UK Business Plan 2004
2nd Draft for Discussion
February 2003
Company 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
mmd/MPL 2004, iv03
Company confidential – for internal use only
Page 2
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.
February 2003
Company confidential – for internal use only
2004 Revenue Assumptions
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
Flowthrough of Jan-April 2003 RS Components revenue
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.
1,000,000
358,439,616
2004 growth over expected 2003
2003 expected growth over 2002
2003 growth over 2002 Exc RS
3.8%
1.7%
1.7%
Notes :Shown improvements in Acquisition / Development ratios from 2003 from SSI benefits
Reduced 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
mmd/MPL 2004, iv03
Company confidential – for internal use only
Page 4
UK Commercial Strategies
 Customer Focus
 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
 Partnership Development
Maintain our margin position within the UK
through a continuing yield improvement
program and the development of dynamic
pricing solutions.
Deliver business benefits across the 3D
partners through the progressive integration of
activities.
 Brand Development
 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.
mmd/MPL 2004, iv03
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.
Build awareness and manage brand
perceptions of the ‘new’ DHL brand through
the full integration of all marketing
communications.
 Cost of Sales - Management
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Page 5
Commercial Focus 2004
 Revenue Growth
 Customer Focus
– Air Express
– Integrated Customer Focus Programme
– WPX, IMPEX, TDD,
– Drive service performance (speed/reliability)
– Sector Development (USA)
– Drive sales performance (valued/confidence)
– 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
– 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
– Sales Communications
mmd/MPL 2004, iv03
Company confidential – for internal use only
Page 6
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
Company confidential – for internal use only
Page 7
Strengths, Weaknesses, Opportunities, Threats
• UK Mail Market
S
• Field Sales (inc. Hi Tech) & DSC stable
• Education Sector, Textiles growth in
RBU, Pharma/WPX
• Brand Name (rejuvenation)
• TDD Dutiable + Expansion
• SSI Initiative
• Sell one stop shop concept
O
• Channel/Pricing/Partner Strategy
• Airborne Express
• Integrated Customer Focus
• Banking/Finance Decline
• Domestic Network
• Business Failures (esp. Manufacturing)
• US Service Capabilities
W
• Europolitan Brand
• Over reliance on Telcoms & Elec.
components (Key Accounts)
• Field Perceptions of Service, OH, ND,
MD and non- scanning.
• Competitors will exploit new DHL
integration service failures.
• Cut-offs becoming an issue. (B runs)
• Mode Switching
• Systems Capabilities
• Fuel Surcharge
T
• Corporate Social Responsibility
mmd/MPL 2004, iv03
Company confidential – for internal use only
Page 8
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
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
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
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
mmd/MPL 2004, iv03
Company confidential – for internal use only
Page 9
Macro-Economic Trends impacting
on the UK International Express Market
INCREASING UK ECONOMIC GROWTH
EXPORT GROWTH FCAST UPLIFT
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
12%
10%
8%
2%
0%
Q4
Q3
Q2
Q104
Q4
Q3
Q2
Q103
Q4 (act)
6%
4%
-2%
-4%
2000
2.0%
2001
2002
2003
2004
BUT EXPORT CONFIDENCE NOT STRONG
0.0%
Q301
Q401
Q102
Q202
Q302
Q402
8
-2.0%
6
4
“UK MANUFACTURING SLIPPED
BACK INTO RECESSION”
% Balance
-4.0%
-6.0%
2
0
-2
-8.0%
-4
“Manufacturing output continues to
shrink”
-10.0%
“Expansion of Service sector
business activity slowed to weakest
in almost a year”
-14.0%
-6
-12.0%
Q402
Q302
Q202
Q102
Q401
Q301
Q201
Q101
Long term export confidence
Market Grow th (assumes constant mkt share)
HOWEVER, £ vs EURO WEAKENING
1.65
1.6
1.55
“Retail sales saw greatest fall in a
decade”
1.5
1.45
1.4
Company confidential – for internal use only
Page 11
Q404
Q304
Q204
Q104
Q403
Q303
Q103
Q402
Q302
Q203 Est
mmd/MPL 2004, iv03
Q202
1.3
Q102
Sources: ONS, DHL QEI, OEF
1.35
£ vs E
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
Company confidential – for internal use only
Page 12
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
Company confidential – for internal use only
Page 13
Courier, Express & Parcel (CEP)
CEP Market Definition
DHL Express Market Definition
30%
25%
UK
UK
WE average: 11%DtD
Margin & 44% Market
Share
Net Margin
20%
15%
10%
ES
FR
ES
FR
DE
DE
IT
WE
IT
5%
0%
NL
rest
domestic
-5%
NL*
BE
BE*
core
-10%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
Market Share
Bubble size signifies RpD size
N.B. DHL has a 13% share of a €4.5b Market
mmd/MPL 2004, iv03
Company confidential – for internal use only
Page 14
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 maximum
shipment weight

B2B, B2C (latter only a target if profitable
opportunity identified)

Logistics services

Mail Services
mmd/MPL 2004, iv03
Company confidential – for internal use only
Page 15
Revenue Contingency Plan 2003/4
High Impact
Project
Focus
Integrated
Campaigns
Same Day Services
MMD (£?)
Unbundling Surcharges
Remote/NPTS (£?)
Difficult to
Execute
UK Mail
£2m
JW/MD/TW
2003.9
Tariff
Day Job
Pricing
Strategy 2003
JW
TDD DOM Drive
VF/MMD (£)
CRM JG
Volumetric Change
JW (£?)
Physical Channels
Euro Express
MMD/SD
£0.5M
Exploiting Best Practice
i.e. Intelligent Delivery
Higher Educ.
(DK/TH) (£ ?)
DPGM
Exploit 2 Leg
R&R (£?)
Dangerous Goods
6.2 (£?) RM
DK/WB/RS
Channel Alignment
TBC
MDDeliveries
Consumer
Ignore/
Delay
SSI
RB
Freight
Forwarders
Easy to
Execute
JG/RM (£)
Textiles
CJ/MMD (£?)
Food (£ ?)
Special Services Desk
JW (£?)
Pilot IT MMD
mmd/MPL 2004, iv03
Company confidential – for internal use only
Low Impact
Page 16