"Accelerating organic growth"
Deutsche Post DHL presented its "Strategy 2020: Focus.Connect.Grow." With "Strategy 2020", the Group looks to build on the success of the past several years and to further establish its leadership role in the global logistics industry. CEO Frank Appel explains the core elements and objectives of the new strategy.
CEO Frank Appel
Mr. Appel, your "Strategy 2015" still has over one and a half years on the clock. Why come out with the new strategy so early?
Frank Appel: Our management horizon is long term, so we make sure to anticipate and prepare for changes in the market and competitive environment that could present new risks or new opportunities. Moreover, we much prefer to provide answers before the questions get asked, especially when it concerns our strategic priorities beyond 2015, which are so important to our future. But there's also another reason: by announcing our new strategy early, we take advantage of the positive momentum generated in the past several years by the successful implementation of "Strategy 2015" - both within the organization and for the market. We want to use this momentum to power the next big growth stage as an organization. So it's a conscious decision on our part to accelerate development at a time when we are feeling the full impact of our "Strategy 2015".
How would you characterize the new Strategy 2020? Is it merely a continuation of Strategy 2015 or a leap into new territory?
Frank Appel: It's basically a combination of the two. We are building on our proven strengths and, at the same time, opening up new profitable growth opportunities. "Strategy 2020" is not a revolution; it is the evolution of our "Strategy 2015", which is a big success. We have demonstrated over the past several years what we're capable of, and have begun to unleash the tremendous power of our organization. We've made great strides towards achieving our strategic and financial objectives - and are gradually getting closer to unlocking our full potential. In 2009, we first introduced our goals of becoming the investment, provider and employer of choice within our industry. Since then we have made significant progress in all three areas towards achieving this goal. Our business model is robust. There is no need to reinvent ourselves. In the next phase of our corporate development we will build on this foundation and accelerate our organic growth - by taking better advantage of our global platform, as well as the tremendous capabilities of our organization and the people across our Group.
What message does your strategy send to the market, and to the competition?
Frank Appel: We have every reason to look to the future with confidence - and not only because of the success of the past several years. Deutsche Post DHL's global platform - along with its broad expertise and its distinctive stakeholder orientation - is unique to the logistics industry. The Group has the potential to become the driving force in the logistics industry - and the company that defines our industry worldwide. We not only want to be the most global company in our industry, but also the clear leader in quality and customer orientation. In the future, when people think logistics, we want them to think Deutsche Post DHL. This is our aspiration and, at the same time, our promise to the customer.
The new strategy is built on three pillars: FOCUS, CONNECT and GROW. What does this mean exactly?
Frank Appel: FOCUS basically means not getting distracted; we stay focused on our existing strengths, with the goal of further expanding our margins in the future. Our portfolio - with our two main areas of activity and four high-performance divisions - has proven to be a success, so we won't be changing this. Logistics will remain our core activity. At the same time, we stay committed to our MAIL business and will continue to expand the MAIL division into high-growth segments. CONNECT is mainly about working even harder on our internal processes to become even better for our customers in the future. Quality leadership and consistent excellent service are the keys to long-term business success. How will we achieve this? One example is the specialist training we plan to roll out for the employees at our company, from managers to the front line. This is a new initiative for our Group, and unique in our industry. We will also work to strengthen connectivity within the organization. Another important area is the development and commercialization of tailored, climate-friendly solutions for our customers as part of our GoGreen program, which contribute to both environmental protection and our success as a business. The GROW aspect is pretty self-explanatory. We will be tapping new market opportunities, including new segments, to make sure our growth remains above market average. We plan a significant expansion of our business in emerging markets, and will build on our leading position in eCommerce-related logistics in Germany, Europe and beyond. The emphasis is on organic growth, through expansion of some businesses into new countries and regions, and through tailored solutions that respond to ever-evolving customer requirements in both existing and new market segments.
In Germany, Deutsche Post DHL is the clear market leader in the parcel business. How do you plan to export this success into other markets?
Frank Appel: First of all, we're not starting from scratch. We already have a strong presence in many markets throughout Europe and beyond - in the parcel business or with related services in the B2B segment. Second, there are several parcel markets that are structured similar to Germany, especially in Europe. We plan to enter or expand these markets gradually over the next several years and grow into an European parcel services provider. In addition, it is a natural next step for us - as the most global company in our industry - to build on our existing business and tap opportunities in eCommerce-related B2C services also in international markets beyond Europe. Overall, we think we have a good chance of becoming the world's leading provider of eCommerce logistics services in the next few years.
You are focusing especially on emerging markets. Isn't that very risky given the current uncertainty?
Frank Appel: We certainly do not underestimate current geopolitical risks. Nor are we turning a blind eye to the recent trend of increased economic uncertainty in several important regions and markets. But all of this does not change the fundamental shift of economic "weight" away from the developed markets and towards the emerging economies. This trend will continue, and for a global company such as ours, it presents both a challenge and an opportunity. We plan a targeted expansion of our presence in key emerging markets; this will increase the share of emerging market revenues in relation to total Group revenues from currently more than 20 percent to approximately 30 percent by 2020. But we will of course also continue to drive growth in the developed markets to capitalize on the opportunities there as well. Our most recent investments in our Express network in the USA and Germany, and our planned European parcel offensive are good examples of this.
You continue to emphasize organic growth. Why not take advantage of acquisitions as a way to grow over the next few years? You're surely strong enough to do this.
Frank Appel: Our M&A strategy has not changed. We will continue to make smaller additions to our portfolio as opportunities arise in order to support targeted growth strategies in specific segments. But we do not have to rely on large M&A transactions to drive significant growth. On the contrary: we have the advantage of not having to take on the risk associated with M&A because we have established a platform over the past several years that focuses on organic growth. For us this is clearly the preferable option. This Board is not interested in financial or strategic risk-taking. Instead, we will stick to our strengths, maintain our focus on cash generation and continue to make smart, efficient investments in building on our strengths.
Your investors are probably even more interested in the fruits of your new Strategy 2020. What are your financial objectives?
Frank Appel: We see an acceleration of revenue growth over the medium term due to the expansion in emerging markets and the forced international expansion of eCommerce logistics services. The positive earnings development will continue as well. With the EBIT target for 2015 remaining between EUR3.35 billion and EUR3.55 billion, we expect the Group's operating profit to grow more than 8 percent per year on average between 2013 and 2020. DHL will remain the most important earnings driver with annual EBIT growth of around 10 percent on average. But after several years of consolidation and stabilization, the MAIL division will also contribute with EBIT growth at about 3 percent per year on average over this same period. I would sum it up as follows: even with the significantly increased earnings level achieved over the last several years, our new Strategy 2020 will enable us to maintain a solid growth trajectory beyond 2015 and significantly increase our profitability year by year.