UK Business Plan 2004

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.


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.


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


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


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.


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


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


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

(act

)

Q10

3

Q2

Q3

Q4

Q10

4

Q2

Q3

Q4

-6

-4

-2

0

2

4

6

8Q301 Q401 Q102 Q202 Q302 Q402

% B

alan

ce

Long term export confidence

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

Q10

2

Q20

2

Q30

2

Q40

2

Q10

3

Q20

3 Es

t

Q30

3

Q40

3

Q10

4

Q20

4

Q30

4

Q40

4

£ 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


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


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


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

Net

Mar

gin

Courier, 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


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


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/RSChannel 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

Documents

UK Business Plan 2004