DHL to invest €250m in India as new tax spurs demand
DHL is to invest in India, encouraged by the forthcoming Goods and Services Tax, which ...
Improved efficiencies and a “beneficial operating landscape” offset declining revenue as Deutsche Post-DHL posted record profits for 2016, including its best ever quarterly performance.
Chief executive Frank Appel said he was incredibly happy with the results, adding they were just as the group had forecast at the start of the year.
“We’ve not only seen a strong increase in net profit, but a high level of motivation among staff,” Mr Appel claimed. “This has brought about increased customer satisfaction.”
Currency developments, fuel surcharges and changes involving the recognition of revenue from the group’s largest contract, with the UK NHS, resulted in full-year revenue dropping 3.2% to €57.3bn, from €59.2bn in 2015.
Chief financial officer Melanie Kreis said removing these factors would have resulted in an adjusted 2.8% revenue increase, “despite being in an otherwise challenging environment”.
While revenue dropped, EBIT and consolidated net profits surged. EBIT increased 44.8% to €3.49bn, while consolidated net profit hurtled upwards at a rate of 71.4% to €2.6bn.
Ms Kreis said that there were, however, some negative effects that should be considered, which had pushed EBIT’s adjusted growth down to 13%, year-on-year.
“But the roundly positive EBIT, alongside a low tax rate was a boost for the consolidated net profit performance,” she added. “We expect a much higher tax rate in 2017 [around 19%, according to group forecasts], but all in all, group earnings increased 21% compared with 2015.”
On a divisional basis, the picture was similar. Despite a 7.7% downturn in revenues – €13.7bn against €14.8bn in 2015 – the freight forwarding segment reported a 258% increase in EBIT – from a €181m loss in 2015 when it had to disastrously write-off huge IT expenses, to €287m in 2016.
Mr Appel said the group had made good progress in the forwarding segment despite challenging market conditions.
“We have gained a good market share in ocean freight,” he said. “But our air freight margins have come under pressure. This has been challenging, but we have had achievements and, overall, our margins have improved, so we are satisfied with the underlying trends.”
The supply chain division recorded a 27.4% increase in EBIT, up from €449m to €572, against an 11.6% dip in revenue – €13.9bn compared with €15.7bn in 2015.
“We also grew Express EBIT by 11.3% [to €1.5bn], which is exceptional and follows heavy investment in the segment,” said Ms Kreis.
Total group profit of €1.1bn in the last three months of 2016, an increase of 16% year-on-year, represented the group’s best ever quarterly performance. This was largely driven by a 36.4% upswing in DHL Express, which took €435m between October and December.
Group forecasts for the year ahead remain optimistic, despite Ms Kreis expecting only moderate growth in the global economy over the next nine months.
“Earnings are expected to increase significantly, with additional divisional operating improvements,” she added.
The group is forecasting a rise in group EBIT to around €3.75bn, with the DHL divisions contributing approximately €2.6n. This total growth of €3.75bn would fall just short of the necessary 8% year-on-year increase required for the group to achieve its 2020 forecasts. However, Mr Appel remains confident that the group will achieve the target it set itself in 2013.
Mr Appel shrugged off the apparent threat to globalisation by electoral victory of self-declared isolationist Donald Trump in the US, alongside growing isolationist sentiment among European nations set for elections this year.
“Globalisation is a success concept,” said Mr Appel. “There is no country in the world that succeeded with protectionism, but many have succeeded through open markets. “