CEOInterviews.AIThe Future of Logistics: Deutsche Post DHL Group CFO Melanie Kreis

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Tom Mackenzie0:03

Before the Covid pandemic upended the way the world does business, logistics was one of those industries that might have been taken for granted. That's not the case anymore due to all the turbulences of the last four years. Customers are now realizing how important it is to have a reliable logistics partner on their side. How are people doing it? Quite complex job. People think of it as just delivering parcels somewhere. That's easy. Think about what our people are doing. It's quite complex. Businesses and consumers are suddenly thinking a lot more about how things they need reach places where they're needed. It's thrust the sector into the spotlight. Logistics and supply chain has become a household name. It's dramatically different than pre pandemic. Yes, it's grown. Whether that is in market cap, revenue, profitability, investor interest for Deutsche Post DHL Group, that's created opportunity to build on momentum and set ambitious goals for service and performance.

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Melanie Kreis1:09

When you look at our footprint, we are the most international logistics company. That is, we want to become more digital and we want to be much more sustainable than we have been.

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Tom Mackenzie1:22

DP DHL US revenue has soared since 2020 with full year profit nearly doubling in 2021. CFO Melanie Kreis is a key leader of the team that's delivered these results and she views her role as much more than just a number crunching power.

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Melanie Kreis1:36

Unfortunately these clichés that finance is boring and it's kind of like bean counting in the back office will be successful in finance. I mean you have to have the financial expertise right spot but you also have to be credible business leaders in order to really impact the business and steer the direction.

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Frank Appel1:56

She is extremely smart and bright. You need somebody who is able to digest a lot of information gathered rapidly and can distinguish what is important and what's less important. And she has tremendous skill in that. And she's not afraid to call people out, to call out other members of the executive team. If she feels that something isn't being addressed, she does it in a very nice way. Actually, she helps me tremendously in steering the company because she is highly regarded by my other colleagues in the senior team. And typically if they have a problem, they share it first with her before they come to me.

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Melanie Kreis2:31

When I think about the conversations I have with Frank, the shortest part is actually about the analysis and the facts. It's more the debate about, OK on that basis what are the options and what can we do. My role is essentially saying in three sentences what is working well in this company, whether we have challenges and what he should do going forward.

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Tom Mackenzie3:04

Deutsche Post DHL Group consists of five divisions: Express, Germany's Post and Parcel Service, Global Forwarding and Freight, Supply Chain, and e-commerce Solutions. Each of these segments has seen revenue growth in the last four years. While the surge of e-commerce volume during the pandemic has had a direct impact on the trajectory, e-commerce is a very structural and fundamental growth driver for us as a company. What we now saw under the pandemic was a structural acceleration. It took us forward to a point in terms of e-commerce penetration which we probably would have reached under normal circumstances in three years time. So it was a big step forward.

DP DHL was well prepared to take this step. The company's strategic plan recognized e-commerce as a growing trend in the logistics landscape but no one could have forecast the speed and breadth of the transformation.

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Melanie Kreis3:59

We are now seeing that also after the pandemic, not only domestic e-commerce has seen a faster growth trajectory than anticipated, but also cross-border e-commerce. And we see that very clearly in our express network but also in our e-commerce solutions division.

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Tom Mackenzie4:15

What are the other big structural shifts that you see on the horizon? Is it e-commerce B2B? Is it increased trade as globalization restructures? What are the shifts?

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Melanie Kreis4:26

You'll see the B2B segment as well. It's at a very early stage. So we believe that there will be a huge growth opportunity there. And we also see that when we're talking to our customers now, I guess everybody has by now realized that being dependent on just one supplier in one province in one country is probably not a good idea. So they want to build more resilience into the supply chain. I think our international footprint, our global strengths, is really something we can leverage for the benefit of our customers.

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Tom Mackenzie4:57

Another factor in the company's favor is its balance sheet. Since Melanie Kreis became CFO, cash flow has improved significantly.

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Melanie Kreis5:06

One of my priorities over the last year has been to really focus the whole organization on better cash generation. It's not just a finance job. Making sure that ultimately your revenue converts into EBIT and into cash in the bank account. It's the responsibility of the whole organization. We can't be successful as a company if we are not collecting the cash for all the services we have provided.

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Tom Mackenzie5:30

And she has not missed one single opportunity to talk about that.

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Melanie Kreis5:35

I think it's a very comfortable situation particularly in the current environment to have a strong balance sheet. I think in that respect I'm very conservative and I'd rather have a bit more on the balance sheet and a bit more buffer.

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Tom Mackenzie5:49

Spell out for us what the priorities are, the longer term priorities, in terms of putting some of that cash to use for you.

