Deutsche Post DHL Annual Report 2013

2013 Annual Report

Group management

Excerpts from Deutsche Post AG's 2013 Group Annual Report.

Financial Performance Indicators

Impact on management salaries

Deutsche Post DHL uses both financial and non-financial performance indicators in its management of the Group. The monthly, quarterly and annual changes in these indicators are compared with the data from the prior year as well as the data indicated in the plan to assist in making management decisions. The year-to-year changes in financial and non-financial performance metrics portrayed here are also relevant for calculating management remuneration.

The Group’s financial performance indicators are intended to preserve a balance between profitability, efficient use of resources and sufficient liquidity. The performance of these indicators in the reporting year is described in the Report on economic position.

 

Profit from operating activities measures earnings power

The profitability of the Group’s divisions is measured using profit from operating activities (EBIT). EBIT is calculated by taking revenue and other operating income and subtracting materials expense and staff costs, depreciation, amortisation and impairment losses and other operating expenses. Interest and other finance costs/other financial income are deducted from or added to net financial income/net finance costs. To be able to compare divisions, the return on sales is calculated as the ratio of EBIT to revenue.

 

EBIT calculation
Revenue
Other operating income
Materials expense
Staff costs
Depreciation, amortisation and impairment losses
Other operating expenses
Profit from operating activities (EBIT)

 

EBIT after asset charge promotes efficient use of resources

Since 2008, the Group has used EBIT after asset charge (EAC) as an additional key performance indicator. EAC is calculated by subtracting a cost of capital component, or asset charge, from EBIT. Making the asset charge a part of business decisions encourages all divisions to use resources efficiently and ensures that the operating business is geared towards increasing value sustainably whilst generating cash flow.

 

EAC calculation
EBIT
Asset charge
      = Net asset base
      × Weighted average cost of capital
EBIT after asset charge (EAC)

 

To calculate the asset charge, the net asset base is multiplied by the weighted average cost of capital (WACC). The asset charge calculation is performed each month so that fluctuations in the net asset base can also be taken 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. Operating provisions and operating liabilities are subtracted from operating assets.

 

Net asset base calculation
Operating assets
      • Intangible assets
      • Property, plant and equipment
      • Goodwill
      • Trade receivables (part of net working capital)
      • Other non-recurring operating assets
Operating liabilities
      • Operating provisions (without provisions for pensions and similar obligations)
      • Trade payables (part of net working capital)
      • Other non-recurring operating liabilities
Net asset base

 

The Group’s WACC is defined as the weighted average net cost of interest-bearing liabilities and equity, taking into account company-specific risk factors in accordance with the Capital Asset Pricing Model.

A standard WACC of 8.5% is applied across the divisions, and this figure also represents the minimum target for projects and investments within the Group. The WACC is generally reviewed once annually using the current situation on the financial markets. However, the goal is not to match every short-term change but to reflect long-term trends. To ensure better comparability with previous years, the EAC was maintained at a constant level in 2013, as in the previous year.

 

Preserving sufficient liquidity

In the reporting year, cash flow was used as an additional financial performance indicator for calculating management remuneration. This performance metric is targeted at maintaining sufficient liquidity to cover all of the Group’s financial obligations from debt repayment and dividends, in addition to operating payment commitments and investments.

 

Calculation of operating cash flow
Consolidated net profit for the period attributable to shareholders and non-controlling interests
Income taxes
Net financial income/net finance costs
Net income from associates
EBIT (profit from operating activities)
Depreciation, amortisation and (reversals of) impairment losses on non-current assets
Net income/loss from disposal of non-current assets
Non-cash income and expense
Change in provisions
Change in other non-current assets and liabilities
Income taxes paid
Net cash from operating activities before changes in working capital (net working capital)
Changes in net working capital
Net cash from/used in operating activities (operating cash flow – OCF)

 

Cash flow is calculated using the cash flow statement. Along with EBIT and EAC, operating cash flow (OCF) is the main performance and incentive metric used by Group management. OCF includes items that are directly related to operating value creation. It is calculated by adjusting EBIT for changes in fixed assets (depreciation, write-ups, gains and losses from disposals), other non-cash income and expense, taxes paid, changes in provisions and other non-current assets and liabilities. Net working capital remains as a driver of OCF. Effective management of net working capital is an important way for the Group to leverage OCF in the short to medium term.

Non-financial Performance Indicator

Employee opinion survey result as a management indicator

Our annual, Group-wide employee opinion survey measures how successful we have been in approaching our goal of becoming the employer of choice for our staff. Furthermore, the "Active Leadership" indicator in particular is a key management tool that is used in the calculation of variable salary components for our executives. This indicator reflects employees’ assessments of leadership competencies of their direct superiors, such as how they respond to employee expectations or how they motivate their staff. The results of the employee survey for the reporting year can be found in the Employees section.

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2013 Annual Report

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2013 Annual Report

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