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| DEUTSCHE POST WORLD NET TO RESTRUCTURE U.S. EXPRESS BUSINESS | |||||
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| Bonn -- May 28, 2008 | |||||
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| Deutsche Post World Net to restructure U.S. Express business with new airlift partner and substantial cost savings initiative - DHL Express U.S. to work with UPS for North American airlift - Network restructuring to remove excess capacity in U.S. Express - Continued strong U.S. presence with no changes to product range or service commitment; less than 4 percent of shipments affected - Annualized cost savings in U.S. Express of about $1 billion (640 million euros); underlying EBIT to improve by around $800 million in 2010 and around $1 billion in 2011 - EXPRESS Corporate Division 2008 Underlying EBIT now seen at 400 million euros; Group EBIT guidance adjusted slightly to 4.1 billion euros Deutsche Post World Net, the world's leading transport and logistics company, today announced a plan to restructure its DHL U.S. Express business by working with UPS for airlift capacity and reducing costs in its ground infrastructure. Under the plan, DHL and UPS have agreed to develop a contract whereby UPS will provide air uplift for DHL Express U.S. domestic and international shipments within North America. In addition, DHL will align its U.S. Express infrastructure to existing shipment volumes by redesigning its ground linehaul network to better match capacity with customer requirements. The impact on service levels will be minimal with less than 4 percent of shipments affected. DHL remains focused on delivering international and domestic Express products, offering an attractive alternative for U.S. customers and keeping a strong commitment to the U.S. market. The restructuring plan will lead to sustainable improvements in financial performance and provide a sound starting point for a more efficient and customer-oriented business in the future. In 2008, the company expects an underlying EBIT loss of $1.3 billion in U.S. Express. Through the expected cost savings of around $800 million in 2010 and around $1 billion in 2011, underlying EBIT will improve accordingly. First positive effects of the plan will start showing already in 2009. The company expects to spend up to $2 billion to finance the restructuring plan. Due to the uncertain economic situation in the U.S., Deutsche Post World Net is reducing its guidance for underlying EBIT in the EXPRESS Corporate Division in 2008 to around 400 million euros from around 500 million euros. Subsequently, the Group's full-year guidance before non-recurring effects and restructuring costs will be reduced slightly by 100 million euros to around 4.1 billion euros. "We have promised to relentlessly focus on improving financial performance and delivering on our Roadmap to Value program. I am confident we have found a sustainable way forward for U.S. Express in the best interest of customers, employees and investors," said Deutsche Post World Net Chief Executive Officer Frank Appel at a press conference in Bonn. "Taking a pragmatic approach, we will go on to be a smarter player in the challenging U.S. Express market. We will continue to offer premium service to customers who rely on DHL as the leading network operator across the globe. And we will continue to leverage our express, logistics and mail offerings, which in combination make DHL unrivalled as the world's leading logistics company." DHL is taking action both in its infrastructure network and in aviation with a restructuring plan that focuses on three main elements: 1. Reducing infrastructure network capacity by approximately 30 percent through the following detailed measures: - Consolidating and closing smaller sorting facilities into modernized, larger stations, resulting in reductions of approximately 34 percent - Rationalizing pickup and delivery routes by 17 percent, including new courier routing plans to enable better route planning and avoiding peaks in the operation, as well as making changes to staffing plans - Ground linehaul network rationalized by 18 percent through improved capacity utilization and footprint reductions in some remote areas. 2. A proposed contract between DHL and UPS whereby UPS will provide air uplift for DHL Express U.S. domestic and international shipments within North America 3. Reduction in overhead and other administrative costs As one central part of its restructuring activities, DHL and UPS will pursue a contract to provide air uplift, creating a single airline partner for DHL Express in the U.S. DHL will continue to operate its courier and ground network as well as pickup and delivery services to its customers across the country. The proposed agreement, in character and scope representing an efficient model in the express industry, will extend for 10 years. The commencement of UPS service into the DHL network is expected to begin later this year. The proposed contract provides both DHL and UPS substantial economic benefits in the U.S. Express market, which remains one of the most challenging marketplaces worldwide in light of the current economic downturn. DHL will continue to compete in the U.S. market under its own