Strong performance from its international express and freight forwarding activities has led toDHL’s profits surpassing those of Deutsche Post DHL’s mail business for the first time, in
full-year results published today.The turnaround reflects the long-term stagnation of traditional mail markets, combined with therapid recovery and growth in international express and freight demand last year, in addition to thecompletion of major restructuring changes within DHL. CEO Frank Appel said the group had “justbegun to tap the growth potential of DHL”, while claiming to have also stabilised the profitabilityof the group’s mail activities.
Profiting from the upturn of global economic activity, Deutsche Post DHL significantly increasedits revenues during 2010 and strongly improved its profitability, with overall group revenuesrising by 11.4% to €51.5 billion. A slight drop in revenue in the Mail division, caused in part bya regulatory change in value-added tax that took effect in mid-2010, was more than offset by strongtop-line growth in all DHL divisions. In addition to increased transport volumes and higher freightrates, DP-DHL said this growth was also due to business wins in the DHL divisions, althoughpositive currency effects also contributed to the improvement.
Successful restructuring in all group divisions over the past two years, combined with therevenue growth, led to an increase in underlying Ebit of almost 50%, to €2.2 billion in 2010. Thisexceeded the upper end of the upgraded guidance for the company’s operating earnings by more than€100 million. Originally, the group had forecast that underlying Ebit would rise to between EUR 1.6billion and EUR 1.9 billion.
With an operating profit of €1.45 billion, up from €378 million in 2009, for the first time theDHL divisions contributed more to overall earnings than the Mail division, which generated anunderlying Ebit of €1.15 billion in 2010 – down from €1.4 billion in 2009.
The group’s restructuring expenses were considerably lower than in 2009, as expected, making therise in reported Ebit even more pronounced, reaching €1.8 billion, well above the previous year’slevel of just €231 million. In addition to these operating improvements, positive effects from thesale of Postbank contributed to a strong increase in the company’s consolidated net profit, whichalmost quadrupled, from €644 million in 2009 to over €2.5 billion in 2010.
Revenues in the Mail division fell by 0.7%, to €13.8 billion. DP-DHL said at the beginning ofthe year the division largely escaped significant drops in volumes caused by the economic crisis,but the general trend of electronic media replacing physical letters continued throughout 2010. “The effects of a new value-added tax resolution introduced in July, and the price discounts thatwere offered in response to the change as well as the loss of the Quelle business also contributedto the overall drop in revenue,” the company said.
These declines, however, were almost completely offset by the strong growth from the division’sparcel business, mainly due to rapidly rising demand for deliveries from internet retailing, whichcaused revenues in this segment to climb by more than 6% in 2010. Profitability in the division wasaffected in 2010 by higher wages and – especially in the second half of the year – by thevalue-added tax effect and expenditure related to the expansion of the division’s digital business.As a result, underlying Ebit dropped 19% to €1.15 billion, but remained within the forecastcorridor of €1.1 billion to €1.2 billion.
The Express division generated strong growth in both revenues and earnings, benefiting from therecovery of the global economy, improved service quality and a focus on the international expressbusiness. Cross-border shipments generated a double-digit revenue increase and more thancompensated for the decrease in day-definite domestic products resulting from the sale of thedomestic express businesses in the UK and France. In all regions – except Europe – revenues grew atdouble-digit rates, with revenues in Europe down by 4.7% to €4.96 billion. Following the company’sexit from the US domestic express market, DHL Express’s international business in the US was “particularly dynamic”, generating an organic revenue increase of nearly 25%.
Overall, revenues in the Express division were up by 12% to €11.1 billion in 2010. The increasedrevenue, coupled with the completed restructuring in the US, the UK and France as well asefficiency gains worldwide, produced strong improvements in profitability. Underlying Ebit morethan trebled, from €235 million in 2009 to €785 million in 2010.
In the Global Forwarding & Freight division, the rise in volume that began in the secondhalf of 2009 continued in 2010. In both air and ocean freight, rapidly rising transport volumes,combined with higher freight rates, generated top-line growth at high double-digit rates. Aslowdown of the growth rates experienced towards the end of 2010 was primarily a result of thestabilization of freight rates over the course of the year. Overall revenues in the divisionincreased 27.6% to €14.3 billion, while underlying operating profit increased by 41.8%.
The contract logistics business also performed well in 2010, significantly improving bothrevenues and earnings. Despite the loss of the Quelle business and the systematic withdrawal fromunderperforming contracts, the division’s revenues climbed 9.2% to €13.3 billion in 2010, fuelledby positive currency effects, new business wins and increases in existing business activity. In2010, additional contracts with new and existing customers worth €1.1 billion were concluded,including €400 million in the fourth quarter alone, “strong evidence of the continuing momentum inthis division”, the company said. As a result of the revenue gains and restructuring efforts,underlying Ebit in this business improved by more than €400 million, generating a profit of €274million, in contrast to its 2009 operating loss of €132 million.
For the current year, the group expects the global economy to continue to recover, fuellingcontinued revenue and earnings growth at the company’s DHL divisions. Against this background,Deutsche Post DHL expects an Ebit of between €2.2 billion and €2.4 billion, with the Mail divisionexpected to contribute between €1.0 billion and €1.1 billion to this figure, and earnings at DHLforecast to increase to between €1.6 billion and €1.7 billion.
“Assuming a further recovery of the global economy, earnings in the Mail division are to bestabilised at around €1 billion, despite the expected continuing drop in letter volumes,” thecompany said. “At the same time, the operating profit at DHL should climb by 13-15% on average eachyear until 2015.”
Appel concluded: “We are focusing on growth in both revenues and earnings. Our two strongpillars provide an excellent starting point for this. We have built the foundation to stabilise theprofitability of the Mail division and have just begun to tap the growth potential of DHL. We willuse this strong basis to further expand our leading market positions and significantly increaseprofitability.”
Appel said the group would to continue make decisions about acquiring and divesting business onthe basis of whether they were necessary in order to enable the company to grow in the importantmarkets. “But the order of magnitude [of any acquisitions] will be much smaller than in the past,”he added.
