Speech Klaus Zumwinkel and Edgar Ernst
At the Annual Press Conference 2006 on March 14, 2006 in Bonn
Check against delivery.
Ladies and gentlemen,
welcome to Deutsche Post World Net's Annual Press Conference 2006 in Bonn.
My colleagues and I will then give you an overview for our Group's current position and that of the selected corporate divisions, and introduce our strategy for the coming years.
You will remember that we said to you in 2000: "We want to be the world's No. 1 in our industry by the end of 2005."
Today we can say with pride that we have reached this goal. I know that this chart rings a bell for each and every one of you; it has been our constant companion over the years.
It clearly reflects the enormous transformation process that our Group has gone through in its relatively short history as a public limited company. We are the market leader today in just about all market segments and regions in which we operate. The acquisition of Exel was an important step in achieving this goal. It has strengthened our contract logistics activities and also brought important know-how to our Group, not least in the person of John Allan. The acquisition of BHW is also a great benefit to our Group. The purchase significantly expands Postbank's position as leading financial service provider for private customers in Germany - vis-à-vis customer numbers as well as important products.
All in all, we can say: 2005 was an outstanding year for our Group.
This success is also reflected in our financial figures. I would like to give you a brief overview of these before my colleague, Edgar Ernst, goes into the numbers in greater detail.
Consolidated revenue increased by 3.3% to EUR44.6 billion. Profit from operating activities simultaneously increased by 25.1% to EUR3.8 billlion. This not only met our profit expectation of at least EUR3.7 billion, which we confirmed in December, but actually exceeded it slightly.
There was growth in consolidated net profit for the period, which surged by around 40% to EUR2.2 billion.
We don't want to hide the fact that not all corporate divisions made the sort of contribution we would have liked to our Group's overall success. Accordingly, further action is needed for the express business in the USA. We need to eliminate the problems we have identified and increase profitability at these corporate divisions.
The number of employees (full-time equivalent) increased by 3.6%. Through the acquisition of Exel the number of employees expanded to 500,000. As a result Deutsche Post World Net is now the seventh-largest private-sector employer internationally.
I will now hand over to Edgar Ernst, who will present the Group's financial highlights.
Ladies and gentlemen, Mr. Zumwinkel has already addressed revenue and EBIT development. Consolidated net profit grew over proportionately by almost 40%. A particularly positive impact was felt here over the previous year from the discontinuance of goodwill amortization.
Net profit per share increased from EUR 1.44 to EUR 1.99.
Let's take a closer look at the corporate divisions. Revenue rose slightly in MAIL, where we were able to more than offset a revenue decline in MAIL Communication, in particular thanks to good development in Mail International. As forecast, on an EBIT basis we were able to keep earnings stable at EUR 2 billion. Express showed a revenue increase in line with the market. As we already reported last month, we charged an impairment result on goodwill for the Americas Region. Adjusted by this one-time effect, the profit from operating activities improved to EUR 445 million. LOGISTICS developed very encouragingly, with strong growth in revenue as well as earnings. And please keep in mind that this is pure organic growth; the Exel acquisition is not yet included in these figures.
Revenue in FINANCIAL SERVICES declined due to the lower interest rate level. Particularly Postbank showed an impressive earnings performance, as already explained yesterday by my colleague Wulf von Schimmelmann at the Postbank press conference.
Let's take another look at some selected key figures. In the Postbank at equity view, the equity ratio rose from just under 25% to almost 30% year-on-year. At EUR 1.9 billion, investments moved at the expected level in 2005.
Net financial debt increased to just under EUR 4 billion. The Exel purchase is reflected in this line.
We naturally want our shareholders to again share in the good business development of the past year. To this end, we will propose this year's Annual General Meeting a dividend increase to 70 euro cents for 2005. This corresponds to a 40% rise.
As you can see on the graph, not only have we regularly increased the absolute dividend per share since our IPO, but also successively raised the payout ratio.
The proposed dividend for 2005 corresponds to a payout of 37% of consolidated net profit to our shareholders.
Not only could our shareholders be pleased at the dividend increase, but also at the positive development of the share price of Deutsche Post. The price increased in 2005 by 21%, thus lagging only slightly behind the DAX.
If we compare the development of our share price with that of our competitors and the logistics index, it can be seen that we came out clearly ahead of both, in particular as compared to our US competition.
We were naturally especially pleased at the development of Postbank's share price. The price increased by 51% in 2005.
Now to the outlook for the current year. We are expecting 2006 Group revenue of above EUR 60 billion, and EBIT of at least EUR 3.7 billion. MAIL will increase its revenues slightly. We will hold earnings stable at EUR 2 billion. As before, international business will offset national declines. Revenue in EXPRESS will grow with the market at a single-digit rate. We expect EBIT to be at the previous year's level before the impairment result, i.e. on the basis of the EUR 450 million. With the inclusion of Exel, LOGISTICS will record revenue of over EUR 18 billion, and operating earnings of around EUR 500 million. Integration costs are already considered in these figures. FINANCIAL SERVICES should show a slight revenue increase, particularly with the inclusion of BHW. From the earnings side, here we expect EBIT of at least EUR 900 million.
I will now return the floor to Mr. Zumwinkel.
Ladies and gentlemen: Yes, we have reached our goal, and are now No. 1 in each major market segment. We are the leading global player in our industry, based on solid financial foundations with a single A rating that we are committed to. We have considerably boosted our profitability: In 1990, we started with revenues of EUR9 billion and losses of EUR1 billion. In 2006, we will generate revenues of around EUR60 billion and, with EUR3.8 billion, have considerably improved our profitability.
We have set up a worldwide network, reinforced by numerous acquisitions. We use the network to fulfill to the highest standards possible the needs of our customers in their worldwide activities.
