Speech Klaus Zumwinkel and Edgar Ernst
At the Financials Press Conference for the first half-year 2005 on July 28, 2005 in Bonn
The spoken word is binding.
Ladies and gentlemen,
welcome to Deutsche Post World Net's Financials Press Conference in Bonn for the first half year of 2005.
Our efforts for the current fiscal year have already borne their first fruits over the first half of 2005, even though we are still facing a few challenges.
The global economy has not developed in a uniform manner. Important influencing factors are the price of crude oil and different growth rates of national economies.
The economic environment remains positive in the USA. Investment is increasing and the job market is solid. In June, consumer confidence reached its highest level in three years.
The picture differs in the euro zone. If we take the examples of France and Spain, the business climate is brightening, while other countries, and here I take the example of Italy, are continuing a downward trend.
Domestic demand remains weak in Germany as well, although the Ifo business climate index is once again slightly in the positive range.
Asia continues its positive development. China is sustaining strong growth, and the Japanese economy is also picking up increasing speed.
Overall, a world GDP growth rate of approx. 4% and a world trade growth rate of approx. 7% is expected. Our company stands to strongly profit from the increasing world trade, as it is we who are transporting these goods.
2005 financial highlights
And now, just before my Board of Management colleague Mr. Ernst gives you detailed information on our income statement and balance sheet, I would like to present the Group's financial highlights for the first half of 2005.
Overall, the picture is a gratifying one. Deutsche Post World Net increased revenue by 2.0% from 21.1 billion euros to 21.5 billion euros.
Profit from operating activities, EBIT, rose from 1.5 billion euros to 1.65 billion euros, which corresponds to an increase of 10.6%.
We improved our consolidated net profit by 30.2%, from 721 million euros to 939 million euros.
This is also reflected in the major upswing in earnings per share, which we boosted from 65 to 84 euro cents.
During the first half of 2005, measures from our program for value creation and integration made a contribution to earnings totaling 261 million euros. Since November 2002, we have achieved a cumulative contribution to earnings from STAR totaling 1.123 billion euros. A half year before concluding the program, we are thus in the home stretch.
Overall, we expect a cumulative contribution to earnings of at least 1.4 billion euros by December 31, 2005.
We will also pursue certain projects beyond the official end of the program. One emphasis will be further integrating our network in Europe. The responsibility for that will transfer to the line functions, and thus to the corporate divisions, by the end of the year.
We are naturally giving thought to the post-STAR midterm perspectives, from 2005 on, and will present these to you at a later date.
By consistently implementing our internationalization strategy and the related acquisitions, above all in the MAIL Corporate Division, we succeeded in once again increasing our share of international revenue.
We now generate almost half of our revenues abroad, or 49.4% to be exact.
Development of Deutsche Post and Postbank stock
The positive course of our business activities and dividend policy are also reflected in our share price. The Deutsche Post stock has gained approx. 20% since the beginning of the year, while the DAX was at 13.8% in the same period. This gives us all the more cause for satisfaction, as last year we were lagging behind the DAX.
The Postbank stock remains a success story. At 33.2%, it increased by more than double the DAX and made us and the other shareholders very happy.
Now I would like to handover to my colleague Edgar Ernst, who will give you a detailed overview of our financial figures.
Ladies and Gentlemen,
Allow me to take a detailed look at the financial statements of the first half of 2005. First, the income statement.
Here I would like to point out that, in accordance with IFRS, starting in 2005 regular amortization of goodwill has been discontinued. We have therefore switched from EBITA to EBIT reporting. EBIT H1 2004 still includes 188 million euros of goodwill amortization.
We grew our revenues to around 21.5 billion euros, 2.0% over the first half of 2004. We increased international revenue by 7.4% to 10.6 billion euros. Hence, 49.4% of our revenue is now generated internationally. In the prior-year period, this figure stood at 46.9%.
