Deutsche Post DHL predicts B2C ‘normalisation’ and further B2B comeback

Deutsche Post DHL expects B2C deliveries to start normalising at higher levels and B2B shipments to continue a solid comeback this year after generating record profits on strong demand in the first quarter of 2021.

“It was by far our strongest first quarter ever,” CFO Melanie Kreis told journalists on a Q1 results call.

On the topic of vaccine logistics, she said the group has so far delivered 174 million COVID-19 vaccine doses to 120 countries worldwide up to the end of April and expects shipment volumes to keep rising this year.

In terms of key trends, Kreis predicted that the current very high growth rates for B2C volumes, resulting from the COVID-19 pandemic’s acceleration of e-commerce, would gradually start to normalise but at higher base levels. Before the pandemic, DP DHL had predicted annual growth rates of 5% - 7% for the German parcel market.

Responding to CEP-Research questions, she also highlighted a “broad upswing” in B2B volumes, led by hi-tech and automotive shipments, thanks to the continuing recovery in world trade.

Kreis stressed that Deutsche Post DHL is continuing to invest in healthcare logistics from a strong position but ruled out any significant move into food deliveries due to ‘very complex logistics’ and the difficulty of making a financial business case out of it.

Express and parcels drive growth

In its detailed results for January – March 2021, Deutsche Post DHL Group confirmed the preliminary figures issued early last month and raised its full-year guidance again following ‘dynamic’ growth so far this year.

Group revenues increased by 22% to nearly €18.9 billion in the first three months of 2021 while operating profits (EBIT) more than tripled to just over €1.9 billion and net profits soared to €1.2 billion.

Growth was again driven by the express and parcels businesses while the freight forwarding and supply chain businesses improved their profits significantly. Investments were stepped up to €583 million across all divisions compared to €453 million in the first quarter of 2020.

“We had the best opening quarter ever and were able to unleash our full strength as a Group,” stated CEO Frank Appel. “All five of our divisions are on track for growth and are ideally positioned to benefit from the continuing boom in e-commerce and the resurgence in global trade. Our 570,000 employees are operating our networks more efficiently than ever before. This makes me optimistic about the future.”

Express margin hits 17.5%

DHL Express continued its strong performance in the first quarter of 2021 thanks to strong volume growth in all regions and high aircraft utilisation levels worldwide, generating “outstanding” operating profits of €961 million (up from €393 million in Q1, 2020). The profit margin soared to 17.5% from 9.5% one year ago.

Express revenue increased by 32.5% to €5.5 billion worldwide as time-definite international express (TDI) volumes grew by 26.3% (daily average) and revenues by 37.9%, reflecting higher average revenue per piece.

In Europe, DHL Express increased quarterly revenues by 27.1% to €2,383 million, driven by a 26.4% rise in TDI daily volumes. Revenues in the Americas increased by 24.9% to €1,135 million while volumes increased faster, up by 33.3% over the previous year. Asia Pacific was the fastest-growing region with revenues up by 35.9% to €1,987 million on a 25.3% increase in TDI daily volumes.

DP DHL stressed that the express business “is well-positioned to benefit from both continued strong growth in e-commerce and recovery in B2B volumes”. The division’s B2C volumes increased more than 45% in the first quarter while B2B volumes were up by more than 10% compared to one year ago (when they dropped slightly).

High growth for DHL eCommerce Solutions

The international parcels division DHL eCommerce Solutions generated very high quarterly growth rates as it benefited from the worldwide e-commerce boom and a corresponding surge in B2C parcels. Revenue increased by 46% to €1.45 billion, with Europe up by 39% at €784 million and the Americas up by 63% at €485 million. Growth was particularly dynamic in the US (>60%), the Netherlands (>60%), Czech Republic (>50%) and in cross-border business (>50%) while all countries saw double-digit growth.

On this basis, the division was able to considerably increase EBIT from €6 million in the prior-year quarter to €117 million in the first quarter of 2021. The division significantly increased its profitability in the international parcel business through higher utilisation of its networks. The EBIT margin increased in the past quarter to 8.0% (Q1 2020: 0.6%) and was thus already above the long-term target of 5%.

Responding to a question about the European parcels network, which comprises a mix of subsidiaries in some markets and cooperation with postal operators or DHL Express in others, Kreis said there are "no gaps” where the group needed to invest in acquisitions.

Spectacular parcel growth in Germany

Closer to home, the Post & Parcel Germany division generated solid overall revenue growth of 15% to €4.55 billion, driven by dynamic parcel growth, and increased operating profits by 66% to €556 million in the first quarter.

DHL Parcel increased revenues by a spectacular 44.7% to €1.82 billion as volumes grew by a dynamic 41.3% to 489 million amid the continuing lockdown in Germany. In addition, Deutsche Post international revenues were up by 25% at €675 million on export parcel growth.

In contrast, the Post Germany business suffered a 4.3% drop in revenue to just over €2 billion on a 9.5% volume decline, which was well ahead of the long-term trend.

Higher freight forwarding profits

Meanwhile, DHL Global Forwarding, Freight increased its revenue by 32.7% to €4.8 billion in an environment characterised by continuing capacity shortages on the international transport markets. Additional cargo capacity on international passenger aircraft remained limited. Cargo space was also in short supply at sea. The noticeable increase in world trade further intensified the price and margin trends, DP DHL explained.

In a challenging environment with further elevated competition for available transport capacity, the division succeeded in increasing air freight volumes by 18.2%, while ocean freight volumes increased by 8.8%. The main driver here was business in Asia. As a result of productivity improvements, the division succeeded in significantly increasing the EBIT/Gross Profit conversion ratio. EBIT amounted to €216 million (Q1 2020: €74 million), the EBIT margin climbed to 4.5% (Q1 2020: 2.1%).

CFO Kreis explained to journalists that DGF’s gross profits had increased largely due to the combination of higher volumes and high rates for “tight” air and ocean freight capacity. The group was securing capacity through short-term contracts and did not expect this situation to change later this year, she noted.

Supply Chain back on growth track

For its part, DHL Supply Chain continued to benefit from stronger customer activity as key markets recovered. Revenues were slightly higher at €3.2 billion, driven by Asia Pacific and the Americas, while most of the revenue growth came from healthcare, consumer and retail customers. Cost saving measures enabled it to improve EBIT to €167 million from €105 million one year earlier. The EBIT margin of 5.2% was thus back to the target level of around 5%.

Higher financial targets

Against the backdrop of the good earnings performance in the first quarter of 2021, Deutsche Post DHL Group has significantly increased its earnings guidance for the current fiscal year and its medium-term targets.

For 2021, the group now expects EBIT to increase to more than €6.7 billion (previously: significantly above €5.6 billion) and free cash flow to more than €3.0 billion (previously: significantly above €2.3 billion) with gross capex amounting to around €3.8 billion (previously: around €3.4 billion).

For 2023, Deutsche Post DHL Group expects EBIT of more than €7.0 billion, compared with a previous forecast of more than €6.0 billion. This development is also reflected in an increased forecast for cumulative free cash flow of around €9.0 billion (previously: €7.5 to 8.5 billion) from 2021 to 2023. Over the same period, the Group will now invest around €11.0 billion (previously: €9.5 to 10.5 billion) in its networks.

"Because of our strategic investments in our networks, we are today in a position to benefit from the surge in demand, while simultaneously improving our efficiency. We expect further growth in the coming quarters, even with growth rates normalizing over time. We are therefore stepping up investments in our infrastructure to be able to continue to optimally serve higher shipment volumes," Appel commented.