Deutsche Post DHL boosts revenues and profitability in the first quarter of 2011

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Deutsche Post DHL, the world’s leading postal and logistics group, remained firmly on its growth course in the first quarter of 2011. Compared with the previous year’s results, Group revenues increased by 6.9 percent to EUR 12.8 billion during the first three months of 2011.

This positive performance was driven by the strong growth generated in all three DHL divisions. Supported by the continued economic recovery and rising transport volumes the DHL businesses profited especially from their excellent market position in the world’s fast growing regions in general and Asia in particular. Further margin improvements in the DHL divisions also resulted in a strong rise in the Group’s profitability: in the first quarter, the company’s EBIT increased by 22.9 percent to EUR 629 million.

Deutsche Post DHL’s consolidated net profit reached EUR 325 million during the past quarter. Excluding the valuation effects related to the sale of Postbank this represents an increase of more than 27 percent compared with the same period last year and reflects the sustainable efficiency improvements achieved by the Group in recent years.

“We have gotten off to a dynamic and very successful start in 2011,” said Frank Appel, the Chief Executive Officer of Deutsche Post DHL. “The first quarter clearly demonstrated that our growth is based on a broad and very strong foundation. As a result, we are in an ideal position to benefit significantly from the continuing momentum in global markets and to reveal step by step our Group’s full potential – for the good of our customers, employees and investors.”

First quarter of 2011: revenue and profitability improved

After the company had generated revenues of EUR 12.0 billion in the first three months of 2010, the Group increased its turnover by more than EUR 800 million during the first quarter of 2011, reaching a level of EUR 12.8 billion this year. First-quarter EBIT rose more than EUR 100 million or 22.9 percent from EUR 512 million last year to EUR 629 million this year. The DHL divisions contributed EUR 363 million to the overall Group result, representing an increase of almost two-thirds compared with the prior year (2010: EUR 219 million).

In addition to operational improvements achieved by the company, the absence of any restructuring expenses, which totaled EUR 54 million last year, also had a positive impact on the development of Deutsche Post DHL’s operating result. The Group’s net financial income fell in the first quarter, dropping from EUR 1.3 billion in 2010 to minus EUR 161 million in 2011. This development, however, was almost exclusively the result of the valuation of financial instruments related to the sale of Postbank: While last year’s financial result included positive effects of EUR 1.4 billion related to the Postbank transaction, expenses amounting to EUR 56 million were incurred in the first quarter of 2011.

This extraordinary accounting effect had an accordingly significant impact on the Group’s consolidated net profit: During the first three months of the year, consolidated net profit fell from EUR 1.7 billion in the previous year to EUR 325 million in 2011. This equals a decrease in earnings per share to EUR 0.27 (2010: EUR 1.44). However, adjusted for the Postbank valuation effects for both years, consolidated net profit and earnings per share would have risen by over 27 percent in the first quarter of 2011, driven by the operational improvements achieved.

Investment and cash flow: foundation for growth further strengthened

The Group’s capital expenditure totaled EUR 252 million in the first quarter, representing an increase of nearly 30 percent versus the previous year’s level of EUR 195 million. The focal point of the increase were the three DHL divisions. Here, the basis for future profitable growth was further strengthened through investments made in, among other things, aircraft, warehouses and other property, plant and equipment.

At the beginning of each year, the Group’s operating cash flow and liquidity position are regularly impacted by the annual payment made to the Bundes-Pensions-Service für Post und Telekommunikation, a special pension fund for the company’s civil servants, in January. In spite of this payment, which amounted to EUR 542 million in the first quarter of 2011, net cash outflow from operating activities totaled only EUR 34 million (2010: minus EUR 95 million) during the first three months of this year. Including these pension payments, the Group’s net liquidity fell by EUR 298 million during the first quarter, from EUR 1.4 billion at the end of 2010 to EUR 1.1 billion. The company’s free cash flow improved from minus EUR 376 million in the previous year’s period to minus EUR 342 million in the first quarter of 2011.

Guidance: short- and mid-term targets confirmed

Despite the current economic risks, the Group expects that the world’s economy will continue to recover this year, likely triggering a measureable rise in global trade volume. Following the company’s successful performance in the first three months of the year, Deutsche Post DHL confirms its 2011 full year earnings guidance and continues to project an EBIT of between EUR 2.2 billion and EUR 2.4 billion. While the MAIL division is still expected to contribute between EUR 1.0 billion and 1.1 EUR billion to this figure, the company continues to forecast a double-digit increase of the operating profit of DHL to between EUR 1.6 billion and EUR 1.7 billion. Expenses in Corporate Center/Other should total about EUR 400 million.

