Reporting January to March 2012

Dr Frank Appel
Chief Executive Officer
Deutsche Post AG

7 May 2012

First quarter of 2012

Deutsche Post DHL continued on its successful course in the first three months of 2012. We dedicated all of our energy to consistently implementing our strategic goals.

We succeeded in continuing the good business performance of 2011 in the first quarter of 2012 with an increase in revenue of 4.3% to €13.4 billion and an improvement of around 10% in consolidated EBIT to €691 million.

We achieved higher revenues in all divisions and, thanks to improved profitability, we saw even larger increases in earnings.

In the MAIL division, growth in our parcel business remained strong. We are not only benefiting from the booming e-commerce business as a delivery company, our range of products and services are playing a significant role in this growth. In the express and logistics business of our DHL divisions, increased investments in our global network are helping us to expand our presence in the world’s growth markets.

Given this good performance over the first three months, we are confirming our forecast of consolidated EBIT for financial year 2012 to reach between €2.5 billion and €2.6 billion. The MAIL division is likely to contribute between €1.0 billion and €1.1 billion to this figure, whilst the DHL divisions should deliver approximately €1.9 billion. At around €−0.4 billion, the Corporate Center/Other result should be on par with the previous year.

The sale of Postbank to Deutsche Bank is now complete. Deutsche Post AG no longer holds shares in Postbank. Deutsche Post DHL’s financial position is very solid and we continue to have net liquidity.

We shall continue to consistently implement our Strategy 2015 in order to steadily unlock our Group’s full potential.    

Yours faithfully,

In the first quarter of 2012, responsibility for the less-than-truckload and part-truckload business in the Czech Republic was transferred from the EXPRESS division to the GLOBAL FORWARDING, FREIGHT division. Both divisions are now able to focus more strongly on their core competencies. The previous year’s segment reporting figures were adjusted accordingly.

There were no significant changes in the portfolio in the first quarter of 2012.

Consolidated revenue rose 4.3% to €13,364 million in the first quarter of financial year 2012 (previous year, adjusted: €12,807 million). The proportion of consolidated revenue generated abroad increased from 67.2% to 68.1%. Currency effects had a positive impact of €240 million.

Other operating income declined by 2.8% in the reporting period, from €389 million to €378 million.

Materials expense increased by €308 million to €7,571 million due to the higher transport volumes and oil price.

Staff costs rose 4.8% to €4,327 million (previous year: €4,128 million). The greater business volume in the SUPPLY CHAIN division in particular led to an increase in staff numbers.

At €316 million, depreciation, amortisation and impairment losses were almost unchanged from the previous year’s level of €308 million.

Other operating expenses were down €31 million on the previous year’s figure at €837 million. The decline in advertising and public relations expenses was particularly noticeable.

Profit from operating activities (EBIT) improved significantly compared with the first quarter of 2011, rising by 9.9% or €62 million to €691 million.

Net financial income also improved, increasing to €76 million (previous year: net finance costs of €161 million). This is mainly attributable to the disposal gain recorded on the Postbank sale.

Profit before income taxes increased from €468 million in the first quarter of 2011 to €767 million in the reporting period. Income taxes amounted to €207 million (previous year: €117 million).

Consolidated net profit for the period increased from €351 million to €560 million. Of this amount, €533 million is attributable to shareholders of Deutsche Post AG and €27 million to non-controlling interest holders. Both basic and diluted earnings per share rose from €0.27 to €0.44.

In the first quarter of 2012, which had one additional working day, revenue was €3,557 million and therefore slightly above the prior year’s figure of €3,520 million. We encountered positive currency effects of €7 million.

In the Mail Communication business unit, we delivered nearly as many letters on behalf of our business customers as in the first quarter of 2011. Revenue generated from this business was just below the prior year’s figure because although we retained and won back quality-conscious customers, some of our price-sensitive customers turned to competitors. Information on market volumes is collected each year; for the latest figures, please see  the 2011 Annual Report.

