Deutsche Post AG DHL Group Financial Analysis

Financial Analysis Report
On
Heriot-Watt University, Dubai – Edinburgh Business School
Financial Analysis Group Assignment
Instructor – Dr. Milind Vinod
GROUP MEMBERS
VARUN ABRAHAM SHARON MARIAM IDICULA

KEVIN MANUEL ANGEL GEORGE
A DILET
Date: 2th November 2020 Page 1 of 16

Financial Analysis Report on Deutsche Post AG DHL Group.
Total Word Count: 2559(Excluding Cover Page, Content Page and Reference list)
Table of Contents
OBJECTIVE.............................................................................................................................................3
RECOMMENDATION STATEMENT.........................................................................................................3
A. MANAGEMENT DISCUSSION AND REVIEW....................................................................................3
B. FINANCIAL ANALYSIS.....................................................................................................................4
Part 1 – Investor Returns...................................................................................................................4
Dividend Coverage Ratio:..............................................................................................................4
Dividend Pay Out Ratio..................................................................................................................4
Dividend Per Share:.......................................................................................................................5
Earnings Per Share (EPS) & Price-to-Earnings (PE):........................................................................5
Part 2 – Performance.........................................................................................................................5
Gross Profit Margin........................................................................................................................5
Operating Profit Margin.................................................................................................................6
Net Profit Margin:..........................................................................................................................6
Return on Assets Ratio...................................................................................................................6
Return on Equity............................................................................................................................7
Return on Capital Employed..........................................................................................................7
Debtor’s Turnover Ratio................................................................................................................7
Creditor’s Turnover Ratio..............................................................................................................8
Inventory Turnover Ratio...............................................................................................................8
Operating Cash Flow Ratio.............................................................................................................8
Part 3 – Liquidity and Working Capital..............................................................................................8
Current Ratio (Working Capital Ratio):..........................................................................................8
Quick Ratio....................................................................................................................................9
Absolute Liquid Ratio.....................................................................................................................9
Part 4 – Gearing.................................................................................................................................9
Debt Equity Ratio:..........................................................................................................................9
Debt Ratio....................................................................................................................................10
Interest Cover:.............................................................................................................................10
C. PROSPECTS & MARKET VALUATION............................................................................................10
D. LIMITATIONS OF REPORT.............................................................................................................11
E. CONCLUSION...............................................................................................................................11

F. REFERENCE LIST...........................................................................................................................12
ANNEXURE...........................................................................................................................................13
A.1 Annexure 1 Ratio Financial Analysis, Income , Balance Sheet and free cash flow forecast.xlsx.13
APPENDIX............................................................................................................................................13
OBJECTIVE
To submit a report to Prof. Lorna Campbell, with recommendations on investing invest

£100,000 in ordinary shares of the Company on 1st December 2020, in Deutsche Post DHL
Group stocks as part of pension funds.
RECOMMENDATION STATEMENT
Deutsche Post AG DHL Group is strongly recommended by SAVAK Investments to be part of

the pension fund portfolio of Prof. Lorna as it has a consistent track record of being a robust
operation, complemented by the forward-thinking of leadership to pioneer technological
change.
The confidence of investors inspired by Deutsche Post AG DHL Group will ensure that
growing returns make this a good retirement portfolio option. A continuous growth across
all divisions can be seen as the group revenue reaches 65.19 million.
With the stock price of Deutsche Post AG DHL Group currently priced at 38.04 (as of 1st
November 2020), the investment of £ 100,000 by Prof. Campbell will earn her 2366
common stock shares of Deutsche Post AG DHL Group.
A. MANAGEMENT DISCUSSION AND REVIEW
The company boasts worldwide transport statistics such as:
1.Leader in the air cargo market;
2.Position leader in contract logistics;
3.Sea shipping market 2nd place;