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Melanie Kreis5:56

The first priority here is organic growth. We clearly indicated also this. Our CapEx budget is twelve billion for the next three years that we are investing into organic growth. We are very focused on our regular dividend payments. And then if there is something left which is fortunately the case at the moment, we will think about inorganic opportunities and we will also think about other means to allow our shareholders to participate. That is why we are currently running a two billion euro share buyback program.

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Tom Mackenzie6:27

Inorganic opportunities include M&A like the recent purchase of beverage shipper Hillebrand, but deploying cash is always subject to careful consideration.

Does Melanie ever turn around and say no when you're pushing through or pushing for a particular package of spending?

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Frank Appel6:42

Yes, she does, quite often. You know, she is a person and that's great. If you have a CFO who is risk averse because you need somebody in the business who is always too optimistic. Melanie might be something too pessimistic, but that's a very healthy discussion. And if we then jointly come to the same conclusion after a debate, then we are probably in the right spot.

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Tom Mackenzie7:07

How often do you find yourself saying no to divisional heads?

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Melanie Kreis7:11

So when I look, kind of like when I was promoted into the CFO position, my team gave me a stamp which was kind of like 'Rejected'. It sits on my desk. I think the fact that people know it's there already is still quite a lot of discipline in the organization. So I think then I get a proposal. It has also already gone through a number of iterations and is normally of such a high quality that I don't need the 'Rejected' stamp too often for the time being.

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Tom Mackenzie7:44

Grice should be able to keep that stamp in a drawer.

CEO Frank Appel has expressed a commitment to service quality and confidence that customers will accept higher prices that come with it.

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Frank Appel7:52

If you are too expensive you will be out of business, but if you don't provide the right quality you will be out of business as well. So we want to be, we will never be the cheapest in town. That's us being the premium provider. That's our strategy, of course. It's also more challenging when our customers are under pressure. At the same time, I think over the last two years have shown that a reliable high quality supply chain comes at a certain price tag.

I definitely see that inflation is having a huge impact on the logistics industry and there has been substantial price increases in the last few years. I do not see that changing. There's a lot of innovation happening and I don't see the inflation necessarily going away. It might level out a bit but it's not going to go away.

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Tom Mackenzie8:45

Logistics companies may have pricing power with customers but their stock prices haven't been so robust.

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Melanie Kreis8:50

I think that the issue there is the increase in interest rates has made everyone rethink and be concerned about the level of inventory that is out in the system, if you will, with the level of disruption. I think what's happening more in the last three months is more a period where I am now heading into.

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Tom Mackenzie9:21

With more than half its revenue coming from Europe, investors may see DHL as more exposed to recession risk than its global peers. The company insists it can meet its revenue targets in the event of a downturn. It's counting on diversification as a cushion.

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Melanie Kreis9:38

I'm not so pessimistic that there is really a deep recession at our doorstep. So but even then, you know, our portfolio is very much balanced. You know we are everywhere in the world and the world will not go entirely into recession.

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Tom Mackenzie9:56

Would it be a stretch to suggest that DP DHL is to some extent recession proof?

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Melanie Kreis10:02

I wouldn't go as far as to say recession proof, but I think we are very well positioned to deal with all different types of recessionary scenarios due to the breadth of our portfolio. The balanced portfolio really gives us a lot of resilience against any type of headwind.

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Tom Mackenzie10:15

Coming up, a look at DP DHL's investments in action.

Melanie Grice shows me around the company's state of the art logistics.

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Melanie Kreis10:22

What I love about this building is it actually solves the big megatrends which forms our strategy 2025.

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Tom Mackenzie10:35

This is Bloomberg.

That's the chief financial officer of one of the world's largest logistics companies. Melanie Kreis has made her mark in global business. That's not what she originally intended to do.

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Melanie Kreis10:56

I really wanted to go into research. I wanted to become a physicist and that was where my passion was. But then during my studies some friends of mine started doing this strange thing. They went into management consulting. I didn't even know how to spell it. And I had no idea what it was about. But what they told me was quite interesting. And so I ended up doing an internship at a consulting firm and I learned more in the two months there than I had in the last four years in my physics job at university. That is how I ended up in consulting.

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Tom Mackenzie11:30

She started her career with three years at McKinsey then spent four years in private equity with Apex Partners in London before joining Deutsche Post DHL Group.

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Melanie Kreis11:41

In 2004 I was brought into the company to do a big M&A project. That was at a time around 20 years ago and we were really building the company in the current shape, acquiring lots of logistics companies around the world. M&A project was the first thing and I then launched into a more mainstream finance field here in the group. Becoming CFO of our express division. So from then on it was more leading towards the CFO role eventually.

