Deutsche Post DHL Group increases earnings and continues to invest in long-term success
Deutsche Post DHL Group has increased revenues and met its targets for EBIT and cash flow in 2014.
- Operating earnings increase by 3.5 percent to EUR 2.97 billion
- Group proposes to raise dividend to EUR 0.85 per share
- Further growth expected in 2015; full year operating earnings of EUR 3.05 billion to EUR 3.2 billion targeted
- CEO Frank Appel: "We will remain on our growth path in 2015 and focus on the opportunities and challenges we face, as we execute our Strategy 2020."
Bonn - Deutsche Post DHL Group has increased revenues and met its targets for EBIT and cash flow in 2014. Compared to last year, revenues rose by 3.1 percent to EUR 56.6 billion (2013: EUR 54.9 billion) with all four of the company's operating divisions contributing to this improvement. Organically, Group revenues climbed by 4.2 percent in 2014, supported by steady volume and revenue gains in the international express and German parcel businesses in particular. These improvements are the result of the company's outstanding market position in the world's growth segments - namely E-Commerce and emerging markets - and its strong operational performance, which have enabled margin improvements that led to an EBIT increase of 3.5 percent, or EUR 100 million, to EUR 2.97 billion in 2014 (2013: EUR 2.87 billion). Operating earnings therefore finished the full year 2014 within the targeted corridor of between EUR 2.9 billion and EUR 3.1 billion. Post - eCommerce - Parcel (PeP) contributed EUR 1.3 billion as projected and the DHL divisions EUR 2.02 billion.
"Despite a still challenging environment we delivered a solid performance in 2014, by building on our strong market position in E-Commerce and emerging markets," said Frank Appel, the CEO of Deutsche Post DHL Group. "In 2014 we were able to further successfully execute Strategy 2015 despite the lack of significant tailwind from the global economy. This year we begin executing Strategy 2020 in each of our divisions. While we remain on our growth path in 2015, we will focus on the opportunities and challenges we face in order to further strengthen our competitiveness for the successful future of our Group."
Outlook: Detailed guidance for 2015 announced, targets for 2016 and 2020 confirmed
Although the world economy is projected to continue to see only moderate growth, and with further strategic investments planned, the Group still expects 2015 to be a year of growth with an increase of operating earnings to between EUR 3.05 billion to EUR 3.2 billion. While the Post - eCommerce - Parcel (PeP) division is anticipated to contribute at least EUR 1.3 billion to this total, the DHL divisions should continue to grow earnings towards an EBIT of EUR 2.1 billion to EUR 2.25 billion during the year. In PeP, the eCommerce - Parcel business is expected to drive earnings growth, partially offset by an increase in factor costs and the ongoing structural decline of letter volumes within the Post segment. DHL EBIT gains will be mainly driven by growth in Time Definite International (TDI) volumes and continuation of incremental margin improvements at Express, while operating earnings growth at Supply Chain will be tempered by investments in an optimization program that will see them introduce further efficiency and standardization globally. In the Global Forwarding - Freight division the results will be strongly influenced by the costs - both direct and indirect - invested in the New Forwarding Environment (NFE) transformation program. The Group plans to maintain the Corporate Center/Other expenses at around EUR 350 million in 2015. In addition, the company expects to generate sufficient free cash flow again to cover the dividend to be paid for financial year 2014.
Looking towards 2016, Deutsche Post DHL Group continues to forecast an increase in operating profit to between EUR 3.4 billion and EUR 3.7 billion. The PeP division is expected to generate earnings of more than EUR 1.3 billion, while the DHL divisions should contribute between EUR 2.45 billion and EUR 2.75 billion in 2016.
In the period between 2013 and 2020, Deutsche Post DHL Group continues to expect EBIT to increase by an average of more than 8 percent annually (CAGR). The DHL divisions are expected to contribute an average EBIT growth of about 10 percent per year, while PeP is projected to increase its operating earnings by around 3 percent on average. Furthermore, the company plans to reduce the proportion of Corporate Center/Other costs to below 0.5 percent of Group revenues by 2020.
