February 2003 Company confidential – for internal use only
UK Business Plan 2004
2nd Draft for Discussion
mmd/MPL 2004, iv03 Page 2Company confidential – for internal use only
Purpose of this document:
This document provides an initial outline of the analysis and likely contents of the 2004 plan.
Proposed Sections of Final Document
Executive summary
Corporate objectives
Review of 2002/3 and straight line 2004 projection
External analysis;
– Political, social, economic & technological, industry & market review, competitors
Internal analysis;
– Customers (by geography, industry & business unit), capabilities (by function and business
partners and product portfolio)
Key issues/assumptions (inc critical success factors)
Commercial objectives (by product, business unit, industry)
Strategies & contingencies
February 2003 Company confidential – for internal use only
Vision
DHL will become the leading express distribution company in the UK by exploiting our Global presence, setting market leading service standards, consistently innovating our product range, leveraging the strength of the DPWN group and differentiating through customer intimacy.
mmd/MPL 2004, iv03 Page 4Company confidential – for internal use only
2004 2003 £Assumptions Assumptions
2003 Outlook 345,413,453
Price Increase 1.50% 1.30% 5,181,202
Acquisition 2.70% 2.60% 9,326,163
Development 2.80% 2.70% 9,671,577
Lost 2.50% 2.65% -8,635,336
Downtraded 1.80% 1.90% -6,217,442 4,144,961
Market 0.00% 0.30% 0
Market Share 0.10% 0.00% 2,700,000
RS Components 1,000,000Flowthrough of Jan-April 2003 RS Components revenue
358,439,616
2004 growth over expected 2003 3.8%
2003 expected growth over 2002 1.7%2003 growth over 2002 Exc RS 1.7%
Notes :-
Shown improvements in Acquisition / Development ratios from 2003 from SSI benefitsReduced level of downtraded and lost business from a more effective sales team (SSI benefits)Used new market definition of CEP and assumed share of 13%No market growth assumed for 2004 although World GDP forecast to grow by 3.3%Market share growth from STAR initiatives / Partner integration / Domestic business
2004 Revenue Assumptions
The 2003f Price increase includes £4.8m of fuel surcharge. Hence the 2004 increase figure needs to net out the probable loss of this
revenue.
mmd/MPL 2004, iv03 Page 5Company confidential – for internal use only
UK Commercial Strategies Revenue Growth
Achieve revenue growth by maintaining focus on protecting our existing air express market share position by offering a market leading service proposition, whilst continuing to exploit opportunities within adjacent markets in line with the wider market definition of Courier, Express and Parcel (CEP).
Yield Improvement
Maintain our margin position within the UK through a continuing yield improvement program and the development of dynamic pricing solutions.
Sales Development
Maximise sales performance through the continued execution of SSI, the attraction and retention and development of best in class sales people and the development of market leading sales materials to support the sales cycles.
Customer Focus
Invest in customer intimacy to create a sustainable competitive advantage by integrating our customer focus activities to attain increased levels of customer satisfaction through the delivery of the core functional and emotional needs of speed, reliability, accessibility, feeling valued and feeling confident.
Partnership Development
Deliver business benefits across the 3D partners through the progressive integration of activities.
Brand Development
Build awareness and manage brand perceptions of the ‘new’ DHL brand through the full integration of all marketing communications.
Cost of Sales - Management
mmd/MPL 2004, iv03 Page 6Company confidential – for internal use only
Commercial Focus 2004 Revenue Growth
– Air Express
– WPX, IMPEX, TDD,
– Sector Development (USA)
– Adjacent Markets
– SameDay, EU Road Distbn, DOM, Mail
– Sales Channel development
Yield Management
– Pricing Strategy 2004
– Ad Hoc strategy
– Extra charges
– Value Added Services
– NPTS / Out of Area
Sales Development
– Salesforce Automation
– Sales Training
– Competitor Analysis
– Sales Communications
Customer Focus
– Integrated Customer Focus Programme
– Drive service performance (speed/reliability)
– Drive sales performance (valued/confidence)
– Drive customer service (valued/confidence)
– Innovate to meet customer changing needs
Partnership Development
– Integration of activities
– Co-ordinated marketing communications
– Joint selling and cross-selling activities
– Manage integration programme
Brand Development
– Integrated marketing communications
– Corporate Social Responsibility Programme
Cost of Sales - Management
– Channel opportunities
mmd/MPL 2004, iv03 Page 7Company confidential – for internal use only
5 C Analysis (Summary)
Customers
– Increased mode switching to Road
Competitors
– Brand spend, USA strengths.
