DEUTSCHE POST FIRST-HALF NET INCOME PLUMMETS, WILL CHALLENGE EC
Deutsche Post World Net said its first-half net profit plummeted 85.2 percent to 155 million euro ($152 million) due to the European Commission's judgment against the German postal and logistics giant.
Klaus Zumwinkel, group chairman, said Wednesday that the group would file a complaint with the European Court of Justice against the European Commission's decision last month. The Brussels-based commission ordered Deutsche Post to repay 572 million euro ($543 million) of state subsidies used to cross-subsidize its commercial parcel activities. Including interest, Deutsche Post claims the total penalty will be about 850 million euro (F836 million).
Zumwinkel also said a reduction in 2002 postal rates will also mean losses of 300 million euro during the year. By 2007, the cumulated losses will be about 1.5 billion euro, the group said. The group took an 850-million-euro charge in the first half.
'The state aid and postage rate decisions are the main factors in the destruction of more than 6 billion euro in market capitalization,' he said.
Zumwinkel said Deutsche Post plans to implement a five-point program this fall to 'rebuild value that was demolished by exterior influences, while restoring the capital market's confidence in the group.'
Deutsche Post's planned complaint against the EC is one of the five points.
The group said the commission's decision 'involved a major breach of the rules of procedure as well as grave errors with regard to facts of the case. The group also claims the EC's decision' contradicts a commission decision on state aid in Italy, as well as in Ireland in the beginning of 2002.
The complaint was raised by UPS, a major competitor of Deutsche Post in the express and logistics industry.
Group-wide revenues climbed 15 percent to 19.4 billion euro ($19.1 billion), fueled by increased revenues from DHL. Operating profit (earnings before interest taxes and administration) was off 6 percent, to 1.33 billion euro ($1.31 billion).
For the second quarter, operating profit fell 11.2 percent to 365 million euro ($359 million) while revenue was up 2.5 percent to 2.81 billion euro ($2.76 billion).
As part of its five-point plan, Deutsche Post also plans to further shift its strategy towards strengthening its non-mail segments — express, logistics and financial services.
The share of revenue for non-mail segments rose to 71 percent, from 67 percent, in the first half of 2002. Express has become the group's strongest division in terms of revenue in the first half of 2002, with 30 percent of revenues, or 6.1 billion euro ($6.0 billion). That total nearly doubles revenue from the first half of 2001.
Operating profit for express declined 28.4 percent to 82 million euro ($81 million), which Deutsche Post said was due to expected losses from DHL's U.S. business, offset by contributions from other segments. Deutsche Post spent $598 million to acquire a 25-percent stake and controlling interest in express operator DHL Worldwide during the second quarter. The group said it expects DHL back in the black by the end of the year.
For the second quarter, the express unit's operation profit rose 88.5 percent to 49 million euro ($48 million), while revenue jumped 103.5 percent to 3.06 billion euro ($3.0 billion).
With total takeover of DHL in 2002, DHL will seek to expand its global presence. About 39.6 percent of Deutsche Post's first half revenue was generated abroad or 7.7 billion euro ($7.6 billion), compared to 31.4 percent or 5.2 billion euro in the first half of 2001.
Mail revenues were flat in the first half, at 5.8 billion euro ($5.7 billion), while its share of total group revenue fell to 29 percent, from 33 percent. Operating profit, while off 9.9 percent to 1.04 billion euro ($1.02 billion), still accounts for 71 percent of group operating profit. Deutsche Post blamed the decline in operating profit to weak demand in the retail outlets business and a slight increase in costs.
Deutsche Post said its plans to expand on European mail market, and the mail joint venture in the Netherlands is seen as a first step in that direction.
Logistics' first-half operating profit rose 8.1 percent to 80 million euro ($79 million). Revenue fell 5.8 percent to 4.4 billion euro ($4.3 billion), while the unit's share of total revenue fell to 22 percent, from 27 percent. For the second quarter, operating profit rose 11.6 percent to 48 million euro ($47 million), while revenue decreased 4.7 percent to 2.23 billion euro ($2.2 billion).
Operating profit for financial services rose 8.6 percent to 266 million euro ($262 million), while revenue slipped 3.2 percent to 3.8 billion euro ($3.7 billion).
Other aspects of Deutsche Post's five-point plan are:
* Pricing and market shares, such as raising prices on non-price-regulated segments to offset the lower postal rates. The group also plans to launch new products 'more aggressively.'
* Costs savings measures, including job cuts, reduction in the number of retail outlets and letterboxes and savings on information technology and advertising. Deutsche Post noted in a press conference Wednesday that the 300 million euro in losses equates to about 10,000 jobs.
* STAR, the group-wide value enhancement program, will be launched in the fall. The program involves 120 top executives and 100 full-time jobs, in identifying projects to increase the group's value.