PeP failures were of our own making – now we go forward, says DP-DHL's Appel

Failings at Deutsche Post-DHL that led to a cut in its earnings forecast for 2018 by €1bn were “homemade”, according to chief executive Frank Appel. 

At the logistics giant’s annual general meeting this morning, he pointed to an operating model that had “become too distracted by gaining market share”. 

He said: “2018 was an exception; we did not meet our forecast, Deutsche Post shares lost 42%, and there is no escaping these truths.

“This was not the market’s fault, and it wasn’t the industry’s fault. Our problems were homemade, and we have lost trust.” 

The source of the problems proved to be the Post-e-Commerce-Parcel (PeP) division, which year by year has struggled to match the success of the company’s other divisions. 

Midway last year, the group revised its annual earnings forecast downwards by €1bn, leading to the closure of the PeP division and its separation into e-commerce, and the Post & Parcel division in Germany. 

“At PeP, we earned just under €700m, around €800m below the previous year, but we have now set the right course,” Mr Appel continued. “This cost money and put pressure on earnings in the short term, but it will help us to significantly improve quality.” 

The structural changes will see the company divest businesses in Germany not associated with the Post & Parcel division and resulted in a one-off €500m cost. 

Mr Appel said that while this “hurt”, the decision was the right one and would “set the stage” for the rest of this year and as the company moves forward. 

“The bottom line is that in the PeP division we were focused on the wrong things; we increased our market share but paid too little attention to costs and income,” he added. “We started many new things and did too little for the actual business – but we’re straightening that out again, right now. 

“I don’t believe in miracles, I believe in convincing strategies that are actually implemented and, after a few corrections, we are back on track and we’re stepping on the gas.” 

Underscoring PeP’s failure is perhaps the strength of its other divisions. DHL reported profits of some €2.9bn, while DHL Express set a new record as its income surged 12.1% and its freight forwarding business recorded a 50% increase in profits. 

Mr Appel said: “In 2019, we will take a big step forward, and are positioning ourselves better at Post & Parcel Germany.” 

He added that while progress would not be “immediately reflected”, the focus was there, with expectations for a total group profit of between €3.9bn and €4.3bn. 

As it stands, Q1 numbers look optimistic, with all five divisions recording growth, as revenue climbed 4% to €15.4bn, amounting to €1.2bn in operating profits. 

“We will continue to grow profitably, and our promise for 2020 is group-wide operating profits of more than €5bn,” said Mr Appel. 

“This is ambitious, but not excessive, and it is the only way we can invest in our network and in work with a future.”