OREANDA-NEWS. Deutsche Post DHL Group increased operating profit significantly in the first quarter of 2016. Group EBIT rose to EUR 873 million, or 21.3% over the prior-year period (2015: EUR 720 million). The increase extended further the earnings momentum that had already begun during the fourth quarter of last year. Group revenue decreased by 6.1% to EUR 13.9 billion in the first three months of the year (2015: EUR 14.8 billion). In addition to negative currency effects and lower fuel surcharges, the decline primarily reflects the changed recognition of revenue generated from a key customer contract in the Supply Chain division starting in the fourth quarter of 2015. Adjusted for the above effects, Group revenue rose by 1.4% on the prior year. The main growth drivers - above all the international express business and the dynamic parcel and eCommerce business - remained intact in the first months of the new year.

"We've had a good start to the current year. With an EBIT of EUR 873 million we have registered the strongest first quarter in our company history. The efforts we made in 2015 to position ourselves for profitable growth in all divisions are paying off. Last year was a year of transition, and we are now firmly on track to achieve our targets for 2016," stated Frank Appel, CEO of Deutsche Post DHL Group.

Outlook: Earnings forecast for 2016 and long-term objectives confirmed

For 2016, the Group continues to anticipate moderate growth of the global economy. The strategic measures implemented in all four divisions in 2015, however, should lead to a substantial EBIT increase in the current year. Therefore, Deutsche Post DHL Group re-confirms its 2016 EBIT forecast of between EUR 3.4 billion and EUR 3.7 billion after a good first quarter.

The Group is also maintaining its targets beyond 2016: Deutsche Post DHL Group continues to forecast an average increase in operating profit of more than 8% annually during the period from 2013 to 2020 (CAGR).

Q1 2016: Significant increase in profitability

Group revenue decreased by 6.1% to EUR 13.9 billion in the first three months of the year (2015: EUR 14.8 billion). The decrease reflects negative currency effects as well as the effect of lower fuel surcharges due to the drop in oil prices. Another cause of the decline was the change in revenue recognition, announced last year, which was due to contractual amendments involving a key account in the Supply Chain division (NHS in the UK). Adjusted for those three factors, first-quarter revenue increased by 1.4% over the prior year.

Group EBIT rose significantly, increasing by 21.3% to EUR 873 million in the first quarter of 2016 (2015: EUR 720 million). All four divisions contributed to the upward trend. In the Post - eCommerce - Parcel division, operating profit climbed by 3.3% to EUR 412 million (2015: EUR 399 million). The DHL divisions reported a combined increase of 32.8% to EUR 534 million (2015: EUR 402 million). Express saw an EBIT increase of 7.5% to EUR 357 million. Operating earnings for Global Forwarding, Freight rose from EUR 17 million to EUR 51 million, and Supply Chain EBIT increased from EUR 53 million to EUR 127 million.

Thanks to the increase in operating profitability and lower tax expenses consolidated net profit rose by 29,1% to EUR 639 million in the first quarter of 2016 (2015: EUR 495 million). Basic earnings per share similarly increased from EUR 0.41 in the previous year to EUR 0.53 in 2016.

Capital expenditure: Group strengthens its foundation for growth with increased investments

In the first quarter of 2016, Deutsche Post DHL Group made continuing substantial investments aimed at further strengthening the foundation for the Group's future success. All in all, capital spending increased by 50% to EUR 411 million in the first three months (2015: EUR 274 million). Investments focused on positioning the Group for future profitable growth in all four divisions. For example, the Group made further advances in extending its national and international parcel infrastructure in addition to modernizing the aircraft fleet and expanding global and regional hubs in the Express division.

Cash flow: Usual seasonal trend

At EUR -700 million  (2015: EUR -377 million), free cash flow for the quarter reflected the usual seasonal trend in which the Group's cash flow is impacted by the annual advance payment for civil servants' pensions. This year, the payment amounted to EUR 517 million. Moreover, the decline in free cash flow also reflects Working Capital phasing in addition to slightly higher payments for capital expenditures (net cash capex).

Post - eCommerce - Parcel: Continued strong growth in the parcel business

Revenue in the Post - eCommerce - Parcel division increased by 2.4% to EUR 4.2 billion in the first quarter (2015: EUR 4.1 billion). A total of EUR 1.7 billion of that figure was generated by the eCommerce - Parcel business unit, which continued to see dynamic growth of 8.6% compared with the prior-year period. The increase was based on revenue gains of 6.9% for Parcel Germany, 13.9% for Parcel Europe and 11.6% for eCommerce. The upward trend shows once again how Deutsche Post DHL Group is benefitting from positioning itself successfully as a market and innovation leader in the high-growth e-commerce segment.

Revenue in the Post business unit declined slightly by 1.2% to EUR 2.53 billion (2015: EUR 2.56 billion) with the first quarter 2016 having one working day less than last year's period. The January 1 increase in letter postage prices almost fully offset the structural decline in volumes within the Mail Communication and Dialogue Marketing segments as well as the working day-effect.

Operating profit in the PeP division climbed by 3.3% to EUR 412 million (2015: EUR 399 million). Continued strong growth in the parcel business as well as the letter price increase more than offset the volume decline at Post and the significant investments into the expansion of the eCommerce - Parcel business.  

Express: Positive revenue and earnings trend continues

In the Express division, the first quarter brought a continuation of the positive revenue and earnings trends that have existed for several years. Revenue rose by 0.3% to EUR 3.25 billion over the prior-year figure (2015: EUR 3.24 billion). Adjusted for negative currency effects and lower fuel surcharges, the increase was 6.1%. The sustained upward trend in the Express division was primarily driven by continued strong growth in the time-definite international (TDI) business, where first-quarter shipment volumes rose by 7.9% year on year and incremental positive yield effects were achieved.

Divisional EBIT rose by 7.5% to EUR 357 million in the first quarter of 2016 (2015: EUR 332 million), with negative currency effects preventing an even greater increase. The operating margin improved to 11.0% (2015: 10.2%).

Global Forwarding, Freight: Significant improvement in operating performance

Revenue in the Global Forwarding, Freight division decreased by 12.2% to EUR 3.3 billion in the first quarter of 2016 (2015: EUR 3.8 billion). Adjusted for negative currency effects, revenue declined by 9.3% compared with the prior-year period. Apart from the weak market environment, the main reason for the revenue decline was the division's more selective market strategy.

Operating profit nonetheless increased, from EUR 17 million in the previous year to EUR 51 million in the first quarter of 2016. The considerable rise in the division's profitability is a clear indication of the positive effects of measures introduced in the past year to improve operating performance at Global Forwarding, Freight.

Supply Chain: Strong EBIT increase

Revenue in the Supply Chain division decreased by 13.9% to EUR 3.4 billion in the first quarter (2015: EUR 3.9 billion). Adjusted for negative currency effects, revenue declined by 10.1% compared with the prior-year period. After additionally adjusting for the negative effect of the change in revenue recognition due to revised terms in the UK NHS contract, announced in 2015, revenue increased by 2.4% on the previous year. Supply Chain continued to generate further new business. In the first quarter, the division concluded additional contracts worth around EUR 276 million with both new and existing customers.

Divisional EBIT improved from EUR 53 million in the first quarter of 2015 to EUR 127 million in the first three months of 2016. The 2016 figure includes income from real estate transactions, which was partially offset by the restructuring costs incurred.