brand, offering attractive value to customers. The restructuring action in no way diminishes DHL's commitment to retaining a significant presence in the U.S. market, which is key to DHL's global network. "Our future focus will be where customers have told us they need to do business the most. Our entire network restructure will enable us to bring a new level of reliability and increased service performance to our international and U.S. domestic customers while cutting unnecessary costs such as maintaining infrastructure that customers don't ask for," said John Mullen, Deutsche Post World Net Management Board Member and Chief Executive Officer of DHL Express. DHL's strategic priorities in the U.S. will be to continue to provide record service reliability, and accelerating growth in more profitable segments of the market through leveraging innovative sales channel strategies like the recently announced Walgreens partnership. In addition, DHL will be more selective in accepting business from a small number of scarcely populated areas and take advantage of capacity and cost reductions to grow a leaner and more focused ground business. To drive the implementation of the restructuring plan, DHL recently announced the appointment of long-time DHL senior executive, Ken Allen, as CEO of DHL Express U.S. Allen has extensive experience executing restructuring plans within DHL. In his previous role as CEO of DHL Express Eastern Europe, Middle East and Africa (EEMEA), Allen has doubled revenue growth and margin within two years. In addition, his experience as CEO of DHL Express Canada resulted in turning many years of negative performance into what is now positive financial development for the company. Note to editors: A press conference with CEO Frank Appel, CFO John Allan and DHL Express CEO John Mullen will be broadcast from 2 p.m. CET over the Internet under http://www.dpwn.com. A written interview with CEO Frank Appel as well as audio statements are also available. Contact for media queries in Germany: Deutsche Post World Net External Communications Martin Dopychai Silje Skogstad Nicole Mommsen Tel.: + 49-228/182 99 44 E-mail: pressestelle@deutschepost.de Contact for media queries in the U.S. DHL Express USA Michele Nadeem Jonathan Baker +1-954/888 7020 +1-954/888 7047 E-mail: usa.pressoffice@dhl.com Deutsche Post World Net is the world's leading logistics group. Its integrated Deutsche Post, DHL and Postbank companies offer tailored, customer-focused solutions for the management and transport of goods, information and payments through a global network combined with local expertise. Deutsche Post World Net is also the leading provider of Dialog Marketing services, with a unique portfolio of efficient outsourcing and system solutions for the mail business. The Group generated revenue of more than 63 billion euros in 2007. With currently more than 500,000 employees in more than 220 countries and territories Deutsche Post World Net is one of the biggest employers worldwide. All information is provided without guarantee and subject to change without prior notice. This document contains forward-looking statements that relate to the business, financial performance and results of operations of Deutsche Post AG. Forward-looking statements are not historical facts, and may be identified by words such as "believes", "expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. As these statements are based on current plans, estimates and projections, they are subject to risks and uncertainties that could cause actual results to be materially different from the future development, performance or results expressly or implicitly assumed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this presentation. Deutsche Post AG does not intend or assume any obligation to update these forward-looking statements to reflect events or circumstances after the date of this document. --------------------------------------------------------------------------------- DHL Express U.S. Network Restructure Fact Sheet DHL Express and DHL Express U.S. Businesses - The U.S. Express market is approximately of 46.8 billion Euros (U.S.$74 billion) business; within this, DHL's target market (express shipments, less than 150 lbs) is of approximately 41 billion Euros (U.S.$65 billion) - Globally, DHL Express processes approximately 1 billion shipments annually (2007 stats), delivering to 120,000 destinations - DHL Express U.S. has 2.3 million imports/exports per month - 49% of all DHL packages shipped worldwide touch the U.S. - 48% of the top 200 DHL Express global customers are based in the U.S. - DPWN is the 6th largest employer in the world with some 500,000 employees - DHL has over 305,000 employees globally - DHL U.S. has approximately 40,000 employees and associates - DHL will have the largest retail footprint in the U.S. with over 10,000 retail locations by the end of 2008 (including Walgreens, OfficeMax and mail and parcel centers) Changes to the U.S. Network We are taking three actions: Changes to our infrastructure and aviation, and a reduction on administrative and overhead costs. 