Deutsche Post DHL boosts earnings in the third quarter of 2013

• Consolidated revenues reach EUR 13.5 billion in the third quarter
• Operating earnings up 7 percent
• 2013 earnings guidance confirmed: Group EBIT of between EUR 2.75 billion and EUR 3.0 billion expected
• CEO Frank Appel: “Successful performance in a volatile environment”

Bonn/Frankfurt am Main - Despite a slight decline in revenues, Deutsche Post DHL boosted its earnings once again in the third quarter of 2013. Revenues produced by the world’s leading mail and logistics group fell by 2.5 percent to EUR 13.5 billion as a result of negative exchange-rate and other inorganic effects. Adjusted for these factors, third-quarter revenues improved 3.4 percent compared to last year’s period. The driving forces of this growth were higher volumes and revenues in the parcel business in Germany. In addition, the underlying sales increase reflects strong growth in the international express business and the significant increase in revenues generated by the SUPPLY CHAIN division, improvements that are the result of DHL’s exceptional market position in the world’s growth markets - particularly in Asia. The Group’s operating earnings increased by 7 percent to EUR 646 million in the third quarter of the current year. Likewise, consolidated net profit climbed by nearly 6 percent to EUR 399 million in the period between July and September 2013 compared with the previous year’s level.

“With our successful performance in the still volatile environment, we have demonstrated the fundamental strength of our business model once again and are reaping the fruits of the investments we have made in the past,” said Frank Appel, the CEO of Deutsche Post DHL. “We have a highly qualified, dedicated workforce, an excellent market position in global growth markets and a unique global network. We will not rest in our efforts to further expand this outstanding competitive position and to bolster the earnings power of the Group and its divisions over the long term.”


Third quarter of 2013: earnings improve at MAIL and DHL

After generating revenues of EUR 13.8 billion in the third quarter of 2012, the Group reported revenues of EUR 13.5 billion in the third quarter of the current year. This revenue decline resulted from negative exchange-rate and other inorganic effects. Adjusted for these factors, revenues in the third quarter of 2013 rose by nearly EUR 500 million. Even though exchange-rate developments also negatively affected the Group’s operating earnings, the company was still able to boost its EBIT by more than EUR 40 million to EUR 646 million (2012: EUR 604 million) thanks to additional efficiency gains at MAIL and DHL.

In the MAIL division, higher labor costs resulting from the new collective wage agreement were offset by solid revenue and volume trends, the increase in postal rates, an additional workday and the absence of expenditures related to the Neckermann insolvency last year. The division’s EBIT rose to EUR 261 million (2012: EUR 246 million). At DHL, a nearly 14 percent earnings improvement at EXPRESS was the primary reason for the operating profit increase to EUR 489 million (2012: EUR 463 million). Consolidated net profit in the third quarter of 2013 totaled EUR 399 million, exceeding the previous year’s level of EUR 377 million. Basic earnings per share correspondingly rose to EUR 0.33 (2012: EUR 0.31).

Outlook: earnings guidance confirmed
For the full year, the Group still expects EBIT to rise to between EUR 2.75 billion and EUR 3.0 billion. The MAIL division is forecast to contribute EBIT of between EUR 1.15 billion and EUR 1.25 billion to this figure. EBIT at DHL should amount to between EUR 2.0 billion and EUR 2.15 billion. Corporate Center/Other expenditures are forecast to remain at last year’s level of about EUR 400 million. At the same time, consolidated net profit growth should exceed the growth in operating earnings in 2013. The company also anticipates that this year’s free cash flow will at least cover the dividend for financial year 2012.

Looking beyond 2013, the Group expects that the earnings momentum will continue despite persistent economic uncertainty. The company confirms its earnings targets for 2015: DHL is expected to generate an annual average earnings gain of between 13 percent and 15 percent during the period between 2010 and 2015. EBIT at the MAIL division should stabilize at a level of at least EUR 1 billion. In combination with the planned reduction of expenditures for Corporate Center/Other, the Group’s EBIT is expected to rise to between EUR 3.35 billion and EUR 3.55 billion by 2015.


Nine months: revenue and earnings growth continues

In the first nine months of the year, consolidated revenues totaled EUR 40.6 billion, slightly below the previous year’s level (2012: EUR 40.9 billion). Adjusted for negative exchange-rate and other inorganic effects, revenues increased by 2.3 percent, or nearly EUR 1 billion, between January and September. The Group’s EBIT improved by 7.5 percent to EUR 2.0 billion in the first nine months of 2013 compared with the previous year’s level (2012: EUR 1.8 billion).

In addition to operational improvements, this result reflects a number of one-time effects that impacted earnings and the comparison with the previous year’s performance - particularly in the second quarter: One factor that had a positive impact on the comparison with last year’s figures was the EUR 50 million reversal of part of the unused postage stamp provision in the MAIL division. Another was the absence of one-time effects that had a negative impact of EUR 38 million on the second-quarter results of 2012. These one-time effects stemmed largely from the VAT settlement charge taken last year and the release of restructuring provisions in the EXPRESS division.

But also adjusted for all these one-time effects, the company’s EBIT would have risen between January and September 2013. Consolidated net profit jumped by 20 percent in the first nine months of the year, climbing from EUR 1.1 billion in 2012 to EUR 1.3 billion in the current year. Earnings per share rose from EUR 0.91 in the previous year to EUR 1.09 in 2013. Adjusted for all one-time effects - in addition to the previously stated factors, the absence of the EUR 186 million disposal gain resulting from the Postbank sale in the first quarter of the previous year impacted the year-on-year comparison - consolidated net profit and earnings per share would have risen around 19 percent.