Our profit from operating activities (EBIT), as already explained by Mr. Zumwinkel, was 1.65 billion euros during the first half of 2005, a very encouraging 10.6% above the year-earlier level. The significant growth in the EXPRESS, LOGISTICS, and FINANCIAL SERVICES divisions was a particular contributor to this increase.
Consolidated net profit during the first half of 2005 was 939 million euros, compared to 721 million euros in the prior-year period. This corresponds to an increase of more than 30%. Earnings per share of 84 euro cents are derived from the consolidated net profit. In the first half of 2004, earnings per share were at 65 euro cents.
2nd quarter 2005
I would also like to cast a brief glance at the 2nd quarter of 2005, as this quarter went extremely well from our viewpoint.
Compared to the prior-year period, in the 2nd quarter of 2005 we increased revenues by 4.4% and posted a substantial increase in profit from operating activities (EBIT), in excess of 20%.
In the 1st quarter of 2005 we were able to increase earnings by just 2.8% over the 1st quarter of 2004 due to two lost working days. This had particular resonance in the MAIL division. In contrast, now we are very satisfied with the earnings improvement of more than 20% in the 2nd quarter of 2005; we have also clearly made up for the lower earnings increase in the 1st quarter.
Consolidated net profit almost doubled and increased by 76% up to 484 million euros.
You may consult your press folders for detailed revenue and earnings figures for the 2nd quarter of 2005.
The MAIL Corporate Division contributed approximately 6.4 billion euros to the corporate divisions' total H1 2005 revenue of around 21.5 billion euros. EXPRESS's contribution was about 8.8 billion euros, LOGISTICS around 3.6 billion euros, and FINANCIAL SERVICES about 3.5 billion euros.
In a difficult economic environment, the MAIL Corporate Division generated revenue 1.0% higher than in the comparable period of the previous year. This is primarily attributable to the positive development at our Value-Added Services and Mail International business segments.
The EXPRESS Division increased its revenue by 1.8% to 8.8 billion euros. The Asia-Pacific region, where we boosted our revenue by around 19%, was again a strong driver of this result.
The LOGISTICS Division also posted a significant revenue increase of almost 12%, bringing this figure to 3.6 billion euros. DHL Solutions as well as DHL Danzas Air & Ocean increased revenue significantly compared to the first half of 2004.
At FINANCIAL SERVICES, we posted a decline in income of 3% to 3.5 billion euros. This is attributable to the continued low interest rate level.
Profit from operating activities (EBIT)
At around 1.1 billion euros, profit from operating activities (EBIT) at MAIL was slightly below the previous year's level. The revenue increases in the international area still did not yield margins sufficiently high to compensate for the difficult economic situation in Germany and the consequently lower MAIL margin.
In the EXPRESS division, we strongly improved our year-on-year earnings from 10 to 163 million euros. EXPRESS Americas posted a loss of 197 million euros. Outside the Americas, we increased our earnings from 273 to 360 million euros. This corresponds to an increase of almost 32%.
Earnings in the LOGISTICS division improved significantly, specifically by about 85% to 122 million euros. This is primarily attributable to the very positive development in our DHL Danzas Air and Ocean business sector.
The FINANCIAL SERVICES division increased its earnings by about 15% to 379 million euros. Postbank's strong operating performance made a particular contribution to the continuation of this very positive development.
The return on equity (ROE) as an indicator of the profitability of equity employed improved from 12.6% to 14.0% over the first half of 2005 compared to the prior-year period. The cost/income ratio also improved, declining from 70.8% to 68.6%. This proves we were successful in significantly increasing our income. At the same time, our costs increased less than proportionally.
Consolidated balance sheet
I would now like to present a few selected key performance indicators.
Investments in assets has increased by 34.5% to 756 million euros.
Operating cash flow has decreased by 25% to 912 million euros.
Net debt is now at 600 million euros, an indicator of our Group's healthy financial situation.
Ladies and Gentlemen,
At our Financials Press Conference in March, we informed you about two areas which positively impact our future net profit and, by derivation, earnings per share:
- The first is the higher depreciation in our tax accounts. The result of this is reduced taxable earnings and a reduction of our tax rate in the consolidated balance sheet.