4.European road transport market 2nd place.
Like other big companies, Deutsche Post DHL Group has a 2025 Strategy, which states that
they intend to further develop the main 4 trends: globalization, e-commerce, digitalization,
and sustainability. The main objective of this strategy, as in the past, is to be a leading
company in the logistics industry and increasing customer satisfaction. Compared with 2018,
the Company has strengthened by 2 positions in the list of the best logistics companies
(Fortune). The main leverage in improving the Company is investing in improving the quality
of service and customer service. According to the report, the Company is going to spend on
digitalization about 2 billion euro for the IT system over the next 5 years, which will
generate revenues of about 1.5 billion euros starting from 2025.
Despite the COVID 19, the Company for the 2nd quarter of 2020 entered a positive trend
compared to the previous year of the same quarter:
1. Income achieved 16 billion euro;
2. Operating profit grew 912 million euro;
3. Free cash flow increased by more than 1 billion euros.
B. FINANCIAL ANALYSIS
Part 1 – Investor Returns
Dividend Coverage Ratio:
Particulars 2019 2018 2017

Dividend Coverage 1.70 1.46 1.93
A dividend coverage is a ratio that measures the number of times a company can pay
dividends out of its earnings. In 2017 the DCR was 1.93 times but in 2018 it dropped by 14%.
A DCR above 2 is considered good, as a rule of thumb. The company was unable to maintain
its dividends level in 2018 against adverse variations in profit that could happen in the
future. However, an increase of 32% in 2019 showed that the company could pay its
dividend from its earning.
Dividend Pay Out Ratio

Dividend Pay Out Ratio 58.94% 68.39% 51.94

The dividend payout ratio measures the percentage of earnings that an entity will pay out as
dividends to its shareholders. The ratio increased by 31% in 2018 yet again declined by 13%
in 2019. In all the years, the dividend payout ratio was more than 50%, indicating that the
company used cash reserves to pay its dividends and might not be effectively investing the
earnings back into its business.
Dividend Per Share:

Dividend Per Share 1.25 1.15 1.15
The dividend per share of the company for 2017 and 2018 was 1.15 and from 2018 DPS
increased to 1.25 in 2019. This increase shows a slight increase in the company's
shareholders' dividend to the company's ordinary shares capital.
Earnings Per Share (EPS) & Price-to-Earnings (PE):

Earnings Per Share £2.12 £1.68 £2.22
Price-to-Earnings 16.03x 16.22x 15.78x
Earnings per share measure how well the company performs in the market. The earning per
share of the company has decreased by 24% in 2018 showing that there was a drop in
earnings attributable to ordinary shareholders of the company in 2018 despite the increase
in the shares but it has improved by 26% in 2019. An increase in EPS indicates a higher value
as investors will be willing to pay more for the shares of DHL as they will have higher profits
with their share price.
The Price to Earnings Ratio shows how much the investors are willing to pay per euro. The
P/E Ratio has increased over the years despite the drop in EPS making investors pay higher
share price presently for growth expectations in the future.
Part 2 – Performance
Gross Profit Margin

Gross Profit Margin 49.37% 48.54% 45.78%

The Gross profit margin helps to indicate the performance of DHL in the niche while
factoring in the COGS. Over the years there has been a steady increase in the revenue
incurred per sector of DHL from 1.83 % (from 2017-2018) to 2.90 % (between 2018-2019).
The cost of sales has also increased over the years by 1.25% even though there was a drop
in 2018. Regardless of % of the increase in revenue over the years is higher than the %
increase in the cost of sales also the margin is way above the sector average of
approximately 25%
Operating Profit Margin

Operating Profit 6.52% 5.14% 6.19%
Margin
Operating profit margin has increased over the year by 27% after its drop in 2018 by 17%.
The income earned from the disposal of assets has increased trice in 2019 compared to the
previous years and this led to the increase in the operating income thereby an increase of
30.6 % in the operating profit to 4.1 billion which is indeed a new record for the group. Even
with the increase in operating expenses such as depreciation, staff costs the company was
able to achieve its target.
Net Profit Margin:

Net Profit Margin 4.38% 3.61% 4.72%
DHL’S net profit margin has dropped in 2018 due to the increase in finance costs due as the
non-current liabilities owed by the group rose which lead to the fall of net profit margin by
23% between the years 2017 to 2018 but it has again increased in 2019 showing a more
positive result.
Return on Assets Ratio