Fiscal year 2014: Operating earnings improved
In 2014, the Group's EBIT increased by 3.5 percent, or EUR 100 million, to EUR 2.97 billion (2013: EUR 2.87 billion). In addition to improved revenues in all four divisions, Express was the driving force behind the Group's EBIT growth with a double-digit increase of 16.3 percent attributable to increased TDI volumes and higher network efficiency. Supply Chain contributed a 5.4 percent increase, while PeP improved EBIT by 0.9 percent year-on-year. Global Forwarding - Freight EBIT declined significantly due to lower gross profit levels and costs associated with the implementation of NFE.
Due to one-off effects in last year's financial result and a higher tax rate of 15.5 percent (2013: 14.0 percent) the consolidated net profit declined from EUR 2.09 billion in 2013 to EUR 2.07 billion in 2014. This translated into a decrease of basic earnings per share from EUR 1.73 in 2013 to EUR 1.71 in 2014. Adjusted for one-off effects, basic earnings per share in 2013 would have been EUR 1.64.
Dividend: Group proposes dividend of EUR 0.85 per share
As outlined in the Group's finance strategy introduced in 2010, the Group targets a payout ratio of between 40 percent and 60 percent of the consolidated net profit adjusted for non-recurring items. In light of the Group's solid performance in 2014 and their confidence in the company's future development, the Board of Management and the Supervisory Board will propose a dividend of EUR 0.85 per share to the Annual General Meeting on May 27. Should shareholders approve this proposal, the Group will pay out 6 percent more than in the prior year, representing a payout ratio of around 50 percent.
Q4 2014: significant revenue gains, double-digit EBIT growth in PeP and Express
At EUR 15.4 billion, revenues in the final quarter showed the strongest growth of all quarters in 2014 in a year-on-year comparison. The increase of 6.3 percent - or EUR 915 million - reflects a revenue gain in all four divisions. Adjusted for exchange-rate effects, revenues in Q4 increased by 4.1 percent year-on-year. The Group's operating profit in the last three months of the year increased by 1.9 percent to EUR 905 million (2013: EUR 888 million). This improvement was led by a strong gain of 13.6 percent in PeP reflecting parcel volume growth due to strong seasonal effects and an 11.5 percent increase in Express due to strong TDI volume growth across all regions. Nevertheless, the result was constrained by an EBIT decrease of 48.6 percent in Global Forwarding - Freight mainly due to the focus on the transformation program NFE, and a decrease of 9.6 percent in Supply Chain as a result of positive one-off effects last year, without which Supply Chain EBIT in Q4 would have increased by 8.8 percent. Consolidated net profit declined by 17.1 percent to EUR 640 million in Q4 (Q4 2013: EUR 772 million) as a result of a higher tax rate. Correspondingly, basic earnings per share for the fourth quarter fell to EUR 0.53 (2013: EUR 0.64).
Capital expenditures: Investments to support future growth
To bolster its foundation for continued profitable growth, the Group invested a total of EUR 1.88 billion in 2014 (2013: EUR 1.75 billion) - in line with guidance of about EUR 1.9 billion. The investments were made across all four divisions, primarily in areas that position the company for future growth: expansion of the parcel infrastructure, upgrades of global and regional Express Hubs in Leipzig, Cincinnati, Singapore and Dubai, more efficient cargo aircrafts, infrastructure for new business wins in Supply Chain and the Global Forwarding - Freight transformation project NFE.
Cash flow: Group exceeds target
Based on strong year-end cash generation, Deutsche Post DHL Group was able to increase the operating cash flow by 1.7 percent to EUR 3.04 billion in 2014 (2013: EUR 2.99 billion), which is roughly in line with the EBIT trend.
