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Article Excerpt
OPERATOR: Good day and welcome to the Deutsche Post conference call. Today's conference is being recorded. At this time I'd like to turn the conference over to Mr. Martin Ziegenbalg. Please go ahead, sir.
MARTIN ZIEGENBALG, HEAD OF IR, DEUTSCHE POST AG: Thank you, and hello and welcome to everybody for our today's call. I've got here with me our CEO, Frank Appel, and our CFO, John Allan, to, first of all, take you through the presentation, which you also see on the webcast or have in front of you.
And after that we're going to have sufficient time for Q&A. I understand it's a busy afternoon for everyone in the sector coverage today, so let's start right away. And I'd like to hand over to Frank, please.
FRANK APPEL, CEO, DEUTSCHE POST AG: Good afternoon to everybody and thank you for attending our call. So I would like to do, and maybe we jump immediately to page two.
I will talk about two things first. One is the key developments we have seen recently to explain them a little bit. Then, where do we stand with the overall Company, including the financial results for 2008.
John will give you then an update on Q4 and the setup of Roadmap to Value. And I will finalize that and give you a brief outlook for 2009.
Turning to page three, you see that there are key developments which need some explanation. So the first one is that we, after intense discussion with the Supervisory Board, we came to the conclusion that we should propose a dividend of EUR0.60 for 2008.
And that is definitely something which is pretty important. And that is the balancing of the possibility the Company has from regard to the cash flow perspective and financial strength on the one hand, and concerns about the economic outlook going forward.
The second, pretty important, one is the change in management. John Mullen approached me and asked me for resignation due to health reasons. And I have to say that's definitely a pity because he's a tremendous man and a high regarded colleague to all of us.
Nevertheless, I think it's only acceptable from our side if you have some health reasons and somebody comes and says, he want to resign that you don't refuse that. So I think that is appreciated from that side, although not particularly liked.
Nevertheless, since we have a pretty strong management team in Express we were able to appoint, immediately, his successor, and that is Ken Allen, who has done a fabulous job on the restructuring of the US recently. I will come to that later on.
He's a we'll-known person in the industry. I think he is working for DHL already for more than 20 years in all parts of the world. So I think he has a broad experience in different functions, being finance or general management, or even finally now, the turnaround in the US. I think he is a very strong manager, and I have no doubt that he will be the right man, going forwards, facing an enormous economic challenge for all of us.
The third is, that's an excellent news I think for everybody, we closed the transaction with Deutsche Bank about the Postbank yesterday. I will come to that as well a little bit more in detail later on.
And finally, we will tell the market on March 11 [where they're] going forward. What I can say already, right now, don't worry too much about that. There will be no bold moves being announced. It's a lot of leveraging the platform we have built and bring that to a street level and say, really, how can we perform better. But I will talk more about that on March 11.
If we then turn to the page five. As all of you know, we had some major challenges in 2008, particularly Postbank and the US Express situation. And I think we successfully tackled, and found a good solution which I think is pretty good for our Company. So the Postbank we have a clear exit.
If we turn to page seven which summarizes again where we stand, we received, in early January, already EUR3.1 billion cash. Yesterday we received in addition EUR1.1 billion cash, adding up to EUR4.2 billion cash in our bank. And we will get, as we'll, 50 million Deutsche Bank shares.
Before you feel that we misled you with the old numbers, this is something linked to the hedging agreement we had about the shares. The total value is not higher than EUR4.9 billion, just the payments will happen now in a different way. So you should not say, I multiply now the current share price of Deutsche Bank with 50 and then I get the initial number. We are still working on the same basis with EUR4.9 billion in total.
If there might be, although it's at the moment not likely because the Postbank management recently said with 7.4% core equity, they feel well equipped for the next challenges to come, which are coming anyway, but at the moment we don't see any need. But if there might be in months or years a need for further capital increase, definitely we have to take it first, but we can give it back then later on, if we close a deal in three years from now, entirely.
So that's an agreement with Deutsche Bank that they will cover that. We have to pay, definitely, some interest for the in-between financing if that happens. As I said, the Postbank management doesn't think that there's a need on the basis of the core capital ratio they have currently.
And the second homework done is the US Express situation, which is summarized on page nine where we are. So end of January, we successfully left the domestic business. That means it's really closed and done. The operational transition is completed. The workforce has been [reduced] significantly so we have really taken out, as promised, almost these EUR4 billion running costs out of the system. Which I think is a major relief for the organization because now the risk profile of our Company has reduced significantly.