- The second is the regular amortization of goodwill, eliminated as of 1/1/2005 in line with IFRS provisions.
With the expected profit increase this will yield a good 500 million euros increase in our net profit, which translates into increased earnings per share of a good 45 euro cents.
We want to include our shareholders in this positive development in the framework of our 2005 dividend. We paid a dividend of 50 euro cents per share for 2004. For the current fiscal year, we intend to distribute a dividend to our shareholders at least one-third higher than in 2004.
Based on the share price on July 25, 2005 the net yield after taxes of our dividend would be 3.3%. Compared to alternative investment opportunities, this is certainly a gratifying development for our shareholders.
I believe this dividend policy actively promotes trust in our Group and in Deutsche Post stock.
Ladies and Gentlemen,
If I may, I would once again like to summarize Deutsche Post World Net's most important business data for the first half of 2005:
- We increased Group revenue by 2.0% to approximately 21.5 billion euros.
- The proportion of international revenue increased to 49.4%.
- At around 1.65 billion euros, earnings lie within our forecast and the capital markets' expectations of us.
- Earnings for the 2nd quarter of 2005 rose by more than 20% over the prior-year period.
- Consolidated net profit increased by 30.2% to 939 million euros.
- The STAR program contributed 261 million euros to earnings in the first half of 2005 and thus met all expectations.
- The 2005 dividend will be at least one-third higher than in 2004.
Ladies and gentlemen, I believe these positive results and expectations document the continuing fundamental strength and solidity of our Group.
And with that, I can turn the podium back to Mr. Zumwinkel.
Ladies and gentlemen, I would now like to report the results and developments in our individual corporate divisions in the first half of 2005 and present our outlook.
Revenue in the MAIL Corporate Division increased again slightly from its already high level by 1.0% to 6.35 billion euros. The growth in our international business compensated for the revenue declines nationally. Our internationalization strategy is yielding increasing results, such as in the USA and the Netherlands. In the UK, we will expand our existing business customer network to additional attractive target regions.
Weak domestic demand continues to impact Mail Communication, our largest contributor to revenue. In addition, the increasing competition is making itself felt.
By stepping up sales activities in the Direct Marketing business sector, an area sensitive to economic fluctuations, we were able to hold revenue at the previous year's level.
Press Distribution even posted a slight increase year-on-year.
We are assuming that the postal market in Germany will be completely liberalized by 2008. However, the European legislator must ensure that the opening of the market is subject to the same conditions in all participating EU countries. This is so as to ensure a uniform competitive playing field and to fulfill the fundamental idea of one common, barrier-free European market. It is just as indispensable that a concrete and binding end date for liberalization is set. Should it not prove possible to find a uniform regulation for all countries, additional considerations must be entered into for Germany so that it does not suffer economically.
In the coming year, that is, as of 1/1/2006, Deutsche Post will only have an exclusive license for letters weighing up to 50 grams. This is instead of the previous 100 grams. The reduction of the weight limits will open up 5% of our Mail revenue to the competition. We will naturally take the appropriate actions to keep our revenue stable.
At this point, I would like to once again strongly refute the recent confusing statements on the subject of Saturday delivery. The fact remains: "Now and in the future, we will deliver mail to our customers on Saturdays".
In the Express Division, we increased revenue by 1.8% to 8.8 billion euros year-on-year. Earnings actually increased by 10 million euros to 163 million euros.
Our revenue remained stable at the prior year's level in the European region. Economic development in some countries such as Italy and the extensive restructuring of our networks had a negative impact on some of our national revenue streams. In Germany, the consequences of declining mail order business volumes were reflected in revenue development.
In general, however, we compensated for these declines by increasing international business and through our online customers. We are convinced that by consistently pursuing integration and reinforcing our focus on our customers' needs, we will again grow at above-average rates in the future.
