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Operating profit up 28% driven by completion of Supply Chain agreement in China
Deutsche Post DHL Group increased both revenue and operating profit in Q1, 2019 compared with the prior-year period. The company generated revenue of €15.4 billion between January and March, an increase of 4.1% to the previous year. Operating profit (EBIT) was up 28.1% to €1.2 billion. In particular, the earnings contributions from the DHL divisions were again encouraging, while the surge in earnings was driven by non-recurring income from completing the Supply Chain partnership with S.F. Holding in China initiated at the end of 2018. Previously announced restructuring costs at Supply Chain and in the new eCommerce Solutions division slowed EBIT growth. The significant increase in operating profit led to a significant bottom line improvement in net profit for the period: in Q1, 2019, Deutsche Post DHL Group generated a consolidated net profit of €746.0 million after non-controlling interests (2018: €600.0 million).
The Post & Parcel Germany division (P&P) now represents the Group's German post and parcel business. The division's long-term trend continued in Q1, 2019. While letter mail and dialogue marketing revenues remained in decline due to sustained volume decreases, the parcel business continued to see dynamic growth. All in all, the division reported slight year-on-year revenue growth of 0.7% to €3.8 billion. It is seen as particularly encouraging that the pricing adjustments implemented in the parcel business are showing results, with parcel revenues rising faster than volumes. Operating profit at P&P was down by €178.0 million on the prior-year figure to €227.0 million in Q1, 2019. However, the previous year figure for operating profit was boosted by non-recurring income of €108.0 million from the reassessment of pension obligations. Especially higher personnel expenses, on the other hand, had a detrimental impact. Moreover, the Group had decided, as part of the measures to realign the division, to invest up to €150.0 million annually in continuing to automate and expand its mail and parcel infrastructure. Some of those expenses were recognised in the first quarter and thus also contributed to lower earnings at P&P.
Since January 1, 2019, the Group's international parcel business and the eCommerce unit of the former PeP division have been operating as DHL eCommerce Solutions, a newly created division. In positioning these operations as an independent division, the Group is signaling its intention to take even better advantage of the growth potential of e-commerce all over the globe. Revenue in the new division improved by 8.9% to €1.0 billion in Q1. Operating profit was down on the prior-year figure to €-28.0 million in Q1 (2018: €-14.0 million), mainly due to non-recurring restructuring expenses of €23.0 million incurred in the course of realigning the Group's international parcel activities.
Revenue at DHL Express increased by 5.3% to €4.0 billion in Q1. Operating profit declined slightly to €453.0 million (2018: €461.0 million) owing among other things to negative currency effects. In addition, earnings were negatively impacted by the decision made in the second half of 2018 to gradually reduce volumes of particularly heavy shipments. The division intends to focus on lighter-weight, higher-margin shipments in order to take even better advantage of its unique, global Express infrastructure and further increase profitability in the course of the year. The Express division's operating margin for the first quarter came to 11.4% (2018: 12.2%) and thus remains at an outstanding double-digit level.
In Q1, Global Forwarding, Freight sustained the previous quarter's upward trend in a weaker market environment. Revenue rose by 4.8% year on year to €3.8 billion. The division continued to pursue its selective approach of concentrating primarily on high-margin business. Operating profit increased by 42.9% to €100.0 million. The rollout of the new IT infrastructure continues to progress well. The division is thus well on the way to closing the profitability gap to its leading competitors in the medium-term.
The Supply Chain division increased revenue by 4.6% to €3.3 billion in Q1. New business also continued to perform very well. The division concluded additional contracts with an annualised total volume of €180.0 million in Q1. Operating profit surged to €486.0 million (2018: €55.0 million) due to non-recurring income. As a result of concluding the Supply Chain agreement entered into with S.F. Holding in China at the end of 2018, the division recorded a one-time positive EBIT effect of €426.0 million. In addition, a portion of the funds generated from the S.F. transaction were reinvested into restructuring the Supply Chain business, mainly in the UK. Adjusted for one-off effects Supply Chain recorded an EBIT increase of 12.4%.
Looking ahead, Deutsche Post DHL Group is maintaining its projection of an increase in operating profit to between €3.9 and 4.3 billion in 2019. Structural and operating improvements in all Group divisions are expected to contribute to the increase. The measures initiated to raise profitability in the Post & Parcel Germany division (P&P) are expected to be one of the main factors having a notably positive impact on earnings over the course of the current financial year. The P&P division is expected to contribute between €1.0 and 1.3 billion to the Group's projected EBIT for the current year. In the DHL divisions, the Group anticipates total EBIT growth of between €3.4 and 3.5 billion. Group EBIT is projected to rise to more than €5.0 billion in 2020. The P&P division is expected to contribute more than €1.6 billion and the DHL divisions more than €3.7 billion to that total.