Taxes, investments and a sluggish economy hit Deutsche Post DHL profits

Deutsche Post DHL said it still expects growth this year despite a subdued global economy and its investment plans, after the company recorded a decline in its net profits in 2014. The German logistics giant said today that one-off costs and higher tax rates saw its net profit fall almost 1% compared to the previous 12 months, to EUR 2.07bn in 2014.

The year’s slip in net profits came after a fourth quarter in which net profit declined by 17.1% year-on-year, to EUR 640m, thanks to the higher tax rate.

Deutsche Post DHL said its revenues saw the strongest growth during the year in the final quarter, up 6.3% compared to the same period last year, to EUR 15.4bn, or up 4.1% when adjusted for currency movement.

Over the whole year, the company said revenue rose 3.1% year-on-year, to EUR 56.6bn. Pre-tax earnings (EBIT) rose 3.5% in the 2014, to EUR EUR 2.97bn, against targets of between EUR 2.9bn-3.1bn.

The company said “steady” volume and revenue gains in the international express business and in German parcels, helped by e-commerce, led to operational improvements. Earnings growth in the post and parcels segment, and in express, were weighed down by a fall in earnings within freight and supply chain activities, including a hefty 48.6% EBIT drop-off in Global Forwarding-Freight in the fourth quarter as transformation efforts took hold.

Deutsche Post boss Frank Appel said his company had met its earnings targets in the year, although the results appeared behind analyst expectations, with share prices slipping today — by 2.87% at time of writing — in response.

Appel said: “Despite a still challenging environment we delivered a solid performance in 2014, by building on our strong market position in E-Commerce and emerging market.

“In 2014 we were able to further successfully execute Strategy 2015 despite the lack of significant tailwind from the global economy. This year we begin executing Strategy 2020 in each of our divisions. While we remain on our growth path in 2015, we will focus on the opportunities and challenges we face in order to further strengthen our competitiveness for the successful future of our Group.”

Divisions

Parcels now bring in more than 36% of revenue within the Post-eCommerce-Parcel division of Deutsche Post DHL, which saw revenues up 2.6% year-on-year in 2014 to EUR 15.7bn. Parcel revenue was up 6.5% in the year, with a 7% volume increase in Germany with the company working on service improvements including an expanded PackStation network. Postal revenues grew by 0.5% year-on-year to EUR 10bn thanks to price increases. Operating profits in the division edged up 0.9% to EUR 1.3bn in 2014 as higher material and staff costs hit.

Appel said results from the division were satisfactory, but added: “Our success in the future depends on having a more competitive cost base, particularly in Germany, which will allow us to generate earnings over the long-term and further invest in our people and infrastructure.”

DHL Express saw revenues up 5.7% to EUR 12.5bn in 2014, with pre-tax earnings up 16.3% year-on-year to EUR 1.3bn, thanks to “robust” demand and volume growth in time-definite international services.

However, after a difficult fourth quarter the DHL Global Forwarding-Freight business saw its revenue increase only by 0.9% in 2014 to EUR 14.9bn, with its pre-tax earnings down 38.7% compared to 2013, to EUR 293m. The company said its air and ocean freight activities did show some recovery towards the end of the year, but earnings were impacted by investment in the company’s global transformation programme.

DHL Supply Chain saw its revenues up 3.6% to EUR 14.7bn in 2014, with EBIT up 5.4% to EUR 465m, with gains driven by the Life Sciences and Healthcare segments, and by the European region.

Outlook

Looking ahead, Deutsche Post DHL said it expected only “moderate” growth in the global economy in 2015, but forecast growth in its operating earnings to between EUR 3.05bn and EUR 3.2bn (2.7% to 7.7%).

The firm said it was anticipating the parcel business to drive growth in its post and e-commerce division, partially offset by the ongoing decline in the letters business.

In the DHL side of the business, international time-definite express services should drive growth, while further investments in the supply chain business will temper earnings there in order to bring in longer-term improvements in efficiency and global standardisation under the New Forwarding Environment (NFE) transformation programme.

Detusche Post said it believed operating earnings would reach between EUR 3.4bn and EUR 3.7bn in 2016, rising by an average of more than 8% a year between 2013 and 2020.