Cash flow: significant improvements

The Group’s intensified focus on cash flow has paid off this year: At EUR 812 million (2012: EUR 568 million) and EUR 430 million (2012: minus EUR 5 million) respectively, operating and free cash flow were significantly higher in the third quarter of 2013 than during the same period last year, which had been impacted by the VAT settlement payment of EUR 300 million (operating cash flow) and EUR 455 million (free cash flow), respectively. Between January and September, the Group generated cash flow from operating activities of more than EUR 1.4 billion (2012: EUR 426 million).

This increase of more than EUR 1 billion primarily reflects the Group’s continued good operating earnings strength and working capital improvements. Accordingly, free cash flow in the first nine months rose sharply, climbing by more than EUR 1.3 billion from minus EUR 772 million in 2012 to EUR 529 million in 2013. The Group was able to reduce its net debt during the third quarter by more than EUR 350 million to EUR 2.5 billion.


Capital expenditures: foundation of growth reinforced

In the third quarter, capital expenditures totaled EUR 401 million (2012: EUR 456 million). In the first nine months of 2013, a total of EUR 900 million was invested (2012: EUR 1.1 billion). The decline from the previous year’s level was primarily due to timing effects. As a result of changed phasing for some investment projects, the Group now expects that it will invest about EUR 1.7 billion during 2013. This would correspond to the level invested in 2012. Until now, the company had expected that capital expenditures would rise slightly to a maximum of EUR 1.8 billion.

The focal point of investments made this year continues to be the DHL divisions. These investments have flowed into areas that reinforce the foundation for future growth and long-term business success - including the continued expansion of the network, a more efficient air fleet, state-of-the-art warehouses, and a new IT infrastructure for Global Forwarding. In the MAIL division, capital expenditures were increased particularly to expand the parcel infrastructure.

MAIL division: parcel business remains dynamic
In the third quarter of 2013, revenues of the MAIL division rose by 5.0 percent to EUR 3.4 billion (2012: EUR 3.3 billion). In addition to revenue gains in the domestic mail business - the result in particular of the postal rate increase, an additional workday and a rise in mail volume related to Germany’s parliamentary elections - the dynamic growth in the German parcel business was the driving force behind this increase. As online retailing continues to grow, the company is proactively seizing the opportunity by offering innovative products and delivery services. This effort includes the significant increase in the number of drop-off points for private parcel shipments to more than 50,000 by the end of next year and the expansion of evening deliveries to additional metropolitan areas.

Supported by these ongoing service improvements, parcel revenues increased by nearly 9 percent to EUR 868 million between July and September 2013. The parcel business is now generating more than one-fourth of total revenues in the MAIL division. In the third quarter of 2013, operating earnings in the division climbed by 6.1 percent to EUR 261 million (2012: 246 million). The company was able to offset the higher labor costs resulting from the new collective wage agreement with the solid revenue and volume trends, the increase in postal rates, the additional workday and the absence of expenditures related to the Neckermann insolvency last year.


EXPRESS division: international express business grows rapidly

The EXPRESS division continued to boost revenues and earnings in the third quarter. Reported revenues produced between July and September totaled EUR 3.1 billion, slightly below the previous year’s level (2012: EUR 3.2 billion). However, this dip was largely the result of significant negative exchange-rate effects. In addition, the previous year’s quarter included revenues produced by the domestic express business in Romania that was later sold. Adjusted for these factors, EXPRESS revenues in the third quarter rose by more than 5 percent. Once again, the main factor fueling this gain was the division’s international time-definite shipments.

This positive development reflects significant, above-market-growth increases in volume in all regions. At the same time, the operational improvements produced by extensive investments made in the expansion of the network, the training of employees and the range of services were reflected in the significant rise in the operating margin from 7.3 percent last year to 8.5 percent in the third quarter of 2013. The division’s EBIT jumped by 13.9 percent in the past quarter to EUR 263 million (2012: EUR 231 million).


GLOBAL FORWARDING, FREIGHT division: selective market strategy

Third-quarter revenues in the GLOBAL FORWARDING, FREIGHT division fell by 7.6 percent to EUR 3.7 billion (2012: EUR 4.0 billion) as a result of the continued weak market environment. Adjusted for negative exchange-rate effects, the decrease - just above 2 percent - would have been much smaller and also a lower decline than in the first half of the year. Volume and revenues in air freight fell below the previous year’s level primarily because of weakening demand of some major customers in the Technology and Engineering & Manufacturing sectors. Ocean freight volumes and revenues also decreased during the past quarter.

Routes within Asia continued to generate the strongest volume, but fell below the previous year’s level. In contrast, demand on north-south routes rose slightly. Revenues from European overland transport increased slightly during the third quarter. Thanks to the selective market strategy and continued strict cost controls, the division was able to increase its operating margin despite the decline in revenues and increased spending for the new IT infrastructure. In the third quarter of 2013, the division’s operating earnings climbed to EUR 127 million (2012: EUR 122 million).


SUPPLY CHAIN division: significant new business

In the SUPPLY CHAIN division, third-quarter revenues fell to EUR 3.5 billion (2012: EUR 3.7 billion). This decrease was caused by strong negative exchange-rate effects and small divestitures earlier in the year. Adjusted for the negative exchange-rate effects and the impact of the disposal of three subsidiaries that were not part of the core business, revenues climbed by more than 6 percent, or nearly EUR 250 million, in the past quarter. This increase was fueled primarily by strong growth in the Asia-Pacific region as well as in the Life Sciences & Healthcare, Automotive, Consumer and Technology sectors.

At EUR 350 million, the volume of new contracts with new and existing customers rose sharply from the previous year’s level and highlighted once again the strength of the division’s business model. Operating earnings generated by the division in the third quarter totaled EUR 100 million, the highest level reached this year. The decline from last year’s total (2012: EUR 110 million) mainly reflects the weak market environment in Europe.