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Growth in
global markets
1998 Annual Report

Table of contents

  • Page 1
    Grow th in global markets 1998 Annual Report

  • Page 2
    ... world's international leader in letter services and logistics Deutsche Post is well on its way to becoming the world's leading letter service and logistics group. We offer customers top-quality services at competitive prices. In doing so, we meet the expectations generated by a competitive market...

  • Page 3
    ... Equity Return on equity* Capital expenditures in property, plant and equipment Workforce as of December 31** Full-time employees as of December 31*** Personnel expenses as a percentage of total * Profit on ordinary activities, less taxes ** Including junior staff *** Full-time equivalents including...

  • Page 4
    Corporate divisions and business segments LETTER SERVICES PARCELS/EXPRESS/LOGISTICS INTERNATIONAL

  • Page 5
    ... ...Corporate Divisions ... 2 8 10 24 28 28 38 46 52 58 64 66 68 69 70 70 72 73 77 78 80 81 82 LETTER SERVICES ...PARCEL SERVICES / EXPRESS / LOGISTICS ...INTERNATIONAL ...RETAIL BRANCHES ...Personnel ...1998 Financial Statements ... Group Balance Sheet ...Group Profit and Loss Account ...Statement...

  • Page 6
    Forew ord by the Chairman of the Board of M anagement Dr. Klaus Zumw inkel, Chairman of the Board of M anagement of Deutsche Post " Service - The key to winning customers worldwide" 2

  • Page 7
    ...as Europe's largest postal company as a springboard to becoming the world's leading letter services and logistics group. 1998 - Another year of grow th Deutsche Post Group's economic ratios reached new highs in the 1998 financial statements: During the year, profit from ordinary business activities...

  • Page 8
    ... of Germany's postal market scheduled to occur in less than four years under the Postal Act. Our letter mail transmission times are already setting standards in Europe: In 1998, some 95 per cent of all letters were delivered to their addressees within just one day. The demands placed on value-added...

  • Page 9
    Customers expect their logistic service providers to handle their parcel mail needs - for parcels on either side of the 31.5-kg weight limit - on a worldwide basis. By acquiring the long-established Swiss company DANZAS we added a competent logistics keystone to our organization. This new addition ...

  • Page 10
    ... in the most important and fastest-growing parcel and express mail markets in Europe today. Deutsche Post has taken a further step toward increasing its international orientation by acquiring a participating interest in DHL, the global market leader for express mail services. Our collaboration with...

  • Page 11
    IPO in sight We laid the foundation for boosting our national and international competitiveness with a number of investments and activities last year, creating a strong competitive edge for the future. As one of the largest postal and logistics companies in the world, Deutsche Post is more than ...

  • Page 12
    The Board of M anagement Dr. Klaus Zumw inkel Chairman of the Board of M anagement Wolfhard Bender LETTER SERVICES Production, Legal Affairs Dr. Helmut Benno Staab LETTER SERVICES M arketing and Sales 8

  • Page 13
    Dr. Edgar Ernst Finances Dr. Hans-Dieter Petram RETAIL BRANCHES, Real Estate, Purchasing Dr. Günter W. Tumm PARCEL SERVICES / EXPRESS / LOGISTICS INTERNATIONAL Horst Kissel Personnel 9

  • Page 14
    Vision out of tradition 10

  • Page 15
    Group M anagement Report Group management report for the 1998 financial year Deutsche Post substantially increased both its business volume and results once again in 1998. Development of our core postal business was stable and successful despite growing competition. Selective, well-aimed ...

  • Page 16
    ... as parcel mail and express mail service - are merging. Internationalization of the postal industry also picked up noticeable speed in 1998. Customers are becoming more demanding: Besides expecting high quality, they increasingly look to providers for integrated solutions as well. However, these new...

  • Page 17
    .... In view of the fact that world trade (in goods and services) is growing approximately three times as fast as production, the cross-border transport business will continue to gain in importance. Upon entering into force on 1 January 1998, Germany's new Postal Act not only introduced markedly more...

  • Page 18
    ... group revenue, the largest share by far. Some DM 19,532 million of this amount was generated by Deutsche Post AG. All business segments - letter mail, advertising mail, press items mail - reported a marked year-on-year increase. Revenue generated by the Parcel Services/Express/Logistics division...

  • Page 19
    ... company pension service were the main reason for the increase in other obligations. As part of its activities to internationalize its business, Deutsche Post completed a number of important acquisitions (such as DHL) and initiated several more during the 1998 business year. The goodwill acquired...

