Deutsche Post DHL today unveiled plans to speed up its €1 billion worth of cost reductions inExpress, Mail and other businesses, and seek additional mail operating cost savings, after its Q1
results were severely hit by the global economic crisis.The German group saw revenues drop by 12.9% to €11,505 million in the first three months of2009. The reported operating profit slumped 95% to €27 million from €539 million in Q1, 2008, whileunderlying Ebit fell 42.1% to €312 million. Net profits more than doubled to €948 million, however,thanks to proceeds from the Postbank sale. The revenue decrease was primarily caused by theunprecedented plunge in demand across all regions and sectors as well as reduced volumes and higherwages in Mail, while profits were also impacted by non-recurring charges for the US expressrestructuring.
“We have to act now to secure our profitability and jobs over the long term. There can’t beany sacred cows,” said CEO Frank Appel. “While the latest data seem to indicate that we havereached a bottom in terms of shipping volumes, we are preparing to deal with a longer period ofweak demand all across the world and therefore will relentlessly focus on reducing our cost base –particularly in Mail and Express – as well as securing our solid cash position.”
Deutsche Post DHL aims to speed up achieving its planned reduction of at least €1 billionworth of indirect (non-operating) costs from the original target date of end-2010, Appel toldtoday’s Capital Markets Day analyst conference in Frankfurt. DHL Express expects to reach its €460million target by the end of 2009, while Mail (€180 million), Global Forwarding/Freight (€160million), Supply Chain (€130 million) and Corporate Center (€70 million) will also strive to reachtheir cost-cutting targets earlier than planned. Appel also rejected any major acquisitions,commenting: “There will be no investing in new adventures somewhere just because we have the moneyavailable.”
New DHL Express CEO Ken Allen told analysts that he will focus on cost savings whilemaintaining quality levels. DHL Express aims to achieve €460 million worth of indirect cost savingsthis year, and has also cut operational costs. It has reduced dedicated air capacity by taking nineplanes out of its European fleet and eliminating five intercontinental flights.
Allen said he will focus strongly on DHL’s domestic express businesses, which generate 29%of revenues and about 70% of shipments worldwide but which are “only marginally profitable”overall. While some countries such as Spain and Mexico are very profitable, others are loss-makingand solutions will have to be found for these, he said. DHL Express will also streamline itsorganisation by reducing from five to three geographical regions and will halve the globalmanagement board to six members.
DHL Express also aims to increase its market share but “cannot afford to get into a pricewar” given the fierce competition and price pressure in the industry at present, Allen said. Thereis no need for any further major investment in the international network in the next 3-4 years andDHL Express should be able to make “good profits” in future once the market had recovered, he said.
In Q1, DHL Express revenues dropped 25.9% to €2,495 million, largely due to the US domesticmarket exit while revenues in the rest of the world declined by 11.6%. Reported Ebit dropped from€8 million to a €392 million deficit. Underlying Ebit was -€120 million while underlying Ebitexcluding the USA dropped from €229 million to €66 million. In product terms, Time DefiniteInternational daily revenues dropped 16.9% and daily shipments dropped 13.3% (-10.6% excluding theUSA). Non-US Time Definite Domestic revenues grew 7.7% despite a 7% volume decline. Non-US DayDefinite Domestic revenues fell 9.2% and volumes declined 3.6%.
The Americas reported a 61.8% revenue fall to €360 million due largely to the US domesticpullout. The US Time Definite International business saw a 35.7% drop in daily volumes, which wasdescribed as “in line with expectations”. Non-US organic revenue dropped 8.8% with a 25.6% drop ininternational volumes. The company said it remained on target to cut the US losses to €400 millionthis year.
In Europe, revenue fell by 16.9% to €1,387 million with international volumes down by 8.2%.The 13% organic revenue declined was driven by a drop in shipment volumes originating mainly inScandinavia, the Baltic countries, Iberia, France, the Benelux countries, the UK and Ireland. InAsia Pacific, revenue dropped by only 6.7% to €586 million thanks to positive exchange rate effectsbut organic revenue decreased 13.1%. Daily shipment volumes in the Time Definite International andTime Definite Domestic product lines shrank year-on-year by 9.3% and 11.3%, respectively. TheEastern Europe, Middle East and Africa region had a slight 0.8% revenue drop to €261 million due tolower fuel surcharges, a 2.1% drop in international volumes and lower volumes in Russia but it sawa 2.7% rise in domestic volumes.
Deutsche Post DHL will also target major cost reductions in the domestic German mailbusiness, including €180 million worth of indirect cost savings, in response to declining volumes.In Q1, Mail revenues dropped 4% to €3,486 million and volumes declined 4.6%, resulting in a 25%fall in operating profits to €407 million. DHL Parcel Germany revenues fell 2% to €623 million andits volumes declined 2.1%, while DHL Global Mail revenues declined 15.9% to €433 million on a 9%volume fall.
“In Mail we are facing significant challenges which will require unprecedented costoptimisation,” Appel said. The group plans to discuss topics such as an extension of the weeklyworking hours, or a postponement of planned salary increases with unions and the works council. “Wehave to extend working hours. There is no way around that,” Appel told analysts. Any hopes ofreturning to a Mail operating profit of €2 billion in future were “mission impossible”, hecommented.
Juergen Gerdes, head of the Mail division, told analysts that Deutsche Post needed toprepare for a volume decline of up to 20%, although he hoped this would not occur. Short-termactions in 2009 would include shutting some mail sorting centres on Mondays, a very weak volumeday, and discontinuing the night air mail network from July. From 2010 onwards, Deutsche Postneeded to reduce operational network and personnel costs, while in the longer-term a “businesstransformation” was necessary. This could include reconfiguring the mail network, overhauling thepricing model and eliminating low-margin or niche products. But changes to the USO were not a toppriority, he added.