Return on assets Ratio 8.28% 6.61% 9.86%

There has been a 25% increase in the ROA ratio in the year 2019 which is above the industry
average of 7.6%. A 33% drop in the ratio between the years 2017 and 2018 mainly due to
the investment of DHL in Property Plant and Equipment along with an increase in current
financial assets. Depreciation charges have also increased in the year 2018 due to the
purchase of assets leading to an increase in the depreciation charges and reduction of
profit.
Return on Equity

Return on Equity 19.29% 16.03% 22.11%
The ROE rose by 20.3% in 2019 after its 27.5% drop in 2018 due to the decline of net profit
to 2224. The effect of this is that the company had more funds to pay to its shareholders
which subsequently led to positive effects on the expansion of the company in 2019. The
average ROE of the courier services industry is estimated to be around 14% which is
considerably stronger than its competitors.
Return on Capital Employed

Return on Capital Employed 13.77% 11% 20.11%
ROCE is often considered to be the primary measure to portray the efficiency of the
company. DHL's ROCE has dropped by 47% between 2017 and 2018 which is due to the 60%
increase in capital employed. The non-current financial liabilities rose to 13869 leaving the
group in higher debts compared to the past year. A higher ROCE in the year 2019, therefore,
shows that a larger amount of profits can be invested back into a group which is indeed a
benefit for the shareholders.
Debtor’s Turnover Ratio

Debtor’s Turnover Ratio 48.43 Days 48.82 Days 48.86 Days

DHL'S Debtors turnover ratio has shown a consistent trend of effective collection from its
customers. The average industry benchmark is around 43 days which is good DHL has better
receivable days compared to its competitors like FedEx.
Creditor’s Turnover Ratio

Creditor’s Turnover Ratio 83.35 Days 85.08 Days 80.86 Days
The number of days taken to pay back there has been fluctuating between the years and it
can be seen that the days are reducing thereby signifying the suppliers’ interests in DHL. A
sharp deviation cannot be seen in the number of days over the past 3 years.
Inventory Turnover Ratio

Inventory Turnover Ratio 5 Days 4.5 Days 3 Days
As you can see DHL low inventory days which has an increase over the past 3 years. DHL has
a higher revenue as well as an increase in inventory in 2019 leading to an increase in the
days. Nevertheless, DHL's inventory days are lining with the sector's average inventory days
of 3 days.
Operating Cash Flow Ratio

Operating Cash Flow Ratio 0.36 0.35 0.23
The ratio has increased over the years. This does not show a positive result as the Operating
Cash Flow should be above 1 to show that the company has generated enough cash from
operations to pay off its short-term liabilities. This mainly occurs when the balance of the
liability decreases or that of an asset increases. It can be seen that DHL's operating cash flow
has increased between 2017 to 2019 by 53%. DHL's financial flexibility to pay of its debts
with its current cash flow from operations is stronger when in comparison with the previous
years
Part 3 – Liquidity and Working Capital

Current Ratio (Working Capital Ratio):

Current Ratio(Working 0.95 1.02 1.11
Capital Ratio)
In 2017 the Company was able to pay a short-term obligation because its current ratio was
just above 1. The ratio has started to decrease by 8% in 2018 and a further 7% in 2019. The
main reason for this recession was the recognition of IFRS 16 in 2018 and current financial
liabilities was increased by 2.88 times by comparing it with 2017. The normal indication of
the current ratio is 1:1.
Quick Ratio
Particular 2019 2018 2017

Quick Ratio 0.92 0.99 1.09
The quick ratio started to decrease because of current financial liabilities. In 2018 the
Company recognized additional liabilities from lease liabilities. If in 2017 the Company could
pay current liabilities without needing to sell its inventory, in 2018 and 2019 the Company
was not able to fully pay in short term its current liabilities. The normal indication of the
quick ratio is 1:1
Absolute Liquid Ratio
Particular 2019 2018 2017

