Post outgrows German borders

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25. März 2005 By Heidi Sylvester

German mail and logistics Deutsche Post, Europe's largest postal service, sent a clear message on Tuesday when presenting its 2004 annual report: Thanks to strong overall results last year, Post's treasure chest is full enough to buy attractive companies whenever it wants.

“Financially we have the clout to grab opportunities when they arise,“ Deutsche Post Chairman Klaus Zumwinkel said at the press conference. At the end of 2004, the mail operator had funds of €4.8 billion ($6.2 billion) at its disposal, and is now also free of debt.

“We want to expand our national and international mail business and actively exploit opportunities for growth worldwide,“ Zumwinkel said. With takeover candidates in neighboring European countries arising less frequently than desired, Post is casting its eye on the lucrative U.S. market.

According to figures released at the press conference on Tuesday, 2004 was a good year for Deutsche Post. Profits rose 12.5 percent to a record high of €3.35 billion, pushed through by a new cost-cutting program and strong sales. Business volume grew 7.9 percent to €43.7 billion.
Deutsche Post has generated bigger reductions than expected from its Star cost-cutting program, which has contributed €862 million to company earnings since it was introduced at the end of 2002.

The ambitious international expansion efforts already taken by Zumwinkel are also largely responsible for the company being able to post overall improved results.

Represented in more than 220 countries with more than 381,000 employees, Deutsche Post has long since outgrown Germany's borders. Stagnation in the domestic market prompted the company to look abroad for new opportunities. Last year, Deutsche Post increased the share of international revenue to 48 percent from 43 percent in 2003. This year, the 50 percent level should be reached.

Post is also growing through acquisitions abroad to prepare for losing its German letter-delivery monopoly in 2008. Over the past few years, management at the German mail operator made key decisions aimed at making the company a global player in the international post, package and logistics market. While the United States is a key component of Post's expansion plans, the market is not easy.

The German mail operator had to swallow an operating loss of €495 million in its express postal operations in the United States. Although John Mullen, the former head of the Asia business, was shifted to the United States at the end of 2004, “to get things moving there,“ the company still expects to make a loss of as much as €300 million in the Americas this year.

The U.S. market remained the “biggest challenge“ to Deutsche Post and its parcel delivery subsidiary DHL in 2004, Zumwinkel said. The company does not expect this unit to break even in this region until the end of 2006.
Post gained a foothold in the U.S. express air freight business when its subsidiary, DHL Worldwide Express, acquired Seattle-based Airborne Express in August 2003. The German mail operator aims to invest $1.2 billion in the coming years in its express operations in the United States in order to become a “powerful third force,“ behind market leaders FedEx and UPS, Zumwinkel said.

Deutsche Post, which is 69 percent owned by the German government, has not written off further acquisitions in Italy and Japan if governments in those countries begin a sale of their state-owned postal services. A bid for a 25 percent stake in Post Danmark, the Danish postal services operator, fell through this month. Deutsche Post has no interest in increasing an offer for the Danish company, the German company said.

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