Deutsche Post pulls out of Royal Mail race

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Deutsche Post yesterday pulled out of the running for a stake in the UK's Royal Mail and instead turned the spotlight on the need to overhaul its own mail delivery business as it races to cut costs to cope with an unprecedented plunge in demand.

The logistics company had previously indicated it could make a move on the UK mail group; joining TNT of Holland and CVC, the private equity firm, which were also thought to be considering taking a stake.

Frank Appel, chief executive, prepared the ground for a clash with German labour unions as he said Deutsche Post's 80,000 mail staff would have to work longer hours to improve productivity. The company also proposed postponing pay increases.

"We cannot sit here and wait until the profit has gone," Mr Appel said at a company event after announcing a 42 per cent drop in underlying quarterly earnings. "I have no doubt our employees will understand it is better to act now."

Deutsche Post expects improvement in the second half but Mr Appel said: "We are preparing for an L-shaped recession [even though] we hope it will be V-shaped or U-shaped."

April's figures were probably "not much better than the year to date", Mr Appel said. "It feels like we have reached the bottom . . . but no one knows if the bottom will last for a couple of additional months."

The logistics group, which owns DHL as well as Germany's former monopoly postal service, reported earnings before interest and tax that fell from €539m ($716.7m) to €27m. Underlying earnings of €312m exclude €285m of restructuring costs, stemming mainly from closing DHL's US express business.

Deutsche Post could improve its market share in the crisis and would focus on organic growth, Mr Appel said. "We have not given a bid for Royal Mail," he said.

Mr Appel said a plan to cut €1bn of group-wide non-operating costs by the end of next year would be reached a year early in the DHL express business.

Net income in the three months to the end of March rose from €383m to €944m due to one-off gains from the sale of a stake in Postbank to Deutsche Bank. Deutsche Post said it expected the Postbank gains - including sale of shares in Deutsche Bank - would allow it to return to net profit for 2009. The deal added €738m to results in the first quarter and should add about €450m during the rest of the year.

Deutsche Post shares closed up 0.9 per cent at €9.90.