Absolute Liquid Ratio 0.18 0.20 0.24
This ratio assesses how much free assets a company has to cover its short-term liabilities.
The absolute liquid ratio of 3 years was less than 0.5 which is below the sector average. It
means that the Company was not able to pay its liabilities in force majeure or unaccounted
risks.
Part 4 – Gearing

Debt Equity Ratio:

Debt Equity Ratio 1.18 1.19 0.47
From the year 2017, we can see a 1.53% increase in the year 2018 and but a decrease again
in the following year. This means that the company was at financial risk in both years but
that of 2018 was more felt than that of 2019 and further shows that the company financed
a significant amount of its potential growth through borrowing. Nevertheless, DHL’s debt-
equity ratio is between 1-1.5 which is good as they are efficiently managing their equity and
debts.
Debt Ratio

Debt Ratio 32% 33% 37%
A decrease of 0.10% in the year 2018 but a further decrease in 2019. In 2018, the debt
burden of the company was higher than that of both the other years. The company was in a
good financial and stable business position as the debt ratio falls below 50% indicating a
lesser financial risk.
Interest Cover:

Interest Cover 4.88 4.22 7.76
Creditors use this ratio to decide whether to lend to the company. From the year 2017, we
can see a decrease of 45% in the year 2018 but a slight increase in 2019. The interest paid
has shot up from 160 to 526 between 2017-18 which is mainly due to the increase in non-
current financial liabilities. Yet the ratios are well above the sector average of 2 showing
that the company was able to pay its finance cost from profit.
C. PROSPECTS & MARKET VALUATION
Market Value of Equity € 38,862 billion

Forecasted Equity Value for Period (2020- € 3,775.67 million
2024)

2019 2018 2017
Debt to Equity Ratio 1.18 1.19 0.47
See Annexure Excel File for Calculations
According to the Fortune 500, Deutsche Post DHL Group is among the 500 largest
companies in the world and is ranked 2nd in the logistics industry in 2019. It is also the
largest postal company in Europe, delivering about 55 million letters to Germany every day.
According to the annual report, the company's profit from postal services reached 4.2 billion
euro, which is 62.2% of the total market, while in other companies the total share is 37.8%.
There is an increase in debt to equity for 2 years, with a slight decrease in 2018 and this
indicates that the Company looks to the future with a positive point, as it can cover all
outstanding debts in the event of an economic downturn.
D. LIMITATIONS OF REPORT
All these ratios that have been reviewed so far have mainly concentrated only on the
Financial Performance of the business. Achievement of these ratios may be linked to a
reward system to motivate managers to improve performance. However, there are
numerous problems associated with the use of financial performance indicators to monitor
performance:
 Short Term & Manipulation of Results – Linking rewards to Financial Performance

could tempt managers to manipulate results to improve short-term goals thereby
achieving the targets but these will have a negative impact on long-term profitability.
 Non-Financial Performance Indicators are largely ignored
 Upon comparison with different companies, the figures could be distorted as each
company uses different accounting policies and practices.
 Full-picture is not conveyed – The use of these short term financial performance
indicators has limited benefit to the company as it does not portray the full picture
of the factors or data that will drive long term profitability.
E. CONCLUSION
From the financial report, it is very clear that the company had a financial crisis in 2018 and it was
part of their policy owing to non-current obligations for the upgrading of their new plant and
facilities. They lent money and maintained the investors' commitments and even increased the profit
margin in 2019 to deal with the crisis. We can understand from the market perspective that the
company is leading a top position than their rivalries, and they still have a pool of tactics in the
coming years that favor the organization. The business analyzes newly emerging market trends that

seek to boost globalization, e-commerce, digitalization, and sustainability to provide its clients with
the highest product services. Hence, Deutsche Post DHL Group has very good growth in the market.

