"We made significant progress on our strategic initiatives"
Deutsche Post DHL Group has today presented its figures for the 2015 financial year. The world's leading mail and logistics group increased revenue and fulfilled its EBIT guidance which was adjusted in October, including a strong fourth quarter. In an interview, CEO Frank Appel explains what initiatives were taken in the previous year and how the company intends to achieve the goals it has already communicated for 2016 and beyond.
CEO Frank Appel
Mr. Appel, how do you evaluate the performance of Deutsche Post DHL Group in 2015?
Frank Appel: As we have continually emphasized, 2015 was a year of transition for us. In 2015 we worked hard to lay the foundations for the lasting success of "Strategy 2020" and, with that, for long-term, profitable growth. To achieve this, we undertook important initiatives in all our divisions and also recorded some short-term negative effects in our results. This has partially overshadowed what was a solid operating performance. In light of our efforts, we are satisfied with our achievements - especially during the fourth quarter, which was operationally the best in our history and which clearly demonstrated the fundamental strength of our business. As such, I am convinced that Deutsche Post DHL Group is ideally positioned to remain the driving force in logistics and we will be able to build on past success in this and future years.
How do you assess the performance in the Post - eCommerce - Parcel division?
Frank Appel: Overall very positively. First of all, our Christmas business was extremely strong, and this translated into a very good fourth quarter. Second, we are continuing to make up for the structural decline in our traditional letter mail business mainly through a parcel business that is continuing to demonstrate very dynamic growth, driven by the boom in e-commerce, but also through digital offerings such as E-POST, which has now reached break-even. Third, we never rest on our laurels, and have continued to build on our position in the past year. The fact that EBIT for PeP was lower than previous year despite the robust increase in revenue from the parcel business can be attributed to non-recurring effects, predominantly the impact of the strike in the middle of the year. The strike ended with a wage agreement that gives us planning security in the medium term. Therefore, at PeP we are now free to consistently forge ahead with our growth strategy in the parcel business, both in Germany and abroad. We have recently expanded our business into Slovakia, Austria, Sweden, France and Thailand - and we will continue to look at other markets. In light of our position as a leading service provider, we have the financial means, the network, and the expertise to reap even more benefits from the dynamically growing e-commerce business in all regions of the world.
As before, DHL's Express division was a stand-out performer. What is driving this long-running success?
Frank Appel: Starting from what was already a very high level in the previous year, the Express division has once again achieved a double-digit increase in EBIT for 2015. This is an excellent achievement of which we are very proud. It is not only thanks to our highly motivated employees but also to our global network, which is the best in the industry. Over the past year, we have invested heavily again in our infrastructure, increasing the capacity of our hubs in Cincinnati, Leipzig, and Brussels. This allows us to create a framework for the additional growth that we continue to expect, despite current economic uncertainties. Despite being satisfied with the continuing positive performance of our Express division, however, we cannot afford to be complacent in such a competitive industry. We will therefore continue to make significant investments in expanding our hubs and our air fleet, while constantly improving our service quality. Outstanding performance from motivated staff with a superior infrastructure and dedication to excellent customer service - this combination is the key to lasting success.
Do you see prospects for Global Forwarding, Freight to achieve this kind of lasting success as well? Has the turnaround been realized in the division yet?
Frank Appel: In the forwarding business, we undoubtedly still have a lot of work to do. But we are on the right track. The operational and structural measures that we introduced last year to improve the operating performance of the division are clearly gaining traction. Our promise that progress would become visible as early as the second half of the year has been kept. Fourth quarter EBIT in Global Forwarding, Freight increased for the first time year over year since 2013, and that in fact significantly. I am confident that this positive performance will continue in the coming quarters. However, for full-year 2015 we recorded, as expected, negative EBIT, mainly due to the substantial one-off charges we recognized in connection with the IT renewal in the division. The reorientation of our approach was necessary and had a short-term negative impact on our results, but it is the right approach for the division. We are now moving forward with smaller, pragmatic steps and have already implemented some initial changes.
How do you assess performance in the third division of DHL, Supply Chain?
Frank Appel: We have invested significantly in restructuring activities in 2015 and with this made considerable progress on our optimization program. The operating business is at the same time performing very well. We continue to secure a considerable volume of attractive new business. From this year onwards, the non-recurring restructuring charges will be outweighed by the expected benefits from those investments.
Despite the progress made in many areas, ultimately, the Group's full-year figures for 2015 show a decline in earnings. What does this mean for your shareholders?
Frank Appel: The decline in EBIT compared to the prior year is entirely due to the one-time effects we mentioned previously. At the same time, we have seen that our business model is fundamentally intact and our strategy is robust. In addition, we are continuously improving when it comes to generating cash from the operating business; in any event, in 2015 we clearly exceeded our target of at least covering the previous year's dividend out of our cash flow. Therefore, the Management and Supervisory Board will propose a dividend of 0.85 Euro per share to the Annual General Meeting. This continues to be consistent with our stated corridor for the payout ratio of 40 to 60 percent of consolidated net profit adjusted for one-time effects in line with our Finance Policy.
And, you've initiated a major share buy-back program for the first time. What was behind that decision?
Frank Appel: This step is consistent with the finance policy we introduced in 2010, where we identified share buy-back programs as one of the priorities for the use of excess liquidity. The strength of our balance sheet allows us to execute this program while continuing to invest in our Strategy. We see the measure as a clear expression of our confidence in Strategy 2020 and the future prospects for Deutsche Post DHL Group. The buy-back will be accretive from both a cash flow and earnings-per-share perspective.
What are your expectations for the current year?
Frank Appel: Once again this year, it appears that we cannot count on a strong economic tailwind. However, the global economy will once again see moderate growth. The slightly weaker growth in China is, in my opinion, more of a normalization than grounds for excessive concern. Our Group has clearly demonstrated in the past that it is able to grow, even in a weaker economic environment, thanks to our global presence and clear focus on the most dynamic segments of the market.
What does this mean with regard to earnings in the current year?
Frank Appel: We are again confirming our targets for 2016. We continue to expect that EBIT will increase to between EUR 3.4 billion and EUR 3.7 billion. Why am I so confident that already this year we will return to the originally anticipated growth path and achieve an increase in EBIT of at least one billion? For three reasons in particular: First, the non-recurring effects which were a setback for us in 2015 will not be repeated. Second, in 2016 we will increasingly see the positive effects of the structural improvements that we initiated or have already implemented in the individual divisions. We made significant progress on executing strategic initiatives. And third, the investments in growth made in the previous years will increasingly pay off.
And what about your targets beyond 2016?
Frank Appel: Here, too, we stand by our previous projections: Deutsche Post DHL Group continues to forecast that operating profit will increase by an average of more than 8 percent per year for the period from 2013 to 2020. This target entails a lot of work - yet it is realistic as it is based on a clearly focused strategy and sound planning. We are now only looking towards the future - and are again fully on track.