"We are reaping the fruits of our strategic initiatives and efficiency measures"
Today, Deutsche Post DHL released its second-quarter figures for 2010. The Group's underlying EBIT nearly doubled compared with the second quarter of 2009, and revenue generated double-digit growth. In an interview with Deutsche Post DHL News, CEO Frank Appel explains the reasons for the company's strong performance in the quarter and the Group's outlook for the rest of 2010 and future years.
CEO Frank Appel: "The Group will unlock its full potential step by step"
DP DHL News: In the second quarter, Deutsche Post DHL measurably increased both its operating earnings and revenue once again. What were the reasons for this positive performance?
Frank Appel: First of all we are now reaping the fruits of our succesfully implemented strategic initiatives and efficiency-enhancing measures as well as the restructuring that we have largely completed, in particular at DHL. We also received a boost from the continuing recovery of the global economy. As the world's largest logistics group, we profit in an above-average way from our strong presence in all economically strong regions as well as from our broad range of services as soon as international trade flows rise. This has a very positive effect on our revenue and on the margins that we can generate in DHL's important business areas. Combined, both factors produce very pleasing results, as we are seeing at the moment.
As you just mentioned, the Group’s business is closely tied to the performance of the world economy. At the moment, the economy is playing into your hands. How long do you expect this to remain this way?
When you read the latest growth forecasts issued by economic experts, we certainly have no reason to be pessimistic - even when you keep all of the possible risks and uncertainties in mind. Every day, we experience the economy's dynamic expansion ourselves, particularly in Asia, where our revenue increased by nearly 40 percent in the first half of the year. The economy is also growing considerably in Latin America, the Middle East and the United States. Thanks to our strong position in the world's growth markets, we are greatly benefiting from this growth. On the other hand, our business in Europe is somewhat restrained. But due to our broad international diversification, we can make up for this. We are clearly aiming at generating growth during the second half of the year that is above the increase in global trade volumes.
In the economic environment you have just described, DHL is becoming increasingly important for the Group. Which role will this pillar play in the future?
We have indeed performed extremely well during the second quarter in all DHL divisions as revenue rose at double-digit rates and earnings mostly surged even higher. This clearly demonstrates that DHL has become the growth driver in our company. And that is to remain that way in the future. This was exactly the reason for our systematic expansion into these business areas in recent years - which also included major acquisitions. In carrying out this expansion, we turned Deutsche Post DHL into the world's largest and leading provider of logistics services and reduced our dependence on the traditional postal business in Germany. As we move forward, the Group will now unlock its full potential step by step. And DHL will play a key role in this process.
You just said it yourself: The Group - and all DHL divisions - have not yet reached their full potential. What do you intend to do over the next few years to change this situation?
We want to provide our customers with services in all of our business units and on all continents that make their lives easier. For DHL, this means specifically: We will work with our customers to develop logistics solutions that simplify their processes. We firmly believe that this is the best way for our company to grow and add market share. In regional terms, we are focusing in particular on emerging economies like India.
In terms of sectors, we see really exciting opportunities for us in the area of life sciences. And in terms of customer groups, we are especially targeting global companies and those that are determined to become such companies. We know exactly where we have to channel our energies. Thanks to our leading market position and our systematic focus on the customer need, we have a stronger foundation than any other logistics company in the world to make our growth initiative for DHL a success.
And the MAIL division is falling victim to a slow decline?
You cannot talk of a decline when year-on-year revenue remains virtually unchanged as it was in the second quarter even though the division lost one important customer with Quelle. And you have even less reason to talk of a decline when you take a look at operating earnings: Thanks to our strict cost management and very pleasing trends in the parcel business, we boosted underlying EBIT by more than 40 percent. Overall, the MAIL division's performance is sound once again. At the same time, we have to acknowledge that the traditional letter is increasingly being replaced by electronic media and that this trend cannot be stopped.
We are responding to this challenge by taking such steps as launching the "E-Postbrief". We introduced this new product less than a month ago, and the first few weeks of operations were very successful. With the E-Postbrief, we are bringing the confidentiality of the traditional letter to the Internet. There is a growing market for this service, and we intend to get the biggest-possible piece of this pie. You should also keep in mind that paper forms of communication will continue to exist. Here, we are and will remain No. 1 in Germany. Furthermore, we can fully draw on our strength as THE postal service for Germany in the highly promising parcel business. Added together, the outlook for the mail business may not be bright, but it is hardly as gloomy as some observers would like to paint it.
The competitive landscape in the MAIL business could change dramatically, not least because of the shift to electronic communication. How will you respond to this challenge?
We will prepare the MAIL division to face the future and shore up its profitability on a long-term basis. To accomplish this goal, we are continuing to work extremely hard on our operating performance, particularly by further optimizing internal processes. We are also systematically pressing ahead with the transformation of our core business in all functions and areas by taking such steps as investing in new technologies and implementing our new retail-outlet sales concept with Postbank. And, last but not least, we are investing in growth, as recently evidenced by the introduction of the E-Postbrief. The end result of this work will be a more capable, technologically leading company that completely integrates both electronic services and physical communication. In taking this approach, we will have created the conditions by 2015 that will enable us to think again about growth in the MAIL division - no matter what the competition does.
Let's move from the bold visions back to the hard facts of life for a moment: After you earned more than EUR 1 billion from operations in the first two quarters, what can be expected for the entire year of 2010?
In announcing our quarterly results, we also raised our earnings guidance. Originally, we forecast underlying EBIT of EUR 1.6 billion to EUR 1.9 billion. Given our strong performance in the first two quarters and the expectations for continued moderate growth in the world economy, we believe that we will reach a level of EUR 1.9 billion to EUR 2.1 billion by the end of the year. For the first time, DHL will probably make a bigger contribution to earnings than the MAIL division. And it is important to note in this context, that this will not happen because the MAIL figures will be lower than initially expected. Rather, it will be because DHL will probably earn more than we expected at the beginning of the year with a total of about EUR 1.3 billion. This will be a crucial milestone for us.
You seem to systematically start off with a low figure in your earnings guidance and then raise it as the year progresses. Why do you create such low expectations, and isn't your guidance for 2010 still too low?
Our earnings guidance reflects our realistic expectations at the point in time that we issue it. We do not understate our situation simply for tactical reasons. But one point is true: We do take a rather cautious approach to this matter and make conservative calculations. In terms of the stock market, though, this is the better approach to take than the opposite one. When you have to lower your guidance, you will be punished for it - and rightly so. As far as the question about earnings for the entire year of 2010 goes: We would be perfectly happy if we were to finish the year within the new range. And should the final figure turn out to be higher, I am certain nobody will complain to me.
Where do you see net profit at Deutsche Post DHL over the long term, that is, after you have implemented your "Strategy 2015" and have fully tapped the company's potential?
For 2011, we expect the positive earnings trend to continue. And I do not see any reason why we - barring any serious crises - should not be able to make further progress in the years ahead.