We are particularly pleased about the development of operating cash flow (Postbank at equity). Fueled by solid earnings developments among the individual divisions, this climbed by 125%, or EUR439 million, to EUR789 million.
Net debt, also Postbank at equity, has risen by 27.9% to nearly EUR4 billion since the beginning of the year. This increase resulted from the prepayment of our pension obligations for our civil servants in the first quarter and the payment of the dividend in the second quarter. During the rest of the year, net debt will move again to a lower level.
In conclusion, I would like to mention our guidance for fiscal year 2007.
The guidance we issued in March about our consolidated underlying EBIT of at least EUR3.6 billion remains unchanged.
Ladies and Gentlemen, our Group had a successful first half of 2007. We are working hard to continue this positive direction.
But the focus must also be on creating conditions that will enable us to be successful in fair competition. Mr. Zumwinkel will now expand on this issue.
Dr. Klaus Zumwinkel:
Ladies and Gentlemen,
The postal market was a much-discussed issue long before it became the focus of recent political decisions. The regulations are being discussed down to the smallest detail and the finest legal hair.
But what is really at issue here? I see three major challenges for the future that are closely linked to one another.
The first is liberalization in Europe. All of you know our position: Deutsche Post is prepared to go ahead for one year to two years. In making this pledge, we have always said that the other countries must follow within this period of time. This is the only way that the idea of a single market can be achieved.
The second is the universal service. Deutsche Post has been and will remain the only supplier offering a comprehensive line of nationwide, high-quality universal services that are in line with legal regulations.
The third is that minimum social standards should be set for employees in postal work. At the moment, we have a wage imbalance, and the sector is evolving into an unacceptable low-wage business.
What is the status of liberalization?
The European Parliament recently put off the opening of the postal markets until at least the beginning of 2011. I think this is a dramatic development.
And things have gotten even worse. While five countries, including Germany, are maintaining the agreed-upon schedule and will open their postal markets to competitors by the end of 2007, the other 22 countries are formally carrying out "a three-speed Europe." But experience has shown that, in the end, each of these countries will focus on the later time period. After all, the new regulation offers the new EU members and those countries that have to deal with such issues as difficult geography the opportunity to close off their markets through 2013.
The first bad conclusion is: Liberalization will take five years in 22 countries. The second, even worse conclusion is: Under the Portuguese and Slovenian presidencies, the Council of the European Union will consider the issue. This is where the majority of blockers, including France and Poland, sits. This can result in five years becoming seven along with further business restrictions.
I will give you a current example: Finland boasts about its liberalization. But if you want to open a postal company in the capital of Helsinki, you will have to pay 20% -- I repeat 20% -- of revenue to the Finnish government as a fee. The result: There is not one single private postal company in Finland. I fear other countries could be even more inventive.
In summary, we have to say: Parallel liberalization in the European Union has failed. We have a true mess on our hands, and one sees once again that preliminary efforts are not rewarded.
Now, let's turn to the second issue: universal service. In Germany, we actually are already living with competition, and one thing is clear here: Despite the more or less major players in the market, Deutsche Post is the only one that offers its customers, be they private or business ones, a national network with a comprehensive array of high-quality postal services. This is known as universal service.
Deutsche Post delivers mail to every nook and cranny in Germany. Our network of retail outlets, which will soon grow to more than 13,000, is located both in major metropolitan areas and in rural regions. Customers can deposit their letters in one of our 108,000 mail boxes. The high-quality standards - mail transit times are just one example - apply to both the city and the country. All citizens enjoy uniform postal rates.
The conclusion is obvious: Deutsche Post World Net stands for the broad, national universal service that lawmakers have required - and it is the only one.
In most countries in Europe, if not worldwide, universal service and exemptions from value-added taxes are inseparable - particularly because the national postal services do not just focus on the prime business areas but serve commercially unattractive regions as well. Such areas also have customers who want affordable prices for the services.
Our carriers come to all customers, in downtown Berlin or the Hallig islands. I have made this statement in the past and want to emphasize it today: We will maintain universal service - precisely because it is in the interest of our customers.
But to do so, we need suitable measures to bolster this service. These measures include the exemption from the value-added tax for universal services. In return, the new service providers in the postal market have the option of a pre-tax deduction.
Like the German finance minister, we think that Deutsche Post as the only comprehensive provider of universal service should continue to be exempt from the value-added tax.
For the sake of our customers, I issue this appeal to political leaders: Universal service and the exemption from the value-added tax should not be touched. In case of the implementation of a 19% value-added tax on letters for private customers the prices would increase by the same amount burdening the private customers. A government-ordered increase in postal rates for private customers has to be avoided.
In the name of my employees and their families in Germany, I call on political leaders to act now.
We specifically demand:
1. Immediate action by the German Federal Minister of Economics as regards the Federal Network Agency: In the issuance of mail-service licenses, the goals laid down by lawmakers in the postal law in terms of social-benefit standards must be maintained.
2. The postal sector must be integrated into the prevailing-wage law to ensure compliance with minimum wages typical of the sector and fair competitive conditions over the long term.
3. Completion of a universally applicable wage agreement for the postal sector.
4. The quick introduction of minimum wages.
Ladies and Gentlemen,
the time to act has come. Otherwise, we will be confronted by undesired facts that we will not be able to reverse. We have a liberalization mess on our hands in Germany: Everybody can come to Germany. But Germans cannot go abroad. Today, the time has come to prevent a second mess - involving jobs in Germany.