F. REFERENCE LIST
1) Deutsche Post AG DHL Group (2017). DPDHL 2017 Annual Report.

2) Deutsche Post AG DHL Group (2018a). DPDHL 2018 Annual Report.
3) Deutsche Post AG DHL Group (2018b). DP-DHL has “another good year”, despite
tighter margins in air and ocean. [online] The Loadstar. Available at:
https://theloadstar.com/dp-dhl-another-good-year-despite-tighter-margins-air-
ocean/ [Accessed 2 Nov. 2020].
4) Deutsche Post AG DHL Group (2019). DPDHL 2019 Annual Report.
5) Forbes (2019). Global 500. [online] Fortune. Available at:
https://fortune.com/global500/2019/search/?industry=Mail%2C%20Package%2C
%20and%20Freight%20Delivery [Accessed 2 Nov. 2020].
6) Neuffer, C. (2020). Aug 05, 2020: Deutsche Post DHL Group has successfully
weathered the crisis so far: Significant increase in revenue and operating profit in the
second quarter. [online] DPDHL. Available at: https://www.dpdhl.com/en/media-
relations/press-releases/2020/deutsche-post-dhl-group-financial-figures-h1-
2020.html [Accessed 2 Nov. 2020].

ANNEXURE
A.1 Annexure 1 Ratio Financial Analysis, Income , Balance Sheet and free cash
flow forecast.xlsx.\
https://heriotwatt-my.sharepoint.com/:x:/r/personal/vca2000_hw_ac_uk/Documents/Annexure
%201%20Ratio%20Financial%20Analysis,%20Income%20,Balance%20Sheet%20and%20free%20cash
%20flow%20forecast.xlsx?d=wd6a115243bc047248e917fe58313432e&csf=1&web=1&e=u86WaB
Submission form Coursework:

https://heriotwatt-my.sharepoint.com/:w:/r/personal/vca2000_hw_ac_uk/Documents/submission
%20form_group%20coursework%20(2020-2021).docx?
d=w29b17ac8e5044a50ab0c6f5b4498f3ca&csf=1&web=1&e=yFdIN4
APPENDIX


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Financial Analysis Report

Heriot-Watt University, Dubai – Edinburgh Business School

Financial Analysis Group Assignment

Instructor – Dr. Milind Vinod

VARUN ABRAHAM SHARON MARIAM IDICULA

Date: 2th November 2020 Page 1 of 16

Date: 2th November 2020 Page 2 of 16

To submit a report to Prof. Lorna Campbell, with recommendations on investing invest

Deutsche Post AG DHL Group is strongly recommended by SAVAK Investments to be part of

A. MANAGEMENT DISCUSSION AND REVIEW

The company boasts worldwide transport statistics such as:

1.Leader in the air cargo market;

2.Position leader in contract logistics;

3.Sea shipping market 2nd place;

Date: 2th November 2020 Page 3 of 16

1. Income achieved 16 billion euro;

2. Operating profit grew 912 million euro;

3. Free cash flow increased by more than 1 billion euros.

Part 1 – Investor Returns

Dividend Coverage Ratio:

Particulars 2019 2018 2017

Dividend Pay Out Ratio

Particulars 2019 2018 2017

Date: 2th November 2020 Page 4 of 16

Dividend Per Share:

Particulars 2019 2018 2017

Earnings Per Share (EPS) & Price-to-Earnings (PE):

Particulars 2019 2018 2017

Gross Profit Margin

Particulars 2019 2018 2019

Date: 2th November 2020 Page 5 of 16

Operating Profit Margin

Particulars 2019 2018 2017

Net Profit Margin:

Particulars 2019 2018 2017

Return on Assets Ratio

Particulars 2019 2018 2017

Date: 2th November 2020 Page 6 of 16

Particulars 2019 2018 2017

Return on Capital Employed

Particulars 2019 2018 2017

Debtor’s Turnover Ratio

Particulars 2019 2018 2017

Date: 2th November 2020 Page 7 of 16

Creditor’s Turnover Ratio

Particulars 2019 2018 2017

Inventory Turnover Ratio

Particulars 2019 2018 2017

Operating Cash Flow Ratio

Particulars 2019 2018 2017

Part 3 – Liquidity and Working Capital

Date: 2th November 2020 Page 8 of 16

Particulars 2019 2018 2017

Particular 2019 2018 2017

Absolute Liquid Ratio

Particular 2019 2018 2017

Date: 2th November 2020 Page 9 of 16

Particulars 2019 2018 2017