  • Page 20
    ...programs for setting up letter and freight mail centers have since been brought to a close. Deutsche Post's investment activities focused in particular on the information technology field and on the development of international networks. Massive investments are to be made in these areas in the years...

  • Page 21
    ... through electronic media, the "traditional" business letter will remain important. Special services - such as our PostIdent Service for the personal identification of new customers or our Frankier Service franking service - augment our letter mail products. In the direct marketing field, we...

  • Page 22
    ... parcel mail specialist in the business-to-business sector. And IPS International Postal Service GmbH develops customized marketing and logistics concepts to help companies enter new markets. Deutsche Post also provides worldwide express mail services through its partner DHL, the worldwide market...

  • Page 23
    ... parcel mail service has also set new records, with transmission times averaging only 1.1 days. We were also able to increase customer satisfaction with our retail outlets in 1998. This trend has been documented by a number of sources including the "Deutsches Kundenbarometer." Deutsche Post Express...

  • Page 24
    ... of products and services in the express mail and logistics field. Our customers demand products with various transmission time frames in all weight categories. Thirdly, we are pushing ahead with the development of our value-added services. Many customers are presently outsourcing their logistics...

  • Page 25
    ...flex company. We offer quality express mail services through DHL in 227 countries worldwide. With DANZAS, Deutsche Post has acquired a strong logistics platform in 47 countries across the globe. Well-guided group development Our 25.001-per cent stake in DHL, the world market leader in express mail...

  • Page 26
    ... the future Business development for 1999 is proceeding according to plan. Special focus is being placed on developing the Deutsche Post group into an international leader in communication and logistics services. We will also be systematically improving quality levels and increasing productivity in...

  • Page 27
    ...be steadily strengthening our fast-growing communications and logistics group in preparation of our planned stock market floatation in the second half of the year 2000. Closing statement from the Board of M anagement's Report on Relations w ith Affiliated Companies ("Dependency Report") None of the...

  • Page 28
    Extending our lead step by step 24

  • Page 29
    ... Europe's largest mail company and the global market leader in international courier services. Retail branch concept unveiled 1998 collective w age agreement Greater customer orientation is the objective of Deutsche Post's new retail branch strategy. Individualized advice, longer opening hours...

  • Page 30
    ... new trainees Customer Helpline opens in M arburg Acquisition of Global M ail (USA) A new Customer Helpline - the second Deutsche Post Call Center in Germany - goes on line in Marburg. The Helpline answers all customer questions regarding our products and services. Deutsche Post raises the number...

  • Page 31
    ... forwarding service for business-to-business parcel dispatch in October. By offering calculable transmission times and a comprehensive range of value-added services, EuroPack meets the wishes of international business customers for new quality standards in businessto-business parcel mail service...

  • Page 32
    New ideas create new markets 28

  • Page 33
    ...Postal direct marketing media provided the driving force behind this rapid growth by generating an 11-per cent increase in revenue with both established and new products. An entirely new market segment was developed with partially addressed products to serve the medium price range of the direct mail...

  • Page 34
    ..." partially addressed mail product was launched on nationwide basis in 1998 with an extended range of allowable sizes and expanded weight classes. Sales reached nearly 170 million units during its first year on the market. In addition to cost advantages, our new Postwurf rate schedule which went...

  • Page 35
    ... in their direct marketing investment activities. Add to this the Call Center set up at the end of last year to serve business customers. Our new Business Club provides the framework for promoting a dialogue between directing advertising customers and direct marketing professionals - a dialogue...

  • Page 36
    ... software development, and outsourcing. Ticket Service - Now available at all Deutsche Post outlets and on the Internet These activities in the New Business Segments field address three trends in particular: • The growing demand for professional address and response management in direct marketing...

  • Page 37
    ... latest in logistics software with its new route planning systems. Unique address validation and collation service Deutsche Post Direkt GmbH has developed a unique on-line address val- idation and collation service with its Address Factory. All that's needed is an Internet access and customers can...

  • Page 38
    ...offered by our Postal Philatelic Service is growing in popularity. As a result, philately revenue posted a marked increase in 1998 - the first in four years. New products such as the "Deutschland Abo" subscription for postmarked new issues fresh from the post office, combination products such as the...

  • Page 39
    ... With our newly implemented mail logistics system in place, we topped our prior record for speed in 1998. Delivering 95 per cent of all letters within one day of dispatch, Deutsche Post also went on to take top honors among Europe's postal services. Our reliability rate - in other words, the...

