Deutsche Post AG
Annual Report 2017

Plain-text annual report

2017 Annual Report 2 0 1 7 A n n u a l R e p o r t COM•MIT•MENT /kəmtmənt/ noun : The state or quality of being dedicated to a cause, activity etc. In this time of rapid environmental, eco­ nomic and political change, there is a growing need for credibility and certainty. How can businesses meet this need? Not only is everything around us changing, our own business, our corporate culture and the way we work are also transforming. As a Group, we need to systematically improve the quality of our services and invest con­ tinuously in our business whilst also sharp­ ening our customer centricity. ranging experience. The management team at Deutsche Post DHL Group is absolutely committed to this system of values and the company’s long­term success – and each board member embodies this in their own way and according to their own personal strengths. On the following pages, we illus­ trate what we stand for and how that fuels our drive towards the future – in images and words and with pleasing figures for the 2017 financial year. Through all this change, we rely upon our strengths: dependability, dedication and continuous innovation based upon wide­ 2 4 Once a year he goes mountain biking with colleagues, gaining new insights on the way. DR FRANK APPEL PERSPECTIVE 8 She wants to understand things and therefore asks the right questions. MELANIE KREIS CURIOSITY 12 With his team he supports other teams in the company. DR THOMAS OGILVIE TEAM SPIRIT 16 Always wanting to get better, that’s his demand. DR H. C. JÜRGEN GERDES INNOVATION 3 18 Being fast, but never losing control of processes, is his focus. KEN ALLEN EXPERIENCE 20 He has learnt to simplify and thereby reduce complexity. TIM SCHARWATH SPEED 22 The strategy gives him the goal and he doesn’t lose sight of it. JOHN GILBERT ENDURANCE A GROUP MANAGEMENT REPORT 25 — 88 B CORPORATE GOVERNANCE 89 — 100 C CONSOLIDATED FINANCIAL STATEMENTS 101 — 176 D FURTHER INFORMATION 177 — 184 4 PERSPECTIVE DR F RA NK A PP EL Commitment 5 FRANK APP EL N OT ONLY E NJ OYS TH E P H Y S I CAL CH A LL EN G E O F M O U NTAIN BIKING, TH E CE O S AY S T HE S PORT A LS O P ROV I D E S N E W O U TLO O KS A ND PERSPECTI VES . ONCE A Y E A R, H E G O E S O N A B I KE TR IP WI TH CO LLE AG UE S TO PEDAL MOUNTAIN TRAILS, PUSH HIMSELF AND GET A VIEW OF WHAT’S TO CO M E . KILOMETRE: ZERO; ELEVATION: 944 M, AchENKIRch S A D D L E U P ! — Around three dozen Group employees have joined Frank Appel for a mountain bike ride near picture­perfect Lake Achensee, in the Austrian state of Tyrol. It’s about 8.30 in the morning, and the temperature is a pleasant 17° Celsius with light easterly winds as they hop on their saddles and start pedalling on what is going to be a 53km tour with a total climb of 1,150m. The first stage proves the hardest: the trail to a mountain cabin some 550m above their starting point is a steep climb with gradients up to 14%. It’s exactly the kind of trail that appeals to Frank Appel: “What I love about mountain biking is that your hard work and sweat are rewarded with panoramic views and great, exhila rating downhills. And it’s even better when you’re riding in a group. Everyone gives it their all – and we all share the reward when we reach the top. It’s a pure endorphin rush.” Gufferthütte D R FR ANK APP EL Frank Appel says that at 1.92m he’s actually too tall for mountain biking. But no other sport offers a faster way to experience so many challenging ascents and beautiful views in such a short time. KILOMETRE: 13.2; ELEVATION: 1,434 M, GUFFERThÜTTE M A K I N G h E A D W A Y — “One way this mirrors professional life is that you also have to work hard in business if you want to achieve something. And like rolling down a mountain on two wheels, there are also times when everything seems to work on its own. Unfortunately, the easy stages in which you can just coast along are shorter than the ones in which you have to give it your all. No matter what, we always want Deutsche Post DHL Group to make head­ way. So while things are rolling along smoothly, we have to prepare for the times when the economy and our company face an uphill battle. Because there’s no doubt that those times will come. That said, if you always have your hands on the brakes, you’re going to quickly lose interest. Whether you’re steering a bike or a company, you have to take risks if you want to achieve ambitious goals. But they shouldn’t be incalculable risks. Otherwise you may easily slide off the trail at the next curve.” km 5 10 15 1,400 1,200 1,000 800 600 6 Deutsche Post DHL Group — 2017 Annual Report KILOMETRE: 33.4; ELEVATION: 822 M, AScENT TO WALDhÄUSL S T A Y I N G F O c U S S E D — “It’s correct to say that we currently find ourselves speeding along in what some consider limited visibility. No one can confidently predict today how technologies such as big data, robotics and artificial intelligence will transform our world tomorrow. On the other hand, the change won’t happen overnight. In our Group, we have solid teams that are monitoring and analysing these trends and developments. And we’re always looking very closely into whether and how we can improve our products and processes. At the same time, we’re also exploring ways to use our specialised skills and capabilities to pursue new business opportunities. We can take a rational look at all of these things and determine how important they are to our business. As a leader, it helps to have the experience to dis­ tinguish between what’s relevant and what’s not; to recog­ nise the moment when more information is not going to lead to deeper knowledge or better decisions – the moment when it’s time to take action. For example, I’m not the type of person who needs to be constantly inundated with ‘breaking news’. What’s the point? I prefer to stay focussed on what lies ahead – and rely on the expertise within our company.” Kaiserhaus “Those who have a clear perspective find their way.” 1,400 1,200 1,000 800 600 KILOMETRE: 28.7; ELEVATION: 710 M, DEScENT FROM KAISERhAUS D O I N G G O O D — “In my view, a company’s purpose is not only to create value for shareholders. It’s also about offering people a good job and a future. We want to give something back to society. For example, a logistics company like ours is naturally a major emitter of carbon emissions. In light of global warming, we’re making efforts to reduce these emissions. Our electric delivery vehicle, StreetScooter, which has become a real success story, is one example. This