Consolidated net profit, adjusted for effects stemming from the valuation of the Postbank transaction, should continue to improve during 2011 in line with the operating business. The medium-term growth targets as set at the end of 2010 were also confirmed: provided the world economy continues to recover, the overall positive earnings trend should continue in future years. Earnings at the MAIL division should stabilize at around EUR 1 billion, and EBIT at DHL should climb by an average of 13 percent to 15 percent annually through 2015.

“We are in an extremely good position from which we can benefit from the continued recovery of the global economy to generate profitable growth and achieve our short- and mid-range targets. In particular, our excellent position in the world’s growth markets will pay off even more in the future and be a key contributor to sustainable revenue and earnings growth in all DHL divisions,” Appel said. “At the same time, with our dynamic parcel business and the continued expansion of our digital business, we have also created ideal conditions to stabilize the contribution from our MAIL division.”

MAIL division: parcel business remains dynamic

In the first three months of 2011, revenue in the MAIL division was EUR 3.5 billion, the same level as the previous year (2010: EUR 3.5 billion). Even though volumes stabilized, revenues in the traditional mail business continued to fall due to the discounts that the Group is providing its customers following the imposition of the value-added tax last July. This development, however, was offset by the continued growth being produced by the parcel business. Thanks to growth generated by dynamic Internet retailing, revenue in this segment climbed by nearly 9 percent to more than EUR 700 million in the first three months of 2011.

As a result, the rapidly growing parcel business is now already generating one-fifth of the division’s total revenue. EBIT in the MAIL division totaled EUR 373 million in the first quarter, slightly below the previous year’s level of EUR 389 million. This decrease resulted largely from the effect of the value-added tax and expenses associated with the expansion of the divison’s digital business. The impact of these developments on the division’s profitability, however, could be limited through the higher earnings generated by the parcel business and strict cost management.

EXPRESS division: international express business continues to grow

The EXPRESS division continued its successful revenue and earnings performance in the first quarter of 2011. Revenues climbed by 5.5 percent in the first three months of the year to EUR 2.8 billion (2010: EUR 2.6 billion). The positive performance was largely the result of markedly higher volume of international shipments. This trend more than offset the sale of the domestic express business in the United Kingdom and France. Higher revenue produced by fuel surcharges also helped to boost revenues.

The EXPRESS business performed particularly well in the Americas and Asia-Pacific regions, where double-digit revenue growth was generated. The division’s operating profit also rose sharply during the reporting period: at EUR 216 million, EBIT nearly doubled in the first three months of 2011 (2010: EUR 110 million). In addition to the revenue and volume growth as well as continued strict cost management, a major reason for this strong increase was the successfully completed restructuring measures, which in the same quarter last year had caused expenses of EUR 44 million.

GLOBAL FORWARDING, FREIGHT division: EBIT improvement supported by margin stabilization

In the GLOBAL FORWARDING, FREIGHT division, revenues in the first quarter of 2011 climbed to EUR 3.6 billion. This represents a 14.9 percent increase from the previous year’s level of EUR 3.1 billion. These gains are a reflection of double-digit revenue increases generated in the air and ocean freight as well as the European overland transport segment. In spite of rising fuel costs, the division profited at the beginning of the year from lower freight rates and improved buying conditions.

This resulted in a stabilization of margins. Accordingly, the divisional EBIT increased strongly by 30.2 percent, from EUR 53 million in the first quarter of 2010 to EUR 69 million in the first three months of this year. Last year’s operating result included restructuring charges totaling EUR 1 million.

SUPPLY CHAIN division: successful new business development

Revenues generated by the SUPPLY CHAIN division during the first quarter of 2011 also grew significantly. At EUR 3.3 billion, it was 7.5 percent above the previous year’s level of EUR 3.0 billion. While all segments contributed to these revenue gains, the “Retail” and “Life Sciences & Healthcare” sectors, which produce nearly half of the division’s revenue, performed particularly well. The highest regional revenue gains were produced once again in the Asia-Pacific region. At EUR 320 million, the volume of newly concluded contracts with new and existing customers was one-third higher than during the same period of last year. At the same time, the profit margins of the new contracts reflect a significant improvement compared to the previous year.

As a result of the profitability gains, which in the first quarter were largely the result of an improved contract mix, strict cost management and higher business volume, EBIT rose by 39.3 percent, from EUR 56 million in the first three months of 2010 to EUR 78 million in 2011. The previous year’s figure included restructuring charges of EUR 7 million.