Deutsche Post DHL’s Q3 results impacted by one-off effects
Deutsche Post DHL Group has reported that its group revenues increased by 3% to €14.4bn in the third quarter (Q3) of 2015, but the group EBIT was impacted by one-off effects and fell to €197m. Consolidated net profit for the quarter fell to €49m, compared to €468m in Q3 2014, mainly due to the decline in EBIT.
As previously reported by Post&Parcel, the Group announced a write-down of €345m in connection with its IT programme at DHL Global Forward and a further one-effects of around €200m due to exposures which “relate mainly to the updated assessment of primarily legal and regulatory exposures in the Post – eCommerce – Parcel (PeP), Express and Global Forwarding, Freight divisions”. €81m of this sum was booked in Q3 2015.
In the light of these one-effects and other factors, the Group lowered its 2015 EBIT guidance in October and now expects operating earnings of a minimum of €2.4bn. The Group previously expected operating earnings of between €2.95bn and €3.1bn.
Alongside the one-off effects, the Q3 results were also affected by further measures which Deutsche Post DHL Group said had been taken to “strengthen the positioning of the business divisions for future success”. The PeP division, for example, has been investing in the international expansion of its parcel network, in order to take advance of the growing e-commerce segment outside of Germany.
Revenues in the PeP division grew by 2% to €3.8bn in Q3. €1.5bn of this came from the eCommerce – Parcel units, which grew 9.7% over the prior year period. This growth was based on revenue gains of 7.0% in Parcel Germany as well as 8.4% in Parcel Europe and 20.9% in e-commerce.
Revenues in the Post business fell by 2.4% to €2.3bn. Deutsche Post DHL Group said that the “structural decline in volumes within the Mail Communication and Dialog Marketing segments” was “accelerated” by the postal strike in Germany and its after-effects.
Operating earnings in the PeP division shrunk by more than half to €142m ( compared to €288m). This was partly due to a €42m provision for an increase in expected payments for federal administration of civil servant pensions.
The Group’s official statement about the Q3 results added: “This decline also reflects investments in the international expansion of the eCommerce business and lower volumes as a result of the postal strike which ended on July 7, and its after-effects. The results were also impacted by higher personnel costs including an accrual of €48m to cover the one-time payment of €400 in October to tariff-grade employees, which was part of the new tariff agreement.”
Revenue in the Express division rose by 6.9% to €3.3bn. The Group said that the main driver of the positive revenue development was the strong growth in international time definite (TDI) shipments, where volumes grew by 9.4% over the prior-year period. EBIT at the Express division grew by 19.3% to €364m.
Commenting on the overall Group results, Frank Appel, CEO, Deutsche Post DHL Group, said: “2015 is a transition year from our Strategy 2015 to Strategy 2020. We are working systematically to position each of our business divisions optimally and to achieve the long-term targets projected in Strategy 2020. We have recorded a number of one-off effects, which will de-risk and strengthen our ability to meet or exceed those targets. We expect that the benefits will begin to materialize already in 2016.”
Indeed, as Group expects those benefits to start kicking in next year, it has reconfirmed its forecast of EBIT between €3.4bn and €3.7bn for 2016. The PeP division is expected to contribute more than €1.3bn to the 2016 target and the DHL divisions between €2.45bn and €2.75bn.
To coincide with the announcement of its Q3 results today (11 November), DHL has published a Q+A interview with Frank Appel. Among much else, the Group CEO had this to say about the performance in the PeP division: “First of all, we welcome the fact that PeP has achieved a more than respectable revenue increase of 2 percent in the face of a challenging economic environment.
“The Parcel business is still the number one growth driver here and is delivering significant revenue growth quarter over quarter. Thanks to this, we have been able to more than make up for the decline in our Post business from July to September 2015, despite the fact that letter volumes have fallen faster than usual against the backdrop of the fallout from the strike. The strike has cost us business during, and even after the tariff agreement was reached, which has impacted the operating earnings of the PeP division in the third quarter as well. We are sure, however, that the strike impact is now behind us, and that volumes will return to the normal growth rate that we saw before the strike.
“Alongside these developments, we have also booked part of the one-off effects foreseen already for this year to cover mainly regulatory exposures in the PeP division in the third quarter.
“We have factored in a €42m provision for an increase in expected payments for the federal administration of civil servant pensions.
“Further factors that impacted us were rising personnel costs – among other things, we have already booked in the third quarter the one-time October payment to employees that we committed to in the tariff agreement – and higher investments in the development of our parcel network in Germany and selected overseas markets.
“As the engine of e-commerce, we want to play a central role in many more markets. This will involve start-up costs, such as in Austria, where we will build our own parcel network by 2016. At the same time, however, we are sure that the further internationalization of our highly successful parcel business will pay off considerably over the mid- to long-term.”