shows that we can do things that are both good for the environment and good for business. After all, when we burn less fuel and reduce our carbon footprint, of course we also save money. What’s more, efforts to make our business more sustainable also motivate our employees. People would rather work for – and are more committed to – companies that aren’t focussed solely on making money. That boosts our image as a Group, which in turn helps us recruit top talent. That’s another reason sustainable projects such as StreetScooter play an important role in our economic success.” km 20 25 30 35 Commitment 7 DR FRANK APPEL CEO Global Business Services Born in 1961 Member of the Board of Management since November 2002 CEO since February 2008 Appointed until October 2022 Waldhäusl NEURO bIOLOGIST FREQUENT TRAVELLER KILOMETRE: 44; ELEVATION: 1,080 M, WALDhÄUSL K N O W I N G W h E R E Y O U W A N T T O G O — “If you want to keep your eye on a goal and make progress towards it, you obviously need to know where you want to go – and be able to communicate that vision to your team. The Deutsche Post DHL Group vision is clear: we want to be the most global, customer­centric and digital logistics company in the world. When people think of logistics – no matter where they are in the world – we want them to think of us first.” KILOMETRE: 51.2; ELEVATION: 902 M, RETURN TO AchENKIRch L O O K I N G A T W h A T L I E S A h E A D — “As a Group, we need to systematically improve the quality of our services, permanently invest in our business and con­ tinuously improve customer satisfaction. That means some long ascents lie ahead, including some turning points where we will need to peek around the corner and adapt our business models. As long as we continue to have good people with the right abilities on board, we’ll be able to make the adjustments necessary to deal with the new conditions and continue to move forwards. The same is true for mountain biking: When you come to a fork in the trail, you consult your map, get your bearings, and take a look at where you want to go and what lies ahead. And sometimes that means you have to adjust your speed and head in a new direction. That’s it.” 40 45 50 8 MELANIE KREIS CURIOSITY Commitment 9 “When curiosity is directed at serious things, we call it thirst for knowledge.” MARIE VON EbNER-ESchENbAch Naturally I’m a numbers person. As a physicist, I have, however, also learnt that it’s not enough to line up individual measurements. Instead you have to understand the laws of nature behind them – the overall meaning, the patterns. Physics teaches you to have a feel for numbers and patterns. You recognise it relatively quickly when something on your data sheet isn’t quite right. In the lab, the measurements speak for themselves. It’s all quite clear. But in business, you need to communicate what you see – and motivate other people to work together for a common goal. hOW cAN WE LEARN FROM ONE ANOThER? As exciting as individual details are, I always ask myself: how would I sum up the problem – and the solution – in just a few of my own words? That’s the only way to get to the bottom of it. Curiosity involves asking questions so that you can explain correlations. I want to understand things, and that’s a real challenge in today’s world because often there’s not enough time to really delve into the subject matter. That’s where I’m grateful for my team’s support. It’s a privilege to meet so many interesting people who work with state­of­the­art technology. I encounter new things all the time – at presentations and by talking to colleagues and outside experts. What interests me is how we can learn from one another and how can we share our knowledge. I’ve always been fascinated with travel – getting to know new countries and cultures. And that’s taught me something: to help spark good ideas, there’s no substi­ tute for practical experience. That means getting out and watching your operations, things like the way aircraft are loaded and unloaded at our air hub. I have to do that if I want to translate our business intelligently into numbers. Numbers are not neutral. What’s important is how we interpret them and what stories are behind them. That’s what makes it all so interesting: do we recognise a trend? Can we tell early enough whether things are going in the right direction? Some might find this dreadfully dry, but it’s a delightful prism through which to view the world. CURIOSITY 10 Deutsche Post DHL Group — 2017 Annual Report I’M EXcITED AbOUT ThE FUTURE And that world is changing radically. When people think of Deutsche Post DHL Group, many have a more traditional picture in mind. But if you take a closer look at how our company has transformed in recent decades, you won’t find many others that have gone through such a dynamic process of change. In the 1990s, we were a purely German company. Today, we are more than 500,000 people, 60% of whom work outside Germany – and we now generate 70% of our revenue outside our home country. This transformation will continue; we’ll keep chan­ ging – because logistics is an industry driven heavily by innovation. I’m excited about the future; it harbours both opportunities and risks. Take the tradi­ tional letter: each year we lose two to three per cent of our volume to electronic substitution. By contrast, we’re witnessing an e­commerce boom on the parcel side, where we’re very clear beneficiaries of digitalisation. It’s been an in­ credible change – and we shall continue to use the new opportunities of e­commerce. “Curiosity means asking questions so that you can explain correlations, I want to understand things.” ThERE ARE INcREDIbLE OPPORTUNITIES Sometimes you have to purposefully power down for new things. When I’m struggling with an issue, I sometimes try to sleep on it. Then I wake up and think, I could actually do it that way. What you have to do is free your mind and try to organise your thoughts. We’re faced with incredible opportunities today; it’s comparable to the period about 40 years ago when globa­ lisation began to set in on a massive scale. We can offer customers new products and innovative services. And we can simplify things in our operations and thereby support customers in a way no one could have dreamt of ten years ago. That’s a huge opportunity. 