"We have a very solid financial foundation"

For Larry Rosen, today's Financial Press Conference was the first in his function as CFO of Deutsche Post DHL. In an interview with Deutsche Post DHL News, he discusses the most important developments in the past fiscal year and offers an overview of the Group's future financial strategy.

Deutsche Post DHL News: Deutsche Post DHL implemented the capital-market program "Roadmap to Value" introduced in late 2007, along with the cost-cutting "IndEx" program. Are you satisfied with the results?

Larry Rosen: The "Roadmap to Value" was clearly a success in most regards. We sustainably improved our efficiency, further optimized our portfolio and significantly lowered our capital intensity. Most importantly, however, the Roadmap firmly ingrained awareness in the Group that long-term thinking and careful use of capital pay off for our employees, our customers and our investors alike. We have thus taken a major step towards our goal of becoming the investment of choice for in our sector for investors.

How exactly did Deutsche Post DHL benefit from Roadmap to Value?

Even though no one could have foreseen the economic crisis when the program was announced, Roadmap to Value was crucial to help the company manage the crisis so well - far better than many other companies, particularly in our industry. Due to the crisis we missed the original earnings and dividend targets, however, we met all other "Roadmap to Value" targets that were under our immediate control: As a result of "IndEx", we cut indirect costs throughout the Group by more than EUR1.1 billion already until the end of 2009. The original target was to save EUR1 billion by the end of 2010.

Moreover, we significantly strengthened our liquidity: On the one hand, we have reduced net working capital by EUR890 million since the end of 2007. In doing so, we clearly exceeded our target of EUR700 million. On the other hand, the sale of non-strategic assets - particularly real estate - generated net cash of EUR1.35 billion, much more than the targeted EUR1 billion. As of the balance-sheet date, the Group had cash and cash equivalents totalling EUR3.1 billion, more than twice the level of the previous year. Furthermore, we would have hardly been able to generate underlying EBIT of about EUR1.5 billion if we had not had the Roadmap.

This is a truly impressive result considering the on-going economic crisis. All in all we are therefore pleased with the achievements. Deutsche Post DHL has a very solid financial foundation, particularly when taking into account that we have experienced the worst financial and economic crisis in decades.

Your main job as CFO is to make sure it stays that way. What are you planning for the years ahead?

The main focus of our financial management will remain to minimize financial risks and capital costs and thereby to ensure the Group's sustainable financial stability and flexibility. As an appropriate balance sheet structure is paramount to achieving this objective, a rating target will be at the centre of our future corporate finance strategy. We currently hold a BBB+ rating from Standard & Poor's and Baa1 rating from Moody's. That is a very good credit rating for a company in our industry. And we will seek to retain this rating long-term, thus ensuring constant access to financing at attractive terms as well as securing a low level of capital costs for us going forward.

You just mentioned the new corporate finance strategy. Can you describe the specifics?

The target rating I mentioned is a key component. A long-term dividend policy with a focus on consistency is another. Going forward, we want to distribute 40 to 60 percent of our consolidated net profit to our shareholders. This statement is a clear commitment to future reliability and predictability and should continue to increase our attractiveness to investors. At the same time, we defined explicit priorities for using our liquidity. Investing into our existing operations is our top priority. Our corporate finance strategy was developed to ensure that we will always have the financial freedom we need to further grow our operational business and successfully implement our "Strategy 2015. 

In addition, we want to use our excess liquidity to gradually fund our pension plans and further strengthen our rating. Extraordinary dividends or share buy-back programmes will only be an option if we don't see any further optimisation potential in the above areas. In addition, we want to transform the bilateral credit facilities provided to us into a syndicated credit facility in order to reduce the complexity of our financing instruments and to ensure attractive financing terms over the long term.

What will this year bring?

We will move ahead as planned this year, focusing consequently on the next steps forward. We will cautiously increase our capital expenditure to EUR1.4 billion. We will use this money to generate organic growth in our two Group pillars. Our underlying EBIT is also expected to rise this year to between EUR1.6 billion and EUR1.9 billion. One matter is particularly important to us: This year, both of the Group's pillars are to make nearly identical contributions to the Group's earnings for the first time. This shows that our two-pillar strategy is paying off.

Next year, the positive earnings trend for Deutsche Post DHL as the world's leading postal and logistics group should continue as long as the world's economy moves toward sustainable growth. Over the mid-term and long-term, we now believe more than ever before that Deutsche Post DHL will definitely be among the winners in our industry.