October 1, 2019 / 5:40 AM / 17 days ago

Deutsche Post plans new investment as ecommerce booms

BERLIN (Reuters) - Deutsche Post DHL set a new target for an operating profit of 5.3 billion euros ($5.77 billion) for 2022 and said it would invest heavily in areas like warehouse automation and analytics as it seeks to keep up with fast-growing ecommerce.

FILE PHOTO: An electric powered truck of German postal and logistics group Deutsche Post DHL is pictured at a parcels distribution centre in Berlin, Germany, September 18, 2019. REUTERS/Fabrizio Bensch/File Photo

The German post and logistics group has been trying to boost profits by restructuring and hiking prices after missing targets in 2018, allowing it to lift its forecast for 2019 in August despite global trade tensions.

While letter shipments are in long-term decline, Deutsche Post has enjoyed a boom in parcel volumes thanks to the rapid growth of ecommerce, but costs have risen due to a tight labor market and higher German tolls on trucks.

Laying out its strategy for the next five years, the partially state-owned group confirmed its guidance for an operating profit of 5 billion euros in 2020.

“We need not reinvent ourselves. We will digitalize,” said Chief Executive Frank Appel.

Deutsche Post shares fell slightly on Tuesday morning to trade 0.5% lower at 0751 GMT, underperforming Germany’s bluechip Dax index which was up 0.4%.

“This looks like evolution, not revolution,” said Bernstein analysts Daniel Roeska and Alex Irving, adding that the most ambitious targets were for the freight forwarding business.

Given the current uncertain economic environment, finance chief Melanie Kreis said the company’s new guidance would cover a three-year period and be rolled forward annually.

U.S. rival FedEx Corp warned last month that full-year earnings would miss analysts’ estimates, as the U.S.-China trade war exacerbates a global economic cooling.

For the 2020-2022 period, Deutsche Post plans to invest between 8.5 and 9.5 billion euros as it overhauls its IT systems and retrains staff, applying data analytics to help it better plan delivery routes and predict parcel volumes.

Included in that figure will be 2 billion euros for digitalization, with the expectation that this spending will generate an annual benefit of more than 1.5 billion euros by 2025.

The new strategy is based on the assumption that air freight will grow 1-3% a year, ocean freight 2-4% and road freight 3-4%.

Reporting by Emma Thomasson and Matthias Inverardi; Editing by Tassilo Hummel, Michelle Martin, Kirsten Donovan

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