There has been no negative impact on the Express International; it worked pretty well. And the reason for that is that we had very good service quality through the whole period, and I think that is an enormous achievement. If we reduce the costs so much and have such a major restructuring that you really increase even your performance, I think it's an enormous achievement.
We achieved, therefore, also our forecast for 2008, which is not a nice number, but I think it's important that you all know that we met this minus $1.4 billion in 2008. And we have, at the moment, all points in the right place that we can achieve in 2009 also the target we outlined when we announced the restructuring of $900 million losses this year.
We have already accounted for EUR2.1 billion in 2008 -- or that's euro I guess and not dollar, sorry. And I think we have booked that already. There will be another tranche coming in 2009. The reason is, under IFRS, as you all know, you can only book certain provisions if you have really a finalized detailed signed off plan, which is not the case for the airline obviously, and therefore we had to move something into 2009. But the total number will not increase. So this increase, or this change, doesn't come from an increase. It comes really from the timing of the provision building.
Fourth point and final point, we are still in negotiations with UPS, but the exclusivity clause has been expired end of January. That gives us now room for maneuver to talk to other potential providers as well. We will now work intensively on finding the best solution for our business.
What is important to know is, we don't need a partner tomorrow signed contract because we are running, at the moment, the network we need to operate the US operation. So we are already in that stage. But nevertheless we might find through a partner, be it UPS or another, an even better solution than we have currently in place.
So that means the US restructuring is more or less done. We now really can focus on keeping growth or reducing the volume drop by gaining market share around the world. And as I said, that's a major relief for the whole organization, that we really now can focus on the other parts of the Express business, instead of focusing all the time on the US problem.
If I go then to page 10 that summarizes a little bit the other highlights of 2008. I can make it pretty short because you know all of them already.
We had a contract signed in the first part of last year in the Mail division, which created a stable environment, I think. And that was pretty important, if you understand what the challenges have been last year. And also it's a basis for this year's running business.
The second is that we have won new businesses quite a lot and that has not dried out. We have recently just signed 10-year multi-billion pound contract with British Airways. I have no doubt that we will see that continuously going, because we are well positioned to take such large-scale contracts on our shoulders, and there are not too many companies who can do that.
And we made good progress in cross-divisional cooperation so that we really become the Tier 1 partner for many customers and bundle our services in a way that they really get significant cost reduction.
And finally we have keep going to investing massively in the growth regions of the world. Definitely we can slow that down now, because obviously the growth has been reduced for the time being.
Then switch to page 11 you see the high level numbers for the year. Revenue was more or less flat. And you remember that it went up in the first six months; slowed down then in the fourth quarter. You will see later on there was even a way backwards. And that led to the situation overall that we had small growth, also impacted by the significant change in foreign exchange rates between the US dollar and euro, and pound and euro.
The reported EBIT is significantly down. That comes mainly from the different aspects we already discussed. The restructuring of the US as well as some goodwill impairments in Supply Chain as well as a write-off of the Exel brand. And, in addition, some additional provisions we announced already in November last year that we want to build that because we feared at that time already that restructuring probably had to take place, due to the declining economy.
The underlying EBIT, I think, is still in pretty good shape. We kept our promise and delivered a little bit more than EUR2.4 million; that was the change guidance we gave you. So we had a drop in 10% in the underlying EBIT. Looking into the fourth quarter I think that is still a reasonable result. If I compare it with many other companies we have kept our underlying EBIT I think on a reasonable level, although we are definitely not satisfied.
We're even less satisfied with the net profit. Almost EUR1.7 billion loss is not a nice story we have to tell the market. Nevertheless, we are all convinced, on the management side, that we have taken the right actions. That means the restructuring of the US, which is a significant impact, the writedowns or impairments in the Supply Chain, and finally the significant loss of Postbank. And, as you know, we sold the Postbank I think at the right moment, because we feared already that we will see significant losses. And I think we have taken this decision at the right moment.
That's more or less where we are. So 2008 is definitely not a pleasing year, if you look into the numbers. But if you take the actions we have taken, I'm pretty sure that we have taken all the right decisions going forward, and created a good platform for future success.
Definitely we have to face, now, a deep recession, and we will work extremely hard on take out costs. John will already comment on some parts of that, but definitely the core priority, at the moment, is the need to cope with the volume drop, try to gain market share and take costs out at the same time, and I think that is our joint ambition. But we will come to that, a little bit, in John's speech, as well as in my...
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