11 MELANIE KREIS Finance Born in 1971 Member of the Board of Management since October 2014 Appointed until June 2022 FROM bONN WITh A DEGREE IN PhYSI cS 12 DR THOMAS OGILVIE Human Resources Born in 1976 Member of the Board of Management since September 2017 Appointed until August 2020 TEAM MANAGER chANGE LEADER Commitment 13 DR T HO MAS OG ILVIE TEAM SPIRIT MR OGILVIE, EVERYONE VALUES IT, MANY ASPIRE TO IT, bUT NOT ALL SUccEED. WhY IS TEAM SPIRIT SO IMPORTANT? That’s easy: we’re a service company and we wouldn’t be able to provide our services if we didn’t work together as a team. And that’s doubly important for my human resources team. We have to work together to help other teams through­ out the company work together. bUT ThERE ARE ALSO OUTSTANDING INDIVIDUAL PLAYERS WhO DON’T NEcESSARILY NEED A TEAM. Teamwork means cherishing success. And that in turn means looking at what’s needed to achieve success. To win, leaders have to make sure they have the right players in the right positions. In football for instance, sending eleven superstars such as Neymar onto the pitch is definitely not a good idea. A combination of players who operate more as individuals and those who tend to be team players is likely to yield more success. At the end of the day, a good mix of both is what you need. ISN’T ThAT A cONTRADIcTION? ON A TEAM, EVERYONE IS ESSENTIALLY ON A LEVEL PLAYING FIELD – bUT ThAT’S NOT ThE cASE IN A bUSINESS, WhIch IS A FUN- DAMENTALLY hIERARchIcAL ORGANISATION. No. A large corporation such as ours with nearly 520,000 employees can only function with clear hierarchies. At the same time, we need a culture that puts good ideas above one’s position on the corporate ladder. There’s no other way to survive in today’s age of rapid digital transformation. 14 Deutsche Post DHL Group — 2017 Annual Report “Our employees should be able to make an impact and to stand out when they perform well.” We’re going to see something similar in the workplace, because such temporary groups are much better at adapting to market changes. WE USED TO cALL ThIS PROjEcT WORK. Right, but the classic example of project work has a clear structure – a project lead, a project plan and a nice, neat organisational chart. In the future, teamwork will be more agile and adaptable. Teams will be autonomous clans and squads that operate independently and are responsible for individual components of a whole. But that will require a meticulous master plan and equally meticulous management components. The more clearly we map out our corporate strategy and goals, the less precisely we’ll need to prescribe the way to get there. WhAT WILL ThAT MEAN FOR EMPLOYEES? WhAT SKILLS WILL bE MORE OR LESS IN DEMAND IN ThE FUTURE? If you exclude specialist skills, which will always be essential, there will be a higher demand for people who are self­reflective and proactive. Self­reflection means not simply completing your assignments but also always asking yourself where and how you can make a difference. And being pro­ active means being helpful and putting your skills to use. SO ARE YOU SAYING ThAT WhAT MATTERS MOST IS WhOSE IDEA IS bETTER – REGARDLESS OF WhO WAS ThE INITIATOR OF ThIS IDEA? Our company is driven by the performance, dedication and motivation of our employees. They need to be able to make an impact and to stand out when they perform well. Not only for their work day in and day out, but also for coming up with ideas for entirely different areas or future business models. After all, our people are the ones who are right in the thick of things – they’re much more directly in­ volved in developments and sometimes have a much clearer picture of what we need to do to succeed. WhY IS chANGE SO IMPORTANT RIGhT NOW? First, because digitalisation has dramatically accelerated the pace of change. Second, because things are getting more complex and there are more potential courses of action. Our task is twofold: on the one hand, our leaders must ensure that stability and operational excellence are the order of the day; on the other hand, we need to leave room for experi­ ments, curiosity and tolerating mistakes. That makes us agile and able to adapt to changing conditions and to develop new business models. WhAT WILL ThE WORKING cULTURE AT DEUTSchE POST DhL GROUP LOOK LIKE IN A FEW YEARS? Our private lives today give us a taste of the changes to come. Most of us are involved in one self­organised social media group or another, be it for sport, cooking or other activities. These are networks that we as individuals can join at any time, adopting a specific but different role depending on the group. 15 16 DR H. C. JÜRGEN GERDES Post ­ eCommerce ­ Parcel Born in 1964 Member of the Board of Management since July 2007 Appointed until June 2020 ENT REP RE NE UR P IONEER INNOVATION THREE QUESTIONS FOR DR H. C . JÜRGEN GERDES Commitment 17 “Impossible is not an option. That’s what drives me.” 1 MR GERDES, ThE GROUP’S MOST TRADITIONAL bUSINESS, POST - EcOMMERcE - PARcEL, IS NOW ThE MOST INNOVATIVE. WhAT IS DRIVING YOU? We’ve always been innovators. In the past, we focussed primarily on using the latest inventions to get faster. Today we not only want to be faster, we want to use each innovation to do more to meet our customers’ needs – to offer them better services and real added value. Our Packstations, Parcel Boxes and in­car delivery service are some examples. We’re also developing a broad portfolio of online products and services, such as AllyouneedFresh – our online supermarket. 2 YOUR INNOVATIVE STREETScOOTER hAS REALLY cAPTURED ThE SPOTLIGhT. And rightly so. After all, we’ve created a whole new market by developing this electric delivery vehicle. It’s precisely customised to the ergonomic needs of our employees – and it’s economi­ cal in every sense of the word. But above all, it’s quiet and generates zero emissions. Considering that increasing noise and air pollution remain problems in our inner cities, the StreetScooter will play a very important role in helping us reach our climate goals. And the more customers use it, the more we’ll be able to do for the environment together. 