Deutsche Post DHL deliver “positive” results despite revenue drop

Deutsche Post DHL saw its third-quarter revenue fall 18.6% to 11.2bn euros in the wake of the continuing global economic crisis. Thanks to strict cost management, however, the Group was able to cushion the crisis’ impact on profitability.

As a result, underlying EBIT was 10% below the previous year’s level, finishing the quarter at 378m euros. Excluding the negative effect on earnings of 146m euros related to the insolvency of Arcandor AG – not reported as a non-recurring item – the underlying EBIT increased by approximately 25% in the third quarter year on year.

“With our cost management bearing fruit we are able to mostly offset the negative effects of the crisis”, said Frank Appel, CEO of Deutsche Post DHL. “Although we see initial positive signals with the stabilisation of transport volumes, there’s still no indication of a full-scale economic recovery. Therefore we can’t ease up; we must accelerate our efforts.”

In November 2007, Deutsche Post DHL announced its capital market program, Roadmap to Value, which focuses on value creation. The program’s goals of achieving significant improvements in efficiency, net working capital, cash generation and transparency within two years have been reached. The Group’s progress in successfully implementing efficiency programs are clearly reflected in the accelerated implementation of the Index program. This initiative was introduced at the end of last year to counter the impact of the economic downturn. The Group is now confident that it will reach the goal of reducing indirect costs by 1bn euros by the end of 2009, one year earlier than originally planned. In the first nine months of 2009 alone, 720m euros were saved. Total savings since November 2008 amount to 859m euros.

Reported Group EBIT totaled 231m euros in the third quarter, compared with 953m euros in the same period of the previous year. The primary causes of this steep decrease were EU state aid repayments to the Group included in last year’s figures, charges related to the Arcandor insolvency and the restructuring expenses related to the Express business in the US. Furthermore, the lower valuation of the put options on shares of Deutsche Postbank AG had a negative impact on the consolidated net profit after minorities. In the third quarter, this figure was minus 83m euros compared with 879m euros in the prior year. As a result, earnings per share dropped from 73 cents in the previous year to minus 7 cents. In contrast, underlying operating cash flow increased from 753m euros to 807m euros.

Revenue in the first nine months of 2009 declined 16.4% to 33.8bn euros. While the reported EBIT fell 80.2% to 367m euros, the underlying EBIT dropped 31% to 947m euros. Both operational figures include negative effects from the Arcandor insolvency in an amount of 186m euros. The Group’s net profit after minorities reached 927m euros after 1.5bn euros in the prior year. The improved net financial income as a result of the valuation of the Postbank put option was offset by restructuring expenses for the US Express business and the EU state aid repayment in last year’s figures. Therefore, at 77 cents earnings per share were below last year’s level of 1.24 euros. The underlying operating cash flow showed a slight improvement to 1.39bn euros in the first nine months from 1.38bn euros in 2008.

Revenue in the MAIL Division fell further during the third quarter. At 3.3bn euros, it was 3.9% lower than in the same period last year. This development reflects both the global economic crisis and the increasing substitution of letters with electronic media. Despite higher wages and losses on receivables related to the Arcandor insolvency, effective cost-cutting measures were able to limit the underlying EBIT decline. Underlying EBIT totaled 323m euros in the third quarter 2009, a drop of 6.1% versus the prior year.

The strict cost management was particularly successful in the EXPRESS Division. Although continuing steep drops in volume and the withdrawal from the domestic US express business caused third-quarter revenue to fall by nearly 1bn euros to 2.5bn euros, extensive cost-cutting measures completely offset this significant decline. As a result, profitability actually increased. At 131m euros, underlying EBIT was well above the previous year’s level of 24m euros. Including non-recurring restructuring charges related to the US express business, the result was still positive.

Transport volumes in air and sea freight have improved sequentially in each quarter this year. In particular, marketing and sales initiatives in the areas of life science and consumer goods have had a positive effect, resulting in an expanded market position. Due to reduced fuel surcharges and generally lower freight rates, revenue in the GLOBAL FORWARDING, FREIGHT Division fell more steeply than it did in the first six months of the year, dropping 30.4% to 2.6bn euros. At the same time, purchase prices for transport services climbed steeply, driven by severely reduced transport capacities. The impact on underlying EBIT, which fell to 76m euros, was limited by successful cost management and further boosts in productivity.

Contract logistics at Deutsche Post DHL also further extended its market position in the third quarter after concluding new contracts worth about 300m euros. Nonetheless, revenue fell 11.6% to 3.1bn euros. This decrease was caused not only by challenging economic conditions, but also by the insolvency of Arcandor, which led to charges of 141m euros in the third quarter. As a result, underlying EBIT fell from 51m euros in the third quarter 2008 to minus 81m euros in 2009. This result overshadows the strong increase in operational efficiency year on year. Excluding the Arcandor effect, third-quarter operating earnings would have risen despite the decrease in revenue.

As a result of the progress Deutsche Post DHL has made in its cost management and the first sign of market recovery, the Group has raised its previous target of 1.2bn euros for underlying EBIT for the fiscal year 2009 to at least 1.35bn euros in spite of the still challenging business climate. In addition, Deutsche Post DHL continues to expect a positive net profit for the full year. “Our third-quarter results and the new forecast are positive indications that we are on the right track,” said Deutsche Post DHL CFO Larry Rosen. “But we still have a long way to go to unlock our full potential.”