09 March 2010

SUPPLY CHAIN division records €1.1 billion worth of new business

At Deutsche Post DHL, the global economic crisis caused a significant decrease in transport volumes in 2009, triggering a 15.2% drop in revenues to €46.2 billion. However, successful cost cutting across all businesses, substantially lower restructuring expenses as well as the planned reduction of losses from the US EXPRESS business helped mitigate the impact on the Group's profitability. Reported EBIT of €231.0 million for 2009 thus substantially exceeded the €966.0 million loss incurred in 2008.

The 2009 result includes losses from the Arcandor insolvency and costs related to onerous contracts amounting to a total of €344.0 million. In addition to the operational improvements, positive effects from the Postbank sale as well as lower taxes led to an increase of the consolidated net profit to €644.0 million, compared to a loss of €1.7 billion in 2008.

During the fourth quarter, the Group was able to halt the negative revenue trend created by weakened demand and reduced transport rates. The Group increased quarter-on-quarter revenues for the second time in a row. Year-on-year, though, fourth quarter revenue fell by 11.6%, to €12.4 billion. At -€283.0 million, the consolidated net loss was considerably better than the previous year’s level. A loss of more than €3.0 billion was recorded in the final quarter of 2008.

> MAIL

During the past year, the MAIL Division was affected by the global economic crisis, as well as the increasing substitution of physical mail by electronic media. As a result, revenues were 4.9% below the previous year’s level, totalling €13.7 billion. However, Deutsche Post maintained its share of this shrinking market at 87.2%. In addition, comprehensive cost-cutting measures cushioned the impact from higher wages and losses related to the Arcandor insolvency on the division’s profitability. For fiscal year 2009, underlying EBIT fell by 14.0%, to €1.4 billion.

> EXPRESS

Lower volumes also impacted the EXPRESS Division. During the second half of the year, however, trade volumes began to rise sequentially. The fourth quarter saw a slight recovery of the Time Definite Domestic and Day Definite Domestic product groups outside the US. Nonetheless, revenues for fiscal year 2009 fell by 24.4% year-on-year, to €10.3 billion.

The main causes of this decrease were the Group’s exit from the domestic express business in the US, along with exchange rate fluctuations and lower revenues from fuel surcharges. Outside the US, revenues adjusted for acquisitions and exchange rate fluctuations were 11.8% below the previous year’s level.

The smallest drop in revenues was reported by the Asia Pacific region at 6.0%, to €2.6 billion. In Europe and the EEMEA region (Eastern Europe, the Middle East and Africa), revenues fell by 15.5% and 10.4%, respectively, to €5.6 billion and €1.1 billion. In the Americas region, which includes Latin America and the Caribbean, as well as Canada and the US, revenues decreased by 58.6%. Excluding the US, revenues in the region fell by 14.8% in the past year.

Unlike the revenue trend, the division’s profitability climbed considerably in the past year. Thanks to strict cost management, underlying EBIT was 45.1% above the previous year’s level at €238.0 million. A key reason for this positive development was the significant reduction in losses previously incurred in the US. The target of reducing the annualised loss to less than US$400.0 million by the fourth quarter has been achieved. In the other regions, underlying EBIT totalled €692.0 million, compared to €1.1 billion in the previous year.

> GLOBAL FORWARDING

The decline in world trade levels resulted in double-digit decreases in transport volumes in the air and sea freight markets. Nonetheless, the GLOBAL FORWARDING, FREIGHT Division was able to sequentially increase volumes each quarter during the year.

Marketing and sales efforts were increasingly successful, particularly in the areas of life sciences and consumer goods. Due to the initial economic recovery, air freight volumes rose year-on-year for the first time in six quarters during the fourth quarter. In fiscal year 2009, DHL was able to maintain or even expand its market share in the international air and sea freight markets and in European road transport. However, as a result of the general decline in freight volumes, lower fuel surcharges and reduced freight rates, revenues in this division were 23.3% lower year-on-year, at €10.9 billion. Underlying EBIT decreased, from €403.0 million in 2008, to €272.0 million.

> SUPPLY CHAIN

Despite the difficult market conditions, the contract logistics business of Deutsche Post DHL was able to further expand its market position in 2009. Two key reasons for this positive development were new business contracts worth €1.1 billion and a continuing high contract-renewal rate of 90.0%. Nonetheless, revenues fell by 8.8%, to €12.5 billion. This decrease resulted from substantial negative currency translation effects and the Company’s own decision to decline renewal of underperforming contracts or to terminate them prematurely.

With the help of cost-cutting measures, the impact of the economic crisis on the division’s profitability could be held in check. While underlying EBIT was indeed -€121.0 million, this loss was exclusively related to charges totalling €213.0 million that were connected with the insolvency of Arcandor. Excluding this effect and additional one-time costs for onerous contracts, underlying EBIT in this division would have been near the previous year’s total of €196.0 million.

> 2010 Outlook

For this year, the Group foresees a moderate recovery in global transport volumes. Deutsche Post DHL expects underlying EBIT to total between €1.6 billion and €1.9 billion in 2010. In a reflection of the Group’s two-pillar strategy announced last year, the DHL Divisions and the MAIL Division are to make roughly equal contributions to earnings for the first time: While the MAIL Division is expected to generate earnings between €1.0 billion and €1.2 billion, the contribution by DHL is expected to total between €1.0 billion and €1.1 billion.

Corporate Centre expenditures are forecast at around €400.0 million. As a result of an anticipated significant decline in non-recurring items Deutsche Post DHL’s reported EBIT is expected to be considerably above last year’s level. Consolidated net profit should further improve compared to 2009.