3 WhAT ARE ThE DEFINING chARAcTERISTIcS OF A SUSTAINAbLE INNOVATOR? Sustainable innovators can’t be administrators – they need to be driven by the desire to change things themselves. They shouldn’t see themselves as managers, but as doers and decision makers – as entrepreneurs. They have to constantly question their own actions. And when they recognise the need for change, they must also have the courage to follow through. They must have and embody a “can do” attitude, which in our company means setting an example for all employees and personifying the very same mentality we teach them in our PeP expert seminars. Sustainable innovators object to statements such as “That’s impossible!” – and they live and breathe the PeP expert programme motto: always strive to be better in order to remain the best. That’s what I’m committed to – that’s what drives me. THREE QUESTIONS FOR DR H. C . JÜRGEN GERDES 18 Deutsche Post DHL Group — 2017 Annual Report SPEED KE N ALL EN MR ALLEN, hOW DO YOU STAY ON TOP IN A bUSINESS ThAT’S A cONSTANT RAcE AGAINST ThE cLOcK? The main thing is to be better and faster than anything that might get in your way. When I visit the paddock at a racetrack, what fascinates me the most is the perfect synchronisation of the team at work. Drivers, mechanics, engineers – everyone has a job to do and they all have to work together to win. We’re also a perfectly co­ordinated network of employees and processes in which the focus is always upon the customer. That’s what makes us fast and that’s what makes us successful. Commitment 19 “IF EVERYThING SEEMS UNDER cONTROL, YOU’RE NOT GOING FAST ENOUGh,” SAID AUTO RAcING LEGEND MARIO ANDRETTI. TRUE OR FALSE? In racing, true but in logistics, false. We have to be fast but we can never lose control of our processes. That’s the secret of our success. Technology is what has changed our sector the most. We were already fast but now we have an end­to­end network to boot. Not only that – and this is extremely important – we won’t lose our common culture in that network. WhAT chARAcTERISES ThAT cULTURE? DHL Express is tHE most international company in the world. That’s something I’m proud of. And I encourage all of our employees to tell that to their families and everyone else they know. Because no matter whether you’re a courier at DHL Express or the CEO of the company, you’re the best in the international logistics industry. KEN ALLEN Express Born in 1955 Member of the Board of Management since February 2009 Appointed until July 2020 GLO b ETR OTTER SPORTSMAN “My goal is not just to manage but to coach.” 20 TIM SCHARWATH Global Forwarding, Freight Born in 1965 Member of the Board of Management since June 2017 Appointed until May 2020 YE ARS IN T hE LOGISTI cS bUSI N ES S NOT A FA N OF TIES Commitment 21 TI M S CHA RWATH EXPERIENCE 10 RULES Tim Scharwath spent much of his first months as a new board member visiting the division’s many facilities and getting to know employees. Based upon this experience, he and his executive team have developed ten rules to clearly define the responsibilities and co­operation within the network and support the entire organisation in implementing current priorities. PASSION The great passion of the employees of Global Forwarding, Freight and their desire for change – that was a pleasant surprise for Tim Scharwath during his first months in the Group. Outside of work, his greatest passion is cars. He owns four. 2017 On 1 June 2017, he officially joined the Board of Management of Deutsche Post DHL Group as the new board member for the Global Forwarding, Freight division. 2011 He became Executive Vice President and a member of the board, Air Logistics, Switzerland, at Kuehne + Nagel. 2009 From 2006 to 2009, Tim Scharwath held a number of different positions at Kuehne + Nagel in Europe; in 2009 he became Regional President, North­west Europe, London. 2004 After a variety of posts at Kuehne + Nagel, he became Senior Vice President Airfreight and a member of the board in Germany. 1992 Tim Scharwath graduated from the University of Hamburg with a degree in business ad­ ministration and began his career at Kuehne + Nagel Germany. “It always helps to simplify, to reduce complexity. I learnt this way of thinking at a medium­sized company. And that’s also the foundation of the experience that will benefit me here.” bALANcE He always tries to find the right balance between work and his family. cOMING hOME Although he just said goodbye to his chosen home of Switzerland, he will maintain contact with his friends there. He rang in the year 2018 together with his wife back on the River Elbe. 22 JO HN G ILB ERT ENDURANCE JOHN GILBERT Supply Chain Born in 1963 Member of the Board of Management since March 2014 Appointed until March 2022 AThLE T E TEAM P LAYER Commitment 23 “In the supply chain business, the key to success is perseverance.” ThE TARGET To reach your objective, you need to keep your eye on the goal. The first step in any endeavour – whether in sports or in our business – is to identify the target. Our target comes from our strategy: we want to be the global leader in supply chain solutions. We can only achieve this by offering our customers the kind of added value that always puts us a step ahead of our competitors. ThE PhILOSOPhY Continuous training is the only way for athletes to reach their goals. Athletes require both endurance and strength. They have to know their bodies and what they are capable of. When I train, I enjoy running a familiar path as much as I am intrigued by exploring routes off the beaten track. In the supply chain business, we’re also constantly analysing our processes and investing in new technologies and innovations – always with the goal of becoming even better. ThE TEAM In many types of sports, you cannot succeed without team effort. If the team does not work well together, it does not matter how talented the individual players are. The team will not reach its goals. I can rely on an excellent team who are highly enthusiastic and put enormous effort into working together to improve the business. Our team is truly better than the sum of its parts and I am very proud of that. PERSEVERANcE In our business, you need endurance. Peak seasons are followed by calmer waters. Only when you push yourself in intervals will you succeed in marathons. We work with our customers year after year, and we get better and better to­ gether. Knowing where you want to go and how the process works, relying on your teammates and staying on track – that is the only way to succeed in the supply chain business. 41 floors or 828 steps and 147 metres – for the Deutsche Post Tower Run you need stamina. John Gilbert took on the challenge in 2015. 24 Deutsche Post DHL Group — 2017 Annual Report SELECTED KEY FIGURES EBIT 2017 Profit from operating activities. € m 3,741 2016 3,491 Change + 7.2 % CONSOLIDATED NET PROFIT FOR THE PERIOD After deduction of non­controlling interests. € m 2,713 2,639 2017 2016 Change + 2.8 % REVENUE 2017 € m 60,444 Change + 5.4 % 2016 57,334 Revenue Profit from operating activities (EBIt) Return on sales 1 EBIt after asset charge (EAC) Consolidated net profit for the period 2 Free cash flow Net debt 3 Return on equity before taxes Earnings per share 4 Dividend per share Number of employees 6 1 EBIt / revenue. 