Program for Post - eCommerce - Parcel division initiated to improve productivity and indirect costs
Annual operating investment budget of EUR 100 - 150 million to continuously enhance productivity and service quality
PeP EBIT guidance for 2018 lowered to EUR 1.1 billion prior to EUR 500 million one-off charges
Group 2018 EBIT guidance lowered to around EUR 3.2 billion
2020 guidance confirmed
CEO Frank Appel: "We are very confident to reach our 2020 targets"

Deutsche Post DHL Group has today decided on a suite of measures to sustainably secure the further earnings growth in the PeP division. To counteract the decline in profitability in the Post - eCommerce - Parcel (PeP) division, which became evident in the first quarter of 2018, the Group decided on a range of measures to safeguard a positive earnings development in 2019 and 2020. The measures mainly target further improvement in productivity, indirect cost and yield management in the Post and Parcel business.

"We are fully focused on achieving our strategic and financial targets for 2020 and on positioning our business divisions for success in future years. In order to deliver long-term sustainable growth, we are now consciously accepting short-term negative effects on our earnings", said Frank Appel, CEO Deutsche Post DHL Group.

As communicated in the first quarter, the structural shift from Post to Parcel resulted in a number of challenges in 2018. In Parcel Germany, the division sees unchanged structural volume growth, but costs inflated with more FTEs and transport capacities needed in unusually tight labor and transport markets. The challenge for Post is the unchanged structural volume decline with stable stamp prices since January 2016 and a high fixed cost base. Additionally, the structural shift with mail decline and parcel growth is currently not adequately reflected in the overhead cost of the division, and the investment into the further development of operations in PeP Germany has not been sufficient over the last years.

Program to ensure long-term earnings growth of the PeP-division
In order to address these challenges, the Group has initiated a comprehensive program to improve productivity, reduce indirect costs and implement yield initiatives.

Productivity: To increase productivity, the Group will lift PeP operations onto the next S-curve through regular opex investments of EUR 100 - 150 million annually. This will include automation and digitalization, continuous improvement, increased last mile productivity and intelligent network utilization. Ultimately, these operational investments will drive better customer service and higher efficiencies, which will lead to an improvement of EUR 150 - 250 million per annum.

Indirect Cost Reduction: In order to reflect the continuous decline in letter volumes, the Group will sustainably reduce the fixed cost base mainly with an early retirement program focusing on civil servants in overhead areas. This will come with restructuring costs of EUR 500 million in 2018 and will be implemented in 2018 and 2019. The Group expects the program to lead to an annual cost reduction of at least EUR 200 million by 2020.

Yield Management: For regulated products in Post, the Group is awaiting the new regulation from the Federal Network Agency as of January 1, 2019. Price increases for unregulated larger-size shipments as of July 1 have already been announced. In Parcel Germany, the Group will focus on a balance between growth and yield. Even in a competitive market, cost inflation requires price adjustments, which will be implemented on a rolling basis upon contract renewal and signing. The future volume growth for Parcel Germany is expected to be closer to the market development of 5 - 7 percent growth.

The measures will only help in part in 2018; therefore, the PeP-EBIT prior to one-off cost is now expected to come in at around EUR 1.1 billion. This includes additional operating expenses for productivity improvements of around EUR 150 million. In addition, a restructuring charge of EUR 0.5 billion will be recognized in 2018 to implement measures.

Starting in the second quarter of 2018 the activities of the recently founded area of Corporate Incubations will be shown as part of the new line Corporate Functions together with Corporate Center/Other. The full-year result of Corporate Incubations is expected to be EUR -70 million.

Including the above described effects, the management board expects in 2018 an EBIT of around EUR 3.2 billion. The PeP division is likely to contribute at around EUR 0.6 billion to this figure while the DHL divisions are still expected to reach around EUR 3.0 billion. The Corporate Functions result is expected to be at EUR -0.42 billion, including the unchanged projection for Corporate Center/Others of a result of around EUR -0.35 billion.

The above mentioned measures result in a confirmed earnings forecast for 2020: Group EBIT is expected to reach more than EUR 5.0 billion. The PeP division is expected to contribute around EUR 1.7 billion of this and the earnings contribution of the DHL divisions is forecasted to reach around EUR 3.7 billion. Corporate Functions is forecast to reach around EUR -0.35 billion.

The reported Group Free Cash Flow for the full year 2018 - excluding the debt-financed renewal of the Express intercontinental aircraft fleet - is hence expected to exceed a minimum of EUR 1.0 billion.

Closer collaboration with Zebraxx to broaden service options
Accelerating innovation in last mile shipment visibility
Enhanced connectivity via social messaging

Kuehne + Nagel and Zebraxx, a leading application service provider of logistics solutions, have entered into a strategic partnership to provide innovative last mile shipment visibility for Kuehne + Nagel’s customers, further enhancing Kuehne + Nagel’s eTouch capabilities.

The partnership will bring the two companies into closer collaboration, accelerating innovation technology with delivery execution tracking solutions. Kuehne + Nagel customers have enjoyed the benefits of Zebraxx for several years; in 2017 almost 10 million transactions have been handled by the system. Now, the growing alliance will strengthen Kuehne + Nagel’s capacity to offer additional methods for collecting and sharing delivery information, such as real-time vehicle location, photographic evidence of the state of consignments and delivery confirmation, IoT validation or electronic proof-of-delivery (ePOD) – independent from backbone systems and carriers used. Customers will be further integrated in the data exchange; enhanced functionalities on mobile devices, like alerts or ePOD via social messengers, will improve the seamless interaction along the supply chain.

Working with KN Login, Kuehne + Nagel’s monitoring and visibility platform, customers will benefit from a standardised single source for all delivery information, which further enhances the customer proposition and supports wider geographic roll-out.

Gianfranco Sgro, member of the Managing Board of Kuehne + Nagel International AG, responsible for Contract Logistics: “We are seeing an increasing need for improved visibility solutions to service our customers. As our environment becomes more and more digital, customers are demanding greater flexibility and options in the solutions we can offer them and all at a lower cost. Zebraxx has demonstrated a willingness to embrace innovative and imaginative ideas and transform them into valuable solutions for our business and our customers.”

Bernd Heymanns, Managing Director of Zebraxx: “We are in a long lasting working relationship with Kuehne + Nagel. This formalisation and commitment to partnership brings our companies closer and provides the platform for us to work on some exciting projects together, enhancing last mile shipment visibility for the customers worldwide.”

Multi-modal management of the entire supply chain
Based on the global Kuehne + Nagel Integrated Logistics leading solution
Focus on industrial, consumer and high-tech industries

Due to an increasing demand of cost-efficient transportation management solutions from leading small and medium-sized enterprises (SMEs), Kuehne + Nagel Integrated Logistics has developed the new KN ControlTowerDynamic.

KN ControlTowerDynamic will allow SME customers to benefit from a scalable and efficient supply chain management solution with faster time-to-value and a revolutionary pricing model. Based on the global leading Integrated Logistics organisation, KN ControlTowerDynamic has been designed to fulfil all major SME requirements especially for customers in the industrial, consumer and high-tech industries.

Gianfranco Sgro, member of the Managing Board of Kuehne + Nagel International AG, responsible for Contract Logistics: “Small and medium-sized enterprises are of special importance for Kuehne + Nagel. They face the same challenges as the big corporations in terms of needs of advanced end-to-end visibility solutions and harmonised reporting and analytics. KN ControlTowerDynamic is the first product in the logistics market that is specifically designed for them. It completes our global offering. We are an active partner in the digital transformation of the SME’s around the world.”