Since the beginning of the year, traditional mail-order businesses have held back on advertising expenditures, which is evidenced by revenue and sales in addressed advertising mail. Sales volumes of the other products in the Dialogue Marketing business unit were at prior-year levels; Einkaufaktuell recorded encouraging growth in volume. Revenue in the business unit decreased by 4.4% to €649 million (previous year: €679 million).

Revenue in the Press Services business unit totalled €198 million in the reporting period, 2.0% below the prior-year figure of €202 million. The German press services market, the volume of which is described in our 2011 Annual Report, continues to decline. Newspaper and magazine circulation is declining, although item weights remain stable.

Revenue in the Value-Added Services business unit reached €58 million, exceeding the previous year’s figure of €56 million by 3.6%. This growth stems from our document management and mailroom services.

Revenue in the Parcel Germany business unit reached €844 million in the reporting period, improving on the previous year’s high figure of €749 million by 12.7%. This strong growth is connected primarily with the flourishing e-commerce business. Our range of products and delivery services are playing a significant role in this growth.

Revenue generated by our approximately 20,000 retail outlets and sales points amounted to €210 million in the reporting period, a 6.1% increase over the previous year’s level (€198 million).

In the Global Mail business unit, revenue and volumes declined year-on-year primarily because we discontinued parts of our business, these being the bulk mail business in the Netherlands during the previous year and the domestic business in the UK during the reporting period. Revenue was €417 million, 2.1% below the prior year’s figure of €426 million. We saw encouraging growth in our traditional export business, in international mail from the Asia Pacific region and in the USA.

Divisional EBIT reached €393 million, exceeding the prior year’s figure of €373 million. Higher revenues in the parcel business and strict cost management contributed considerably to this. Return on sales was 11.0%.

Operating cash flow was €−206 million (previous year: €−148 million). This figure is impacted in the first quarter of each year by the annual payments to the Bundes-Pensions-Service für Post und Telekommunikation. Moreover, the re-transfer of receivables in connection with the discontinuation of a financial factoring negatively impacted the operating cash flow. Working capital was €–367 million, slightly below the low level of the prior year (€–491 million).

In the EXPRESS division, revenue increased strongly year-on-year by 9.8% in the first quarter of 2012 from €2,750 million to €3,020 million. The figure for the prior year still included revenues of €66 million related to the sold domestic express business in China, Canada and Australia. Excluding these sales and positive currency effects of €75 million, revenue grew by 9.5%, due primarily to the sustained positive development in the economy and the resulting rise in international time-definite shipment volumes.

The positive trend of the previous year continued in the reporting period, in some cases it even increased: in the TDI product line, our customers sent 9.6% more shipments each day than in the first quarter of the previous year and weight per shipment rose by 4.3%. The daily shipment volumes in the TDD product line were up by 5.9% year-on-year; in the DDD product line they declined by 21.7% due to the disposal of domestic businesses mentioned above.

Effective 1 January 2012, we aligned the structure of our regions with management responsibility. We transferred Turkey as well as Russia and other Eastern Europe countries from the EEMEA region (Eastern Europe, the Middle East and Africa) to the Europe region. The EEMEA region was renamed MEA (Middle East and Africa). Furthermore, responsibility for the less-than-truckload and part-truckload business in the Czech Republic was transferred to the GLOBAL FORWARDING, FREIGHT division. The previous year’s segment reporting figures were adjusted accordingly.

In the Europe region, revenue increased by 6.4% to €1,379 million in the first quarter of 2012 (previous year, adjusted: €1,296 million). This figure included positive currency effects of €6 million related mainly to our business activities in Switzerland, the UK, Scandinavia and Eastern Europe. Excluding these effects, revenue growth was 5.9%, due particularly to the considerable rise of 8.7% in daily shipment volumes in the TDI product line compared with the prior year.

In the Americas region, revenue rose by 13.2% to €513 million in the reporting period (previous year: €453 million). This figure includes the sale of our domestic express business in Canada in the amount of €49 million and positive currency effects of €20 million. Excluding these effects, revenue rose sharply by 19.6% in the Americas region, mainly attributable to the sustained positive business trend in the United States. We made 12.7% more daily deliveries in the TDI product line than in the prior-year quarter.

