Deutsche Post World Net (DPWN) today announced a broad package offinancial measures, including asset disposals and cost-cutting, to improve its profits in responseto strong recent investor criticism. It also admitted DHL Express would not break even in the USAby 2009 as planned, and promised a new US strategy in January 2008.
Presenting the new capital markets programme “Roadmap to Value”, newCFO John Allan said the group would “sweat its assets” in future to increase shareholder value andpay out more profits through higher dividends and potentially through a share buyback. Themanagement board will propose raising the 2007 dividend by 20% to 90 cents per share compared with75 cents per share for 2006.
In order to boost cash, DPWN aims to reduce net working capital by EUR700 million euros through tougher financial management and to raise at least EUR 1 billion inproceeds from the disposal of real-estate and other non-strategic assets over the next two years.Allan said DPWN would regularly review its portfolio and some “small” businesses might be sold, butno “dramatic developments” should be expected.
In addition, the four DPWN divisions (Mail, Express, Logistics,Financial Services) will launch cost-cutting measures to reduce the group’s cost base by EUR 1billion by 2009. DHL Express will aim to cut costs by EUR 350 million during 2008 and 2009. Toincrease transparency, the central Services division will be broken up next year, and its costs,including the Leipzig hub financing, will be transferred back to the four operationaldivisions.
In order to establish the value-based approach, DPWN will introduce anew financial performance metric “EBIT after Asset Charge” by adding capital costs to operatingresults, leading to a lower final operating profit figure. This new key performance indicator wouldbe used down to unit levels such as countries, and encourage several thousand managers to optimisetheir use of assets, Allan pointed out. Management incentives will be tied to the new performanceindicator from 2008 onwards.
Allan also stressed that DPWN wanted to demonstrate it could generateorganic growth by leveraging its market position, including in fast-growing regions, and bycross-selling express and logistics services. The group had reduced its M&A spending and futureM&A deals would be “extremely selective”, he noted.
On DPWN’s Q3 results, Allan said the group Ebit drop of 18.4% to EUR841 million was due to one-off, previous year effects and in line with expectations. DHL Expresssaw its Q3 Ebit drop by 36.8% to EUR 85 million on revenue up 1.9% at EUR 3,362 million. The Ebitdrop was due to one-off effects and investment costs for the Leipzig hub, he said.
Allan admitted the “promising recovery” in DHL’s loss-making USbusiness had been halted in Q3 by the slowing US economy, and the company formally withdrew itsguidance that the US operation would break-even in 2009. DPWN is looking at all aspects of itsoperations there to see how it can “re-start” its financial improvement in the USA, and Allancommented that there are “no sacred cows” in terms of how to improve the US business.
Speaking at the later analysts’ conference, chairman Klaus Zumwinkelsaid that DPWN aimed to present measures to “re-start” the US business in January. It would be “very easy” to close down the US operation but this would “destroy a lot of value” and impactheavily on the rest of business around the world. In comparison with TNT; which has no US network,Zumwinkel said that TNT was essentially a strong and successful European company but had no globalnetwork and only small operations outside Europe. Allan told investors that DHL Express was growingstrongly outside the USA, that France was successfully improving its financial results.
Meanwhile, DPWN announced that in future there will be a change infinancial guidance, with detailed earnings outlooks for the following year only. DPWN said that for2008, it expects group EBIT of EUR 4.2 billion. It expects Mail EBIT of EUR 1.9 billion, ExpressEBIT of some EUR 650 million, Logistics EBIT of around EUR 1.05 billion, and EBIT of at least EUR1.15 billion euros for FINANCIAL SERVICES.
For 2009, DPWN revised down the previous guidance of EUR 5.2 billion toEUR 4.7 billion. DHL Express is expected to achieve EBIT in the range of EUR 0.9 billion to EUR 1.1billion. DPWN said this range accounted for the US economic slowdown.
Separately, chairman Klaus Zumwinkel stated that both he and John Allanwould decide next summer whether they wanted to extend their contracts, both of which are due toexpire at the end of 2008.
