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BtH 2: Henrik Hänche, Deutsche Post DHL Group - From globalisation to low interest rates
In this episode
Henrik Hänche, responsible for Corporate Finance at Deutsche Post DHL, and Jim Reid discuss a wide range of issues, from globalisation to low interest rates, and then point out some of the nuances of working from home since the pandemic, and how communication within the business is vitally important now more than ever.
What we discuss
  • What does a pandemic do to a global supply chain? Are changes required in the future and a move to a new model?
  • Has globalisation peaked?Are we moving towards a regional focus?
  • Working from home. How does a logistics company, with 550,000 employees manage these kinds of challenges overnight during a pandemic? Can working from home be a long-term trend for a company this size and in this sector?
  • Communication. Does social interaction matter and how does beer feature in all of this?
  • Boards: What do the board want to know right now?
  • ESG and a global logistics company: What is the main focus; could there be a slowdown in ESG focus? Low interest rates. An opportunity for DPDHL to lock in longer-term financials?
  • Can there be an M&A wave using cash that has been able to be raised; exploring assets that have had lower valuations?
  • Record bond issuance and fighting for cheap financing. Where is the window of opportunity?
  • Stakeholders. How have relationships been affected and will these changes impact business going forward?
  • What trends or changes are happening in the Treasury or financial market and what kind of lessons can be learnt?
  • Is there a change in shifting priorities between investments and liquidity?
  • How does counterparty risk in terms of default come into the equation during a crisis?
Resources from this episode
Featured guest
Henrik Hänche,
Head of Corporate
Deutsche Post DHL Group
  • Henrik Hänche has been responsible for Corporate Finance at Deutsche Post DHL Group since 2008. His responsibilities include the entire spectrum of Corporate Finance via long-term financing topics, Pensions Management, Cash and Treasury.
  • Truncated section: Prior to join DPDHL Group in 2008 Henrik Hänche, the native-born Hessian with a graduate degree in business administration, was Head of the Corporate Treasury at the car manufacturer Porsche. Further career stages include the companies Dyckerhoff, ABB and BASF, where he worked in the finance department in each case.
  • Deutsche Post DHL Group is the world’s leading logistics company. The Group connects people and markets and is an enabler of global trade. It aspires to be the first choice for customers, employees and investors worldwide. The Group contributes to the world through responsible business practice, corporate citizenship and environmental activities. By the year 2050, Deutsche Post DHL Group aims to achieve zero emissions logistics.

00:00:00 Hi everyone, I’m Jim Reid, the global head of thematic research here at Deutsche Bank, and welcome to another edition of our new podcast called Behind the Headlines, which will feature us talking to some of our key clients, and provide insights into how they’re dealing with the current environment and market conditions. In this episode, I’ll be talking with Henrik Hänche, who’s been responsible for Corporate Finance at Deutsche Post since 2008, who are the world’s leading logistics company. As part of Henrik’s role, he’s involved with the entire spectrum of corporate finance via long-term financing topics, pensions management, cash and treasury management to M&A. In the logistics sector, now I am not an expert on this but by doing some research ahead of this call the sector is currently seeing strong parcel growth driven by B2C ecommerce by most of us being locked down at home. Pricing in global air and sea freight is also at elevated levels given the constraints in capacity. From what I understand this is because intercontinental airline fleets are still largely grounded and belly space has accounted for around 50% of global air freight capacity in the past. In container shipping the industry is highly consolidated with the top 10 players having over 80% of the market share and the industry has been disciplined in matching supply to demand. Looking forward the key questions for global logistics players are 1)how long can the positive freight environment last, 2) whether there will be a change in the globalisation dynamic, 3) will there be a trend towards insourcing vs outsourcing and 4) predicting the medium term growth rates for domestic and cross border parcels. Let's kick off with a subject that's quite universal to everybody at the moment and that's working from home just my first question is how have you approached working from home during this pandemic and what have been the main pros and cons for you and especially your staff in this kind of new world we've been in?