After a phase of strong growth through acquisitions and - due to integration - a more inward focus on our own organization, we will now again increase our attention on what really counts: the customer.
No logistics group is better positioned strategically in global competition than Deutsche Post World Net. The addition of Exel makes us the world's largest logistics corporation in the fast-growing global logistics industry. We will make use of this unique strategic starting point.
But we also know: The company's success will not be determined by size alone. Satisfying our customers is what really counts. This is why we have identified customer satisfaction together with improving our quality as the next logical step for the Group. This will be key to our corporate strategy for the coming years. Our declared goal is to be our customers' "first choice".
We have started our new quality program, "First Choice", so as to become quality leader in our industry and the customer's First Choice. We will link the program up to numerous operational and structural measures in order to reach our financial target, a minimum EBIT of EUR5 billion.
Every one of our 500,000 employees will contribute to the success of this program. We will all work on boosting quality and productivity levels, increasing customer satisfaction, and providing world-class service.
You are all familiar with our value creation program, STAR, which we brought to a very successful close last year. Its EUR1.44 billion earnings contribution far exceeded our expectations.
First Choice is following this successful program, with certain differences: STAR placed great emphasis reducing costs, due to the integration of different companies. In contrast, our focus with First Choice is on our customers and top-line growth. As the aim of First Choice is to increase customer satisfaction, unlike STAR it is not directly bound to its own financial target. But it constitutes the key strategic tool for reaching our Group financial target of EUR5 billion in EBIT by 2009.
Our Group has created a unique starting point for itself in recent years. This is our platform for launching a new era of our corporate history with First Choice: We will go full steam ahead toward our goal of becoming No. 1 worldwide in quality and customer satisfaction. This will provide a clear, unique selling proposition in the market for Deutsche Post World Net.
Through the successful acquisitions of recent years we have built a world-wide unique strategic platform with excellent opportunities. Now, we will focus more on organic growth and turn outward to our customers, more than before. We want to offer them enhanced quality and improved service.
Not only do we want to be First Choice for customers in all market segments where we are active. We also want to be First Choice for our employees, as a sought-after employer, and for investors, as an attractive investment.
Our customers expect us to provide excellent and seamless service. This means that not only do we have to ensure internal processes are best-in-class, but also that we deliver excellent service in our day-to-day dealings with our customers.
We already have quite a number of cross-divisional initiatives up and running in our Group with the aim of increasing customer satisfaction and quality. We will continue these and bundle them as well as future initiatives under the First Choice umbrella.
Using a standardized Group-wide approach, we will analyze our internal processes and focus them on real customer needs.
We will implement reference processes to ensure the consistency of our program. Areas where these processes can be applied are for example proactive tracking and tracing, claims management and call centers.
We naturally also want to make First Choice's success transparent and measurable. We will be introducing a measurement system in the form of a scorecard for this purpose. We will orient all work processes even more strongly towards our customers' needs.
The key performance indicators (KPI) that come into play for increasing customer satisfaction will be analyzed in detail. The success of the improvement measures is then reflected in increased customer satisfaction. We will use selected KPIs to monitor and measure progress in increasing customer satisfaction as well as in optimizing our processes. And, last but not least, the success of the First Choice measures will also be mirrored in the key financial figures.
There will be no parallel organization for First Choice like there was in STAR. Line management retains the responsibility for customer satisfaction. We will just build a small unit in Bonn to support the business units and provide a standardized approach.
First Choice will be implemented gradually in our organization. We will start this year with six to eight cross-divisional showcases.
Starting in 2007, we will then roll out the program Group-wide. With that, we will be covering 84% of total revenues.
We will provide regular updates about the success of the program. Since we are still in the pilot phase in 2006, we are introducing brief status reports on concrete improvement initiatives this year. Starting in 2007, we will report on successful initiatives. Where possible, we will naturally also link this up to key financial figures. This corresponds to the approach that General Electric pursued in introducing Six Sigma.
Ladies and gentlemen, First Choice holds top priority for our Group. I myself am heading this program and am responsible for it. I am supported a strong central team and top management in the divisions and regions.
You may now be asking yourselves: How will they mobilize 500,000 employees, across all divisions and countries, to boost their efforts toward increasing quality and productivity, towards delivering a world-class performance?
Firstly, we committed our top management to this new program at a recent internal Top Executives Meeting, where they pledged to make this program their top priority.
At the same time, we will be providing training programs to employees in order to enable them to make their own contribution to First Choice.
We have also linked our employee compensation scheme to their contribution to the success of First Choice. In the same way, career and development paths will be linked to support of First Choice.
I would now like to give you an overview of our 2009 financial target that we want to reach through First Choice and other measures.
We have targeted EBIT of at least EUR5 billion for 2009. This means that by 2009 we will increase EBIT by at least EUR1.24 billion in order to reach this target.
Finally, I would like to give you an overview of how the total target of EUR5 billion is divided among the corporate divisions.
The MAIL Corporate Division finds itself in an increasingly liberalized environment with new market participants. That is why we are assuming a potential risk in EBIT of 10-20%.
We are assuming earnings of at least EUR1 billion each for the other corporate divisions, EXPRESS, LOGISTICS and FINANCIAL SERVICES.
On the whole, all corporate divisions will show significant year-on-year earnings growth, and make their contribution to the success of the Group.
Ladies and gentlemen, three years ago I showed you with this chart that the third phase of our corporate strategy has started. Goal was becoming No.1 in our industry. My employees made it. With First Choice we open today our new strategic horizon for our company Deutsche Post World Net. This will change our Group entirely and bring a huge step forward.
Thank you for your attention.