"We keep our focus on cost and capacity management given the current still weak macroeconomic environment and on our growth opportunities."
DHL Group met market expectations in the second quarter. Revenue increased somewhat while operating profit declined. Both key performance indicators slightly exceeded the consensus - in other words, the median value of market analyst predictions. The Group remains on course despite a persistently sluggish global economy. In this interview with DHL Group News, CFO Melanie Kreis explains what the company expects for the second half of the year, what impact the new Postal Act will have on Post & Parcel Germany, and how DHL Group aims to become fit for the future with its "Strategy 2030" to be presented this fall.
Melanie Kreis, how do you view DHL Group's performance in the second quarter?
Melanie Kreis: The quarter was as expected. We said back in spring that we expect a tangible recovery in the world economy - and thus tailwinds for our global logistics activities - in the second half of the year at the earliest. Despite the persistently sluggish global economy, we improved revenue by 2.7 percent in the second quarter. Operating profit was at EUR 1.35 billion - fully in line with our expectations and significantly above the pre-pandemic level. EBIT in the same period of 2019 was EUR 769 million. This once again shows the structurally significantly improved profitability of DHL Group.
How did the divisions fare in the second quarter?
Melanie Kreis: Very solid, and fully within our expectations given the economic parameters. Supply Chain's performance was particularly positive. The division operates more independently of short-term global economic development than its sister divisions and made further gains in revenue and earnings. The marked increase in revenue at eCommerce is also pleasing, and impressively underscores the structural e-commerce trend. This also proves that our structural growth drivers of omnishoring, e-commerce, sustainability, and digitalization are sound and offer further growth opportunities for us. The other DHL divisions tend to react more strongly to the global economy. That was also totally in line with our expectations.
You spoke of a "normalization" after the COVID years. Is a bottoming out now foreseeable?
Melanie Kreis: This already seems to be the case with the air and ocean freight volumes. We saw rising volumes here in the first and second quarters, albeit compared with a low comparison base in the previous year. We are also seeing a slight improvement in Express B2B volumes, but no significant acceleration as of yet. For the first time in nearly three years, the second quarter saw all five divisions registering an increase in revenue. That is encouraging. Nonetheless, we cannot ignore the lack of tailwinds in the global economy. However, we prepared early on for this situation and therefore have our capacities and costs under control.
What is your prediction for the full year?
Melanie Kreis: The world economy developed as we expected in the first half of 2024: a broad and dynamic economic upturn has failed to materialize. In the second half of the year, we expect typical positive seasonality due to peak season. In combination with ongoing earnings and cost management, we are well on track to meet our 2024 financial year targets.
And if the recovery of the global economy is less dynamic…?
Melanie Kreis: Even in that scenario, we are confident that we will achieve the lower end of our EBIT target range of between EUR 6.0 and 6.6 billion. Our operating profit after six months stands at EUR 2.7 billion, showcasing the strong performance of our team. The second half - in particular the pre-Christmas season - is traditionally the strongest period of the year at DHL Group. We are actively preparing for peak season and already have our sleeves rolled up.
The adoption of the new Postal Act was a key milestone in the second quarter. How do you assess Post & Parcel Germany's performance against this background?
Melanie Kreis: We appreciate finally having a reliable regulatory framework in place as Post & Parcel is encountering significant challenges. The structural decline in mail volumes continues without interruption, despite the moderately positive effects of the European elections in the second quarter. At the same time, costs are rising. To provide some specific figures: consumer prices have increased by approximately 20 percent in Germany since 2020, while energy prices have risen by around 50 percent. Wages saw an average increase of 11.5 percent following the most recent collective bargaining negotiations at Post & Parcel Germany in April 2024. By contrast, the last postage rate increase occurred nearly three years ago, resulting in a one-time hike of 4.6 percent. Although we have reservations about certain details, the new Postal Act establishes a foundation for driving the division's transformation from a mail to a parcel service provider.
How profitable can the Post & Parcel division be within the new regulatory framework?
Melanie Kreis: It is evident that the new Postal Act does not provide unlimited scope for growth for Post & Parcel. We will closely monitor how profitability develops as the postal rate regulation is implemented in the fall and we know of the new prices that will be applicable in 2025. Our clear expectation is for Post & Parcel to achieve a minimum annual operating profit of at least EUR 1 billion. This amount is essential for the division to be able to invest in the transformation from letters to parcels and in low-emission logistics using its own resources.
You have announced an updated Group strategy for the second half of the year. Can you tell us where it's headed?
Melanie Kreis: Our current Strategy 2025 has carried us effectively through the challenges of recent years and gives us a strong foundation. Strategy 2030 is based on this framework. Our growth drivers - omnishoring, e-commerce, digitalization and sustainability - remain intact. We continue to see major opportunities here in the coming years, so our focus is clearly on growth and leadership culture. We have to become even faster and more dynamic in an ever-changing world. With our Strategy 2030, we want to make a very good company even better.