00:01:52 Well Jim that's really an excellent question you know Deutsche Post DHL is one of the leading logistics companies in the world and we're employing 550,000 people across 220 countries in jurisdictions and four 100,000 of these people are working in operations so basically working from home is doable 440,000 employees worldwide and you can if you think about 140,000 people that the mid sized city so to say get all the catches the applications in glaze is really an effort but we were already well equipped you know we had all the applications already because working from home is not brand new for Deutsche Post DHL group. It's a part of our culture that people can work from home and we were able to quickly put people together more than 100,000 employees starting working from home so to say overnight as of mid of March and most of the people are still working from home. You know the question was what are the pros and cons? The Pro is really works and you can have interaction you know that work is getting done. So from this perspective no lack of efficiency so to say but what is lacking is definitely the social interaction it is the casual chats you know after work it is the occasional beer with colleagues after work so to say and this is definitely missing and this is something which means for executives that they have to Increase their communication to the staff because the social interaction is a part of the culture and how to group people together and all of this is missing and therefore perfect communication open and transparent or communication is of utmost importance because otherwise it's just a matter of time until the efficiency of home office working is going southward.

00:04:02 What do you think the long-term kind of method will be here do you see after the pandemic is gone a more permanent shift towards working from home or do you see a more normal arrangement?

00:04:21 I just think it's depending on the individual circumstances from my personal point of view man then I talk to my team on the crowns either here in Germany or in in the US or in Singapore you know they're looking forward to go back to office and have this kind of social interaction go to the next to the department just next door and make sure that everything is perfectly understood in the way that things are working together but simultaneously what I'm seeing is that people especially people you know with the family this kids and so on they are about to increase working from home in comparison to pre Corona times it might be the case that they were at home only one day a week and now I'm expecting that they're going to be working from home so to save maybe for two days a week depending on the individual circumstances but also what is of utmost importance is to align with the team leaders and align with the colleagues but then it's doable It's been proven and I think these will be permanent changes.

00:05:30 So, it sounds like your firm will be pretty flexible to what the employees want to some degree?

00:05:37 Yes, we are pretty flexible it's a part of our culture because satisfied employees means increased employee engagement means better service at the end of the day.

00:05:49 We move on now to think about the covid crisis we've been through and how it's affected your business how would you say your relationships with key stakeholders have changed since the epidemic? Have they changed, and will have they changed and will it change the way you conduct business going forward?

00:06:14 Well first of all we were already in close contact to our stakeholders to our employees customers partners and suppliers in during the crisis the safety of our employees was and still is of utmost importance. This is necessary because we take care of the wellbeing of the people and we would like to deliver high-quality services at the end of the day and our mission is to connect people and improve life and to fulfil our mission we have to maintain a stable and trustworthy relationship and this is what we have done in the past and this is what has been shown during the crisis you know that people with our partners or employee vendors in customers are trusting us and this is going to be continuing going forward once the pandemic is over.

00:07:14 And in terms of the supply chain obviously business like yours is It is very global by nature how is that supply chain being impacted by the pandemic? And do you think there needs to be changes to how you think about the supply chain going forward?

00:07:31 As a global logistics company we made an important contribution to the management of the covid crisis we secured worldwide supply we delivered the day-to-day goods but also vital goods you know to hospitals to pharmacies and so on. Overall we came through the crisis very robustly in our prod geographic footprint in 220 countries and territories of the world you know we were able to demonstrate That we are the one in only making sure that the supply chains don't breakdown and this is what our customers are telling us you know they were in there still are admiring what we are doing is really one of a kind if we would breakdown the whole supply chain would breakdown because we are the backbone of globalization.

00:08:30I mean on globalization do you do you have concerns that we've now hit peak globalization and we're going to go through a period of being globalization I suppose that's my first question and secondly do you do anything to prepare for the risk of deep globalization going forward with it, would it change your regional local focus at all?

00:08:52 Well everybody is talking about the globalization but you know. What are we talking about when we talk about globalization, it is more than just carrying merchandise from China to the US or to other you restrictions of the world. Globalization means interconnectedness between people between states on various levels it's more than trade it is about culture it is about language. It's about policy politics science environment and so on. Do I believe that all of this is going to go away? No, under no circumstances we have seen the positive impacts of globalization you know when you think about the path that dense I think it's the last 40 years or so more than one billion people came out of severe poverty due to globalization and who wants to go back who wants to go to a regional economy? This won't happen, what we are going to see and what we have also seen before the covid pandemic happened is that companies were diversifying their supply chains you know instead of producing just one gadget one component of a car in India, Vietnam or elsewhere they put it closer to the heart closer to Germany for example. It also means that the supply chains the logistics behind it is going to be more complex than ever but we are able to deal with complex supply chains and we can handle it again I don't believe that the globalization is going to happen. It is just something which has been put out there, it's just a plain something on globalization but nobody wants to go back to the situation which we have seen 50 or 100 years ago.