2 After deduction of non­controlling interests. 3 Calculation 4 Basic earnings per share. 5 Proposal. 6 Headcount at the end of the year, including trainees. Group Management Report, page 62. 01 EMPLOYEES 2017 Headcount at the end of the year, including trainees. 519,544 2016 508,036 Change + 2.3 % RETURN ON SALES 2017 % 6.2 2016 6.1 EARNINGS PER SHARE Basic earnings per share. € 2.24 2.19 2017 2016 Change + 2.3 % TOTAL DIVIDEND AND DIVIDEND PER NO­PAR VALUE SHARE € m 846 846 0.70 11 0.70 12 968 0.80 13 1,409 1.15 1,270 1.05 1,030 1,027 0.85 0.85 14 15 16 17 1 Dividend per no­par value share (€) 1 Proposal. €m €m % €m €m €m €m % € € 2016 57,334 3,491 6.1 1,963 2,639 444 2,261 27.7 2.19 1.05 2017 60,444 3,741 6.2 2,175 2,713 1,432 1,938 27.5 2.24 1.15 5 508,036 519,544 + / – % 5.4 7.2 – 10.8 2.8 > 100 –14.3 – 2.3 9.5 2.3 Q 4 2016 15,410 1,111 7.2 733 841 1,201 – – 0.70 – – Q 4 2017 16,109 1,181 7.3 796 837 975 – – 0.69 – – + / – % 4.5 6.3 – 8.6 – 0.5 –18.8 – – –1.4 – – G R O U P M A N A G E M E N T R E P O R T B GROUP MANAGEMENT REPORT 25 — 88 26 GENERAL INFORMATION Business model and organisation 26 28 Business units and market positions 34 Objectives and strategies 36 Group management 38 Disclosures required by takeover law 39 40 Research and development Remuneration of the Board of  Management and Supervisory Board Annual Corporate Governance Statement  and non­financial report 50 51 REPORT ON ECONOMIC POSITION 51 Overall Board of Management assessment of the Group’s economic position Forecast / actual comparison Economic parameters Significant events Results of operations Financial position 51 52 54 54 56 62 Net assets 63 Business performance in the divisions 70 DEUTSCHE POST SHARES 71 NON­FINANCIAL KEY PERFORMANCE INDICATORS 71 Employees 72 Health and safety 73 74 76 Corporate responsibility Customers and quality Brands 78 EXPECTED DEVELOPMENTS 78 Overall Board of Management assessment of the 78 78 79 80 80 future economic position Forecast period Future economic parameters Revenue and earnings forecast Expected financial position Performance of further indicators relevant for internal management 81 OPPORTUNITIES AND RISKS 81 Overall Board of Management assessment of the opportunity and risk situation 81 Opportunity and risk management 84 Categories of opportunities and risks AA 26 Deutsche Post DHL Group — 2017 Annual Report GENERAL INFORMATION Business model and organisation Four operating divisions Deutsche Post AG is a listed corporation domiciled in Bonn, Germany. Under the Deutsche Post and DHL brands, the Group provides an international service portfolio consisting of letter and parcel dispatch, express delivery, freight trans- port, supply chain management and e-commerce solutions. It is organised into the four operating divisions of Post - eCommerce  - Parcel, Express, Supply Chain and Global Forwarding, Freight, whose products and services we de- scribe in the Business units and market positions section, page 28 ff. Each of the divisions is managed by its own divisional head- quarters and subdivided into functions, business units and regions for reporting purposes. We consolidate the internal services that support the entire Group in our Global Business Services (GBS) unit. Group management functions are centralised in the Corporate Center. Organisational structure A.01 Corporate Center Divisions Post - eCommerce - Parcel Express Board member • Jürgen Gerdes Board member • Ken Allen Business units • Post • eCommerce ­ Parcel Regions • Europe • Americas • Asia Pacific • MEA (Middle East and Africa) Global Forwarding, Freight Board member • Tim Scharwath Business units • Global Forwarding • Freight Supply Chain Board member • John Gilbert Regions • EMEA (Europe, Middle East and Africa) • Americas • Asia Pacific Finance Board member • Melanie Kreis Functions • Corporate Accounting & Controlling • Corporate Finance • Investor Relations • Corporate Audit & Security • Taxes • Divisional Finance Organisations • Legal Services Human Resources Board member • Thomas Ogilvie Functions • Corporate HR Germany • Corporate HR Standards & Programs • Corporate HR International • Divisional HR Organisations cEO, Global Business Services Board member • Frank Appel Functions • Board Services • Corporate Legal • Corporate Office • Corporate Develop­ ment & First Choice • Corporate Executives • Corporate Heritage & Industry Associations • Corporate Communications & Responsibility • Corporate Public Policy & Regulation Management • Global Business Services (Corporate Procurement, Corporate Real Estate, It Services, Insurance & Risk Management etc.) Group Management Report — GENERAL INFORMATION — Business model and organisation 27 Organisational changes A presence that spans the globe Effective 1 June 2017, Tim Scharwath assumed responsibil- ity for the Global Forwarding, Freight division in his new capacity as a member of the Group Board of Management. Effective 1 September 2017, Thomas Ogilvie assumed the position of Board Member for Human Resources and Labour Director for the Group. Responsibility for Customer Solutions  &  Innovation passed to Ken Allen after the balance sheet date. Deutsche Post DHL Group’s locations can be found in the list of shareholdings, dpdhl.com/en/investors. Table A.02 provides an overview of market volumes in key regions. Our market shares are detailed in the business units and market pos- itions section below. Market volumes 1 Global (2016) 51 M TEUs Ocean freight 3 €202 BN Contract logistics 4 (2016) Air freight (m tonnes) 2 Ocean freight (m tEU s) 3 Contract logistics (€ bn) 4 International express market (€ bn) 5 Road transport (€ bn) 8 Germany (2017) 21 M TONNES Air freight 2 €4.5 BN Mail communication 6 €24 BN International express market 5 A.02 €10.8 BN Parcel 6 €27.1 BN Advertising market 7 Middle East /Africa Americas Europe Asia Pacific 1.3 4.8 7.2 – – 4.8 8.2 61.0 8.2 – 5.5 7.2 66.5 7.1 195 9.8 30.5 66.9 8.0 – 1 Regional volumes do not add up to global volumes due to rounding. 2 Data based solely upon export freight tonnes. Source: Seabury Cargo Advisory. 3 Twenty­foot equivalent units; estimated part of overall market controlled by forwarders. Data based solely upon export freight tonnes. Source: company estimates, Seabury Cargo Advisory. 4 Based upon Transport Intelligence and company estimates. 