Deutsche Post warns of E1.5bn regulatory hit
Deutsche Post, Germany's postal operator, on Wednesday warned that a decision by regulators to demand lower postal charges would dent profits and risk the loss of 10,000 jobs.
RegTP, the German telecommunications and postal regulator, confirmed it would ask Deutsche Post to lower charges for some standard letters and other products to boost competition.
The group argues the scheme would lead to a drop in revenue of E300m ($298m) in 2003 and a total drop in earnings of E1.5bn between 2003 and 2007 if the regulator's plan is implemented.
Deutsche Post shares fell more than 4 per cent to E12.70 in morning trade.
That decision comes after last month's European Commission ruling that Europe's largest postal group would have to repay the German, its biggest shareholder, state aid that was used to undercut private competitors in the late 1990s.
The price reductions suggested by RegTP effectively mean that Deutsche Post would only be able to increase prices if Germany's annual inflation rate tops 1.8 per cent. If the rate is below that, as it is at present, the postal operator would have to adjust prices downward.
RegTP said the price capping would stabilise prices in the German postal market, and would lead to cost savings of up to E300m for consumers. The cappings will apply until the end of 2007, when the postal market is opened to competition.
Despite the saving implied for ordinary consumers, the warning of possible job losses comes at a sensitive time, less than three months before elections in which high levels of unemployment are a key issue.
The Commission decision has alread hit the postal operator by E572m . The group is taking a €850m one-off provision in the 2002 accounts – the higher amount takes into account possible interest payments. The provision is equivalent to about a third of the company's annual operating profit.
The mail, logistics, express and banking group said it would make efforts to lower its operational expenses to offset the loss in earnings implied by RegTP's decision. Those measures may include 10,000 job cuts, the closure of post offices, and raising prices for other products, the company said.
The pressure on Deutsche Post comes as the group strives to diversify from postal services. On Friday, it said it was poised to raise its holding in international express courier firm DHL to almost 100 per cent.
Deutsche Post said it would pay E610m for Lufthansa's stake and has agreed to buy an additional 22.8 per cent from investment funds at WestLB and HSBC for a further E400m. The timing of the latter deal is still open.
AFX EUROPE FOCUS 10th July 2002
DEUTSCHE POST SEES 2003-07 SALES 1.5 BLN EUR LOWER FROM REGTP DECISION UPDATE
(Updates with more detail, share price reaction, Post comment)
BONN (AFX) – Deutsche Post World Net AG said it expects sales to be down by 1.5 bln eur in the period 2003-2007 if the forced cuts for postal rates proposed by the German postal regulator RegTP today are implemented.
"DPWN calculates that revenues and earnings should decrease by a total of around 1.5 bln eur for the whole of 2003-2007 should RegTP's decision be implemented as envisaged," Deutsche Post said in a statement.
It added that sales in 2003 alone will be down by 300 mln eur if the measures are implemented.
In response Deutsche Post may increase prices in certain areas, close branches, and cut up to 10,000 jobs, it said.
As a result of its announcement this morning, "a corresponding slump in the share price is foreseeable", it added.
At 10.21 am, Deutsche Post shares were down 0.56 eur or 4.24 pct at 12.65.
RegTP today announced proposed price caps for various postal services, which it grouped into three baskets: monopoly postal services (basket M); competitive postal services (basket W); and partial postal services (basket T).
It said that from Jan 1, 2003, the price level for basket M should be reduced by a nominal 7.2 pct (real 4.7 pct), and for basket T by 6.5 pct (real 4.2 pct).
For basket W, the price level should be lifted by a real 0.7 pct, RegTP said.
From 2004 the price levels for each basket should be altered by the rate of inflation, less 1.8 pct.
The price caps should remain valid until December 2007, when the postal market is to be completely opened to competition, RegTP said.
RegTP president Matthias Kurth said the changes should save consumers between 250 mln and 300 mln a year.
Deutsche Post said the changes are "economically not achievable" and will hurt the company and its shareholders.
Post chairman Klaus Zumwinkel said: "We have always stressed that cost developments in recent years and the burdens of Deutsche Post, particularly for the country-wide infrastructure, do not leave any room for price reductions."
He continued: "This policy of the federal office is unique in Europe and the world. Against a background of rising wages and fuel costs, letter prices have, for instance, been raised in Holland, and in Britain and the United States they will rise this year."
Zumwinkel asked for understanding for the "necessary steps" that the company will have to take if the price caps are introduced.
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