One of the stand-out parts of Deutsche-Post-DHL’s recently released nine month financial figures was the news that DHL Global Forwarding is to write-off at least €345m worth of IT investment. This news may have come as a jolt to commentators but it was not necessarily that surprising.
The financial results emerging from the Freight Forwarding business of DHL appear to relate to the collapse of attempts to create a new and more powerful IT platform for forwarding activities. Known as the ‘New Forwarding Environment’ this was an ambitious project to improve DHL Forwarding’s performance by delivering more and better data to its frontline sales and purchasing people.
Murmurs from inside DHL Forwarding over the past couple of years suggested that all was not going well, with criticism that the project was far too ambitious and based on a weak understanding of how freight forwarders worked. The troubled nature of the ‘New Forwarding Environment’ appeared to have been confirmed by the changes in the senior management at the Forwarding business. Now the senior management at Group level seem to have cut their losses and admitted in an ad-hoc statement published last month that there was a “decreased likelihood that DHL Global Forwarding will be able to realize benefits from the New Forwarding Environment (NFE) system in its current state”. The full grim reality is spelt-out in the 9 month figures from last week. This includes the €345m but also outlines that the €100m or so direct costs already spent on this system also appear to have been wasted as DHL Forwarding will have to spend €10m a year for the next 3 years to create a new system.
In addition, DP-DHL has referred to a further €200m of write-offs relating to “potential earnings exposure by recognizing in its outlook for 2015 further one-off effects of around EUR 200 million…to the current reassessment of legal and regulatory aspects in the Post – eCommerce – Parcel (PeP), Express and Global Forwarding, Freight divisions”. This appears to relate to several different problems connected with an obligation for higher pension contributions and a dispute between a joint venture partner at the Freight Forwarding business.
Apart from these significant financial issues, DP-DHL appears to be moving forward. Problems with strikes at Deutsche Post Mail resulted in a hit to EBIT(Earnings Before Interest & Tax) which fell by 29.4%, mitigated by the buoyant e-commerce parcel business which grew by 11.9% over the nine months.
DHL Express continued its solid performance with revenue up 10.4% and EBIT up 17.5% year-on-year. The troubled Global Forwarding Freight business saw revenue up despite static or falling volumes in air, sea and project cargo markets. The Supply Chain business saw revenues rise 11.2% on continued contract wins but EBIT fall by 10.2%.
Overall Deutsche Post-DHL saw revenue for the nine months rise by 6.4% but operating profit/EBIT fall by 29.4% before write-offs and by 70.7% after write-offs.