"We are growing profitably in all divisions"

Deutsche Post DHL Group continued its successful performance in the third quarter of 2017 and is well on track after the first nine months to reach its targets for the full year. In an interview with DPDHL Group News, CEO Frank Appel explains why the world's leading mail and logistics company continues to perform very well and why its outlook for the future remains positive.

CEO Frank Appel

Mr. Appel, how would you rate the results of Deutsche Post DHL Group in the third quarter of this year?

Frank Appel: We are very satisfied with the business performance of the past months. The continued strong performance in the third quarter - once again with a record result - underscores that we are in an excellent position to benefit above average from the momentum in our markets and the further improvement in the global economy. We are achieving profitable growth in all of our divisions and expanding even faster on an organic basis than is reflected in our reported revenue. What's particularly encouraging is that our operating profit continues to grow at a faster rate than revenue. What's more, we are capturing additional market share in many areas and further expanding our leading position through focused investments and groundbreaking innovations. In short, we are expecting another successful year.

Let's take a look at the divisions. How do you rate the recent performance of Post - eCommerce - Parcel, or PeP for short?

Frank Appel: Our people at PeP are doing a great job. The numbers speak for themselves: Organic revenue growth of 4.4 percent and EBIT growth of more than 5 percent show that we are handling the challenging multi-year structural transformation in this area well, whilst at the same time optimally leveraging the market opportunities that present themselves. We are the undisputed market leader in the booming German parcel business, partly because our innovations along the value chain are driving the development of the market. This includes the rapid expansion of our StreetScooter fleet, with which we are setting new standards for emissions-free delivery in urban areas. Internationally, we are continuing to extend our core parcel operations to additional target markets: Parcel Europe has now expanded its activities to 26 countries - with Bulgaria, Ireland, Croatia and Romania being the most recent additions. Our vision of the 'United Parcel Nations of Europe' is becoming a reality, step by step. But we are also driving forward our expansion in e-commerce-related business outside of Europe, the latest example being the launch of a delivery service in Vietnam.

DHL Express also registered another successful quarter. How do you assess the situation of Express and the prospects of that business?

Frank Appel: The Express division continues to give us many reasons to be upbeat - and we see no sign that this is likely to change in the foreseeable future. Average daily revenues in the international time-definite (TDI) delivery business rose by double digits over the prior-year level, driven partly by strong growth in the cross-border e-commerce business. As confirmed by a current study, we are capturing additional market share in all regions of the world and have expanded our position most significantly in Asia. At the same time, we are utilizing our unique global Express infrastructure more efficiently. Combined with strict yield management, this is delivering ever higher margins, which have consistently been in the double digits - in line with the objectives we have set ourselves. And we still see upside potential.

Speaking of margins: You had been targeting a sustained improvement for the DHL Supply Chain division. How has that been going?

Frank Appel: Supply Chain made further encouraging progress in the third quarter. Revenue rose substantially on a currency-adjusted basis, and operating profit also increased. As a result of this development, the margin improved to 4.2 percent. That puts us within the medium-term corridor of between 4 and 5 percent that we are targeting for 2020. This shows that the optimization program at Supply Chain has been a success. We are operating much more efficiently than before - without losing sight of new business. On the contrary, our colleagues in that division have won numerous attractive contracts in recent months, in part because we are increasingly offering innovative services, and not just in the area of automation. One example is our Resilience 360 tool, a platform that enables risk management along the entire supply chain and is so far unrivaled in the industry. It has been especially well received by major customers such as Cisco and Evonik.

You are also winning new business at Global Forwarding, Freight. What do you think of that division's performance in the third quarter?

Frank Appel: The market environment in that area remains challenging - even though we have observed something of a recent recovery there. We are benefiting from that recovery in the form of solid growth in volumes in both the air and ocean freight businesses. However, the pressure on margins is still there, although we have reason to expect the market situation to return to normal following a more stable trend at the end of the quarter. Given all these factors, we have coped relatively well in recent months. The turnaround in our earnings has clearly solidified, as evidenced by the improvement in the third quarter. We regard that as a clear success.

Your fellow Board member Tim Scharwath took charge of this business in June. What's happened since then, and what are the plans for the future?

Frank Appel: I am convinced that Tim Scharwath and his team are setting exactly the right priorities. We have a solid business model and, given our global network and excellent employee engagement, we are best placed to play a leading role in this industry in every respect. The measures Tim has initiated are aimed at exactly that: Our focus is squarely on increasing productivity and efficiency. This is the only way we can sustainably generate attractive returns in a changing industry. We especially want to translate volume growth into earnings growth. Some of our competitors are still doing this better than we are, so we must and will change that. The measures we have implemented to increase profitability are working, even if we still have a long way to go. Our basic approach in this area is quite clear: simplification. This applies to structures and processes, IT and the interfaces to our customers. Our service quality - and with this the basis for the satisfaction of our customers - is already ticking up. The renewal of our IT infrastructure, for example with the rollout of a global transport management system, is also making good progress. Tim Scharwath and his team are working full steam to build on these initial small successes.

With Tim taking over DGFF, you yourself have been able to focus again fully on strategic issues. What is your priority here?

Frank Appel: Digitalization. It will result in deep-seated changes, some of the implications of which are not yet fully clear. On the one hand we're talking about the general transformation of the working world. For us, as one of the world's biggest employers, that is a topic we are already addressing intensively. On top of that, we are of course talking about new products and services, as well as new business models and competitors across our entire business. We are facing this challenge and investing in a variety of innovative approaches. These include, for example, our On Demand Delivery service at Express; the new Packset app that makes sending parcels even easier; our electrically driven delivery robot "POSTBot," which supports our mail carriers in their delivery activities; the expansion of our Saloodo! digital freight platform; the use of mobile robots in warehouses; and the expanded possibilities of augmented reality and Internet-of-Things applications that we are deploying at Supply Chain. We could add many more examples. They all go to show that we have what it takes to shape the image of logistics in the digital age.

Speaking of the future, are you maintaining your previous targets for this year and beyond?

Frank Appel: We are making continuous progress in every aspect. All our divisions have clear strategic priorities, which they are following decisively and resolutely. On the back of our convincing performance so far this year and in anticipation of another very strong Christmas season, we are confirming our forecast for full-year 2017. We are still projecting an increase in Group EBIT to around EUR 3.75 billion. And we are also well on track to achieve our medium- and long-term targets. We continue to forecast an increase in operating profit by an average of more than 8 percent per year during the period from 2013 to 2020.