"A further important step forward"
Deutsche Post DHL announced its third-quarter results for 2010 today. From July to September, the world's leading postal and logistics group continued the positive performance of the first half of the year. Revenues increased at double-digit rates compared with the same quarter last year, and underlying EBIT grew even more strongly. In an interview with Deutsche Post DHL News, CFO Larry Rosen talks about the reasons for the good results.
DP DHL News: Deutsche Post DHL again produced double-digit growth in the third quarter of 2010 and earned significantly more than it did last year. Is the Group one of the winners of the economic recovery?
Larry Rosen: As the world's largest provider of logistics services with a strong presence in all economic centers and a wide range of products, we naturally profit from the positive direction of the economy and the rising level of trade volume generated by it. This effect has really helped our numbers - particularly in the DHL divisions - throughout the year. This was also the case in the third quarter. But attributing everything to good economic conditions would understate the achievements of the company and its employees.
It is no coincidence that our revenues and profitability have performed so well in the recent past. This satisfying development demonstrates once again that we have taken the right steps in our Strategy 2015, that the measures we introduced are working and that our customers are rewarding our efforts.
Your operating earnings more than doubled compared with the third quarter of 2009 and more than tripled after nine months. Why?
First, the rise in earnings is definitely a direct result of revenue growth and our own efficiency improvements. But there was another factor at play in the third quarter as well: For the first time in several years, we had no non-recurring restructuring expenses to speak of. Our restructuring measures have largely been completed. As a result, we have provided for all legacy issues and are now positioned for future success.
This also means that the differences between reported EBIT and underlying EBIT which were substantial in the past, have largely come to an end. But we do not want to exaggerate the situation. The comparison with the previous year's results is still distorted. For this reason, underlying EBIT remains the key metric for this year - and it continues to develop impressively.
You have improved your full-year guidance range for the underlying EBIT once again, but without raising it. Why are you being so cautious?
Originally, we projected that underlying EBIT for this fiscal year would be between EUR 1.6 billion and EUR 1.9 billion. At the end of the first half, we increased the guidance to EUR 1.9 billion to EUR 2.1 billion. Following the very good third quarter, we feel sufficiently confident about being able to reach at least EUR 2 billion. We did not increase the upper end of the range for one reason: We remain a bit conservative in our projections for the fourth quarter in general and the holiday season in particular.
We could still see a slight slowing of growth in the world economy and global trade streams at the end of the year. Against this backdrop, we, as cautious business executives, feel very good about the guidance we issued today.
The renewed guidance improvement also comes from the MAIL division. You have increased the expected full-year earnings number here as well. Does MAIL perform better than expected?
The division has performed very well in a very competitive business environment and under increasingly difficult conditions. The business is and will remain an important pillar of revenue and earnings at the Group, despite expectations of long-term further decline by some external commentators. Third-quarter revenue fell only slightly - even though market volume continued to drop and we increased our discounts in the wake of the new value-added tax on mail for business customers.
In taking this step, we wanted to keep or regain important, quality-conscious customers. And we have been able to do this very well in recent months. As expected, the discounts also weighed on our results. But we have been able to counteract this - at least partially - with our very dynamic parcel business and our strict cost management. Overall, we are confident that we will reach an underlying EBIT of at least EUR 1.1 billion in the MAIL division for the full year.
In spite of this, DHL is increasingly becoming the Group's growth driver and main earnings producer. What fueled growth at DHL in recent months?
During the current fiscal year, the three DHL divisions have continued to perform well, with large increases in revenue and very strong gains in earnings. Of course, this is also the result of the economic tailwind that we are experiencing around the world. At the same time, our continued focus on meeting customer needs is reflected in this development as well. Take the multimodal transport solutions offered by our Global Forwarding division - that is, the combination of air and ocean freight as well as road shipments - for exports from Asia to Europe and Africa: With these solutions, companies can plan their supply chains according to their specific needs while significantly lowering costs and emissions. It is exactly these tailored services and products created to fulfill customers' particular needs that we have helped us in recent months to not only expand our business with existing as well as new customers in the light of the economic recovery.
These services enabled us to siginificantly extend our working relationship with our current customers to other areas while acquiring a substantial number of new customers. In the Supply Chain division alone, we have signed additional contracts worth EUR 700 million in the first nine months of the year. And as a result of this strong demand for our services in the marketplace, we are very confident about the future.
What can the Group achieve with DHL in years to come?
At the moment, we expect DHL will generate an underlying EBIT of more than EUR 1.3 billion in 2010, by far our best performance ever. For the first time, the DHL divisions will contribute more to the Group's earnings than the MAIL division. This represents a milestone in our company's history. We have now demonstrated that the expansion into global logistics undertaken in the past made strategic sense and will be the Group's crucial value driver in the future. We will not announce any specific figures for our business in years to come. But one fact is clear: DHL has a long way to go before it reaches its full potential.
With our leading market position and our razor-sharp focus on customer solutions, we have an outstanding foundation to succeed in further growing DHL. For this reason, I truly believe that we will unlock the full potential of this business on behalf of Deutsche Post DHL, its customers, its employees and its investors step by step in years to come.
Does this fundamental optimism also apply to next year? How do you expect the Group to perform in 2011?
We are fundamentally optimistic because we believe the global economy will continue to grow next year. Right now, it is just not clear how much it will grow. For this reason, we will not offer any specific guidance for 2011 yet. But we will certainly do so in due time. Nevertheless, we still stand behind our earlier statements that we expect to continue our positive earnings performance next year.