00:10:51 OK great I will move on to the next topic really and that's more with your treasury hat on in corporate finance. During this pandemic what trends or changes have you seen kind of happening in the treasury or financial market and what kind of lessons can you learn from that?

00:11:15 Well very good question in you know first of all I think we need to acknowledge that what the central banks of the government have put in place was appropriate that they did what is best for the economy and they did almost everything to prevent the recession or depression happening. As of today it's too early to say whether these packages are sufficient but we see that first signs of recovery are already in the market and maybe we're going to see a better 2021 than currently expected.

00:11:57So would you say that the authorities have acted in a way which means that it will be a bit more business as usual in Treasury and financial markets so not a huge change?

00:12:07I'm saying that I've seen changes in the Treasury and financial markets due to the current circumstances such as you know people went out and issuing bonds and there was a huge supply in March, April and May but we have also seen that you know this wave has gone back to normal right now. What we're going to see going forward is low interest rates which we have not seen 10 years ago. Who remembers that interest rates 10 years ago were around you know 5% for a 10 year for 10 year bond, nobody remembers that and we're going to see low interest rates going forward and we need to live with it with all pros and cons.

00:12:57Would you use low interest rates to lock in longer term financial or did your finance only get done on what you need for the business so are you ever opportunistic on that front?

00:13:13We were opportunistic in May you know when you look back April May or in March April there were a couple of well known companies around the globe you know throwing their unused syndicated credit lines/syndicated loans and we were discussing it here in our company as well what are we supposed to do. How would the pandemic you know have impacted our overall cash and liquidity position? First of all be there was no need to draw upon the syndicated loan and there was also no need to issue a bond but the longer the pandemic continued we decided to go out and issue long-term bonds just in case to have fire power or to say available and this was very profitable so to say because we were very successful in the bond market and we got 2 1/4 billion euros in our pockets for record low interest rates. This was pure and simple opportunistic now the money is sitting around and it's my issue and my problem to invest the money without incurring negative yields and making sure that I have the counterparty risk under control.

00:14:35You said it was up to you to kind of decide how use that money. I'll ask this question a bit more generic for you to answer what you think in the wider trends of companies will be did you think some of this cash has been raised will eventually be used for M&A? Obviously there's a lot of bifurcation in markets and there's some lower valuations for a number of assets now than they were pre crisis do you think we'll get an M&A wave because of low interest rates and higher borrowing?

00:15:07 I cannot rule it out but I think this would be very short sighted. Why? It's quite simple there's more than just one criteria purchase price for a company for example and then you look at publicly traded companies you know listed on the stock market on the Stock Exchange you may even pay a higher price look at the valuation look, at where the taxes or the MCSI so as that asset revaluation is not really happening. And when we look at M&A we ask ourselves does the strategy fit for example does the culture fit and only then is the price acceptable. How much energy do we get and everybody knows culture eats strategy for breakfast so M&A driven by pure and simple revaluation doesn't make any sense for me at all. A well run company would always be evaluated at pre covid levels because otherwise it wouldn't make it and therefore where is the asset

00:16:21OK so it doesn't seem that M&A is aggressively more likely from your point of view going forward because of all the cache files but that but I mean when you look at those cache files do you do therefore see negative interest rates as a curse or do you see it as something that just allows you to operate your business at a lower cost?

00:16:47 I think it depends what side you are on so to say. Why? It allows you to raise cheap money if it is needed and if you have you are high quality issuers so to say in so far you may take advantage of it but it is definitely cures as well cause the bond investor does not get compensated for the credit risk he is taking this is number one and secondly you know and this is especially true for Deutsche Post DHL with huge pension obligations around the world we see a low discount rates which also increases the pension obligation so overall it really depends which side you are on. For us it is basically a mixed bag and treasurer, CFO has always to deal with these issues it's just a matter of how to balance it.

00:17:39Great and I mean you've talked a couple of times about bond issuance that you've done and you've accurately cited the fact that we've had record bond issuance. In your experience as the Head of the Treasury do you have you notice any difference in issuing those bonds to more normal times?

00:17:59The major difference was you know the huge supply in normal circumstances the banks would steer in lead you towards a window of opportunity where you or company like DP DHL which has fight with any other company about you know getting cheap financing. What we have seen in April and May was that a dozen or half a dozen companies were out there fighting for money and this was definitely something you on the other side what we have also seen is that it was supply driven and demand driven. Whoever came out could fill the pocket so to say because there was huge demand for high credit by quality issuers and DP DHL took advantage of it and this was the market was very crowded and this was the main difference for me when I look back on the various bond issues which we have done in the last couple of years this was really awkward I have to admit.

