Botched Upgrade

Post DHL Profit Plunges on Software Costs

Deutsche Post CEO Frank Appel and executive board member Melanie Kreis Source DPA 42314194
The Deutsche Post DHL CEO, Frank Appel, on Wednesday said the logistics firm would write off €345 million in costs associated with a botched software project. The charge caused the firm's third-quarter profit to plunge 90 percent.
  • Why it matters

    Why it matters

    The high costs associated with Deutsche Post’s botched software upgrade will likely raise pressure on CEO Frank Appel as the company prepares to raise the price for mailing a standard letter in Germany to 70 cents from 62 cents.

  • Facts

    Facts

    • Deutsche Post DHL said on Wednesday that profit fell 90 percent in the third quarter to $49 million from €468 million a year earlier.
    • The company tied the decline to a €345-million writedown of costs for a botched software upgrade in its freight forwarding business.
    • Shares of Deutsche Post DHL, which is 79 percent held by private investors, fell up to 3 percent on the news in Frankfurt.
  • Audio

    Audio

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Deutsche Post DHL, the German postal service that owns the DHL courier network, said profit plunged 90 percent in the third quarter on Wednesday after the logistics firm was forced to write off €345 million ($372 million) in costs for a botched software upgrade.

Shares of Deutsche Post DHL fell 2.6 percent in Frankfurt trading on the news, and were trading at €26.43 at 10 a.m. local time. The postal carrier, which is based in Bonn, had issued a profit warning on October 28, saying it was cancelling the software overhaul of its DHL freight forwarding division.

The division transports large, unwieldy items, machinery and equipment and other durable goods for businesses around the world by air and sea.

Net profit in the third quarter fell to €49 million from €468 million in the same quarter a year earlier. Earnings before interest and taxes fell 71 percent to €197 million from €677 million a year earlier. Sales rose by 3 percent to €14.4 billion from €14 billion. International sales rose 4.3 percent to €10.3 billion from €9.9 billion.

“As we have said previously, 2015 is a year of transition,” said Frank Appel, the Deutsche Post DHL chief executive. “We are taking all the measures we can to ensure that our business divisions are optimally positioned for success in the coming years.”

Mr. Appel said the postal carrier would push ahead with the upgrade of the freight forwarding software system, a project internally referred to as the New Forwarding Environment or NFE upgrade. “We are now undertaking further measures to make this renewal business-centric,” Mr. Appel said.

Of the €345 million charge associated with the project, €308 million was a write-down of the project itself, the company said, and €37 million was the costs to remove the software where it had already been installed. Deutsche Post DHL “is still in discussion with vendors including the NFE implementation partner, and remains committed to allowing the NFE implementation partner the opportunity to fulfill its contractual obligations,” Mr. Appel said.

He did not identify the software partner in a statement released by Deutsche Post DHL. German media have identified the company’s software partners as SAP, a German maker of business management software, and IBM.

The formerly state-owned German postal service is 79 percent owned by private investors, mostly international institutional investors, and 21 percent by the Kreditanstalt für Wiederaufbau, a state-owned German bank. The German government began selling Deutsche Post shares to the public in 2000.

 

Kevin O’Brien is editor in chief of Handelsblatt Global Edition. To reach him: obrien@handelsblatt.com

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