5 Includes express product Time Definite International. Country base: Americas, Europe, Asia Pacific, AE, SA, ZA (Global); AR, BR, CA, CL, CO, MX, PA, US (Americas); At, CZ, DE, ES, FR, It, NL, PL, RO, RU, SE, tR, UK (Europe); AU, CN, HK, IN, JP, KR, SG, tW (Asia Pacific). Source: Market Intelligence, 2017, annual reports and desk research. 6 Germany only. Source: company estimates. 7 Includes all advertising media with external distribution costs Source: company estimate. 8 Market volume covers 25 European countries, excluding bulk and specialties transport. Source: DHL Market Intelligence Study 2017, based upon company calculations and content supplied by IHS Markit Group, copyright © IHS Global Inc., 2017. All rights reserved. 28 Deutsche Post DHL Group — 2017 Annual Report Business units and market positions POST ­ ECOMMERCE ­ PARCEL DIVISION Nationwide transport and delivery network in Germany, 2017 Around 11,000 Paketshops Around 13,000 retail outlets Around 110,000 post boxes Around 59 million letters per  working day Around 2,800 sales points 82 mail centres A.03 4.6 million parcels per working day Around 800 Paketboxes Around 3,200 Packstations Around 108,000 letter and parcel deliverers 34 parcel centres The postal service for Germany German mail communication market, business customers, 2017 We deliver around 59 million letters every working day in Germany, making us Europe’s largest postal company. Our products and services are targeted towards both private and business customers and range from physical, hybrid and electronic letters to merchandise delivery and include add- itional services such as cash on delivery, registered mail and insured items. In the year under review, the German market for busi- ness communications was around €4.5 billion (previous year: around €4.5 billion). Here we look at the business customer market in which we compete, including the companies that operate as service providers in this market – i. e., both competitors offering end-to-end services and con- solidators providing partial services. Our market share in- creased slightly to 61.7 % compared with the prior year (61.3 %). Market volume: €4.5 billion Deutsche Post Competition Source: company estimates. A.04 61.7 % 38.3 % Targeted and cross-channel advertising On request, our dialogue marketing unit offers end-to-end solutions to advertisers – from address services and tools for design and creation all the way to printing, delivery and evaluation. This supports cross-channel, personalised and automated customer dialogue so that digital and physical items with inter-related content reach recipients accord- ing to a co-ordinated timetable and without any coverage waste.  Our digital solutions allow companies to open a cross- channel dialogue with their customers. Group Management Report — GENERAL INFORMATION — Business units and market positions 29 The advertising market in Germany gained 1.3 % in 2017 to reach a volume of €27.1 billion, primarily because com- panies increased their advertising expenditures. Our share of the highly fragmented media market rose slightly to 8.2 %. As a result of a more accurate enquiry method in the digital media segment, the previous year’s total market volume increased arithmetically by €2.4 billion to €26.8 billion. As a result, our market share for the previous year decreased arithmetically to 7.9 %. German advertising market 1, 2017 Market volume: €27.1 billion Competition Deutsche Post A.05 91.8 % 8.2 % 1 Includes all advertising media with external distribution costs; the placement costs are shown as ratios to each other. Source: company estimates. Sending mail and merchandise internationally We carry mail and light-weight merchandise shipments across borders and provide international dialogue market- ing services. For business customers in key European mail markets, we offer international shipping services. For the growing e-commerce sector, we develop solutions for inter- national shipments to consumers (B2C). Our portfolio also comprises consulting and services to meet all physical and digital dialogue marketing needs. Furthermore, we offer physical, hybrid and electronic written communications for international business customers. The global market volume for outbound international mail amounted to around €5.9 billion in 2017 (previous year: around €5.8 billion). Our market share was slightly above the prior-year level at 16.4 %. International mail market (outbound), 2017 Market volume: €5.9 billion Competition DHL Source: company estimates. A.06 83.6 % 16.4 % Worldwide portfolio of parcel and e-commerce services We maintain a dense network of parcel acceptance and drop-off points in Germany. Our portfolio of products and services allows recipients to choose whether they wish to receive their parcels during a specific delivery window, on the same day or as quickly as possible. They can also decide at short notice whether their parcels should be delivered to an alternative address, a specific retail outlet or a Paketshop. We offer support to business customers to grow their online retail businesses. We are able to cover the entire logistics chain through to returns management on request. The German parcel market had a volume of around €10.8 billion in 2017 (previous year: around €10.1 billion). We succeeded in increasing our market share to 45.4 % (pre- vious year: 45.1 %). German parcel market, 2017 Market volume: €10.8 billion Competition DHL Source: company estimates. A.07 54.6 % 45.4 % We expanded our cross-border portfolio of e-commerce ser- vices during the year under review. We grew our B2C net- work in Europe thanks to our entry into the UK market through the takeover of UK Mail at the end of 2016. At the beginning of 2017, we added the Spanish and Portuguese markets by reassigning companies from the Express div- ision. Moreover, we expanded our European parcel business to include a total of 26 countries (including the German domestic market) via co-operation agreements in Ireland, Romania, Croatia and Bulgaria. There are more than 60,000 acceptance and drop-off points available to our customers in Europe. Outside of Europe, we began operating national parcel networks in Chile, Malaysia and Vietnam. In the United States, we offer especially fast B2C delivery to customers in a range of metropolitan areas. Locations in Australia and Columbia were added to our network of fulfilment centres, Glossary, page 181. In India, we are testing the use of electric vehicles. We also reinforced our international parcel net- work by adding a new distribution centre in Japan to sup- port increased cross-border deliveries. 