1. Aviation: Working with a single air provider - UPS 2. Infrastructure Network: DHL is reducing infrastructure network capacity by approximately 30%. This includes: - Station network rationalized by 34% via service center closures and consolidations - Pickup and delivery routes rationalized by 17% - Ground linehaul network rationalized by 18% 3. Targeted SG&A (sales, general and administrative) reductions of $130 million Impact to Customers - DHL will continue to deliver to 100% of the zip codes we deliver to today - DHL will continue to pick up 99% of the volume we pick up today - DHL will leverage partnerships for final mile for approximately 2.4% of current delivery volume to sparsely populated areas - Overall, less than 4% of our current network shipment volume is impacted. Overall network impact is a factor of two components: 0.6% of pickups eliminated 3.3% of deliveries result in changes to transit time = 3.9% overall volume impact - There is no change to the DHL Express U.S. domestic and international product range - DHL will continue to offer track and trace capabilities for those shipments which are delivered through partnerships. Customers will continue to use DHL airway bill numbers to track shipments online (www.dhl-usa.com) or via the phone (1-800-CALL-DHL) - Changes will be implemented in a phased approach and through 2009 - Key restructuring results: * Improved financial performance * A refocused U.S. network to offer even greater reliability and excellent customer value * A platform for sustainability and growth in an evolving industry and economy Financial Impact - The network restructuring plan targets an improvement of underlying EBIT at U.S. Express by approximately $1 billion by 2011. - Expected underlying EBIT loss at U.S. Express 2008 $1.3 billion. - Loss to be reduced to $900 million in 2009, $500 million in 2010 and $300 million in 2011 - One-off implementation costs of up to $2 billion UPS Details - DHL and UPS have agreed to develop a contract whereby UPS will provide air lift for DHL Express U.S. domestic and international shipments within the U.S. - The two parties will now rapidly conclude a definitive contract with the goal of being able to provide service in the second half of 2008 - The proposed contract would comprehend a 10 year agreement * As of: 05/28/2008 -------------------------------------------------------------------------------- Interview with Frank Appel, CEO of Deutsche Post World Net on the Group's plan to restructure its U.S. Express business Deutsche Post World Net, the world's leading transport and logistics company, today unveiled a plan to restructure its DHL U.S. Express business. The plan will lead to sustainable improvements in financial performance and provide a sound starting point for a more efficient and customer-oriented business in the future. Under the plan, DHL U.S. Express will redesign the network to better match capacity with customer requirements and partner with UPS for airlift capacity on domestic and international Express products in North America. In an interview with DPWN News, Chief Executive Officer Frank Appel comments on the rationale behind the plan and the anticipated improvements. DPWN News: In a nutshell - how would you characterize the plan that you unveiled today? Appel: I would call it a realistic and pragmatic approach. We are focusing our strength and expertise on what our customers really want. They need us where they have the lion share of their business, namely in large U.S. cities and cross border. We will be able to significantly improve performance of our U.S. business just as we pledged in our capital markets program Roadmap to Value. At the same time the restructuring plan allows us to keep a significant footprint in the world's largest express market. DPWN News: What are the main measures of the plan? Appel: Well, first of all we are cutting down our infrastructure network in the U.S. by almost one-third in order to get rid of excess capacity. We will achieve that by reducing the number of locations that we currently do business from by more than one-third and combining them into larger ones. In terms of process improvements we will modernize our courier and sorting facilities, make changes to staffing plans and employ better route planning to avoid peaks in our operations. Secondly, we have agreed with UPS to work out an agreement whereby UPS will provide airlift capacity for our domestic and international express products within North America to us. Thirdly, we will reduce our overhead costs. DPWN News: This is not the first time you are presenting a restructuring plan for the U.S. Express business. The break-even target was postponed more than once. Why is this plan different? Appel: We are taking a totally different approach than in the past. While in the past management strived for an expansion of DHL's market share with the necessary costs attached to it, we are now looking at improving our bottom-line performance while at the same time maintaining service quality where it's needed. Our steps are more drastic and we are certain that this is the right way to achieve the anticipated improvements. Our team has evaluated all possible options over the past few months and put a tremendous amount of work into this plan, which we believe is the best-possible solution for customers, investors and employees. DPWN News: Has the economic downturn in the U.S. led to a new sense