Background Information Capital Markets Day - Part 2
In connection with the release of its first-quarter figures, Deutsche Post DHL held a Capital Markets Day for analysts and investors in Frankfurt today. In addition to CEO Frank Appel's discussion about the current situation and the Group's future strategy, board members from individual divisions presented their growth strategies for the years ahead. Here is a summary of their statements.
Jürgen Gerdes, Management Board Member in charge of the Corporate Division MAIL, which also includes the German parcel business, talked in Frankfurt about his expectations for the second quarter. While saying he anticipates that business in mail communications and parcels will remain relatively stable, he expects further decreases in shipping volume in the business units of Dialogue Marketing and Global Mail.
While customers traditionally use more Dialogue Marketing in times of economic slowdowns, the business was negatively affected by shrinking marketing budgets, the management board member explained.
The management of the MAIL Division plans to offset the expected fall-off in revenue by taking short-term cost-cutting steps. These efforts will include reductions in consulting and travel costs, the establishment of more partner retail outlets in the operating business and the closure of the night air-mail network. All these measures together are designed to generate underpin EBIT with around 300 million euros this year.
Over the long term, cost and revenue activities are to be more closely managed as part of the Strategy 2015. In terms of costs, the focus is on lower personnel costs by taking such steps as lengthening the workweek or outsourcing services where possible. But also by increasing productivity - through such actions as the introduction of new sorting equipment that Deutsche Post will receive from Siemens AG through 2012.
In terms of revenue, attractive price models and new sales initiatives are designed to tap further revenue potential, particularly in the area of advertising. The product range will also be closely examined, and low-margin products eliminated from it. As part of an ongoing effort, the introduction of new products, including the combination of traditional mail solutions with electronic forms of communication, is to be stressed.
In the EXPRESS Division, the restructuring of the U.S. business is on schedule: Service levels have reached new highs and customer feedback is positive, said Ken Allen, who assumed John Mullen's seat on the Board of Management in March. As a result, the targeted loss level of an annualized $400 million from the fourth quarter 2009 could be confirmed, Allen said.
Between 2005 and 2008, margins in the express business outside the United States were improved considerably. As a result, revenue has risen by 22 percent and EBIT (before adjustments in the reporting of earnings related to pension obligations) even by 90 percent in absolute terms, the head of EXPRES said in his presentation.
Because of the current challenges resulting from falling international demand and the somewhat weaker demand for domestic shipments, the EXPRESS Division is planning a wide-ranging reorganization to create a leaner and more streamlined business by eliminating the layers within the Express organization while maximizing synergies on the global and regional levels.
The current five geographical regions will be combined to form three. This will be complemented by a new governance model with a six-member Global Management Board. In addition, the division has identified core projects that are to be initiated in the years to come. The key words here are a program to increase network efficiency, the reduction of indirect costs and the restructuring of unprofitable domestic businesses and of countries where the business with time-definite international shipments is losing money.
By energetically pursing its "profit first" approach, that is, a strategy that stresses profitability while maintaining the current service level, the EXPRESS Division intends to make its contribution to the Strategy 2015 and tap unexploited potential.
GLOBAL FORWARDING, FREIGHT Division
The board member responsible for the GLOBAL FORWARDING, FREIGHT Division, Hermann Ude, also provided analysts and investors with an overview of this division's performance. While very good progress has been made in terms of cash, the division has been unable to escape the grip of the global economic crisis, Ude said.
To offset setbacks in revenue - the decrease here totaled 18 percent in the first quarter - existing customers had to be retained and new business acquired, he said. The division has already launched initiatives designed to profit from the current market consolidation and to increase market shares. The focus is being primarily directed at such sectors as life science, fashion, technology and perishable goods.
A number of cost-related steps have also been taken. They include reducing travel, marketing and administration costs as well as renegotiating contracts with all suppliers. In the future, the goal will be to either centrally combine more activities or to outsource them. The introduction of new processes and standardization of the IT infrastructure are designed to raise the level of automation.
SUPPLY CHAIN Division
The Corporate Division Supply Chain has performed relatively well during the current economic downturn. In the first quarter, for instance, the contract logistics business gained new business with more than 300 million euros in revenue on an annualized basis, primarily in the areas of industry, automotive, health care and retailing. The renewal rate remained stable at more than 90 percent. Nonetheless, the division is expecting a decline in the global contract logistics market in 2009, said Bruce Edwards, the Board of Management member responsible for the SUPPLY CHAIN Division.
For this reason, the division introduced the "5 to Thrive" program last year aimed at improving the financial performance, especially in terms of margins and the return on capital employed. To that end, the division plans to optimize the business model toward greater standardization and profitability as well improve operating processes via the First Choice method. The optimization of long-term assets is another focus of the program. In addition SUPPLY CHAIN plans to reduce indirect costs by 130 million euros.
This will be complemented by a portfolio management focusing mainly on growing the business in a few countries and reaching the turnaround in some identified core markets. Another focus will be on winning more so-called transformational deals such as a contract with British Airways, where DHL Supply Chain will provide all in-flight services for short-range and domestic flights at London's Heathrow Airport.