"We are successful despite weak economic tailwind"
Deutsche Post DHL Group once again posted strong earnings in the third quarter of the current financial year. The world's leading mail and logistics company recorded EBIT of EUR 755 million, registering the best third quarter in its history. In an interview, CEO Frank Appel explained how the company is benefiting from the dynamic development of the e-commerce market and what expectations the Group has for its business performance in the coming years.
CEO Frank Appel
Mr. Appel, Deutsche Post DHL Group has built on the strong results of previous quarters by significantly increasing its operating profit in the third quarter of 2016. How do you view the company's recent business performance?
Frank Appel: We are very satisfied with the way the current financial year has gone to date. In the third quarter, we posted a record operating profit for the fourth time in a row - and did so in an economic environment with weak tailwind. The IMF expects global trade to grow by no more than 2.3 percent this year, and global economic growth is proving to be markedly slower than anticipated in long-term projections. Against this backdrop, our positive figures for the third quarter demonstrate once again that we can grow our business even with weak economic tailwinds. Clearly we have set the right priorities with our Strategy 2020 and are making good progress with its implementation. We have been able to consistently tap new opportunities for growth in all of our business units, thanks particularly to the continued momentum generated by e-commerce. Cumulatively, this has led to rising profitability in all our divisions.
Let's take a closer look at the individual divisions. How well did things go for the Post - eCommerce - Parcel (or PeP) division?
Frank Appel: In the third quarter, PeP saw marked gains across nearly every important indicator. Operating profit more than doubled - which was an outstanding development supported in part by the absence of last year's strike effects. Revenue in our mail business remained largely stable. Although volumes declined due to the overall structural trend, the postage stamp price increase at the beginning of the year boosted our performance at PeP. Once again, the eCommerce - Parcel unit provided strong momentum. The Parcel business in Germany, Parcel Europe and eCommerce all reported double-digit growth in revenue. Thanks to our outstanding service quality, our efficient network and innovative solutions, we were able to further expand our market-leading position in the high-growth e-commerce segment. For example, we now also offer scheduled delivery of parcels in the evenings throughout Germany. We are not only the innovation leader on the market, but also a pioneer in sustainable solutions. With our StreetScooter fleet of electric delivery vehicles that we ourselves developed, we are now able to provide quiet and climate neutral delivery in an ever-increasing number of cities. This is only one example of the new ideas that enable us to tap further opportunities for long-term growth. At the same time, we are not losing sight of the foundation of successful financial performance at PeP: active, strict cost management that secures profitability.
With Parcel Europe, you announced the development of a "United Parcel Nations of Europe". What progress have you made thus far?
Frank Appel: We are convinced that in the coming years, internet trade will offer enormous potential for growth not only within individual markets but also across borders. We are therefore using the know-how we have acquired in Germany to build up a strong parcel infrastructure in more and more European countries. With our partnerships in Hungary and Slovenia, we have now expanded our parcel network into 18 countries. We also intend to use the planned acquisition of UK Mail to press forward with our expansion into the United Kingdom, the largest e-commerce market in Europe. Spain and Portugal will be added in the coming year.
Does the boom in e-commerce also offer growth opportunities to the DHL divisions? In Express for example?
Frank Appel: Absolutely. The Express business to date has been dominated primarily by B2B customers. However, we have also been able to attract a growing number of B2C customers with our services. In the premium segment, to give you an example, our global Express network is increasingly being used to ship designer fashion and high value tech products. As a result, e-commerce is increasingly becoming a driver for growth in the Express business too. We were able to expand our leading market position in international time-definite (TDI) shipments even further, with a rise in daily volumes of 6.8 percent in the third quarter. At the same time, we are continuing to focus on disciplined yield management. With organic revenue growth of 5 percent, Express remains the fastest growing division in our Group, and we continue to be very pleased with the division's earnings as well. The slight decline in reported EBIT is solely attributable to a positive effect in the prior year. Adjusted EBIT was up 19 percent year-on-year.
Do you think the momentum at Express will continue through the coming years?
Frank Appel: We are clearly moving forward on that assumption. This is why we are continuing to invest heavily in our infrastructure. In Singapore, for example, we recently brought our new South Asia Hub online. At Leipzig Airport we have expanded the shipment processing capacity of our European Hub by 50 percent with our new facility. The cornerstone of that investment is a one-of-a-kind sorting system that now allows the automated processing of even heavier express shipments. This demonstrates how we are employing innovative solutions both to improve offers for our customers and to enhance background processes in order to continually grow our margins.
What about your DHL division Global Forwarding, Freight?
Frank Appel: After a year of intense work we can reaffirm that the turnaround in the division is continuing and the positive earnings trend of the past four quarters is sustainable. Our measures are effective, even if we still have a lot to do. We are on the right path and taking major strides in advancing our business quarter by quarter, even if the drop in freight rates still prevents this progress from being reflected in revenue. At the same time, we are endeavoring to be ever closer to our customers. DHL Freight recently launched a virtual freight market place called CILLOX, a digital platform designed to bring shippers and transport companies together.
Let's move on to the third DHL division - Supply Chain. How did it perform?
Frank Appel: Supply Chain performed well. Operating profit improved by more than a third compared with the prior year, rising to EUR 137 million. At 4.0 percent, the EBIT margin reached the target corridor of 4 to 5 percent for the first time, a target outlined in Strategy 2020 for Supply Chain. New business also continues to develop very well. In the third quarter the division concluded additional contracts worth more than EUR 300 million with both new and existing customers - particularly in the Retail, Consumer and Technology sectors. In addition, as an omni-channel service provider and in terms of e-fulfillment, the Supply Chain division is also increasingly benefiting from the boom in e-commerce.
The Group's operating profit now totals EUR 2.4 billion after the first nine months of the current financial year. What are your expectations for the rest of the year?
Frank Appel: Given the positive performance in the first nine months, we continue to expect that we will be able to increase our operating profit to between EUR 3.4 billion and 3.7 billion, even with no significant economic tailwind. The prospects of achieving this are good. Thanks to the Christmas season, the final quarter of the year is generally our strongest by far. With regard to EBIT - assuming we will meet our guidance - 2016 will definitely be a record year. More will follow if we achieve our mid- to long-term objectives. And with our Strategy 2020, we are perfectly positioned to do just that.