DHL 2007 Annual Report Download - page 37
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33
Business and Environment Group Management Report
Deutsche Post World Net Annual Report 2007
e starting point for calculating economic pro t is net operating pro t a er taxes.
is consists of EBIT, net income from associates, net income from measurement
of the Deutsche Postbank Group at equity and the interest component of operating
lease expenses. Taking net operating pro t a er taxes and deducting the total cost
of capital (weighted average cost of capital times average net assets employed) gives
economic pro t.
Economic profi t (Postbank at equity)
2006
restated
2007 +/– %
Net operating profi t after taxes €m 3,029 2,538 −16.2
Average net assets employed €m 27,291 26,601 −2.5
x Weighted average cost of capital % 5.9 6.7
– Total cost of capital €m −1,610 −1,782 10.7
= Economic profi t€m1,419756−46.7
With economic pro t at €756 million, the Group continued to create substantial
value in 2007. Net operating pro t a er taxes was down on the previous year despite
operational improvements. is was due to a €594 million non-cash write-down
on EXPRESS Americas non-current assets. Average net assets employed decreased
slightly, whilst the weighted average cost of capital sharply increased due to generally
higher interest rates. As a result, economic pro t dropped by 46.7% compared with
the previous year. e weighted average cost of capital had already been set at 6.7%
for the beginning of the year.
e weighted average cost of capital (WACC) represents the weighted average net cost
of interest-bearing liabilities and equity, taking into account tax e ects and sector-
speci c risk factors in a beta factor.
Equity cost of capital
+x
=
=
+
Debt cost of capital
Risk-free rate of return Risk-free rate of return
Market risk premium
Beta factor
8.0%
Average, long-term risk premium
4.5%
Tax effect (20%)
4.0%
=3.6%
(specific risk premium
for Deutsche Post World Net)
5.0%
0.8
0.5%
–0.9%
4.0%
Weighting at market rates Weighting at market rates70% 30%
–
Group cost of capital 6.7%