30 EXPRESS DIVISION A global express network In the Express division, we transport urgent documents and goods reliably and on time from door to door. Our global network spans more than 220 countries and territories in which some 100,000 employees provide services to 2.7 mil- lion customers. Deutsche Post DHL Group — 2017 Annual Report In the year under review, we signed another agreement with Elbe Flugzeugwerke GmbH to convert an additional four Airbus A330-300s from passenger aircraft to cargo planes. Similar to the aircraft already converted, the newly con- verted planes will be used to cover medium to high-demand levels for cargo space capacity, which will both increase our  flexibility and improve our fuel efficiency per kilo- gram transported. Time-definite international shipments as our core business Trade boosts international express business With the main product, Time Definite International (TDI), we provide services with a pre-defined delivery time. We also provide industry-specific services to complement this product. For example, our Medical Express transport solu- tion, which is tailored specifically to customers in the Life Sciences & Healthcare sector, offers various types of thermal packaging for temperature-controlled, chilled and frozen content. Collect and Return is used predominantly by cus- tomers in high-tech industries: technical products are col- lected from the user, taken in for repairs and then returned. Our virtual airline As an express service provider, we operate a global network that includes several airlines, some of which we own 100 %. The combination of our own and purchased capacities, which include varied contract periods, allows us to respond flexibly to fluctuating demand. Figure a.08 illustrates how the available freight capacity is organised and offered on the market. The largest buyer of the available freight capacities is the DHL Global Forwarding business unit. Available capacity A.08 Air Capacity Sales, total spare capacity – average capacity not utilised by Block Space or tDI Core on a planned basis. Block Space Agreement – guaranteed air cargo product. Express tDI core product – capacity based upon average utilisation, adjusted on a daily basis. BSA CORE ACS The international express business is benefiting from cross- border e-commerce and the growing importance of small and medium-sized enterprises in international trade. In 2016, we had a market share of 38 % based upon TDI revenues. Expanding the network in the Europe region The European market leadership of 44 % in 2016 encourages us to keep expanding the network in the region. In the year under review, we took new hubs into operation at the exist- ing sites in London and Brussels and opened Germany’s largest (in terms of area) Express distribution centre in Hamburg. We shall also substantially enlarge our hub at East Midlands airport in the United Kingdom, thus significantly increasing throughput capacity. International express market – Europe, 2016: 1 top 4 Market volume: €7.1 billion FedEx tNt UPS DHL A.09 10 % 11 % 24 % 44 % 1 Country base: At, CZ, DE, ES, FR, It, NL, PL, RO, RU, SE, tR, UK. Source: Market Intelligence 2017, annual reports and desk research. Expanding service in the Americas region Our market share in the Americas region amounted to 20 % in 2016. In the year under review, we opened a total of more than 1,000 service points there, established additional service centres in Mexico and expanded our gateway in Mexico City. Group Management Report — GENERAL INFORMATION — Business units and market positions 31 International express market – the Americas, 2016: 1 top 4 Market volume: €8.2 billion tNt DHL UPS FedEx 1 Country base: AR, BR, CA, CL, CO, MX, PA, US. Source: Market Intelligence 2017, annual reports and desk research. A.10 < 1 % 20 % 33 % 43 % GLOBAL FORWARDING, FREIGHT DIVISION The air, ocean and overland freight forwarder Our air, ocean and overland freight forwarding services in- clude standardised transport as well as multimodal and sector-specific solutions, together with individualised in- dustrial projects. Compared with other divisions, our operating business model is asset-light, as it is based upon brokering transport services between customers and freight carriers. Our net- work’s global presence allows us to offer efficient routing and multimodal transport. Air freight market, 2016: top 4 Thousands of tonnes 1 Panalpina DB Schenker Kuehne + Nagel DHL A.12 921 1,179 1,304 2,081 1 Data based solely upon export freight tonnes. Source: annual reports, publications and company estimates. Air freight market leadership solidified According to the International Air Transport Association (IATA), the worldwide freight tonne kilometres flown dur- ing the year under review grew by 9.0 %. Transport capaci- ties are increasing steadily, due mainly to new passenger aircraft. On some routes, however, the available cargo space was scarce. This applies in particular to routes out of Asia. With around 2.1 million transported export freight tonnes, we remained the air freight market leader in 2016, as shown in table A.12. Further investing in Asia In the Asia Pacific region, our expanded gateway went into operation at the New Delhi airport in India. We also began upgrading our Hong Kong hub, incorporating additional technical innovations. It will be expanded further in the coming years. Our market share of 49 % in 2016 illustrates the importance of the Asia Pacific market for us. International express market – Asia Pacific, 2016: 1 top 4 Market volume: €8.0 billion tNt UPS FedEx DHL A.11 4 % 11 % 19 % 49 % 1 Country base: AU, CN, HK, IN, JP, KR, SG, tW. Source: Market Intelligence 2017, annual reports and desk research. Reliable partner in the MEA region In the MEA (Middle East and Africa) region, the Middle East continued to suffer in 2017 from the sometimes un- stable political situation. We were nonetheless able to main- tain our operations whilst adhering to legal requirements and ensuring the safety of our employees. Flight frequency to Cairo was increased and capacity was doubled at the Dubai hub. 32 Deutsche Post DHL Group — 2017 Annual Report Consolidation continues in the ocean freight market SUPPLY CHAIN DIVISION Additional mergers and alliances of freight carriers changed the ocean freight market landscape in 2017. The market also experienced growth on the whole, with volume growth driven primarily by routes between the Asia Pacific region and Europe. The container ship market continued to be im- pacted by surplus