In the Americas region, we increased our revenue by 4.4%. Naturally, our USA business was our primary focus here. I would therefore like to go into greater detail:
Our goal was and is to offer our customers in the USA a comprehensive product portfolio with the usual high level of DHL quality, as well as to be a strong third force in the US market. That is why we also invest 1.2 billion dollars during the integration phase. We do this to enhance the quality of our network and our geographical coverage. With targeted marketing campaigns, we have significantly increased consumer awareness of our brand.
It has of course not escaped us that there are still a great many things left to do. But the first very positive effects give us great confidence that we will attain our goal.
Allow me to mention just a few examples:
- Our ground network, which we set up on our own and invested heavily in, is now almost fully up and running, and transports 50% of DHL volumes.
- We increased delivery quality for the ground-based parcel network to 97%, and even reached 98% in overnight on-time delivery.
- We have also greatly improved our customer service.
The LOGISTICS Division boosted revenue by 11.8% to approximately 3.6 billion euros. Earnings were also up by approx. 85% over the prior year.
The Solutions segment posted revenue gains, above all in Europe. Transport volumes rose at Air & Ocean for both air and ocean freight and, happily, this increase was across all regions. Reflected above all in this positive development were strong exports from Asia to Europe.
On April 1, 2005, DHL Danzas Air & Ocean and Lufthansa Cargo founded the LifeConEx joint venture. As the first industry-specific provider for the life science industry, LifeConEx offers integrated solutions worldwide for temperature-controlled special transports in the pharmaceutical, biotechnology and medical systems segments. Our customers profit from significantly shorter delivery times and reduced costs. The first months of business activity already portray a gratifying picture: We have transported 500 tons and are reaching for break-even in 2006.
As mentioned at the beginning of this conference, after the successful acquisition of KarstadtQuelle logistics and 3,700 employees, we have now successfully launched the integration phase.
Postbank announced its half-year figures yesterday, and I am sure you have heard about the bank's very positive development. Therefore, I would like to give you just a short overview.
The Financial Services Division generated earnings of 379 million euros during the first half of 2005. This corresponds to an increase of 15.2% compared to the prior-year period.
Our core business, retail banking, continued its positive development. We posted double-digit growth rates of 16.4% for net fee and commission income. Our efforts here with regard to sales of products with a high consulting and advisory content are clearly bearing fruit. We are particularly proud of taking on 362,000 new customers while successfully reducing our administrative expenses. Year-on-year, these expenses declined during the first half of 2005 by 3.3% to 676 million euros. This clearly shows that we are successful in continually improving our efficiency through strict cost management.
On July 1, together with the Goldman Sachs investment bank, we introduced a retirement provision account. This was done in order to strengthen our position in the German market as a private retirement provider and to cover our customers' needs. We are already a capable adviser in this area with an extensive product portfolio.
The Transaction Banking Division is developing on plan. The restructuring measures following acquisition of the Deutsche Bank and Dresdner Bank units are completed. We are now working on further optimizing and standardizing our business processes. This will keep us busy for the rest of the year.
Ladies and gentlemen, allow me to conclude.
As seen by the development in the first half of the year, we have good reason to believe we are on the right track.
In the MAIL Division, our internationalization strategy is showing the desired successes. It is also helping us compensate for the unavoidable decline in revenue that accompanies increasing competition in Germany. The International Mail business, including Value-Added Services, has reached almost 1 billion euros in H1 2005 alone. This business accounts for approx. 16% of the overall Mail revenue. But we are also confident that our activities vis-à-vis domestic business customers will defend our domestic revenue.
The EXPRESS Corporate Division is on the right track. Integration is continuing successfully in Europe. In the USA, where John Mullen's team is diligently implementing additional improvements, the actions already taken are showing clear results.
By acquiring KarstadtQuelle's logistics business and working to set up new business activities, we have made great progress in the LOGISTICS Division, which allows me to look into the future with confidence.
Postbank remains a success story. This is confirmed by numerous new customers and positive business figures.
Overall, I am satisfied with our Group's development and can therefore once again reaffirm in closing: We will reach our goal of 3.6 billion euros in EBIT in 2005.
Thank you for your attention.