Deutsche Post outlines their cost-cutting strategy for 2003

Deutsche Post chief executive Klaus Zumwinkel said the company attained its core profit and sales targets in 2002 and would probably surpass a cost-cutting goal set for 2003. The company will release its 2002 results on March 25.

Earnings before interest, taxes and amortization were at least 2.2bn euros last year, on sales of between 39bn and 40bn euros. The company is to pay a dividend for 2002, despite an EU ruling that it repay 572m euros in state aid plus DHL reached break-even last year despite continued losses in the US.

However, the German mail company, which is also active in the parcels, logistics and financial services markets, won’t be likely to get a boost from the economy this year. This accentuates the importance of Deutsche Post’s STAR reorganization program to raise profit 40% by the end of 2005 and to transform the postal monopoly into the world’s leading logistics firm, stated Zumwinkel.

Despite a good Christmas trade, Deutsche Post will pay a dividend for 2002 despite a European Union ruling last year that the company repays EUR572 million in state aid plus accrued interest. The ruling led to a EUR906 million payment to the German government.

In 2001, mail earnings accounted for 70% of the company’s total EBITA. When it unveiled STAR in October, Deutsche Post said it aimed to meet at least 25% of the overall profit-gain target in 2003 and at least 50% in 2004.

STAR is a response to cost-cutting pressures resulting from the weak economy, postal-worker wage rises and regulatory rulings to cut stamp prices as well as repay state aid.

In addition, the program reflects Deutsche Post’s need to integrate an array of express and logistics units acquired in recent years.

Deutsche Post reportedly has been interested in the takeover of Airborne Express, the third-largest U.S. express Delivery Company. Zumwinkel didn’t comment directly on Airborne Express. He also declined to comment on targets for DHL’s U.S. operations. In addition, Deutsche Post will probably also acquire all of Securicor Distribution, a 50-50 parcel delivery joint venture with the U.K.’s Securicor PLC (U.SCC), within two years, according to Zumwinkel. “I expect we’ll acquire the extra 50% stake well before 2005,” he said without elaborating. Deutsche Post acquired a 50% stake in Securicor Distribution for GBP223 million in November 1998.

He stressed the need to limit German mail business personnel costs, which account for 65% of total mail costs in the country, and stressed more flexibility by labor unions.