Exel acquisition completed - Update on FY05 guidance12/14/2005
Having been restricted from certain forward-looking statements during the Exel transaction, the management of DPWN wants to resume the practice of providing financial markets timely with a guidance for the results of the group and its operating divisions for the current year 2005. Any guidance for 2006 and subsequent years will be communicated in Q1 2006.
I. Update on Exel acquisition
Deutsche Post World Net has completed the acquisition of Exel plc with the transfer of 100 percent of the U.K. logistics company's equity capital. The combination of the two companies creates the global No. 1 in sea freight, ocean freight and contract logistics and values Exel at 1237 pence (€ 18.35) per share, or 3.8 billion pounds (€ 5.6 billion) as of closing of the transaction on December 13. Deutsche Post World Net paid 900 pence in cash and 0.25427 Deutsche Post shares per Exel share. The new Deutsche Post shares, which represent less than seven percent of the equity capital, will start trading on the Frankfurt stock exchange today. The total number of shares of DPWN now stands at 1.192 billion.
The future structure of Deutsche Post World Net's enlarged logistics division has already been confirmed and top management positions filled. Exel Chief Executive Officer John Allan will run the combined division, which will be headquartered in Bracknell, near London. Deutsche Post World Net has also already identified the second and third management levels of the new logistics division.
The enlarged logistics unit will operate under the DHL brand and use DHL's red and yellow colors. After the merger, DHL will thus operate with two logistics sub-brands: DHL Exel Supply Chain and DHL Global Forwarding. Rebranding will start immediately and is likely be completed by the end of 2006.
DPWN intends to realise gross cost synergies of € 220 million p.a. by 2008. These synergies mainly relate to overhead cost (~ 50% of total cost synergies) and productivity enhancements (~ 30% of total cost synergies). Over a period of 3 years total integration cost of c. € 400 million are planned, with almost half of the cost expected in year 1, ie. 2006. This means that in 2006 integration cost will exceed the first year's synergies by approx. € 100 million. Excluding the integration cost the Exel transaction will be modestly earnings enhancing in 2006. In 2007 the transaction will be earnings enhancing also including integration cost.
Exel will be included in the DPWN 2005 group accounts as per year-end.
II. P&L impact of new health care related legislation
As already flagged with our 9M-reporting a new law (German Federal Posts and Telecommunications Agency Reorganisation Act) will lead to a new governance and financing structure for Postal Civil Service Health Care Insurance fund. Today the financial implications of the new law can be quantified.
For future years the ongoing cost to service the health care provisions will be reduced by approx. € 70 million p.a. The amount was hitherto shown in the financing result. As a one-time effect in 2005 the reduction in our annual obligation to fund future shortfalls leads to a reversal of health care provisions with a positive EBIT impact of c. € 1.0 billion (booked in Others/ Reconciliation).
This impact is offset by a build-up of new provisions amounting to roughly € 0.7 billion for further optimisation measures including the creation of the Global Corporate Services division.
In total these one-off effects will have in 2005 a positive impact of roughly € 0.3 billion, which will be shown in Others/ Reconciliation.
III. Update on FY 05 guidance
In light of these effects and based on the operating figures for the first 11 months this year the guidance now stands as follows:
Update on FY 05 guidance
EBIT guidance 2005
As per Dec 14, 05
|Group||At least € 3.6 bn||At least € 3.7 bn|
|t/o MAIL||'Stable at € 2 bn'||'Stable at € 2 bn'|
|EXPRESS||+ 100% 1)||'around € 500 m'|
|t/o Americas||€ -300 m||'better than € -400 m'|
|LOGISTICS||+ 5-10% 1)||+ 10% 1)|
|Financial Services||+ 5-10% 1)||+ 10% 1)|
- operating result 2005 (EBIT) versus 2004 (EBITA)
Including the effects shown above (net one-off positive impact of € 0.3 billion) the guidance for the group FY05 EBIT result has been increased to be at least € 3.7 billion compared to the earlier guidance at least € 3.6 billion.
On a divisional level, the guidance for the MAIL division is unchanged for a result stable at the € 2 billion level.
In the EXPRESS division DPWN foresees operating earnings including the Americas region of around € 500 million, an improvement of approx. € 130 million compared with the previous year. This includes a target for the Americas region of an improved result of losses better than € 400 million which takes into account the communicated negative effect of the combination of two hubs in September in the US. For the upcoming quarters a further improvement of the results in the Americas region can be expected and as communicated the business is well on track towards breakeven.
The LOGISTICS division (excluding Exel) is expected to show an improvement in EBIT by around 10%, ie. at the upper end of the earlier guidance.
The same is expected for the FINANCIAL SERVICE division, which is now also expected to show an earnings increase of around 10%.
The group will report the full-year 2005 accounts on March, 14th, 2006.
Bonn, 14.December 2005