"We have managed the crisis successfully"
Deutsche Post DHL presented its results for fiscal year 2009 today. The Group's underlying EBIT totaled EUR1.47 billion last year, well above the capital market guidance of at least EUR1.35 billion issued in November. In an interview with Deutsche Post DHL News, CEO Frank Appel discusses the reasons for the Group's good performance amid challenging economic conditions as well as the company's outlook for 2010 and beyond.
CEO Frank Appel
Deutsche Post DHL returned to the black after posting a loss for 2008. Underlying EBIT even surpassed the guidance announced last fall. What generated this positive result?
Frank Appel: We performed really well in 2009 amid very difficult economic conditions. The world economy suffered its worst contraction in decades. Especially in Germany, we experienced an economic downturn unlike any since the end of World War II. Therefore, we were not able to prevent a decline in revenues across all business units.
However, we were able to considerably improve our earnings - in particular due to the effective cost-cutting measures we've implemented. We cut our indirect costs by more than EUR1 billion, a year ahead of schedule. We reorganized our Express business, enabling us to reduce a key loss-making contributor. Moreover, we bolstered our financial stability by selling Postbank. Overall, we can say: We have managed the crisis successfully and exceeded our goals for 2009. Thanks to tight cost management and the progress we have made in implementing Strategy 2015, announced last year, we were able to strengthen our position as the world's leading logistics provider and Europe's largest postal company.
What's your take on divisional performance in 2009? It varies considerably from segment to segment ...
We can justifiably say that all of our business units delivered a solid performance - even though the global economic downturn naturally hit us in some areas harder than in others. In the MAIL Division, we faced two challenges at once: In addition to the global economic crisis, the growing substitution of traditional mail by electronic media is a continuing structural trend. Nonetheless, this division has generally proven to be quite robust, generating very good earnings particularly due to strict cost management. We experienced the biggest decline in revenues in our EXPRESS Division. Besides the economic situation, our pullout from the domestic business in the United States was the main cause of this decrease.
Even so, we were able to increase our EBIT because we reduced our operating costs, integrated the IT platform, optimized processes and streamlined the portfolio as planned. As the world's market leader in air and ocean freight services and a major overland freight forwarder, GLOBAL FORWARDING, FREIGHT certainly felt the impact of the crisis in its revenues as well. However, the drop in earnings could be cushioned as we successfully reduced costs and gained new business. Last but not least SUPPLY CHAIN also performed well. Earnings would have been positive here as well if one of our biggest customers, Arcandor, had not filed for bankruptcy.
What about the fourth quarter? Did Deutsche Post DHL feel a little economic tailwind at the end of the year?
Overall, the second half of the year was better than the first half. For now, we can only say that the headwind has eased: The stabilization of trade volumes seen in the third quarter also continued during the rest of 2009. During the first two months of 2010, the moderate recovery even picked up slightly. Now we can really talk about a small tailwind. Still, the global economic crisis is definitely not over yet. We believe right now though that we have weathered the worst. To us, this means: We will move ahead as planned this year and aim at growing again. Following a long, painful phase in which limiting and mitigating the impact of the crisis kept us busy, we are convinced: Deutsche Post DHL will make further progress in 2010 - in every respect.
What does that mean in detail?
We expect that the global trade volume will moderately recover in 2010 - this will positively affect our revenues. In terms of the Group's underlying EBIT, we expect a significant increase to between EUR1.6 billion and EUR1.9 billion, fueled by powerful earnings improvements in the DHL divisions. There is another point that is for me at least as important as high profitability: We will systematically continue to implement our Strategy 2015, the strategic roadmap we introduced a year ago, and invest in growth. For this reason, we have increased the Group's capital expenditure budget to a total of EUR1.4 billion.
Investments in growth ... Does that mean Deutsche Post DHL will be going on a shopping spree?
No. This year, there might be a few small acquisitions to round out our service range. The focal point will remain clearly on organic growth - primarily driven by innovative solutions. An example: We will launch the "Letter on the Internet" this summer, a milestone in digital written communication and a superior solution for our customers because of its binding, confidential and reliable nature. We will also do everything possible to profit from the e-commerce boom in the parcel business - something we have done extremely well up to now. The main focus of DHL in 2010 will primarily be to prepare ourselves for the growth we expect in the coming years. In the EXPRESS business, for instance, this will mean that we will invest in our air fleet and hubs in order to extend our strong position in the air even further.
Why are you wary about acquisitions? You could definitely mobilize the necessary funding for acquisitions. The best bargains usually turn up at the end of a crisis ...