Capabilities
– Service decline in last 12 months (?) Uncertain future.
Context (i.e. Market)
– No market growth in 2002, Little forecast in 2003. Zero Growth in 2004.
Culture
– Uncertainty over future integration, impact of distraction.
mmd/MPL 2004, iv03 Page 8Company confidential – for internal use only
Strengths, Weaknesses, Opportunities, Threats
S
W
O
T
• UK Mail Market
• Education Sector, Textiles growth in RBU, Pharma/WPX
• TDD Dutiable + Expansion
• Sell one stop shop concept
• Channel/Pricing/Partner Strategy
• Airborne Express
• Integrated Customer Focus• Banking/Finance Decline
• Business Failures (esp. Manufacturing)
• Over reliance on Telcoms & Elec. components (Key Accounts)
• Competitors will exploit new DHL integration service failures.
• Mode Switching
• Fuel Surcharge
• Corporate Social Responsibility
• Domestic Network
• US Service Capabilities
• Europolitan Brand
• Field Perceptions of Service, OH, ND, MD and non- scanning.
• Cut-offs becoming an issue. (B runs)
• Systems Capabilities
• Field Sales (inc. Hi Tech) & DSC stable
• Brand Name (rejuvenation)
• SSI Initiative
mmd/MPL 2004, iv03 Page 9Company confidential – for internal use only
Political, Economic, Social & Technological
Political• Nation-wide congestion charging• Aviation white paper: Polluters pay principle, cargo tax• Working time directive - inclusion of drivers hours• Amendment of Terrorism act requiring more info from DHL• Budget: Company car tax, NI increases• Removal of de minimus on Import clearances• 4th runway @ Heathrow
Technological• Continued Electronic substitution of documents• Growth of customer automation preference• Proactive track and trace customer requirement• User friendliness and accessibility of new technology• Awareness of technology raising expectations
Social• Growth of e-commerce (residential delivery)• Growth of working from home• Environmental awareness increase• Anti-big business/globalisation• Backlash v UK and US post Iraq• Greater employee churn (customers)• Relocation of traditional manufacturing now expanding to service sector
Economic• Some uplift in global economic growth inc. EU• Better UK export prospects, better Import opportunity • Projected weakening of Sterling v Euro• Continued rise of Far East + India• Growth of bio-tech sector• Aviation industry decline• Continued improvement in comms and infrastructure have increased distribution options• Expansion of EU
mmd/MPL 2004, iv03 Page 11Company confidential – for internal use only
Macro-Economic Trends impacting on the UK International Express Market
EXPORT GROWTH FCAST UPLIFT
“UK MANUFACTURING SLIPPED BACK INTO RECESSION”
“Manufacturing output continues to shrink”
“Expansion of Service sector business activity slowed to weakest in almost a year”
“Retail sales saw greatest fall in a decade”
INCREASING UK ECONOMIC GROWTH
HOWEVER, £ vs EURO WEAKENING
BUT EXPORT CONFIDENCE NOT STRONG
0.0%0.5%
1.0%1.5%2.0%2.5%
3.0%3.5%
Q4
(a
ct)
Q1
03
Q2
Q3
Q4
Q1
04
Q2
Q3
Q4
-6
-4
-2
0
2
4
6
8
Q301 Q401 Q102 Q202 Q302 Q402
% B
ala
nce
Long term export confidence
1.3
1.35
1.4
1.45
1.5
1.55
1.6
1.65
Q102
Q202
Q302
Q402
Q103
Q203 E
st
Q303
Q403
Q104
Q204
Q304
Q404
£ vs E
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
2000 2001 2002 2003 2004
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
Q10
1
Q20
1
Q30
1
Q40
1
Q10
2
Q20
2
Q30
2
Q40
2
Market Grow th (assumes constant mkt share)
Sources: ONS, DHL QEI, OEF
mmd/MPL 2004, iv03 Page 12Company confidential – for internal use only
Competitors
DHL’s strongest competitor remains the fragmented ‘Others’, perceived as more flexible and lower cost. For the main integrators, UPS is the RBU’s biggest threat, TNT in the DBU.
Price: main integrators increased their rates this year, ranging from 3% (FedEx), 5% (TNT) to 9% (UPS), well above DHL’s inflationary increase of 2.4%. Their pricing structures continue, with no change in their workings of fuel or volumetric surcharge’s. Others lower price.
