German Parcel Abandons Acquisition Plans

German Parcel, a unit of British postal service Consignia, and its European holding company General Logistics Systems (GLS) have shelved plans to expand their existing European parcel-delivery network through acquisitions.

German Parcel chief executive Rico Back told Handelsblatt that his company, currently the number four in its sector in Germany, will instead use joint ventures and partnerships as a way of closing the gaps in its existing networks.

The company previously made acquisitions in Italy and Finland. The new strategy will now be implemented not only in Norway, Switzerland and Greece but also in Spain, Back said.

Only a few weeks ago, German Parcel was still talking of the possibility of an acquisition in Spain. But according to Back, talks with four potential takeover candidates failed, because of a disagreement over price.

Talks on setting up a joint venture in Spain are to start in the coming fortnight. A further acquisition is now only planned in Italy, Back said.

According to industry experts, German Parcel’s change in strategy comes as a result of the difficulties of its British parent company, Consignia, which only a few days ago posted a record loss of 1.7 billion euros and announced further massive job cuts. Back denied that there was a direct link.

Following several acquisitions, GLS currently has sales of 1 billion euros and employs around 12,000 people. The company together with its British parent is the number five in Europe in terms of market share.

But by shelving its acquisition plans, experts believe GLS will be left behind in the race for the leading position on Europe’s market for courier, express and parcel-delivery services. Europe’s current market leader, Deutsche Post, and number two, TPG of the Netherlands, are widely seen to stand the best chances of success, along with America’s UPS and the French postal service. These companies’ networks, unlike those of their closest competitors, combine overland and air services.

Back disagrees. Even though GLS focuses on overland deliveries, it is utilizing partnerships to offer its 150,000 customers an extensive delivery service, he argued. “We don’t need to spend money on acquisitions as long as we can meet the demands of our customers.”

The company’s main focus will now shift towards increasing profitability, Back said. Providing figures for the first time, he said that GLS was aiming at an earnings before interest and taxes (ebit) margin of 2.7% on revenue of 1.25 billion euros and an operating cash flow of 54 million euros in its 2002/03 business year, ending March 31. In its previous business year, the ebit margin came in at 1.7% on 1 billion euros revenue.

But Back conceded that German Parcel was still some way off its 2004 ebit margin target of 5%. This is to be achieved mostly through cost-cutting, but – following in the footsteps of Deutsche Post – also through price increases that will average 3.5%, Back said.