  • Page 40
    ...region. To handle large-size letters, we developed a new generation of machines whose capacity can be expanded as needed in the future. Modern, high precision tilt-tray systems are used for processing Maxi letters in high-volume centers. Tray flows at our letter mail centers are routed through fully...

  • Page 41
    ... transport systems are being tested at our smaller letter mail centers. The outlook for the future The year 1999 will be dominated by increased sales initiatives which we will be launching to counter fast-growing competition. We will be introducing new individual services and service packages in...

  • Page 42
    One-stop package solutions 38

  • Page 43
    ...consolidate the PARCEL SERVICES / EXPRESS / LOGISTICS division continue to make progress. We improved our result once again in 1998, which in turn cut our loss to 50 per cent of the previous year's level. With their business dealings becoming increasingly international, our customers expect Deutsche...

  • Page 44
    ...in Germany, Europe or even further abroad with its new "Small Prepaid Package" product. We will be expanding our "FreeWay - Parcel-Post Stamp" product for private customers and small businesses who look to Deutsche Post for a service that is currently not available from any other parcel mail service...

  • Page 45
    ...and freight mail service district offices led to considerable cost savings. These systems enable cost transparency in all of Deutsche Post's haulage processes. We offer customers a growing number of value-added or package logistics services for both the domestic and international postal markets. Our...

  • Page 46
    ...our customers want their products and documents delivered within ever shorter time frames. We launched an advance into this fast-growing segment with our subsidiary Deutsche Post Express GmbH which successfully positioned itself in the 1998 business year both in its core express mail service segment...

  • Page 47
    ... to up its sales volume. As a result of these two factors, it has generated a high level of awareness among customers and, concomitantly, unusually high growth rates in the contract logistics market segment. Growth proceeded according to plan during the 1998 business year. Production capacity at the...

  • Page 48
    PARCEL SERVICES / EXPRESS / LOGISTICS division Parallel to this, our marketing and project activities focus on the spare parts logistics field and the health care sector. Practicable plans for the medical supplies trade, medical sample dispatch business, hospital supply logistics field and other ...

  • Page 49
    ... its place as the company's logistics cornerstone The outlook for the future In the coming year, our activities in the PARCEL SERVICES / EXPRESS / LOGISTICS division will center on standardizing and streamlining our price and product portfolio. Our range of products must be straightforward and...

  • Page 50
    Just around the corner all around the world 46

  • Page 51
    ... position in the express mail service area by entering into a cooperative agreement and acquiring a stake in DHL, the global market leader for express mail service. Our acquisition of Global Mail gives us a bridgehead in the USA for serving international letter mail business customers. And our joint...

  • Page 52
    ...services for our international letter mail business customers and markets our letter products worldwide. Despite increasingly tough competition, we were even able to exceed planned increases in sales for letters mailed in Germany. Our "Kilo Tariff Letters" and "Infopost" addressed bulk mail products...

  • Page 53
    ... is to develop and launch a standardized, Europe-wide parcel mail service that satisfies the needs of business customers with business contacts in Europe. This network emphasizes reliable, day-certain delivery, easy handling, tracking and tracing, and straightforward, attractive pricing. Deutsche...

  • Page 54
    ... from market entry strategies, direct-marketing campaigns, order management, warehousing, filling orders and dispatch management all the way to receivables, returns and complaint management. Pressure to internationalize and the opportunities offered by today's new media are inducing a growing number...

  • Page 55
    ... its worldwide logistics network for express mail products and puts us in a position to offer time-sensitive dispatch with the shortest guaranteed delivery times around. This new strategic alliance is aimed at developing new, strategic products, optimizing service quality for customers and offering...

  • Page 56
    Diversity and competence 52

  • Page 57
    ...the largest sales networks in Germany with more than 17,000 employees in Mobile Mail Service (letter carriers who offer an expanded range of services, making them comparable to a small retail branch). Our dense retail branch network - with locations and type of outlet determined by customer needs as...

  • Page 58
    ... Wüstenrot-Bausparen savings and loan financial services. Life and accident insurance will be added to this lineup in spring 1999. Besides their modern, open-service counters where customers can buy Deutsche Post's traditional services, what also sets our Center branches apart is the fact that they...

  • Page 59
    ...multi-counter branches in department stores and supermarkets. By late 1998, we had set up more than 50 Shopin-Shop/partner branches. At least half of all our customers are to be served in open-service branches by the year 2000 In 1998, we also continued setting up postal agencies at locations where...

