Deutsche Post Cost-Cutting Expected
Deutsche Post AG (G.DPW) regularly boasts that 95% of the letters mailed in Germany arrive the next day – a sign of efficiency given the country’s size. But the message Deutsche Post itself sent to investors when it was partially privatized two years ago – that it’s a solid investment in volatile markets – has gone astray. And this has put the spotlight of the need for greater efficiency in its core business. The company, which is also active in the parcel delivery, logistics and financial services markets, was supposed to offer investors the best of the old and new economies. It was argued that the company would enjoy a lucrative guaranteed domestic mail monopoly for several more years while turning itself into a leading international logistics firm. But the sharp economic slowdown and two regulatory blows have altered the outlook, causing the shares to halve in value since they were issued. Now the company is scrambling to cut costs. The question is whether Deutsche Post, still 69% state owned, can find the savings to put the punch back into its initial sales pitch. The company is reworking a cost-cutting program called ‘Star,’ the details of which are due in the autumn. ‘The Star program is absolutely key to investors’ perception of the group and to its future profitability,’ said Peter Wyatt of Nomura Equity Research in London. ‘Unless management tackles the issue of costs aggressively, profits could continue to be squeezed over the medium term.’ Matthew Stainer of SG Securities in London emphasized the need for improved mail business profitability. ‘We are talking about getting appropriate costs in the mail division,’ he said. ‘They need to shrink the infrastructure – close post offices and post boxes – without hurting quality.’ Both Stainer and Wyatt have a hold rating on Deutsche Post shares, which were trading early Wednesday at EUR10.18. That’s down 52% from the EUR21 issue price in November 2000. Deutsche Post won’t comment on the latest savings plans, but it has said big postal job cuts and branch closures are possible.