of urgency in finding a solution? Has it put you under pressure to draft up a plan? Appel: The downturn in the U.S. economy has definitely had a large impact on our operations, but we are not trying to suggest that it's the root of all of the challenges we've been facing in the U.S. Even before the downturn, when our U.S. business was showing great promise and steady improvements for an entire year, we were looking for ways to take costs out of the operation. The economic downturn caused us to accelerate that search and we now believe we have the right plan to proceed. DPWN News: What can we expect in terms of job cuts? Appel: The job cuts in our own U.S. operations are rather limited, with about 4 percent of our total U.S. workforce being affected. However, you have to keep in mind that we are working together with numerous suppliers in the U.S. and we can't comment on the possible impact our restructuring plan will have on their operations. DPWN News: This sounds as if the whole plan is all about cutting and reducing on the back of your customers? Appel: Not at all. As mentioned before it's about being where our customers need us most. We won¿t compromise our service quality by any means. Quite the contrary: Like shown with the recent Walgreen partnership, we will further expand our visibility and make it even easier for customers to get their express services at a good price. That's what we are good at and what we will expand further. The cuts will affect less than 4 percent of our total shipping volume in the U.S. DPWN News: What will be the bottom-line improvements and at which cost do they come? Appel: The measures will result in costs savings of around $800 million in 2010 and around $1 billion in 2011 with corresponding improvements in EBIT. In terms of costs we expect to spend up to $2 billion to finance the restructuring plan. These charges will be tied to transition costs, contractual obligations and write-offs. DPWN News: How much money are you currently losing in the U.S. and are you expecting to ever make a profit? Appel: As we said before, we are not reporting EBIT figures on a regional level. However, since the situation in the U.S. is a special case and we want to prove that we're successfully implementing our plan, we can tell you that the EBIT loss amount to $1.3 billion this year, which, of course, is totally unacceptable. That's why we have presented a plan aimed at improving underlying EBIT by around $1 billion in 2011. However, it's part of our new realistic approach to accept the fact that we may be posting a limited loss in the future. While our goal is to be profitable in all of our operations, in certain situations such as the U.S. - where despite local challenges, the existence of the operation adds to the overall profitability - we know our customers and shareholders are better off with it than without it. Our U.S. operation plays an important roll in us maintaining our position as the world's No. 1 express shipper. DPWN News: Obviously this is going to cost a lot of money - what will the impact be on the profit forecast for the Group in the coming years? Appel: With the restructuring program and the economic uncertainties in the U.S., we are now foreseeing an underlying EBIT of around 400 million euros for our Corporate Division EXPRESS. That means we will adjust our overall guidance for underlying EBIT to 4.1 billion euros for 2008. DPWN News: If this is only about losing less money and not about becoming profitable, why not pull out of the U.S. market altogether? The U.S. market is an extremely important component of DHL's global network. In fact, almost half of total DHL shipments touch the U.S. and half of our 200 largest customers are based there. Offering a high performance range of products and services in that market guarantees the business success of other regions so it's part of our strategy to become First Choice for customers worldwide. Plus, our presence in the U.S. goes well beyond DHL Express. DHL is the No. 1 logistics company in the U.S. and the largest in the world. DPWN News: What is your plan B if this one doesn't work out? How much time are you giving yourself? Appel: Again, we are very confident of having found the right solution to going forward in the U.S. We will continue to be a competitive choice for customers and there is certainly room for a third player in that market. We aren't thinking in terms of alternatives at this point, this one will work. As for a timetable, I haven't given some arbitrary date to determine if we've turned the corner, but we'll all be reviewing our progress on a constant basis to ensure continuous improvements. DPWN News: Are you concerned your diminished footprint in US will drive customers in Europe and Asia to turn to the competition when shipping to the States? I'm confident that once our international customers understand exactly what we are doing in the United States, they'll know that we will continue to fulfill there shipping needs as we currently do and in fact for many of them our service will be even better. -------------------------------------------------------------------------------- More information is available at: www.dhl-usa.com/restructuring/ |
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