  • Page 60
    ... priced service package for social security-related needs. The Postal Pension Service's Postal Pension Service Centers processed some 270 million domestic pension payments worth a total of more than DM 320 billion on behalf of statutory pension and accident insurance schemes and various company...

  • Page 61
    ... stores plus some 160 additional PostPlus or McPaper/ Deutsche Post branches at convenient locations. A new sales format - business customer retail branches that offer a range of services specially tailored to business customer needs - will be tested during the year. This new format was developed...

  • Page 62
    Vocational training bears fruit 58

  • Page 63
    ... three tasks in 1998: Improving our personnel cost structures in order to increase Deutsche Post's competitive strength, adjusting our staffing levels to actual requirements in a socially acceptable manner and injecting greater flexibility into working hours. In the area of further training measures...

  • Page 64
    ...and career plans. A number of measures such as further training and employment during family-related leave were developed to maintain these employees' occupational skills and facilitate their return to the working world. Flexitime allow s additional scheduling latitude for operational processes and...

  • Page 65
    ...principle of placing our internal focus on customers and employees into everyday practice. Parallel to this, key personnel processes were reviewed in light of their cost efficiency levels and then adjusted to meet market demands. Company suggestion system promotes creativity Our employees submitted...

  • Page 66
    ... raised the number of traineeships it offers once again last year, this time by nearly ten per cent. As a result, some 2,300 young people began their training with our company in 1998. Besides these 200 new traineeships, we added training programs in IT systems electronics and specialized computer...

  • Page 67
    ... new standards Intensive health management increases motivation We implemented a new program in 1998 with the aim of improving health levels among our employees on an ongoing basis. This program revolves around providing organized, systematic health management work in the workplace. Working groups...

  • Page 68
    64

  • Page 69
    Financial Statements 1998 65

  • Page 70
    ... parties Technical equipment and machinery Other equipment, plant and office equipment Advance payments and construction in progress Financial assets Shares in affiliated companies Participations in associated companies Other participations Loans to participations Housing promotion loans Noncurrent...

  • Page 71
    ... 2. 3. Accruals Pensions and similar obligations Taxation Other accrued liabilities 6,141 9 10 11 5,054 721 7,307 3,437 311 7,189 13,082 C. 1. 2. 3. 4. 5. 6. Liabilities Amounts owed to banks Advance payments received on orders Trade payables Amounts owed to affiliated companies Amounts owed to...

  • Page 72
    ... 1,002 2,717 3,719 6. Personnel expenses a) Salaries, wages and other emoluments b) Social security contributions, pension expenses and other benefits 7. Depreciation a) on intangible assets and property, plant and equipment b) Amount written off special loss account from the setting up of certain...

  • Page 73
    Statement of Capital Flow s Net income/loss (-) Depreciation of noncurrent assets and amount written off special loss account Changes in long-term accruals Other non-cash expenses and income Material cash income from unusual transactions 1998 DM '000 318 1,539 1,785 -182 -689 2,771 -573 479 61 -4,...

  • Page 74
    ...in the profit and loss account, details are given in the notes. The comparative figures given in ( ) are those of the financial statements for the year ended on 31 December 1997. (2) The consolidated group The consolidated statements include the individual company financial statements of the parent...

  • Page 75
    ... financial statements, shares in associated companies were included at equity at their book value at the beginning of the busines year and the date acquisition respectively and are carried forward pursuant to section 312 of the Commercial Code. No adjustment was made to Deutsche Post's uniform...

  • Page 76
    ... loan. Inventories of postage stamps, heating fuel and spare parts at the freight mail centers are stated at fixed values. Inventories of other raw materials, supplies and consumables are stated at the lower of average (moving or weighted) or year-end prices. Unfinished products, unfinished services...

  • Page 77
    ... historical rate or the year-end rate of exchange. III. Notes to the Group Balance Sheet and the Group Profit and Loss Account A. Notes to the group balance sheet (1) Details of noncurrent assets are given in the schedule forming Appendix 1 to the Group Annex. (2) Asset-side accounting differences...

  • Page 78
    ...the first time in 1997, and prior to that year had been disclosed only in the notes to the financial statements. Deutsche Post AG has pension obligations amounting to DM 3,896 (5,010) million to non-civil-service employees which are in excess of the pension accruals set up in 1998. These obligations...

