Group management

EBIT after asset charge sees significant increase

Since 2008, Deutsche Post DHL has used EBIT after asset charge (EAC) as a key performance indicator. EAC is calculated by subtracting a cost of capital component, or asset charge, from reported EBIT.

By including the cost of capital in our business decisions, we encourage all divisions to use resources efficiently and organise our operating business to sustainably increase value and generate cash flow. In the reporting year, EAC served as a key performance indicator in addition to EBIT, which was also used as a basis to determine management remuneration.

To calculate the asset charge, the net asset base is multiplied by the weighted average cost of capital (WACC). The asset charge calculation is based on unconsolidated figures and is performed each month so that we can also take fluctuations in the net asset base into account during the year.

All of our divisions use a standard calculation for the net asset base. The key components of operating assets are intangible assets, including goodwill, property, plant and equipment and net working capital. Provisions and operating liabilities are subtracted and reduce the net asset base accordingly.

The Group’s WACC is defined as the weighted average net cost of interest-bearing liabilities and equity, taking into account division-specific risk factors in a beta factor according to the Capital Asset Pricing Model.

In order to optimise the gearing ratio and thus decrease WACC, two factors must be weighed against each other:

Since equity investors expect higher yields than debt investors, WACC declines as the gearing ratio increases (leverage effect).

If the gearing ratio is high, the company’s credit rating has a tendency to decrease and borrowing costs to increase and negate the positive effects of the decline in WACC from a certain point onwards.

In 2008, we determined a standard WACC of 8.5% across the divisions, which also represents a minimum target for projects and investments within the Group. Although the currently low interest rate on the capital market would allow us to reduce the WACC, we left it as is in the reporting year in order to prevent our internal resource allocation to be influenced by short-term fluctuations in capital market interest rates and at the same time keep EAC comparable with previous years.

In 2010, EAC increased from €–959 million to €666 million. This was primarily a result of the considerable increase in profitability of our DHL divisions. In addition, higher non-recurring restructuring items put pressure on EBIT in the prior year.

A.10 EBIT after asset charge (EAC)
€m
	2009	2010	+/–%
Reported EBIT				231	1,835	>100
Asset charge	–1,190	–1,169	1.8
EAC	–959	666	>100

The asset charge in the reporting year decreased slightly by €21 million, whilst the net asset base exceeded the prior-year closing balance by €900 million. The opposite trends in asset charge and net asset base were due to a different trend in the level of the asset base during the reporting years. The net asset base was reduced in 2009, ending the year at a particularly low level. However, the average asset base was higher.

An increase in net working capital was the primary reason for the year-on-year rise in the net asset base: trade receivables climbed by 23.2% over the prior year. The increase in intangible assets is mostly attributable to currency effects, which raised goodwill. Another reason for the increase in the asset base was the use of provisions for restructuring in the United States, which as operating liabilities reduced the net asset base accordingly in the prior year.

The increase in the net asset base was moderated by a slight decline in property, plant and equipment that resulted from relatively modest investment activities in the reporting year.

A.11 Net asset base (unconsolidated)
€m
	2009	2010	+/–%
Intangible assets including goodwill				11,538	11,852	2.7
Property, plant and equipment	6,216	6,125	–1.5
Trade receivables	4,881	6,011	23.2
Other operating assets	2,139	2,400	12.2
Operating provisions	–3,881	–3,620	6.7
Trade payables	–4,848	–5,672	–17.0
Other operating liabilities	–4,525	–4,676	–3.3
Net asset base	11,520	12,420	7.8