"On track for 2017 after a strong quarter"
Deutsche Post DHL Group posted a strong business performance in the second quarter of 2017 and remains on a profitable growth track at the mid-year point. In an interview with DPDHL Group News, Chief Financial Officer Melanie Kreis gives a positive appraisal of progress in the first half of fiscal 2017 and lays out the company's expectations for the near future.
Ms. Kreis, how would you rate the performance of Deutsche Post DHL Group in the second quarter of the year?
Melanie Kreis: The year got off to a good start with the first quarter, but the second quarter proved to be even better. Revenue continued to grow considerably faster than in 2016 with a gain of 4.4% on the previous year. Our products and services are in high demand from our customers across all businesses and regions. At the same time, our operating profit climbed even more than revenue. The nearly 12% increase in consolidated EBIT is clear evidence of the improvement in our structural earnings power. It also means that we've now delivered record results for the seventh quarter in a row. However, we have no intention of stopping there. We continue to work hard with the long-term sustainable growth of the Group clearly in view.
Let's now take a closer look at the individual divisions. How satisfied are you with the second-quarter performance of undefined, or PeP for short?
Melanie Kreis: The numbers at PeP speak for themselves once again. Revenue and operating profit grew at nearly the same pace in the second quarter, and our Parcel and eCommerce business again grew dynamically. Here we are the market and innovation leader - not just in Germany but increasingly also at an international level. Our parcel activities in Europe, but also beyond Europe, like for example the cross-border business in Asia, continue to develop successfully. All of this has strengthened our resolve to press ahead with international expansion in the coming months and years - as we recently did by launching a nationwide delivery service in Vietnam. Although our investments in future growth are currently coming at the expense of earnings increases, they will most certainly pay off in the medium to long term. Coupled with strict cost management, investing in the future will ensure that the PeP success story of recent years will be sustained into the future.
Once again, undefined stands out clearly among the DHL divisions. How do you assess the division's continued positive performance, and how much upside potential do you still see here?
Melanie Kreis: Express once again posted excellent quarterly results. Our focus on providing outstanding quality and expanding our network is clearly paying off. Over the past few months, we again benefitted from volume increases across all regions of the world - with the related positive impact on revenue and earnings. The fact that we are doing all this while also focusing on costs and earnings can be seen in the rising margin for Express, which reached a record level of 12.5% in the second quarter. This shows that the 'machine' is running smoothly, and Express is delivering reliable results as our main driver of growth. To make sure this remains the case in the future, we are continuing to invest in our network, in expanding capacities, and in our employees, even though it of course won't be easy to maintain such substantial increases in revenue and earnings given the already very high level.
How did your freight forwarding business perform in the second quarter?
Melanie Kreis: The earnings situation at undefined continues to stabilize, as can be seen from the most recent quarterly figures. Both our Ocean Freight and Air Freight businesses are participating in the dynamic market trend with further tangible increases in volumes. As expected, however, the growth achieved is not yet reflected in our earnings. This is mainly due to the fact that we have not yet been able to pass on the full extent of increases in market buying rates to our customers. However, we are working hard to ensure that this situation will improve in the second half of the year - at which point we expect our earnings to reflect the vast improvement in the position of the freight forwarding business to return to earlier profit and margin levels, even in the difficult market conditions.
And how do things look in the undefined division? The company has made quite a few changes there too in the recent past.
Melanie Kreis: That's true, and the optimization program we put into effect at Supply Chain is paying off. EBIT has grown much more rapidly of late than currency adjusted revenue. And we are continuing to bring in a substantial number of new, high-quality contracts. We are optimistic that new business will surpass the EUR 1 billion mark again this year - which also testifies to our customers' acknowledgement that we are a pioneer in the industry with regard to digitalization and automation. We are working intensely - and often in cooperation with our customers - on incorporating major trends such as the deployment of robots, drones and smart glasses into our operations. Our customers, and also we ourselves, will benefit from the resulting efficiency improvements.
On the whole, you are painting a picture of a growing, healthy and highly ambitious company. What will this mean for the shareholders in both the short and the long term?
Melanie Kreis: We have a lot to offer our investors. First and foremost, of course, is a stable dividend policy with attractive yields. In addition to that, there is the prospect of long-term value growth based on the consistent implementation of our strategy. Here we are seeking a suitable balance between offering attractive yields in the present and using our earnings to fund investments that will be profitable over the long term. Or to put it another way: our cash flows enable us to combine investing in growth with a shareholder-friendly dividend policy. This describes the essence of Deutsche Post DHL Group's investment profile: we want to leverage our position as the global industry leader with a clear strategy and to take advantage of growth opportunities in our markets, in order to increase earnings, make further investments and create long-term value for our shareholders. That is our goal, and we are putting everything we've got into making it a reality.
Speaking of goals, what is your EBIT forecast for full-year 2017 following the successful first half?
Melanie Kreis: For the full year, we are still projecting an increase in consolidated EBIT to around EUR 3.75 billion. What I already said after the first quarter is all the more relevant today: we firmly believe that 2017 will be another good year for Deutsche Post DHL Group.