  • Page 79
    ..., turnover tax and wage tax. Other accruals consist principally of amounts accrued for the expected shortfall between the sources of regular income of the Postal Civil Servants' Health Insurance Fund and the benefits paid, unperformed services relating to the sale of postage stamps, the letter mail...

  • Page 80
    ... cost of services provided by the Federal Posts and Telecommunications Agency and outside services. (7) Financial income/expense consisted of: 1998 Income from associated companies Income from affiliated companies Income from other participations Income from other securities and from loans carried...

  • Page 81
    ...the notes to the financial statements in accordance with Article 28(2) of the Implementation Act to the Commercial Code. IV. Other Particulars (1) Numbers of employees The average numbers of employees during the year were as follows: 1998 Civil servants Wage earners Salaried staff 97,815 133,121 27...

  • Page 82
    ...2. Technical equipment and machinery 3. Other equipment, plant and office equipment 4. Advance payments and construction in progress III. Financial assets 1. Shares in affiliated companies 2. Shares in associated companies 3. Other participations 4. Loans to participations 5. Housing promotion loans...

  • Page 83
    ... in DM million Amortization, depreciation and write-downs Changes to the Charge Reclassifications consolidated for year group in DM million in DM million in DM million Disposals 31 Dec. 1998 Net book value 31 Dec. 1998 31 Dec. 1997 in DM million in DM million in DM million in DM million 65...

  • Page 84
    ...the Group Annex 31 Dec. 1998 of which of which total due within due after 1 year 5 years in DM million in DM million in DM million Amounts owed to banks of which secured by charges on land DM 201m; 1997: DM 326m Advance payments received on orders Trade payables Amounts owed to affiliated companies...

  • Page 85
    ... with professional standards, comply with the legal provisions. With due regard to the generally accepted accounting principles, the consolidated financial statements give a true and fair view of the net worth, financial position and results for the group. The combined management report for Deutsche...

  • Page 86
    Company organs 1. Members of the Board of Management Dr. Klaus Zumwinkel (Chairman) Dr. Helmut ...1998) Petra Heinze Henry Hillmann Gabi Lips Pauline Mayer (from 29 Jan. 1998) Günter Nehls (until 28 Jan. 1998) Walter Scheurle Franz Schierer (from 29 Jan. 1998) Monika Schleidgen (until 28 Jan. 1998...

  • Page 87
    ...the participation in DHL, the market leader for express mail services, the acquisition of and participation in European parcels and logistics companies with the aim of setting up a pan-European parcel network, and the take-over bid submitted in December 1998, for the logistics group DANZAS AG, which...

  • Page 88
    ... statements. The C&L Treuhand Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft accountancy firm also audited the Board of Management's report on relations with affiliated companies (the Dependency Report) prepared in compliance with § 312 of the German Stock Corporation Law...

  • Page 89
    ... and Associated Companies Country Direct shares in company (in %) Net revenue as of 31 December 1998 (DM '000; provisional) Net revenue as of 31 December 1997 (DM '000) Belgian Parcel Distribution N.V. Deutsche Post Adress GmbH Deutsche Post Consult GmbH Deutsche Post Consult International GmbH...

  • Page 90
    Deutsche Post M ulti-Year Overview for the Group Deutsche Post 1995 1996 1997 1998 Net revenue Profit on ordinary activities Cash flow acc. to DVFA/SG Net income/ loss (-) (in DM millions) (in DM millions) (in DM millions) (in DM millions) 27,409 282 988 -1,251 27,469 643 2,137 393 27,640...

  • Page 91
    ... of interest-bearing liabilities Including social security costs and expenses for welfare 3) Including junior staff 4) FTEs 5) Profit on ordinary activities minus taxes (excl. levies payable to the Federal Government in 1995) 6) Profit on ordinary activities minus other taxes plus interest paid 87

  • Page 92
    Imprint: Published by: Deutsche Post AG, Headquarters Corporate Communications Division 53105 Bonn Tel.: + 49 228 182- 92 ... Frankfurt am Main Produced by: Public P3, Frankfurt am Main Printed by: Gütersloher Druckservice Publication No. 675-200-645 This Annual Report is also published in German. 88

  • Page 93
    Press Office Tel.: + 49 228 182-99 88 Fax: + 49 228 182-98 80 E-mail: [email protected] Investor Relations Tel.: + 49 228 182-64 60 Fax: + 49 228 182-66 64 Central Deutsche Post Customer service telephone number: 0 18 02/33 33 Deutsche Post on the Internet: www.deutschepost.de