Roadmap to Value - An Update on First Results
In November 2007, Deutsche Post World Net introduced a comprehensive capital markets program. The Roadmap to Value has been designed to enhance the focus on value generation throughout the Group. It has five core elements: Profitability, cash generation, payout to investors, transparency and organic growth. The goal is to make Deutsche Post World Net the first choice among investors worldwide.
After four months, DPWN News takes a first look on the progress of this major initiative and provides an outlook on next steps.
Increasing profitability is a key objective of the Roadmap to Value. Deutsche Post World Net has committed itself to generate 1 billion euros from operational improvements by the end of 2009 to underpin the EBIT development of the Group. The company has taken first steps to achieve this goal: In January 2008, Deutsche Post World Net and global IT service provider HP have signed a letter of intent to transfer responsibility for parts of the Group's global IT infrastructure to HP.
This transfer will enable the Group to drive down overall IT costs and to better leverage its IT resources. The transfer is expected to generate savings of at least 1 billion euros over the next seven years. In addition, Deutsche Post World Net has identified more than 100 initiatives, which will help it achieve the targeted improvements.
2. Cash generation
Improved cash generation is a clear priority of Deutsche Post World Net. The Group therefore aims to reduce net working capital by 700 million euros and to free up at least 1 billion euros in cash through the disposal of real estate assets until the end of 2009.
Real estate disposals agreed on since the capital markets program was announced in November amount to approximately 350 million euros. This has been achieved despite the difficult situation on the real estate markets since mid-year. Moreover, the operating cash flow (Postbank@Equity) has increased by 630 million euros to more than 2.8 billion euros in 2007. On balance, the positive free cash flow increased from 1.3 billion euros to 1.9 billion euros. With 2.15 billion euros the capital expenditure budget for 2008 is slightly below last year's.
With the introduction of a new key performance measure, EBIT after Asset Charge (EAC), Deutsche Post World Net will focus the whole Group on value creation. This value-based concept has been implemented smoothly and since January 1, 2008, 3,200 executives of the Group are already compensated on an EAC basis. EAC links the profitability of a business unit to the asset base which is used to achieve this result, thus focusing management attention on the efficient use of resources.
3. Payout to investors
The Roadmap to Value also aims at increasing cash returns to shareholders. A first step has already been announced for fiscal year 2007: Management and Supervisory Board have proposed to raise the dividend to 0.90 euros. This represents a 20 percent increase compared with 2006 and a dividend yield of 3.8 percent.
During the next years Deutsche Post World Net intends to increase dividends in line with the anticipated growth in net profit excluding non-recurring effects. Overall the Group intends to double its cumulated payouts until 2012: Whereas it distributed 3.2 billion euros over the past five years, it now expects to distribute between 6.4 billion euros and 6.6 billion euros over the next five years.
When Deutsche Post World Net gauged investor opinion in the summer of 2007, many institutions called for improved transparency and consistence of its financial reporting.
By the end of 2007 the Group has laid the groundwork for significant improvements in transparency, which will become effective with the publication of the first-quarter earnings on May 14: The SERVICES division will be unbundled and costs of all Global Business Services will be allocated to the operating units. The result will be a clean CORPORATE CENTER / OTHER segment. Deutsche Post World Net today provided fully restated numbers for the four quarters as well as the whole year of 2007.
Apart from these improvements the Group will continuously work on providing additional in-depth information for investors. For example, starting with the first quarter results the Group will release cash flow and capital expenditure by division.
5. Organic growth
After a period of major acquisitions and their integration Deutsche Post World Net has entered a new era: The Group will focus on organic growth and further leverage its global logistics platform with superior positions in high-growth regions.
In 2007 the Group has already delivered on this promise. For example, the LOGISTICS segment has increased revenues by 5.5 percent and now accounts for 40 percent of the Group's revenues. On the whole, DHL grew 8.1 percent, with the fast growing regions outperforming with growth rates of 9.6 percent.
The Global Customer Service Unit (GCS), which provides global enterprises with a key account management coordinating services across the Group, grew at a rate of 9.7 percent. At the same time, M&A spending has been significantly reduced and is expected to remain on a low level.
These results show that Deutsche Post World Net is well on track in implementing the Roadmap to Value. The Group is confident that it will be able to deliver the announced results and make the share of Deutsche Post World Net the first choice for investors around the globe.