Confronted with a severe shortage of available market capacity
Deutsche Post DHL Group maintained its profitable growth trajectory in Q1, 2020 despite the noticeable impact of the Covid-19 pandemic. Revenue improved by 0.9% to €15.5 billion, and operating profit (EBIT) came in 48.9% lower at €592.0 million. Adjusted for a pandemic-related negative earnings impact of €210.0 million as well as negative effects of €234.0 million incurred in Q1 to realign the Group’s StreetScooter activities, operating profit stood at approximately €1.0 billion. This result came in around €200.0 million over the prior-year figure adjusted for non-recurring items. The Group has with this confirmed the preliminary quarterly figures published in April.
Thanks to the Group’s broad geographic footprint and portfolio of logistics solutions, the Group is more robustly positioned than other companies and thus well situated to navigate crisis situations. Since the coronavirus began spreading around the world, various activities in the different regions performed better and in some cases worse than originally planned. Thanks to the great diversification in both the geographical areas in which the divisions operate and the industries they serve, the divisions were able to operate profitably even in a challenging environment, thus demonstrating their resilience in times of crisis. For example, while parcel volumes in the Post & Parcel Germany division increased significantly at the end of the quarter, letter mail registered pronounced declines. While the DHL divisions felt the effects of the standstill in many regions and customer industries, business in China experienced a recovery in March after the drop in February. Globally, the Group saw a strong increase especially in the food and health care sector. Furthermore, thanks to its own fleet of cargo aircraft, Deutsche Post DHL Group proved to be one of the few providers in the world still able to transport urgent deliveries.
Operating cash flow rose to €750.0 million in Q1 (2019: €252.0 million), thus testifying to the Group’s sound financial position. In Q1, 2020, Deutsche Post DHL Group invested a total of €453.0 million (2019: €448.0 million) across all divisions. All in all, Deutsche Post DHL Group generated consolidated net profit of €301.0 million (after non-controlling interests) in Q1, 2020 (2019: €746.0 million).
The Post & Parcel Germany division saw a continuation of its structural trends in Q1, 2020, slightly fostered by the pandemic towards the end of the quarter. While the Post business registered significant volume declines due to a pronounced downturn in dialogue marketing, the Parcel business reported dynamic volume growth based on physical store closures. Booming eCommerce starting from the last week of March led to spikes in parcel volumes, which are normally seen only in the pre-Christmas season. Total revenue for Post & Parcel Germany rose by 3.8% to €4.0 billion. In Q1, the Post & Parcel Germany division increased operating profit by 47.1% year-on-year to €334.0 million. The improvement was due in particular to the cost containment and pricing adjustments made in both the Post and Parcel businesses. Earnings were negatively impacted by Covid-19-related revenue losses especially in dialogue marketing, as well as by additional expenses to safeguard operations in the midst of the pandemic, which amounted to a negative EBIT impact of €44.0 million.
DHL Express succeeded in increasing revenue and generating very good earnings in Q1 despite the Covid-19 pandemic. Revenue improved by 4.5% to €4.2 billion. The availability of its own fleet of cargo aircraft proved to be a key factor for the division, allowing it to still offer urgent delivery to customers despite the virtual standstill in passenger flights resulting in the loss of freight capacity in many regions of the world. In Q1, the Express division reported an operating profit of €393.0 million, down 13.2% (2019: €453.0 million). Earnings were negatively impacted by the pandemic-related imbalanced usage of its network. As soon as the situation returns to normal, Express will again be able to utilise its unique global infrastructure more efficiently. The total negative impact of Covid-19 on earnings was €90.0 million in Q1, with the effects being felt in line with the spread of the virus. Although business in China already registered a noticeable recovery in March, business in Europe and North America experienced a trend at the end of the quarter that was similar to the trend in China in February. However, the operating margin remained at a very good level of 9.5% (2019: 11.4%).
Revenue of Global Forwarding, Freight decreased by 4.1% compared with the previous year to €3.6 billion. The division is confronted with a severe shortage of available market capacity due to the pandemic, owing for example to the cancellation of passenger flights. With declining volumes, the capacity shortage led to a positive gross-margin development in air freight. Operating profit came to €73.0 million in Q1, 2020, down 27.0% (2019: €100.0 million). Earnings were burdened by negative effects of €33.0 million due to the pandemic.
Supply Chain posted a slight drop in revenue of 1.9% to €3.2 billion in Q1, simultaneously showing an increase of organic revenues despite the pandemic by 2.1%. The division’s robust performance is attributable to an even distribution of customers among sectors and regions. While certain industries such as automotive and fashion have been more impacted by the effects of the crisis due to suspended production and reduced demand, others such as food and health care registered positive effects. Supply Chain even succeeded in concluding additional contracts worth €135.0 million with both new and existing customers in spite of the crisis. Operating profit came to €105.0 million in Q1 (2019: €486.0 million), down 78.4%. While the previous year’s result was influenced by positive non-recurring effects from the sale of the China business, among other things, negative effects of the pandemic on earnings amounted to €31.0 million in the current year. Adjusted for these effects and one-off effects in the prior-year figure, the division registered an improvement in earnings of €18.0 million.
In Q1, 2020, eCommerce Solutions generated revenue at the prior-year level of €1.0 billion amid wide regional variations in terms of the effects of the pandemic. Whereas activities in Spain and India were affected above all by declining volumes, various European regions experienced higher than usual volumes and efficiency improvements. The division improved operating profit to €6.0 million despite Covid-19 (2019: €-28.0 million). This is because the positive effects of restructuring the Group’s international parcel activities were able to compensate for the negative impact of €12.0 million of the pandemic on first-quarter earnings.
In Q1, 2020, all five divisions reported an operating profit despite the negative impact of the Covid-19 pandemic on earnings. However, since the further impact of the pandemic currently cannot be predicted, a full-year guidance for 2020 is currently hardly feasible. Deutsche Post DHL Group therefore withdrew its full-year forecast on April 7. New guidance will be issued as soon as a more reliable basis is in place to enable a detailed earnings forecast.
The Group confirmed its medium-term forecast of Group EBIT of at least €5.3 billion in 2022. The cumulative forecasts for capex and cash flows for 2020 to 2022 remain unchanged as well, albeit subject to reservations relating to the yet to be quantified impacts of the Covid-19 pandemic on free cash flow during the current year.