Deutsche Post DHL is expecting the structural and operating improvement in its business divisions, together with moderate economic growth, to contribute to a significant increase in earnings in the current year.
The German postal and logistics group today announced that it had met its 2015 earnings forecast with a record operating performance in the fourth quarter thanks to growth in e-commerce and improvement in the Global Forwarding, Freight division.
“In 2015 we have made significant progress against our strategic initiatives. Over the entire year, we have worked hard to pave the way for sustainable success in the future. The positive earnings momentum we have seen in the fourth quarter once again confirms the fundamental strength of our business. We are firmly on track with our strategy,” said Deutsche Post DHL Group CEO, Frank Appel.
Revenue in 2015 climbed by 4.6% on the the prior year to €59.2 billion while EBIT amounted to €2.41 billion, compared to €2.97 billion in 2014, “fulfilling the revised earnings guidance of a minimum of EUR 2.4 billion.”
The full year decline in EBIT compared with the prior year “was attributable to one-off expenses and investments recognized by the Group including expenses related to the new direction of the IT renewal in the Global Forwarding business unit. The Group had adjusted its earnings guidance in October 2015 due to one-off charges.”
The EBIT contribution of the Post- eCommerce-Parcel (PeP) division in 2015 amounted to €1.1 billion, as forecast, while the DHL divisions generated an operating profit of €1.66 billion.
For 2016, the group has re-confirmed its EBIT forecast of between €3.4 billion and €3.7 billion.
Reviewing the performance across its divisions, DP DHL said Express continued to perform well in terms of volumes, revenue and earnings in 2015. Revenue climbed by 9.4% to €13.7 billion. Adjusted for currency effects the increase was 2.3%.
Without these positive currency effects and lower fuel surcharges, divisional revenue rose by 7.2% compared to last year.
“Once again, the main driver of the revenue increase was the strong growth achieved in international time definite (TDI) shipments, where volumes grew by 8.7% over the prior-year period..”
EBIT in the Express division grew by 10.4% to €1.4 billion.
“The division again achieved a good operating performance despite currency headwinds and significant investment in the air and road network. Thanks to strong time definite international shipment growth and effective yield management, the EBIT margin improved to 10.2% for 2015 as a whole.”
The division’s results include one-off expenses of €66 million that are part of the one-off charges in the amount of around €200 million announced in October 2015 and were recognized in the fourth quarter.
Revenue in the Post-eCommerce-Parcel (PeP) division grew by 2.8% in 2015 to €16.1 billion Adjusted for currency effects, revenues were up 1.7% compared to last year.
Of the divisional revenue, €6.3 billion was generated by the eCommerce- Parcel business unit, which continued to see strong growth of 11.9% over the prior-year period. The increase was based on revenue gains of 9.5% for Parcel Germany, 8.7% for Parcel Europe and 23.5% for eCommerce, the latter being supported by significant currency effects. The PeP division processed more than 1.1 billion parcels in Germany in full-year 2015, 8.7% more than the previous year.
In contrast with eCommerce-Parcel, revenues in the Post business unit declined by 2.3% to €9.8 billion in 2015. The structural decline in volumes within the Mail Communication and Dialogue Marketing segments was accelerated by the effects of the strike associated with the wage negotiations held in the middle of the year. The negative effects could only be partly mitigated by price increases for postal products in Germany.
Operating profit in the PeP division contracted by 15.0% to €1.1 billion in full-year 2015. In addition to higher expenses for materials and personnel, the decline primarily reflects the higher investments made in expanding the national and international parcel infrastructure and the effects of the strike in Germany.
Moreover, €99 million of the approximately €200 million charges in Group EBIT communicated last October was attributable to the PeP business.
Revenue in the Global Forwarding, Freight division was on the prior-year level at €14.89 billion in 2015. Adjusted for currency effects the decrease in revenue amounted to 3.9%. Without these positive currency effects and lower fuel surcharges, it was 0.5% below last year’s figure. Apart from the weak market environment, the main reason for the revenue decline was the division’s selective market strategy.
Divisional EBIT was negative at €181 million for the full year, above all due to the negative one-off effects of €336 million associated with the IT renewal. This result also reflects the weaker operating trend in the first half of the year compared with the prior-year period, which could not be fully offset by the earnings stabilization seen in the third quarter and the improvement in earnings performance in the final quarter.
Revenue in the Supply Chain division increased by 7.2% to €15.8 billion in financial year 2015 (This development reflects positive currency effects, lower fuel surcharges and the change in revenue recognition in the contract with the UK National Health Service (NHS) in the fourth quarter. The latter caused a decrease in divisional revenue by €465 million. Adjusted for all positive and negative factors described above, revenue was 2.7% over the prior year.
All in all, the Supply Chain division concluded additional contracts worth around €1.35 billion with both new and existing customers in 2015.
Operating profit for the period from January to December declined by 3.4% to €449 million. The planned restructuring costs of around €150 million relating to the division’s optimization program were almost fully compensated. Positive effects of the program were already visible in the fourth quarter. In addition to the positive effects, the higher income from real estate transactions partially offset the one-off charges.
Turning to the fourth-quarter, revenues were close to the prior-year level, decreasing by 0.2% to €15.3 billion. Adjusted for positive currency effects, organic revenue was 3.3% below last year’s figure. Along with lower fuel surcharges, the change in revenue recognition in the contract with the UK National Health Service (NHS) reduced consolidated revenue by €465 million in the fourth quarter.
Adjusted for all the positive and negative effects mentioned above, Group revenues increased by 2.3% year-on-year in the period from October to December 2015. The performance of the eCommerce – Parcel business was especially encouraging with a reported revenue increase of 12.0%.
Group EBIT rose by 5.7% to €957 million in the fourth quarter of 2015.
This was the best quarterly result on an operating basis in the history of the Group, excluding Postbank earnings. This development reflects growth of 14.6% to €487 million in the PeP division, which is attributable in particular to the success of the Parcel and eCommerce business during the December holiday season.
In the Express division, operating profit declined by 8.3% to €319 million due to the one-off charge of €66 million mentioned previously. EBIT was 10.6% over the prior-year figure adjusted for that charge.
EBIT in Global Forwarding, Freight rose by 39.4% to €99 million which was above all due to the implementation of turnaround measures.
The Supply Chain division registered an improvement in operating profit with a rise of 9.3% to €176 million.
Initial positive results from the optimization program and higher income from real estate transactions more than offset restructuring costs of €39 million.
In the fourth quarter, consolidated net profit increased by 4.7% to €670 million mainly due to the rise in EBIT. This equates to basic earnings per share of €0.55 compared to € 0.53 in 2014.
As for the outlook, the Group said it is also maintaining its targets beyond 2016.
"Deutsche Post DHL Group continues to forecast an increase in operating profit by an average of more than 8% annually during the period from 2013 to 2020 (CAGR: Compound Annual Growth Rate ). The DHL divisions are expected to contribute to the improvement with average EBIT growth of 10% per year. Operating profit for the PeP division is expected to increase by an average of around 3% per year. The Group additionally targets expenses for Corporate Center/Other at less than 0.5% of consolidated revenue by 2020."
