Ad hoc: Deutsche Post DHL first-quarter earnings, revenue decline – cost reductions to be accelerated

As a result of the global economic crisis that has hit virtually every region and sector, Deutsche Post DHL, the world’s largest provider of logistics services, recorded a 12.9 percent drop in revenue to 11.5 billion euros in the first quarter of 2009. Underlying EBIT fell by 42.1 percent to 312 million euros. The decrease was primarily caused by the unprecedented plunge in demand as well as reduced volumes and higher wages in the MAIL Corporate Division. Reported EBIT on Group level totaled 27 million euros compared with 539 million euros in the previous year mainly because of non-recurring charges tied to the restructuring the Group’s DHL Express business in the U.S.

Challenges tackled
The global economic crisis has uncovered weak spots in the company, which will be tackled systematically over the coming weeks and months. To that end, DHL Express is planning a wide-ranging reorganization to create a leaner and more streamlined business by eliminating the layers within the organization while maximizing synergies on the global and regional levels. The current five geographical regions will be combined to form three. This will be complemented by a new governance model with a six-member Global Management Board. One of the first things the new board will be looking at is finding solutions for loss-making domestic businesses and sharpening the focus on the Group’s profitable international business and on further cost reductions.

In addition to that the Group plans to further raise efficiency at its Corporate Division MAIL to make the business fit for the future in light of declining volumes. In order to do so, Deutsche Post plans to make structural adjustments in addition to further cost cuts. The Group plans to discuss topics such as an extension of the weekly working hours, or a postponement of planned salary increases with the social partners. On an operating level, the Group plans to further boost productivity. Mail that is currently being shipped by air will in the future be shipped in a more environmentally friendly and less costly manner by ground transportation without meaningful effects on quality. Together, all measures are expected to underpin EBIT by around 300 million euros this year.

Outlook
Following the significant drop in volumes around the Group in the first quarter 2009, Deutsche Post DHL may now be reaching the bottom in terms of volume declines. If this is the case, the Group would expect to see increasing benefit in the second half of the year and in 2010 from its cost-cutting program. Deutsche Post DHL in November set a target of cutting 1 billion euros in non-operating costs by the end of 2010. The EXPRESS Corporate Division, which contributes the lion share with 460 million euros to the program, expects to reach its target by the end of 2009 already. The other corporate divisions – MAIL with 180 million euros, GLOBAL FORWARDING, FREIGHT with 160 million euros, SUPPLY CHAIN with 130 million euros and Corporate Center with 70 million euros – will also strive to reach their cost-cutting targets earlier than planned.

In particular in the EXPRESS Corporate Division, the good progress in the restructuring of the DHL U.S. Express business will support the improvement in the second half of the year. This should lead to underlying group EBIT showing significantly lower reductions relative to 2008 than the Group has seen in the first quarter and expects to see in the second quarter of the year.

The positive effects as a result of the Postbank transaction should lead to a return to a positive net profit in 2009 as a whole – a substantial improvement on 2008.

The entire interim report on the first quarter 2009 is available as per May 6, 2009, 07.00 CEST under http://investors.dp-dhl.com.