Deutsche Post DHL Group this morning unveiled its new Strategy 2025, focusing on higher profits, faster growth in core businesses to profit from e-commerce and €2 billion worth of investments in digital transformation over the coming years.
Apart from the clear digitalisation drive, the new five-year strategy is essentially a continuation and refinement of the existing Strategy 2020, with tighter financial targets, but does not appear to represent a major shift in any areas, according to observers. The five divisions – Post & Parcel Germany, DHL Express, DHL Global Forwarding/Freight, DHL Supply Chain and DHL eCommerce Solutions – remain in their current structure.
“Deutsche Post DHL Group has never been in better shape. We are convinced that future growth will come from a consistent focus on our profitable core logistics businesses – and digitalisation will become the greatest lever,” said CEO Frank Appel. “We need not reinvent ourselves. We will digitalise ourselves.”
Emphasising that four major trends – Globalization, E-Commerce, Digitalisation and Sustainability – will continue to impact on the logistics sector in the years ahead, DP DHL said “Strategy 2025 – Delivering excellence in a digital world” will “continue its successful growth trajectory” beyond the current “Strategy 2020” by focusing “even more consistently” on profitable long-term growth in its core logistics businesses.
Furthermore, the German group will be stepping up the digital transformation that is already underway in all business divisions. It will spend about €2 billion on digitalisation measures up to 2025, leading to yearly run rate benefits of at least €1.5 billion by 2025.
Focus on core business under Strategy 2020
Appel emphasised that the previous “Strategy 2020 – Focus.Connect.Grow.” had enabled the group to achieve strong positions in all its core businesses. “Experience shows that we are particularly successful whenever we use our resources and innovative capabilities to drive forward our profitable core logistics business,” he explained.
“For this reason, we have gradually disengaged non-core activities over the last few years and have targeted investment into boosting the profitable long-term growth of our core businesses, such as the quality of our networks and the modernization of our intercontinental fleet for Express.”
"Strategy 2025”: Focus on profitable core and leveraging digitalization
Under the new strategy, each of the five divisions will continue to focus on profitable growth in their core business and achieving market leading margins, with e-commerce remaining a key growth driver. “We are the only company that is able to offer single elements as well as the entire e-commerce supply chain on a global scale. This is our key differentiator”, Appel said.
In addition to focusing on the profitable core, Deutsche Post DHL Group said it sees systematic digitalisation throughout its businesses as a lever for achieving significant progress. The pace of the digital transformation that has already been triggered within the group will be stepped up and until 2025 roughly €2 billion will be spent on initiatives designed to enhance customer and employee experience as well as improve operational excellence.
In particular, Deutsche Post DHL Group will be comprehensively modernizing its IT systems, integrating new technologies, offering its employees targeted advanced training to enable them to use these technologies and, thus, steadily improving its services, processes and standards between now and 2025.
Efficiency will be improved by greater automation and improved transaction processes, for example through warehouse automation and robotics programs. Data Analytics will be widely applied for example to foster routing optimization through advanced algorithms, operational volume prediction and with this optimized resource planning.
“Moving forward, we will bundle our technological capabilities as a Group in global Centers of Excellence. Here we will centrally develop key technologies like Internet of Things, IoT, and then provide them to our divisions. This way we can leverage the strength of our Group to push forward our digitalisation,” Appel explained.
Financial targets: Increase in operating profit to at least €5.3 billion in 2022
By concentrating on its core logistics business and stepping up the pace of its digital transformation, Deutsche Post DHL Group wants to appreciably enhance its overall efficiency over the long term. In tandem with the adoption of “Strategy 2025”, the Group will be modifying the guiding mechanism for its medium-term financial targets.
“Given the growing volatility evident in our markets and in the overall macroeconomic environment, we will be using a more flexible process for formulating our medium-term financial targets. Our guidance will cover a three-year period – for the first time also including a mid-term Free Cashflow guidance – and the targets will be rolled forward. This will give our investors mid-term planning certainty,” said CFO Melanie Kreis.
The Group has set the following specific financial targets for the forecast period through 2022:
- EBIT is expected to increase to at least €5.3 billion.
- The Group plans to generate a Free Cashflow of €4.5 to 5.5 billion (cumulative) in the period from 2020 to 2022.
- The Group’s capex is planned to be between €8.5 to 9.5 billion (cumulative) in the period from 2020 to 2022.
All three targets will be rolled forwards to 2023 in March 2021. The Group’s Finance Policy, which has been established in 2010, will remain fully in place with the key goal to maintain a dividend payout ratio between 40–60% of net profit.
In terms of sustainability, Deutsche Post DHL Group said that with Strategy 2025 it embraces its purpose of ‘Connecting People, Improving Lives’ by fully embedding sustainability in its three bottom lines. Environmental, Social and Governance (ESG) goals will be managed via concrete targets and KPIs. Moreover, the Group reaffirms its support of the UN Sustainable Development Goals (SDGs) and seeks closer alignment its business development with the five SDGs the Group committed to in 2017.