A conservative financial policy remains a priority for us. As CFO, my colleague Larry Rosen maintains a tight focus on liquidity, the gearing ratio and, above all, the maintenance of our good rating. This is a matter of essential importance to a company like Deutsche Post DHL with its manifold financing needs. Drawing on the successes of our efficiency programs and an economic recovery, we also intend to focus on unlocking the potential of the Group and all of its business segments. In order to do this, we need a certain amount of stability in the company. Most importantly, we don't need acquisitions to fill any strategic gaps in our portfolio.
You say that you intend to continue the systematic implementation of Strategy 2015. One critical element of this strategy is "One DHL," that is, the improved dovetailing of the DHL divisions and the optimal tapping of its potential. What have you achieved here thus far?
We are right on schedule with "One DHL." The name of our Group's strategy already shows where we are heading: The target date is 2015. The process is a long-term undertaking. It is not some spur-of-the-moment activity. We will carefully drive all measures forward. Here are two examples: We have made huge strides in our effort to concentrate control functions. In terms of employee mobility and integration, we are also coming together.
In 2009, 19 percent of our DHL managers were recruited internally from other divisions. We intend to increase this figure to 50 percent by 2015. The restructuring steps taken in recent years are now also beginning to pay off. Overall, we are expecting the underlying EBIT at the DHL divisions to increase to between EUR1.0 billion and EUR1.1 billion this year. That would be more than double the amount from 2009 - and, we expect further increases after 2010.
The gains at DHL are all well and good. But will that be enough to move the Group forward if the MAIL Division shrinks?
The mail business is definitely going through an evolution. But we are prepared for it. Today, we are much more flexible than we were just a few years ago and we are able to react faster to shifting mail volumes. We are also innovative - take the letter in the internet as an example - and we are investing extensively in growth areas such as the parcel business. As a result, MAIL will remain a strong pillar of earnings within the Group for the years to come. This year, we expect our EBIT to be between EUR1.0 billion to EUR1.2 billion. But we have to do even more in the future. We need to lower costs on a long-term basis. This is the only way to bolster profitability and secure jobs in the long run.
Why are you so confident that the Group will have a rosy future? The competition will not just simply give up and go home ...
I would prefer to use the word "successful" and not "rosy." That sounds more like the fruit of hard work. Hard work is still required if we are to expand our market position against our strong competitors. My fundamental confidence comes from the belief that the market will most likely continue to recover in 2010 and 2011. We are ideally positioned to benefit overproportionally from the accelerating global economic recovery. And we will then also be able to make a further step towards sustainably improving our profitability. Looking beyond 2011, that is in the mid- and long-term, I really believe in the strength of our "Strategy 2015." We will remain "Die Post für Deutschland" (The Postal Service for Germany) and become "The Logistics Company for the World."
What about your customers, employees and investors - do they share your optimism?
We have clearly communicated what we expect from ourselves: We want to be the provider of choice for our customers, the employer of choice for our staff and the investment of choice within our sector for investors. And we are making progress in all three of these categories.
How do you measure this progress?
We experience on a daily basis that our customers value our competence, reliability and continued innovation. That is best reflected in the market share gains we are realizing right now as volumes start to increase again. We track the satisfaction of our employees on a regular basis and have significantly intensified the dialogue with our personnel. And the results are clearly positive: Employee engagement is increasing, coming along with a higher level of identification with the company and its strategy.
And when it comes to investors, they appreciate the fact that we have managed this crisis much better than many others. The succesful execution of most components of our capital market program 'Roadmap to Value' has contributed considerably to this positive development. But what is even more important: With our Roadmap we have established a greater awareness within Deutsche Post DHL that increased shareholder orientation is also important for the future success of our company alongside the focus on the customer and attractiveness for our employees.
You seem very confident that Deutsche Post DHL will emerge as a winner from the crisis. Why are you so certain?
First, because we took advantage of the crisis in order to become leaner and more flexible. Second, because we are the clear innovation leader, actively shaping the future of our industry. Third, because we have recognized the mega-trends in our sector, and realized that we can only grow further if we provide our customers with what they need: innovative, sustainable products that make their lives or businesses easier. And, fourth, because we know that we, as a leading company in our industry, can only be successful in the long run if we align our pursuit of profit with our social responsibility.
This broad perception of sustainability, which extends far beyond our commitment to environmentally conscious logistics, is the core of our future strategy: to create both, long-term profitability and social acceptance on the basis of a deep understanding of our customers' needs. I am convinced now more than ever that we will succeed in doing so.