"We had a very successful 2019"

Deutsche Post DHL Group, the world's leading logistics company, can look back on a record year. Group revenue continued to grow in all divisions. With an operating profit (EBIT) of EUR 4.1 billion, the company not only achieved its earnings target, it also reached a new record. Deutsche Post DHL Group plans a further significant increase in earnings for the current financial year. Due to the uncertainties related to the coronavirus pandemic, however, the Group has made its full-year forecast conditional. In an interview with DPDHL Group News, Group CEO Frank Appel talks about the positive development in 2019 and the outlook for the current financial year.

CEO Frank Appel

Mr. Appel, on February 28 you said that your annual targets are as of now excluding any effects of the coronavirus. How do you assess the current situation as it unfolds?

Frank Appel: We are monitoring current developments very closely. The virus is spreading and causing concern and uncertainty in people's minds. Regions have been closed off, factories shuttered. While our broad geographic positioning and our comprehensive portfolio means that we are more resilient and robust than other companies, a global crisis such as the coronavirus does not leave us unaffected. We saw this in our figures in February. If the situation returns to normal quickly, we could still make up the deficit over the course of the year. Our customers will then look all the more to our services as a market and quality leader: As the world's leading logistics company, our employees are familiar in dealing with crises such as supply chain disruptions. Therefore, the situation could by all means yield positive effects for us. What's more, our fundamental growth drivers are sound - above all, the global boom in e-commerce. 

In which areas is the coronavirus particularly noticeable?

Frank Appel: First of all, the virus presents health risks for the around 550,000 employees of ours worldwide, and for our customers and business partners. Their safety is our highest priority. We are therefore following the guidelines of international organizations such as the WHO. As a globally operating company, our risk planning automatically takes into account epidemic and pandemic scenarios on a continuous basis. In addition, we do everything we can to maintain business operations as best as possible and to keep any impacts as low as possible. Nevertheless, we are noticing a slowdown in the movement of goods and merchandise not only to and from China, but also in other Asian countries. These reductions in cross-border trade particularly affect DHL Global Forwarding and Express. The other divisions are only marginally affected at present.

Let's take a look at the annual figures for 2019 that you published today. In your view, how was the past financial year for Deutsche Post DHL Group?

Frank Appel: We had a very successful 2019. We made great progress across all of our three bottom lines - namely, becoming the Provider, Investment and Employer of Choice. We worked successfully on our service quality and significantly improved customer satisfaction. The satisfaction of our employees also continued to improve in all areas surveyed. In addition, we improved our carbon efficiency by 35% compared to 2007 and thereby achieved an important sustainability target for 2019. And - last but not least - we achieved our economic targets and set a new record result.

The Group EBIT grew by more than 30%...

Frank Appel: There are various reasons for the strong earnings performance. First, we continued to grow in all of our divisions. In light of the geopolitical situation and weaker global economic development, this was anything but certain. Just remember the trade dispute between the US and China, and the Brexit negotiations that stretched over months. In addition, one-time effects also had an impact on the result: The comparative figure for 2018 was impacted by the restructuring in the German post and parcel business. In 2019, we also had a positive earnings contribution from the Supply Chain partnership with S.F. Holding in China. But even without these one-time effects, we were able to significantly improve our Group result by 7.6%. That shows that the measures we have initiated are taking effect and we are making good progress towards improving our operational profitability.

Last year you extensively restructured the German post and parcel business. How satisfied are you now with that development?

Frank Appel: 2019 was a good year for Post & Parcel Germany, and we brought it to a strong conclusion with the holiday season. With around 1.6 billion parcels delivered, we set a new record in Germany for the year as a whole. Our investments in infrastructure and improved productivity enabled us to much better handle the rapidly growing quantities of shipments before Christmas compared to previous years. At the same time, we were able to increase average revenues per parcel. And our measures aimed at lowering costs in indirect functions are taking effect. All in all, these three factors led to significantly higher earnings.

Earnings also increased at DHL Express. How was 2019 for this division?