In the Asia Pacific region, revenue grew very robustly by 16.9% to €983 million in the first quarter of 2012 (previous year: €841 million). In the prior year this figure still included revenues related to the sold domestic express business in China and Australia in the amount of €18 million. Excluding this effect and positive currency effects of €46 million, revenue growth in the reporting period was 13.6% year-on-year. The daily shipment volumes in the TDI product line increased by 9.5% compared with the same quarter last year.

Although the political unrest in the Middle East persists, our revenue in the MEA region (Middle East and Africa) rose significantly by 13.8% to €231 million, up from €203 million (adjusted) in the previous year. This figure includes positive currency effects of €5 million. Excluding these effects, revenue growth was still in double-digits at 11.3%. Daily shipment volumes increased significantly, rising by 6.8% in the TDI product line and by 14.6% in the TDD product line.

EBIT in the EXPRESS division rose in the reporting period by €17 million to €231 million (previous year: €214 million). Strong growth in revenue and volumes was offset by high fuel costs and expenses for expanding our air freight capacities on important trade lanes. These additional costs caused our return on sales in the reporting period to be 7.6% and therefore almost on par with the prior-year level.

Operating cash flow declined by €178 million year-on-year to €–45 million. Our working capital was unusually low at the end of 2011; it normalised in the first quarter of 2012. As a result, our cash outflow increased. In addition, we had higher payments for restructuring in the USA.

In the GLOBAL FORWARDING, FREIGHT division, revenue increased in the first quarter of 2012 by 2.4% to €3,686 million (previous year: €3,599 million). This figure includes positive currency effects of €72 million. After a moderate start to the year, business improved over the course of the quarter.

In the Global Forwarding business unit, revenue increased by 1.4% from €2,632 million to €2,670 million. Excluding positive currency effects of €69 million, revenue decreased by 1.2%. We were able to improve gross profit by 8.9% from €571 million to €622 million.

Revenues in the air and ocean freight business followed a downward trend in the reporting period. Whilst ocean freight shipping volumes increased, air freight shipping volumes declined. Despite a further rise in fuel prices, air freight rates remained stable even whilst ocean freight rates fell. Accordingly, our operating margin in the ocean freight business improved by a double-digit percentage.

Our air freight volumes were down by 8.7% compared with the prior year. Revenue declined by 2.5% in the quarter. As a result of surplus capacities in the market, we were able to purchase cargo space at better conditions, which allowed us to increase our gross profit by 4.6%.

Volumes in our ocean freight business were 3.7% higher than in the prior-year period. Due to cost pressure, our customers transferred part of their business from air freight to ocean freight. Freight rates declined on selected trade lanes. Revenue decreased by 5.5%. Nevertheless, we increased gross profit by 10.0%.

In our industrial project business (in table "Global Forwarding: revenue" reported as part of Other), we saw growth, with gross profit continuing to increase compared with the previous year.

In the Freight business unit, revenue rose by 4.9% to €1,048 million in the reporting period (previous year: €999 million), which is largely attributable to growth in Germany and Eastern Europe. This figure includes positive currency effects of €3 million as well as business from Standard Forwarding in the United States, which we acquired in June 2011. Although pressure on margins remained high, gross profit grew by 11.3%, from €257 million to €286 million. We further increased our productivity through strict cost management, amongst other things.

Effective 1 January 2012, responsibility for the less-than-truckload and part-truckload business in the Czech Republic was transferred from the EXPRESS division to Freight. The previous year’s segment reporting figures were adjusted accordingly.

Due to high gross profit margins and increased efficiency, EBIT in the GLOBAL FORWARDING, FREIGHT division was up by 22.5%, from €71 million to €87 million. Return on sales amounted to 2.4% (previous year: 2.0%).

Operating cash flow increased by €4 million to €125 million (previous year: €121 million) compared with the first quarter of 2011 because volumes declined slightly during the reporting period and we have improved how we are controlling net working capital.