00:19:14OK thank you I mean staying with the general theme maybe go to more cash management and corporate finance issues I mean a key function of corporate finance generally is to act as an advisor to the corporate board so spent all the key questions the management team of your company have addressed to corporate finance in light of this crisis what do they want to know now that they perhaps didn't or how they want to operate now that they didn't before?

00:19:47Well it's always about transparency about the cash flow about the status of the liquidity and we were very transparent in the past and we have well accepted internal Information systems which allow us to provide this kind of information and instantly to the top management to the CFO into the CEO. You know in normal times there is standard rule if something is happening which is extraordinary inform the big boss now it was the other way around you know they were copied on all emails on liquidity and how cash is developing and so on and so on just to make sure that they know what is going on and on top of it you know having full transparency on their side that we are in stable waters and that we Deutsche post DHL are reliable partner. But this now is on a good footing so to say we provide the information like in pre Corona crisis and we are almost back to normal.

00:21:03And I mean in your conversations with the board etc is there a different focus and priority from driving investments to secure in liquidity positions I mean we've touched on that in other answers but just a more specific question is there a change in shifting priorities between investments and liquidity?

00:21:24Not really we have strong five very strong divisions and you know we Deutsche post DHL group as the backbone of the supply chain we were and we still are very profitable not only if advised that also cash flow wise and free cash flow wise and there is no way that we need to curtail so to say our CapEx program for 2020 or 2021 we have a clear CapEx plan we have enough firepower we have enough cash available to fulfil the CapEx plan because whatever we are doing right now helps us to secure our success in the future. And there is no way that we delay it.

00:22:13And I mean staying with the quiddity do you try to optimize your liquidity or is that it is that tough enough in a low interest rate world and I spoke I'd ask that in relation to counterparty risk as well. Because you know do you see there being a rising risk of counterparty risk in terms of defaults and does that come into the equation

00:22:35I mean regardless of any pandemic or the interest rate environment it's our task to optimize liquidity and we also we always have to keep an eye on the creditworthiness of our counterparties we monitor it closely we take external ratings into consideration or internal assessment CDS spreads and so on yes it is a challenge but what we're doing is we spread as much as possible across various asset classes so not only bank deposits or stupid stuff like this or short term investments with negative yield but make sure that we have that we apply certain diversification rules and that we have a maximum exposure to banks into asset classes and it worked so far very well you never know what the future brings but this is the way we're going to go forward.

00:22:36On the other side of the equation have you changed the way you pay people, have you changed the techniques of payments etc do you see that changing going forward?

00:23:48So first of all what we have done when the pandemic happens so to say in already middle of March we put together a group of people monitoring all accounts receivables. You know we have the five strong divisions and a lot of overlapping customers so the first thing is to have 100% transparency how accounts receivables are developing, what kind of over choose do we have what kind of measures do we have to impose to make sure that the money is coming and this was of utmost important and it worked and our focus was the right one because we have seen that our collection efforts really paid off. What we didn't do is changing our own payment modalities we are a trusted and reliable partner and we pay according to the underlying payment schedule no matter what.

00:24:50OK we've covered kind of corporate finance Treasury function I kind of want to move on to pension fund management which but looks at it from a different side and I'm keen to kind of see what challenges you've had in managing pension funds in light of this crisis. Obviously there's been a huge volatility in asset prices, some you know initial meltdown in in assets and you know the lower for longer mantra for rates is perceived to be more likely going forward so have you had a different approach to managing the pension fund now than before the crisis?

00:25:32No, not really the crisis showed that rights with diversification across asset classes is of utmost importance what we have done more or less immediately Is that we reduce the exposure to equities in March starting already in March shorten the bond duration just to keep the meltdown in check so to say. We did fairly well in March and April admittedly yields were negative but in all fairness not eye watering at all and what we're seeing now is that yields are coming back that the duration can be increased again. So overall we're doing fairly well given the circumstances I have to say. 2020 won't be a good year for anyone I guess but it will be an acceptable year and you know what when we talk about pensions we also need to keep an eye on the duration the duration means you know the our underlying pension obligation the duration of our underlying pension obligation is about 18 years and within this timeframe of 18 years our pension asset management needs to be profitable and we have a clear goal what we would like to achieve we have clear strategic asset allocation based on that long term duration as well which also means you know if you see a crisis like now we take precautionary measures but we won't be judged on an individual year the performance is going to be a whole period economic cycle so to say and in having said that we are doing pretty well.