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Tom Mackenzie12:10

Melanie Kreis now heads the finance team with around 11,000 employees. Success in this role is as much an art as a science.

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Melanie Kreis12:19

If you do the greatest piece of analysis and you see it all and you know it all but you can't convey that message and you can't convince the rest of the organization that you should move into a certain direction, it's useless.

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Tom Mackenzie12:34

DP DHL is sending a consistent message with its investments. The company spent 123 million euros to upgrade its logistics centre at the Cologne Bonn airport, designing it around key strategic goals.

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Melanie Kreis12:48

What I love about this building is it actually solves the big megatrends which forms our strategy 2025 which was inaugurated in 2019 and building over. So globalization, connecting the world, e-commerce. We have a lot of automation facilities here plus smaller e-commerce shipments, sustainability. It's a very sustainable building. With solar panels on the roof and everything. And digitalization. And while you can obviously see that it is quite automated.

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Tom Mackenzie13:16

How did the team pitch this investment to you initially and how hard was it as a sell for them? How quickly did you turn around and say yes, this is worth 123 million euros?

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Melanie Kreis13:28

I'll tell you, all of us have to make sure that you have the right capacity for the growth in the business. And at that time they came and said, hey we really see a strong growth in e-commerce volumes on top of the regular B2B growth. We need more sorting capacity, needs to be built. And of course our estimates didn't really have to pass on the 123 million euros and so on. But fortunately they convinced us because then this Covid and the volume surge, we actually needed the capacity. At the same time Covid accelerated demand for logistics services, disruptions in the labor supply hurt productivity.

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Tom Mackenzie14:00

Advances in technology like this digital sorter have helped offset some pressures but automation also raises questions.

Does this tell us that as the business grows this has become a more automated business where there's going to be less need for labour for workers?

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Melanie Kreis14:19

Well you still see people here. And I think what you can see nicely in this centre is the combination of technology that supports people. So for example, when you look at the customs area it used to be a very manual and sometimes confusing process. Now the people are supported in picking the right shipments for customs inspections by lights and that automatically sorted in this sorter to go to customs inspections. So it is also having the people the jobs they're doing everyday, over such year and 2019, 20. You know, we might get one third less jobs than the current set up until 2030 for digitalisation in the organization. But we are very sure that our company will be at least 50, maybe 100 percent bigger and we will have more jobs to offer. At the beginning of a couple of years ago when we started that journey, people said oh, you know, I might lose my job. I haven't heard that in the last two years.

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Tom Mackenzie15:14

And as Kreis showed me around this airport hub, it also showcases DP DHL's aviation fleet which boasts more than 320 dedicated cargo aircraft.

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Melanie Kreis15:27

They own the biggest chunk of our aircraft but they also have short, medium, and long term leases and we lease for growth in our business.

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Tom Mackenzie15:39

We've talked about investing of course in sustainable fuel. Yes. What does that come online? How significant is it? Is it just the critics might say that's just window dressing around a part of the business that is of course very very carbon intensive. At least a lot of emissions.

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Melanie Kreis15:51

Yes, although you're absolutely right. The problem with our beautiful aircraft is the CO2 emissions and overall CO2 emissions. Two thirds are from aviation. It is about flying these birds. It's more sustainable fuel and we are really willing to spend billions on it. You know, I really hope that the supply uptick over the next years. Yes.

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Tom Mackenzie16:16

Spending billions. Isn't that vague hyperbole?

The company has pledged to put 7 billion euros towards sustainable technologies and fuels by 2030 with a goal of climate neutral logistics by 2050.

Sustainability makes good business sense anyway, especially if you are in a business that is energy or fuel hungry. As compliance elements that not just operators in the logistics sector need to consider but also their customers. So being transparent becomes part of the service about their impact on the globe.

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Frank Appel16:51

We had a live feed discussion. Should we make a financial commitment? How much we want to invest for the next decade and our sustainability. And we had a long debate. Is it right to say we want to invest 7 billion to 2030? There were pros and cons but there was a very intense discussion Melanie and I had where we finally came to the conclusion that this is the right number. This is the right approach. We convinced our colleague and that's the reason why we are where we are, where we are seen as somebody who really commits. There are not that many companies who have quantified their future investment.

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Tom Mackenzie17:25

Still ahead, how one of the business world's most influential women is working to strengthen gender equality within her company.

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Melanie Kreis17:34

I think the great thing is that now across the board in finance but also in the group overall we have role models which show young female talent that everything is possible.

