Deutsche Post World Net presents capital markets program "Roadmap to Value"
- Two-year profit-improvement program of 1 billion euros initiated
- Net working capital to be reduced by 700 million euros
- Asset sales to generate at least 1 billion euros in cash
- Dividend increase of 20 percent for 2007 to be proposed
- EBIT of 4.2 billion euros for 2008 expected; EBIT forecast for 2009 at 4.7 billion euros
Deutsche Post World Net today presented its "Roadmap to Value," a far-reaching capital markets program to use the company's excellent market position to generate more value for its shareholders. The program is aimed at making Deutsche Post World Net the most attractive investment in the logistics industry in addition to being the No. 1 choice for customers and employees.
"Following an expansion phase to build the leading logistics company worldwide, we're now entering a new era," said Chairman and Chief Executive Officer Klaus Zumwinkel at a press conference in Frankfurt. "We are implementing a series of long-term measures in order to raise profitability, generate more cash, increase payouts to shareholders and improve transparency.''
With a comprehensive profit improvement program affecting all units and divisions, Deutsche Post World Net plans to generate 1 billion euros to underpin EBIT growth through 2009. In order to boost cash, the Group aims to reduce net working capital by 700 million euros and raise at least 1 billion euros in proceeds from the disposal of real-estate and other non-strategic assets over the next two years. The management board will also propose to raise the 2007 dividend by 20 percent to 90 cents per share compared with 75 cents per share for 2006. To help increase transparency, Deutsche Post World Net will unbundle its SERVICES division and in principle has committed itself to a stable reporting structure in the future.
In order to establish the value-based approach throughout the Group, Deutsche Post World Net will introduce a new performance metric. The metric, EBIT after Asset Charge, is aimed at motivating managers to generate more value from their day-to-day businesses. Chief Financial Officer John Allan: "The new metric will help us leverage our strengths and attack our weaknesses in order to raise returns for investors and to serve customers even better. We have highly motivated, best-in-class managers and employees around the globe and I am very confident that they are going to rise to this challenge."
New Earnings Guidance Policy
From now on, Deutsche Post World Net will give detailed earnings outlooks for the following year. This will reduce the volatility stemming from unexpected regional economic slowdowns and provide an earnings outlook in line with the industry. "Investors have asked us to give clear, transparent and realistic targets and to tell investors exactly how we plan to reach them," CEO Zumwinkel said. "We have understood the message and we are taking action."
For 2008, the Group expects EBIT of around 4.2 billion euros. At the MAIL division, EBIT of around 1.90 billion euros is expected. The EXPRESS division will probably reach EBIT of around 650 million euros, while EBIT at the LOGISTICS division is likely to amount to around 1.05 billion euros. For the FINANCIAL SERVICES division, the Group forecasts EBIT of at least 1.15 billion euros.
Because a guidance for 2009 has already been communicated to the capital markets, the Group will make one final exception to the new rule and provide an update on its medium-term earnings guidance today. Overall, Deutsche Post World Net aims for an EBIT of around 4.7 billion euros in 2009. For the MAIL business, there is now a high degree of confidence that a maximum of between 10 and 20 percent of EBIT will be affected by the full opening of the German mail market compared with the 2006 level. Thus the company still expects the MAIL division to reach EBIT of between 1.65 billion euros and 1.85 billion euros for 2009. For the EXPRESS division, Deutsche Post World Net now forecasts EBIT of between 900 million euros and 1.1 billion euros. This range accounts for the economic slowdown in the U.S., which has brought the recovery process in the Americas region to a halt in the third quarter. The management is vigorously engaged in restarting the recovery, however, it no longer expects the region to be profitable by the end of 2009. For the LOGISTICS division, an EBIT of between 1.15 billion euros and 1.25 billion euros is forecast, while the FINANCIAL SERVICES expects EBIT of at least 1.2 billion euros for 2009.
The Roadmap to Value in detail
Profitability: Deutsche Post World Net has launched an EBIT improvement program targeting 1 billion euros throughout the Group by the end of 2009. The program will generate significant cost savings at the Corporate Center as well as in the operating divisions. The company is committed to relentlessly focus on underperforming units and improve their profitability.
Cash generation: The introduction of a new value-based performance metric, EBIT after Asset Charge, will be a key element in enforcing a sustained focus on value generation throughout the group. Starting on January 1, 2008, management incentives will be tied to this new metric. In contrast to the usual EBIT, EBIT after Asset Charge accounts for the capital costs associated with the asset base of a business unit. It therefore reflects only the profit that adds value in excess of the costs of capital, and prompts managers to optimize the use of assets rather than just focus on operating results. Deutsche Post World Net expects the new measure to contribute significantly to cash generation. In addition, the Group commits itself to free up cash by reducing its net working capital by 700 million euros by the end of 2009. Deutsche Post World Net also targets at least 1 billion euros in proceeds from disposals of real estate and other assets over the next 24 months.
Payout to shareholders: Deutsche Post World Net will propose to raise the dividend to 90 cent per share for 2007. This is a 20 percent increase compared with 2006. In the following years, the Group intends to increase dividends broadly in line with underlying earnings growth. In addition to that the Group will consider other methods of cash return such as share buybacks once proceeds from asset disposals reach the 1 billion euros.
Transparency: Deutsche Post World Net is committed to improving the transparency of its financial reporting for all capital markets audiences. The Group will adjust its reporting structure and gradually provide more in-depth information to allow for a more stable basis and better comparability. In order to reach that target, the company will create a stable and more comparable reporting structure by unbundling the SERVICES segment and allocating all costs of Global Business Services to the operating divisions. The result will be a clean Corporate Center / Others segment. The Group will provide fully restated and comparable numbers reflecting the new structure.
Organic growth: Deutsche Post World Net reiterated its commitment to focus on organic growth. The Group will further leverage its superior positions in high-growth regions to outperform market growth, and has already achieved considerable success in doing so in EXPRESS and LOGISTICS. Spending on mergers and acquisitions is expected to stay at the current low level with tight strategic and financial criteria for takeovers in place.