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Germany doesn't always deliver on efficiency


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When monopolies had a popularity peak in the mid-20th century, the common view was that they guaranteed a quiet life.

That was certainly the case for our company today, the German postal giant, Deutsche Post (DP), up to the time it went public in 1995.

It had been the protected monopoly provider of postal services in the old West Germany from 1947, but the challenges that the emerging world of the internet was likely to throw up fascinated the business world in Germany and abroad and DP took up the task.

The scramble for the shares, even in Dublin, was memorable. But the punters two decades later might be wondering what the fuss was about. The company, now called Deutsche Post DHL, is the world's largest courier company after it picked up the parcel giant DHL in 2002.

In the past decade and a half it has underperformed on the Dax stock market index of German shares and seriously underperformed its American rival, FedEx. If you were to set the two courier outfits and give them a standing start at the turn of the millennium, FedEx would have notched up an astonishing two and a half times the share price growth of the German company.

The $10bn loss in its attempted entry into the US market (abandoned in 2008) didn't help. The much vaunted German efficiency was seen to be taking a pounding, a phenomenon that really needs explaining.

The company, valued at €32bn, has its headquarters in the old German capital Bonn, an enormous worldwide network with three global hubs, 33,000 vehicles, 250 airplanes, employs a massive 480,000 people and operates in 220 countries, with its distinctive canary yellow livery.

It is organised into four operating divisions; postal services in Germany, DHL Express, global freight forwarding and a supply chain division. The German postal services and DHL Express represent 86pc of earnings. It is still the number one provider of mail and parcels services in Germany with a 65pc market share.

Its mail service is the most profitable at €1.3bn. The company's express division is the world leader. It transports urgent documents and goods whatever the distance. It has an impressive 30pc share of the world market and while it is the smallest in the group in terms of revenue, it has the best return on sales, generating profits of €1.25bn.

DHL global freight forwarding seems to be where the problems lie. While turnover is €14bn, profits are a disappointing €290m, thanks to volatile freight rates and surplus capacity. The division once generated 20pc of group profits, today it is just 10pc.

The final division is the largest third-party supply chain provider with 8pc of the fragmented world market of €160bn, but its profits are very modest at €465m.

Last year Deutsche Post. DHL claimed to have reached its targets, but to investors there are still some issues.

Sales of €57bn are impressive, showing an increase of 3pc, but profits from operations at €3bn were flat, compared to the previous year. After years of strong free cash flow, investors were disappointed by last year's 20pc decline and the company's failure to deliver a special dividend or initiate a buyback programme.

Half-year earnings had a setback and the freight forwarding nightmare continues. The shares, trading in the mid €20s, show potential but it is preferable to remain on the sidelines for a better entry point.

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The company is not a stickler when it comes to abiding by the EU rules, relating to state aid. DP-DHL, together with the German government, lost an EU challenge over its failure to recoup unlawful state aid given to the company.

The regulators sued Germany for failing to comply with an early order to recover the aid given citing it as 'economic advantage' over its competitors.

These, if memory serves, are the same people who so recently lectured Ireland about our tax regime. Something to remember for the next 'summit'.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

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