The free cash flow performance was EUR 1.35 billion (2013: 1.67 billion), exceeding the target of generating sufficient free cash flow to cover the dividend of EUR 968 million paid out to shareholders in 2014. The decline compared to last year is due to a higher cash-out for investments (net cash capex).
Post - eCommerce - Parcel: Parcel business continues to develop dynamically
The revenues of the PeP division climbed by 2.6 percent to EUR 15.7 billion in 2014 (2013: EUR 15.3 billion). The eCommerce - Parcel revenue contribution to this result was EUR 5.7 billion, an improvement of 6.5 percent over last year. The eCommerce - Parcel unit now accounts for over 36 percent of the PeP division's revenue. This shows the company's success in capitalizing on growth within the E-Commerce segment, particularly in Germany. The volume increase of 7.0 percent in the German parcel business underlines the growth momentum. Investments in innovative customer solutions such as parcel boxes or the national and international expansion of the Packstation network demonstrate how Deutsche Post DHL Group is proactively and successfully addressing the evolving requirements of the market.
Post revenues increased by 0.5 percent to EUR 10.0 billion, mainly attributable to the price increases for both the standard letter and the Infopost product though overall volumes continued to decline. The company's E-Post offering contributed more than EUR 300 million in revenues and with this fulfilled the expectations for 2014. Compared to last year, E-Post revenues increased by more than 50 percent above last year (2013: EUR 213 million). The operating profit of the PeP-division increased by 0.9 percent to EUR 1.3 billion in 2014, held back by higher material and staff costs.
CEO Frank Appel said: "We are satisfied with the positive results of our PeP division over the last year. However, our success in the future depends on having a more competitive cost base, particularly in Germany, which will allow us to generate earnings over the long-term and further invest in our people and infrastructure."
Express: 10 percent-margin one year ahead of target
In 2014, the Express division again saw significant gains in revenues and earnings reflecting continued robust demand for TDI services and further network efficiencies. Reported revenues amounted to EUR 12.5 billion, a gain of 5.7 percent over 2013 (2013: EUR 11.8 billion). Adjusted for exchange rate effects, the revenue increase amounted to 7.3 percent. The main driver for this boost was again strong growth in international time-definite shipments with a volume increase of 7.8 percent for the full year and an increase of 7.8 percent in the final quarter.
The division's EBIT rose by 16.3 percent to EUR 1.3 billion in 2014 (2013: EUR 1.1 billion) reflecting higher volumes combined with strict cost management. The 2014 EBIT margin climbed to 10.1 percent, and with this exceeded the projected 10 percent margin one year ahead of target.
Global Forwarding - Freight: Transformation ongoing
In a still challenging industry environment, Global Forwarding - Freight achieved a moderate revenue increase of 0.9 percent to EUR 14.9 billion (2013: EUR 14.8 billion). Adjusted for exchange rate effects, revenues increased by 3.2 percent year-on-year. Both Air and Ocean Freight showed a volume recovery towards the end of the year, reflected in the final quarter's revenue increase of 4.9 percent compared to Q4 2013.
The division's operating profit fell strongly by 38.7 percent to EUR 293 million (2013: EUR 478 million). This development was a result of significant resources being directly involved in the transformation program New Forwarding Environment as well as the detailed management and workforce attention that the project entails.
Supply Chain: good performance to be enhanced
Supply Chain increased both revenues and earnings in 2014. The division's revenues climbed by 3.6 percent to EUR 14.7 billion (2013: EUR 14.2 billion) mainly driven by the Life Sciences & Healthcare sector and the Europe region. At EUR 1.2 billion, the volume of new contracts concluded with new and existing customers remains at a high level (2013: EUR 1.5 billion) especially given that the division is being more selective on profitability when closing new contracts. Compared to the revenue increase, the division's EBIT showed an even higher gain of 5.4 percent to EUR 465 million (2013: EUR 441 million). This solid performance of Supply Chain is expected to be further enhanced in future years by standardization, increased efficiency, and leveraging skills on a global scale.