Frank Appel: We are very pleased with the performance at Express. Despite somewhat challenging geopolitical developments, we saw robust growth throughout all regions of the world for the year as a whole. Our globally balanced and broad portfolio helps us with this. In particular, we saw highly dynamic growth once again in the international time-definite (TDI) delivery business. On average, we transported more than one million time-critical shipments per day. Express thereby again achieved a strong operating margin of almost 12%. 

The market was not easy for the forwarding and freight business in 2019. How did Global Forwarding, Freight perform in this environment?

Frank Appel: In 2019, Global Forwarding, Freight was able to build on the positive earnings development of previous years. With an EBIT plus of 18%, the division demonstrated a remarkable performance - despite the fact that the global air freight market actually weakened substantially in the second half of the year due to a weaker global economy. We were able to hold our market share in this difficult environment. At the same time, we were much more cost-efficient - thanks to the continued roll-out of our new IT systems, among other things. We are thereby gradually laying the foundation for raising the profitability of the forwarding and freight business to a competitive level in the medium term, as planned.

At Supply Chain, the exceptionally high operating profit stands out. To what extent was this influenced by the S.F. deal mentioned previously?

Frank Appel: The figures for Supply Chain are indeed distorted by one-time effects. For one thing, in the first quarter we had the extraordinary income from the partnership with S.F. Holding in China. However, we invested part of the returns directly in the planned restructuring, particularly in our British Supply Chain activities. We expect to achieve significant efficiency gains and a sustainable increase in profitability here in the future through greater standardization. Excluding all one-time effects, Supply Chain showed positive growth last year with an EBIT plus of around 8%. At the same time, the division concluded additional contracts with new and existing customers in the amount of EUR 1.2 billion. This gives us a very solid basis for a positive earnings development in the future - also without one-time effects.

How did the youngest division, DHL eCommerce Solutions, perform in its first year of existence?

Frank Appel: eCommerce Solutions developed positively - with very dynamic revenue growth and a strong operating performance in the past year. We have successfully completed the stock taking and portfolio streamlining phase. Earnings were impacted by one-time restructuring expenses, as planned. Once adjusted for this, the division is already operating profitably. We therefore expect eCommerce Solutions to make a positive contribution of EUR 50 to 100 million to the Group EBIT in the current financial year.

Your StreetScooter has generated strong added value in your business, but has not contributed financially. Why did you decide against further pursuing the option of a partnership?

Frank Appel: Thanks to StreetScooter, we have one of the largest electrically operated delivery fleets in the world and have provided substantial momentum for e-mobility overall. We have always said that we do not want to become a car manufacturer. A further scaling of the business without the right partner does not fit our long-term strategic goals. We will therefore convert StreetScooter into an operator of the existing fleet. However, we will continue to rely on e-mobility in our fleet. We are committed to our mission to achieve zero emission logistics by 2050.

You have set ambitious intermediate goals on your path to climate-neutral logistics. And sustainability plays a critical role in your strategy even beyond that. What progress have you made here?

Frank Appel: By 2025 we want to improve our carbon efficiency by 50% compared to the base year 2007. Last year we reached 35% - so we are making good progress. Throughout the Group, we now operate more than 13,000 vehicles with alternative drive systems. Electricity from renewable sources is used to cover 83% of our energy needs. Together with partners, we planted three million trees since 2017. For us, being successful also means making a contribution to society. And we did just that in 2019 through two of our Disaster Response Team deployments after severe flooding in Mozambique and the destruction caused by Hurricane Dorian in the Bahamas. The economy is there to serve the people - that is and will remain a fundamental part of our strategy. And it is another reason that we will not let up in our efforts in this regard.

An important part of your Strategy 2025 is digitalization. What is the Group doing here?

Frank Appel: We are working intensively on various digitalization programs in our divisions. For instance, just last week we communicated our roadmap for Post & Parcel Germany: By introducing new digital services for the dispatch, receipt and tracking of mail and parcel shipments, we are making our services easier to use, making shipment information immediately accessible and our quality therefore much more transparent. The digitalization program as a whole is thus part of the quality initiative at the division.