All of the DHL divisions reported EBIT increases, some significant. However, earnings in the Post - eCommerce - Parcel division fell back as expected, above all due to higher transport and staff costs. As reported at the beginning of June, the Group has initiated a comprehensive program for PeP to raise productivity and improve the division's cost situation. This led to increased expenses and the recognition of first provisions in the second quarter.
"The second-quarter results were in line with expectations. Our three DHL divisions - Express, Global Forwarding, Freight and Supply Chain - performed well. We are clear about the challenges that face us at Post - eCommerce - Parcel and are implementing the measures for aligning the division toward long-term profitable growth," said Frank Appel, CEO of Deutsche Post DHL Group. "We are confident to reach our 2020 targets."
All in all, Deutsche Post DHL Group generated consolidated net profit after non-controlling interests of EUR 516 million in the second quarter of 2018 (2017: EUR 602 million). The decline is mainly attributable to lower EBIT at PeP. Basic earnings per share decreased accordingly to EUR 0.42 (2017: EUR 0.50).
Adjusted earnings forecast for 2018 and guidance for 2020 confirmed
Deutsche Post DHL Group still plans to increase operating profit to more than EUR 5 billion by 2020. The PeP division is expected to contribute around EUR 1.7 billion and the DHL divisions around EUR 3.7 billion to that total. In view of the challenges at PeP, the Group adjusted its forecast for the current financial year in June 2018. The company now expects to generate EBIT of around EUR 3.2 billion for full-year 2018; the PeP division is set to contribute around EUR 0.6 billion to that amount. Earnings in the DHL divisions are expected to be unchanged at around EUR 3.0 billion. The Corporate Functions result, which now also includes the activities of the new board department Corporate Incubations, is expected to come in at EUR -0.42 billion.
Capital expenditure and cash flow: Continued high investment for sustainable growth
Deutsche Post DHL Group again made targeted investments during the second quarter to further strengthen its foundation for long-term profitable growth. The company invested a total of EUR 549 million across all four divisions from April to June (2017: EUR 349 million). Investments focused on initiatives including the announced renewal of the aircraft fleet used by DHL Express, as well as the development of the domestic and international parcel infrastructure and the expansion of production of the StreetScooter electric vehicles. For full-year 2018, the Group projects an increase in capital expenditure to approximately EUR 2.5 billion (2017: EUR 2.3 billion). In addition, the Group will recognize around EUR 200 million in 2018 for the debt-financed intercontinental fleet renewal at Express as announced in May. In June, Deutsche Post DHL Group decided to purchase 14 new Boeing 777 freight aircraft.
Due to the continued high level of investment in growth areas, free cash flow fell to EUR 288 million compared with EUR 385 million in the prior-year quarter. Operating cash flow was up sharply to EUR 1.4 billion in the second quarter of 2018 (2017: EUR 726 million). The increase was mainly due to the transition to the new IFRS 16 accounting standard.
PeP: Strong revenue growth continues, with measures initiated to improve profitability
The Post - eCommerce - Parcel division posted revenues of EUR 4.4 billion in the second quarter of 2018, up 3.4% on the prior-year figure. Organic revenue growth was 4.1%. The division's positive performance was primarily attributable to revenue growth in the eCommerce - Parcel business unit.
Revenue rose by 9.3% at Parcel Germany, 13.3% at Parcel Europe and 7.6% at eCommerce. This trend is another reflection of the Group's strong positioning as a market and innovation leader in the dynamically growing e-commerce market.
In the Post business unit, revenue decreased by 1.2% year on year to EUR 2.3 billion. The decline was mainly due to the ongoing structural volume declines in the mail business.
Operating profit came to EUR 108 million in the PeP division in the second quarter, compared with EUR 260 million in the previous year. Higher transport and staff costs continued above all to drive the decline. To address this trend and safeguard the EBIT growth forecast for the coming years, the Group decided on a series of measures in June. The steps adopted are specifically intended to improve productivity, reduce indirect costs and drive active yield management in the Post and Parcel business. As part of these initiatives, the company has also introduced an early retirement program focusing on civil servants working in overhead areas. The Group has earmarked restructuring costs of EUR 500 million for 2018, primarily for this program. Of that figure, EUR 51 million were accounted for in the second quarter. Deutsche Post DHL Group has moreover already invested EUR 10 million of the announced operating expenses figure of EUR 150 million to improve productivity.
Frank Appel: "The booming e-commerce business remains the primary growth driver for our German and international parcel businesses - here we continue to see tremendous potential for profitable future growth. In the last years, we have worked hard to expand our leading position in the competitive German parcel market. In the next market development phase, we will focus more closely on our prices and costs in both the Post and Parcel businesses in order to translate the volume development into steadily rising earnings."
Express: Success story continues with record margin
In the second quarter, the Express division again continued the very good revenue and earnings performance sustained over several years. Revenue rose by 7.9% on the prior year to EUR 4.0 billion, on an organic basis revenue climbed by even 12.1%. The upward trend was once again driven by solid growth in the international time-definite (TDI) delivery business, where daily volumes rose by 8.4% compared with the prior-year period.
The sustained growth in volumes will enable the division to utilize its unique global express network even more efficiently. The division succeeded in growing operating profit by 10.2% to EUR 517 million on the back of strict yield management and continuous improvements in the network. The operating margin improved to a record level of 12.8% (2017: 12.5%).
Global Forwarding, Freight: Further significant profitability improvement
The Global Forwarding, Freight division maintained the positive trend of previous quarters during the second quarter of 2018. Divisional revenue was up by 2.5% to EUR 3.7 billion, despite having taken a more selective approach with regard to the profitability of certain contracts. Adjusted for negative currency effects, revenue improved by an even more substantial 6.0%.
At the same time, the division was better able to pass on higher freight market rates to its customers than in the first quarter. The measures introduced to improve cost efficiency are also proving effective. As a result, operating profit at Global Forwarding, Freight rose significantly by 56.7% to EUR 105 million.
Supply Chain: EBIT margin within the corridor targeted for 2020
Revenue in the Supply Chain division came in at EUR 3.2 billion in the second quarter (2017: EUR 3.5 billion). The decline in revenue resulted from negative currency effects, and portfolio effects in particular resulting from the sale of UK subsidiary Williams Lea Tag in the fourth quarter of 2017. After adjusting for those factors, the division's revenue increased by 2.7%. With regards to new business generation, DHL Supply Chain concluded additional contracts in a total volume of EUR 283 million with both new and existing customers during the second quarter.
Operating profit improved by 3.2% to EUR 128 million. At 4.0%, the EBIT margin for the second quarter was within the target corridor. The goal of the optimization program is to increase the operating margin of the Supply Chain division to between 4% and 5% by 2020 by increasing standardization, improving efficiency and better leveraging economies of scale in the global business.
First half: organic revenue growth of 6.3%
Group revenue for the first half of 2018 remained at the prior-year level, coming in at EUR 29.8 billion (2017: EUR 29.7 billion). Adjusted for currency losses, the sale of Williams Lea Tag and slight portfolio effects, revenue was up by 6.3%. All four divisions contributed to the growth in organic revenue. Operating profit was down 4.3% to EUR 1.7 billion, due above all to higher costs and operational investments at Post - eCommerce - Parcel. Consolidated net profit after non-controlling interests dropped 9.6% to EUR 1.1 billion in the first six months (2017: EUR 1.2 billion). The financial result was negatively impacted by higher interest for lease liabilities. Basic earnings per share decreased accordingly, falling from EUR 1.02 in the previous year to EUR 0.91.
Source: Deutsche Post DHL