Product: UPS increasing TDD service emphasis and expansion. FedEx focus on e-commerce. TNT – pushing road-based, expansion of ground network and logistics in Europe. Focus on core mail business, expanding int. Mail. Re-launch of pharm. Service (medpak).
Promotion: 2002 total ad spend approx. £9m (60% TV). DHL SOV (13%) lags behind UPS (56%) and FedEx (30%). DHL’s brand image lead has eroded even though there is evidence that competitor activity has been mis-attributed to DHL underlining the robustness of the DHL brand. Others no promotion.
Place: UPS targeting US and far east (network expansion). FedEx focus on emerging markets in Asia (e.g. Drop off boxes in china). TNT shift of focus to supply chain solutions in Asia + big drive in India. Emery forwarding and Nippon Express improve Asia networks. Others localised.
People: FedEx working through agencies so weaker. UPS?. TNT?. Others?
Processes: UPS and FedEx considered better than DHL. TNT? Others thought to be less sound.
Perceptions of CS: others have the strongest CS, UPS and TNT follow being relatively robust in tracking
mmd/MPL 2004, iv03 Page 13Company confidential – for internal use only
Context (Market)The AX market growth in 2002 was zero or negative.
For Q103, the market is forecast to remain flat
2002 saw evidence of mode switching
– Q102 TMA indicated growth for Road Express
– DHL loss of heavyweight traffic
– decline in ECX due to upgrading to TDD but also downtrading to Road
– lack of image differentiation
– cost pressures on exporters (strength of sterling) driving increased selectivity
– In 2002, Air Freight through GFS grew at 11% though the trend is one of declining growth
DHL is seen as market leader in terms of overall brand image and awareness, usage and share
But it is a commoditised market, there is no clear leader on the 6 core needs. What slight differentiation being undermined in part by low DHL SOV well below that of UPS and FedEx.
High-Tech sector which accounts for 17% of total revenue went backwards by 20% in 2002. At the current rate of positive trend, growth should break even May03
Focus on new economy for growth: e-commerce (on-line purchase requiring rapid delivery), IT (R & R), Telecoms, Pharmaceuticals (Perishables), BioTech, Electrical components (high-value, JIT - low stocks needed)
Focus on countries that are projected to develop and grow: South East Asia, China, India, Eastern Europe
mmd/MPL 2004, iv03 Page 14Company confidential – for internal use only
FR
DE
ES
BE
UK
IT
NL
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%
Market Share
Ne
t M
arg
inCourier, Express & Parcel (CEP)
DHL Express Market DefinitionDHL Express Market DefinitionCEP Market DefinitionCEP Market Definition
UKUK
FR
DE
ES
IT
NL*BE*domestic core
rest
WE average: 11% DtDMargin & 44% MarketShare
WE
Bubble size signifies RpD size
N.B. DHL has a 13% share of a €4.5b Market
mmd/MPL 2004, iv03 Page 15Company confidential – for internal use only
UK Market Definition - CEP
Same Day/ TDD Next Day/ Express COB/ Day Definite/ Deferred Road
Domestic and International
Inbound and Outbound
Pieces up to 70 kg and no maximumshipment weight
B2B, B2C (latter only a target if profitableopportunity identified)
Logistics services
Mail Services
mmd/MPL 2004, iv03 Page 16Company confidential – for internal use only
High Impact
Low Impact
Easy to Execute
Difficult to Execute
Project Day Job
Focu
sIg
nore
/ Dela
y
CRM JG
Physical Channels
MD
Textiles
CJ/MMD (£?)
Dangerous Goods 6.2 (£?)
RM
Food (£ ?)
Pilot IT MMD
Exploit 2 Leg R&R (£?)
DK/WB/RS
Channel Alignment TBC
Unbundling Surcharges
Remote/NPTS (£?)
JW/MD/TW
Pricing Strategy 2003 JW
SSI RB
Freight Forwarder
s
JG/RM (£)
DPGM
Integrated Campaigns
2003.9 Tariff
Euro ExpressMMD/SD
£0.5M
Same Day ServicesMMD (£?)
Special Services DeskJW (£?)
TDD DOM DriveVF/MMD (£)
Consumer Deliveries
Exploiting Best Practicei.e. Intelligent Delivery Higher Educ. (DK/TH) (£ ?)
Volumetric ChangeJW (£?)
Revenue Contingency Plan 2003/4
UK Mail £2m