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Tom Mackenzie17:57

Deutsche Post DHL Group CFO Melanie Kreis is often named to lists of the most powerful women in business. And while men still outnumber women as finance heads of large companies, there are signs that the balance is shifting. The number of female CFOs across major U.S. companies has risen to an all time high according to a study by Crist Kolder Associates and executive search firm Heidrick & Struggles reports that 36 percent of new CFOs hired by notable companies in the first half of 2022 were women. I asked Melanie Kreis if she's encountered obstacles as a woman rising through the executive ranks.

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Melanie Kreis18:35

I have to say I have not made many negative experiences. Maybe I was also a little bit naive not thinking about these challenges so much. I mean when I started physics there weren't many women so I was somehow always used to it. And it can also be an advantage when you're kind of like the only girl in the room. I mean the boss at the end remembers your name and not the 19 guys who always kind of like wear dark suits and white shirts and look alike. Right. So I never experienced it as a disadvantage.

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Tom Mackenzie19:12

External trust factor?

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Melanie Kreis19:16

I have to say for me personally it was more balancing my own expectations around kind of like getting family and the job combined. But that was probably more of a pressure I put on myself thinking that I had to be perfect in every dimension and not something that the pressure was put on me from my male colleagues.

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Tom Mackenzie19:35

So how do you take that experience and put it to play in terms of how you advance the role of women in this organization?

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Melanie Kreis19:44

I think the great thing is that now across the board in finance but also in the group overall we have role models which show young female talent that everything is possible in finance. We have a share of women in management of 32 percent. So we are ahead of the group. We want to get to 35 percent by 2025. I think they know that, but if you have a vacancy I want to have at least one woman on the shortlist because we have an all female talent. So every shortlist should contain a woman. And then the best person in the race should win.

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Tom Mackenzie20:15

CEO Frank Appel says Kreis sets an example for the entire organization and he believes her success may influence the entire industry.

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Frank Appel20:28

She has proved that she is an outstanding CFO and she's definitely a role model in many dimensions. You know what I like about her? She is still a very warm and nice person and that makes such a big difference. So you can get to that level without compromising on how nice you are as a person. I think she's a great role model and I hope that this has had positive impact for many of us.

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Tom Mackenzie20:53

From the big picture down to the smallest operational details, Melanie Kreis is fully engaged in guiding DP DHL into the future.

I wanted to know what she sees when she looks ahead.

What do you see as the biggest opportunities for DP DHL over the next 10 years?

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Melanie Kreis21:16

I think we have a fantastic portfolio and we just have to leverage the growth opportunities which are there both on the e-commerce side and also on the traditional B2B side. And the key differentiator as well will be digitalization, sustainability, and our great people.

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Tom Mackenzie21:33

As you look ahead 10 years, what are some of the challenges? What keeps you up at night as you think about the business going forward?

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Melanie Kreis21:40

I think you have to keep this focus and the ability to adjust in a very agile way. Sometimes when you kind of like think about all the risk controlling and stuff, people tend to create the impression that you can preplan everything. That's clearly not the case. So I think you have to stay focused and keep the ability to react in a very agile way. But looking at what happened over the last 24 months, I'm very optimistic that we are all able to cope with whatever happens next.

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Tom Mackenzie22:08

And how do you see your role changing in the years ahead?

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Melanie Kreis22:15

I think it is changing at a very rapid pace which is a great thing because it never gets boring. Those elements I just mentioned for the group overall digitalization and sustainability are also hugely relevant for the finance role. It's like a new language you have to learn now and you have to learn the vocabulary. But then you also have to develop a feeling: if I kind of like put so much capital into this decarbonisation measure, I get so much in terms of return out of it. But that's a fascinating opportunity. Maybe you can make a huge difference for finance and for the group overall.

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Tom Mackenzie22:45

As you look to the future, Melanie, what do you think is going to be the skill sets, the knowledge base that is going to be essential to the success of a future CFO?

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Melanie Kreis22:55

It's probably the two most essential new skills will be to get even better at lifelong learning because you will have to learn so much new stuff every year. Be it on the digitalisation area, be it on sustainability. So this ability, also as a 50 year plus old person, to keep learning and keep the curiosity. I think that is going to be super essential. And the second element will be being a great team player. The boat is complex. You can't know it all. So you really have to work even more strongly with your team.

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Tom Mackenzie23:31

What advice would you give to someone who has just recently been appointed CFO?

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Melanie Kreis23:39

That's a great question. I think I would probably simply say be curious and ask as many questions as you can. Try to learn as much as possible not only in the finance area but get close to the business, try to really understand the business, because only when you are close to the business and you understand the fundamental profit drivers will you be a really great CFO.

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Tom Mackenzie24:00

I'm Tom Mackenzie.