00:27:23OK I'm going to take you back to life probably in the month or so before the pandemic one of the hottest topics we had in financial markets was probably ESG. It was increasingly important we had climate change on the radar, mentioned at Davos and investors were getting very into ESG, the trend was moving on how do you look at ESG from your function and I suppose which part of the ESG do you focus on most?

00:27:56I think I have to divide the question into two parts the first is from a corporate finance perspective and from a broader group perspective. Let's start with the finance perspective overall you know when we talk about pension money we have 14 billion euros equivalent under management and it's our intention to turn these assets towards ESG compliant asset managers. We have a clear path what we would like to do and then to and how to achieve it. So this is directly under our corporate finance control and we started already in 2010 now it's going to be more and more active and you find more and more asset managers being ESG compliant or not only compliant but being the front runners of the ESG and this is really driving our investment decision looking at the company as a whole we were always ESG we were always looking at ESG. We started already in the early 2000s you know we have a huge footprint and have a huge CO2 footprint not only the DP DHL but the logistics company as a whole the logistics companies produce 14% of all CO2 emission and our company produces 0.4 % so 40 basis points so to say. It is our intention to give something back to the environment to give something back to the society so we started early with ESG developed a clear plan then to have them to be zero net on CO2 emission. So the clear goal is that it by 2050 all logistics related emissions would be 0 net and the intermediate step is that we're going to have an improvement of efficiency by 50% already in 2025 and what we have achieved so far last year was an efficiency increase and we are now at the level of 33% so we do what we can to improve our CO2 footprint but it's not only the CO2 footprint which is the most obvious one when you look at trucks for example when you see that we are operating 260 aircrafts and so on and so on so it's definitely more than the CO2 footprint it is about the social aspect of it it's all the governance aspect of it and all of it Is balanced in our ESG strategy so I have to admit what I have seen here in DP DHL and I've worked in and other companies as well is really one of a kind and 550,000 employees are standing 100% behind it which makes me I have to admit very proud.

00:31:20So you think the trend will continue post pandemic in the same path as it was before the pandemic you don't think the move towards more ESG investing or the themes of it will slow down because of the pandemi

00:31:39I don't believe it because it is in the media it is in the press and you know what it would be the wrong messaging as well ESG is here to stay and it's going to help us to turn the world around make, the world a better place and you know ESG compliant companies like Deutsche Post DHL you know they are producing high quality results better than other companies as well you know. We are well equipped to use ESG to propel us forward.

00:32:16Thanks for that Henrik, there’s a lot of food for thought from that conversation. We discussed how much of your workforce is now working from home, and you think there’s going to be a shift towards more of that in the future. At the same time you’ve also noted that communication is incredibly important right now because those normal social interactions between colleagues are missing. On the macro front, you’ve noted how companies are diversifying their supply chains, but we’re not likely to see a complete reversal globalisation. On low interest rates, you think that’s going to be something we have to live with, which has advantages from your point of view when raising money, but also creates other difficulties such as low discount rates raising your pension obligations. Finally on the ESG front, you think that’s here to stay as well, and you’ve noted how your company is aiming for zero net emissions by 2050.

About Jim Reid

Jim is Global Head of the Fundamental Credit Strategy Group; he also heads up Deutscher Bank's Thematic Research Product and Corporate Bank Research.

He is a top-ranked strategist, consistently named the No.1 analyst in the major surveys over the last 25 years. He has had 25 No.1 positions in these awards in the last decade, more than quadruple the number of any other analyst. His daily Early Morning Reid report has been running for over 13 years now, has tens of thousands of daily readers, and has the most subscribers of any Deutsche Bank Research publication globally. It is one of the most widely read financial market pieces in the investment world.

Jim is Global Head of the Fundamental Credit Strategy Group; he also heads up Deutsche Bank's Thematic Research Product and Corporate Bank Research.

He is a top-ranked strategist, consistently named the No.1 analyst in the major surveys over the last 25 years. He has had 25 No.1 positions in these awards in the last decade, more than quadruple the number of any other analyst. His daily Early Morning Reid report has been running for over 13 years now, has tens of thousands of daily readers, and has the most subscribers of any Deutsche Bank Research publication globally. It is one of the most widely read financial market pieces in the investment world.
BtH 2: Henrik Hänche, Deutsche Post DHL Group - From globalisation to low interest rates