In the SUPPLY CHAIN division, revenue for the first quarter of 2012 was €3,409 million (previous year: €3,216 million), an increase of 6.0%. Positive currency effects as well as the Eurodifarm and Tag Group acquisitions in 2011 increased revenue by €138 million. This offset the revenue loss that resulted from the sale of Exel Transportation Services (ETS) in the first quarter. Excluding these effects, revenue growth was 5.7% with the Automotive and Life Sciences & Healthcare sectors providing the largest increase.

In the Supply Chain business unit, revenue grew by 4.4% to €3,088 million from €2,957 million in the previous year. Growth amounted to 5.7% excluding the ETS disposal, the Eurodifarm acquisition and positive currency effects. Revenue from our 21 key global customers grew by 9.9%.

Excluding the ETS disposal and currency effects, revenue growth was highest in the Americas region driven by strong volumes in the Consumer, Life Sciences & Healthcare and Automotive sectors as well as by additional revenue from new business.

In the Asia Pacific region, we maintained our strong progress with increased volumes and revenues from new business primarily from Australia, Thailand, Indonesia and Japan.

In Europe, the revenue improvement came largely from higher Life Sciences & Healthcare sector volumes boosted by the addition of the Eurodifarm business.

Williams Lea revenue was €321 million in the first quarter, an increase of 23.9% year-on-year (previous year: €259 million). Excluding revenue gained through the Tag acquisition and positive currency effects, growth was 5.0%. Most of this growth came from the Marketing Solutions business in the Americas.

In the Supply Chain business unit, we concluded additional contracts worth around €190 million in annualised revenue with both new and existing customers. A high level of gains was in the Consumer and Retail sectors. Nearly a quarter of new business was achieved in the Technology sector. The annualised contract renewal rate was in line with the previous years’ high level.

EBIT in the SUPPLY CHAIN division was €91 million in the first quarter of 2012, an increase of 16.7% (previous year: €78 million). The EBIT margin rose from 2.4% to 2.7%, primarily due to the increase in business activity, improved contract portfolio management and continued cost efficiencies from operational and overhead leverage.

Operating cash flow was €39 million (previous year: €56 million). Higher earnings were partly offset by cash outflow associated with provision movements.

The global economy is expected to continue to see moderate growth in 2012 with an increase of 3% to 3.5%. The international trading volumes relevant for our business are likely to exceed the projected growth of the global economy. We are therefore anticipating the corresponding revenue growth, particularly in the DHL divisions.

Given our good performance over the first three months, we are confirming our forecast of consolidated EBIT for financial year 2012 to reach between €2.5 billion and €2.6 billion. The MAIL division is likely to contribute between €1.0 billion and €1.1 billion to this figure. Compared with the previous year, we expect an additional improvement in overall earnings to approximately €1.9 billion in the DHL divisions. At around €–0.4 billion, the Corporate Center / Other result should be on par with the previous year.

We plan to increase capital expenditure by approximately 6% to €1.8 billion. We expect to remain around this level in the following year. In line with our Group strategy, we are targeting organic growth and anticipate only a few small acquisitions in 2012, as in the previous year. In 2012, operating cash flow will only be impacted to a limited extent by the restructuring measures resolved in 2009.

Even in the face of an uncertain economic climate, particularly in the western economies, we believe that the Group will continue to experience good earnings momentum. The positive trend in our earnings that we are anticipating for 2012 is likely to continue into 2013. The cost reduction measures and growth programmes initiated in the MAIL division are expected to stabilise EBIT, even though letter volumes are likely to continue their slow decline due to electronic substitution. In the DHL divisions, we expect EBIT, taking the earnings contribution in 2010 as the baseline, to improve at an annual average of 13% to 15% in the period from 2011 to 2015 as trading volumes continue to recover.

Consolidated net profit before effects from the Postbank transaction is expected to continue to improve in 2012 in line with our operating business.

Our finance strategy calls for paying out 40% to 60% of net profits as dividends as a general rule. At the Annual General Meeting on 9 May 2012, we intend to propose to the shareholders that a dividend per share of €0.70 be paid for financial year 2011 (previous year: €0.65).