The Roadmap to Value - taking stock after the first year
One year ago, on November 8, 2007, Deutsche Post World Net unveiled the Roadmap to Value. This newly established capital markets program consists of a comprehensive set of measures, which have been designed to enhance the shareholder value focus across the whole Group.
Twelve months after the announcement is a good time to take a first look at the results: What has been achieved during the first year? What are the priorities for the next months?
The Roadmap to Value is focusing on five key areas: profitability, cash generation, payouts, transparency and organic growth. Deutsche Post World Net has made significant progress in all of those areas and already delivered on various targets since the announcement.
Profitability: Deutsche Post World Net a year ago announced its attention to achieve 1 billion in profitability improvements to support underlying EBIT growth over two years, split evenly between this year and next. The Group is on track to meet the projected 500 million euros this year.
Given the current market environment and the rather dim economic outlook, Deutsche Post World Net has decided to step up its profitability measures and to now reduce operating and non-operating spending by 1 billion euros by the end of 2010. Following a thorough internal benchmarking, the Group will work on improving efficiency at the Corporate Center as well as in the operating divisions and Global Business Services.
Cash generation: Working capital improvements of 700 million euros by the end of 2009 and a minimum of 1 billion euros in cash from divestments of non-strategic assets had been set as the Roadmap's cash generation targets. Deutsche Post World Net has already outperformed the divestment goal.
Following the agreement to sell real-estate for 1.4 billion euros and a 29.75 percent holding in its banking subsidiary Postbank, the Group will have raised more than 4.4 billion euros in cash by early next year. Furthermore, Deutsche Post World Net has reduced its working capital by 380 million euros at the end of September and thus covered more than half the way to its target. The Group has also optimized CapEx and minimized M&A spend.
Another key element has been the implementation of value-based management principles across the whole Group. Early this year, Deutsche Post World Net has introduced EBIT after Asset Charge (EAC) as the new performance metric for every business unit. EAC incorporates the cost of the asset base used in the operating business into the main profitability measures. Since January 1, 2008 all executive compensation and incentives are linked to this performance metric. The global implementation of EAC has been smooth and fast.
Payout: With the launch of the Roadmap to Value, Deutsche Post World Net has committed itself to return more cash to shareholders. Accordingly, the Group raised the dividend for the financial year 2007 to 90 cents. This represented an increase of 20 percent compared to the previous year and a payout ratio of more than 78 percent. The dividend yield of Deutsche Post World Net in 2008 has been among the highest in Germany. Going forward, the Group intends to maintain a high payout ratio.
Transparency: The improvement of transparency had been one of the main requests of analysts and investors, and Deutsche Post World Net has met their requirements swiftly. As a first step, the Group has unbundled the Services Corporate Division and reallocated the respective costs to the operating divisions. Secondly, the Group has increased the transparency of its financial reporting by presenting EBIT bridges and by reporting more detailed volume data in the Express and Supply Chain/CIS divisions.
Today, Deutsche Post World Net has also announced to change its pension accounting by booking the expected return on pension plan assets into the financial result instead of the EBIT. Finally, the Group's financial reporting will become even more transparent once Postbank has been deconsolidated following the sale of 29.75 percent to Deutsche Bank.
Organic growth: Following several years of major external growth initiatives, Deutsche Post World Net committed itself to focusing on organic growth by leveraging its global logistics platform. Since then, Deutsche Post has stuck to a disciplined M&A approach and reduced M&A spending to a minimum in 2008. The Group has fully focused on generating growth by exploiting its excellent positions in emerging markets, which have contributed strongly to revenue growth in the first nine months of this year.
Deutsche Post World Net has also significantly grown its revenues with key accounts in the Global Customer Services segment. Organic growth has also been fostered by the First Choice program which aims at improving customer service and quality across the Group.
In sum, Deutsche Post World Net has worked hard on its Roadmap to Value agenda and has already achieved significant results. The management is strongly committed to press ahead with the next steps of the program and deliver the targets it has set until the end of 2009.