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Selective approach to contracts helps boost profits at Global Forwarding, Freight
Deutsche Post DHL Group increased its revenue by 1.4% to more than €15.0 billion in Q2, 2018. On a comparable basis, i.e. after adjusting for currency effects and portfolio changes, revenue rose by 6.2%. This development was primarily driven by significant gains at DHL Express and Global Forwarding, Freight. Operating profit (EBIT) amounted to €747.0 million, down by 11.2% against the record level of the prior-year period. All of the DHL divisions reported EBIT increases, some significant. However, earnings in the Post - eCommerce - Parcel division fell back as expected, above all due to higher transport and staff costs. As reported at the beginning of June, the Group has initiated a comprehensive programme for PeP to raise productivity and improve the division's cost situation. This led to increased expenses and the recognition of first provisions in Q2.
All in all, Deutsche Post DHL Group generated consolidated net profit after non-controlling interests of €516.0 million in Q2, 2018 (2017: €602.0 million). The decline is mainly attributable to lower EBIT at PeP.
Deutsche Post DHL Group invested a total of €549.0 million across all four divisions from April to June (2017: €349.0 million). For full-year 2018, the Group projects an increase in capital expenditure to approximately €2.5 billion (2017: €2.3 billion). In addition, the Group will recognise around €200.0 million in 2018 for the debt-financed intercontinental fleet renewal at Express as announced in May. In June, Deutsche Post DHL Group decided to purchase 14 new Boeing 777 freight aircraft. Due to the continued high level of investment in growth areas, free cash flow fell to €288.0 million compared with €385.0 million in the prior-year quarter. Operating cash flow was up sharply to €1.4 billion in Q2, 2018 (2017: €726.0 million). The increase was mainly due to the transition to the new IFRS 16 accounting standard.
Group revenue H1, 2018 remained at the prior-year level, coming in at €29.8 billion (2017: €29.7 billion). Adjusted for currency losses, the sale of Williams Lea Tag and slight portfolio effects, revenue was up by 6.3%. All four divisions contributed to the growth in organic revenue. Operating profit was down 4.3% to €1.7 billion, due above all to higher costs and operational investments at Post - eCommerce - Parcel. Consolidated net profit after non-controlling interests dropped 9.6% to €1.1 billion in H1 (2017: €1.2 billion). The financial result was negatively impacted by higher interest for lease liabilities.
The Post - eCommerce - Parcel division posted revenues of €4.4 billion in Q2, 2018, up 3.4% on the prior-year figure. Organic revenue growth was 4.1%. The division's positive performance was primarily attributable to revenue growth in the eCommerce - Parcel business unit. Revenue rose by 9.3% at Parcel Germany, 13.3% at Parcel Europe and 7.6% at eCommerce. This trend is another reflection of the Group's strong positioning as a market and innovation leader in the dynamically growing eCommerce market. In the Post business unit, revenue decreased by 1.2% year on year to €2.3 billion. The decline was mainly due to the ongoing structural volume declines in the mail business. Operating profit came to €108.0 million in the PeP division in Q2, compared with €260.0 million in the previous year. Higher transport and staff costs continued above all to drive the decline. To address this trend and safeguard the EBIT growth forecast for the coming years, the Group decided on a series of measures in June. The steps adopted are specifically intended to improve productivity, reduce indirect costs and drive active yield management in the Post and Parcel business. As part of these initiatives, the Company has also introduced an early retirement programme focusing on civil servants working in overhead areas. The Group has earmarked restructuring costs of €500.0 million for 2018, primarily for this programme. Of that figure, €51.0 million were accounted for in Q2. Deutsche Post DHL Group has moreover already invested €10.0 million of the announced operating expenses figure of €150.0 million to improve productivity.
In Q2, the Express division again continued the very good revenue and earnings performance sustained over several years. Revenue rose by 7.9% on the prior year to €4.0 billion, on an organic basis revenue climbed by even 12.1%. The upward trend was once again driven by solid growth in the international time-definite (TDI) delivery business, where daily volumes rose by 8.4% compared with the prior-year period. The sustained growth in volumes will enable the division to utilise its unique global express network even more efficiently. The division succeeded in growing operating profit by 10.2% to €517.0 million on the back of strict yield management and continuous improvements in the network. The operating margin improved to a record level of 12.8% (2017: 12.5%).
The Global Forwarding, Freight division maintained the positive trend of previous quarters during Q2, 2018. Divisional revenue was up by 2.5% to €3.7 billion, despite having taken a more selective approach with regard to the profitability of certain contracts. Adjusted for negative currency effects, revenue improved by an even more substantial 6.0%. At the same time, the division was better able to pass on higher freight market rates to its customers than in Q1. The measures introduced to improve cost efficiency are also proving effective. As a result, operating profit at Global Forwarding, Freight rose significantly by 56.7% to €105.0 million.
Revenue in the Supply Chain division came in at €3.2 billion in Q2 (2017: €3.5 billion). The decline in revenue resulted from negative currency effects, and portfolio effects in particular resulting from the sale of UK subsidiary Williams Lea Tag in Q4, 2017. After adjusting for those factors, the division's revenue increased by 2.7%. With regards to new business generation, DHL Supply Chain concluded additional contracts in a total volume of €283.0 million with both new and existing customers during Q2.
Operating profit improved by 3.2% to €128.0 million. At 4.0%, the EBIT margin for Q2 was within the target corridor. The goal of the optimisation programme is to increase the operating margin of the Supply Chain division to between 4.0% and 5.0% by 2020 by increasing standardisation, improving efficiency and better leveraging economies of scale in the global business.
Looking ahead, Deutsche Post DHL Group still plans to increase operating profit to more than €5.0 billion by 2020. The PeP division is expected to contribute around €1.7 billion and the DHL divisions around €3.7 billion to that total. In view of the challenges at PeP, the Group adjusted its forecast for the current financial year in June 2018. The Company now expects to generate EBIT of around €3.2 billion for full-year 2018; the PeP division is set to contribute around €0.6 billion to that amount. Earnings in the DHL divisions are expected to be unchanged at around €3.0 billion. The Corporate Functions result, which now also includes the activities of the new board department Corporate Incubations, is expected to come in at €-0.42 billion.