capacities, forcing freight carriers to at- tempt to adapt to the situation. With around 3.1 million transported twenty-foot equivalent units, we remained the second-largest provider of ocean freight services in 2016, as shown in the following table. Ocean freight market, 2016: top 4 Thousands of TEUs 1 Panalpina DB Schenker DHL Kuehne + Nagel 1 Twenty­foot equivalent units. Source: annual reports, publications and company estimates. A.13 1,489 2,006 3,059 4,053 European overland freight market posts moderate growth The European road transport market saw moderate expan- sion in the year under review, fuelled by increases in prices and volumes in most European countries as well as a mod- est rise in oil prices. In the middle of 2017, we launched our premium product EURAPID in 22 European countries. DHL remained the second-largest provider in 2016, with a mar- ket share of 2.2 %, in what continues to be a highly competi- tive environment. European road transport market, 2016: top 5 Market volume: €195 billion 1 Kuehne + Nagel DSV Dachser DHL DB Schenker A.14 1.4 % 1.8 % 1.8 % 2.2 % 3.3 % 1 Total market for 25 European countries, excluding bulk goods and specialties transports. Source: DHL Market Intelligence Study 2017, based upon the company’s calculations and content supplied by IHS Markit Group, Copyright © IHS Global Inc, 2017. All rights reserved. Customer-centric outsourcing solutions As the world leader in contract logistics, we offer customers standardised warehousing, transport and value- added ser- vices that can be combined to form customised supply chain solutions. Our contract logistics services include planning, sourc- ing and production activities as well as packaging, repairs and returns. These services are rounded out by e-commerce fulfilment services, real estate solutions and management capabilities – one example being our assumption of ground handling operations for easyJet at London Gatwick airport in 2017. Industry expertise in key sectors We have in-depth knowledge and experience across all sec- tors, along with a strategic growth focus upon Automotive, Technology and Life Sciences & Healthcare. The acquisition of Olimpo Holding, Results of operations, page 54, has given us expanded service coverage in the Brazilian Life Sciences industry and has strengthened our market position. In the Automotive sector, production is increasingly shifting towards emerging markets in eastern Europe and Asia, particularly given the growth of auto manufacturers in India and China. Integrated solutions such as Lead Logistics Partner (LLP), Glossary, page 181, and Inbound to Manufac- turing, Glossary, page 181, services offer growth opportunities in this highly competitive outsourcing sector. Companies in the fast-paced Technology sector require an agile supply chain to handle fast-moving products with short life cycles quickly and cost-effectively. Flexible solu- tions that allow customers to respond to market demand, particularly in telecommunications, are creating business opportunities in this sector. Companies in the Life Sciences & Healthcare sector are increasingly outsourcing parts of their supply chains to pro- viders that can ensure compliance with stringent regulatory requirements and through labelling (serialisation) offer solutions to combat product counterfeiting. Rising demand for packaging services, temperature-controlled transport, Glossary, warehousing and direct-to-market solutions, page 181, is driving growth in this sector. Group Management Report — GENERAL INFORMATION — Business units and market positions Logistics and value-added services along the supply chain Return Bringing it back for repair or when it’s not needed 6 Plan Laying the foundation for an efficient supply chain 1 Returns Raw materials Distribution Inbound transport Deliver Getting it where it needs to be 5 2 Source Getting the materials at the time required Warehousing Production flows Value-added services Store & Customise Getting it ready to sell 4 3 Make Supporting product manufacturing End­to­end supply chain Supply Chain services Leading position in a fragmented market In the fragmented market DHL remains the global leader in contract logistics with a market share of 6.2 % (2016) and operations in more than 50 countries. Our market share declined compared with 2015 due to the change in revenue recognition in connection with the UK National Health Ser- vice (NHS) as a result of revised contract terms. The contract logistics market is estimated at around €202 billion, with the top ten players only accounting for around 20 % of the total volume. We lead the market in mature regions such as North America and Europe and are well positioned in rap- idly growing markets throughout the Asia Pacific region and Latin America. Contract logistics market, 2016: top 10 Market volume: around €202 billion DHL XPO Logistics Kuehne + Nagel Hitachi Transport System CEVA SNCF Geodis Neovia DB Schenker UPS SCS Ryder Source: company estimates; Transport Intelligence. Revenue figures are estimates based upon gross revenue from external customers; exchange rates as at 2016. 33 A.15 A.16 6.2 % 2.4 % 2.1 % 1.8 % 1.6 % 1.4 % 1.3 % 1.2 % 1.2 % 0.7 % 34 Deutsche Post DHL Group — 2017 Annual Report Objectives and strategies CORPORATE STRATEGY Proactively shaping the Group’s digital future With our “Strategy 2020: Focus.Connect.Grow.” Deutsche Post DHL Group underscores its global leadership in the logistics industry. Since increasing digitalisation, acceler- ated e-commerce growth and momentum in the developing markets and emerging economies offer us significant oppor- tunities, we have set the following priorities for our invest- ments and actions: Focus: We are focussing on our core mail and logistics business. In addition to our three goals of being the provider, employer and investment of choice, we are working to become a benchmark for responsible business. In order to deliver consistent, first-class service to our customers, we conduct frequent surveys to determine their needs and align our offer accordingly. We see ourselves as a family of different divisions, each focused upon defined markets and goals. Connect: We are working to improve cross-divisionally on a continuous basis. In doing so, we are concentrating upon initiatives that are of interest to various parts of our Group, for example, environmentally friendly solutions and an optimised IT landscape. “Certified” is our Group-wide initiative that enables our employees to gain specific skills and knowledge relevant to their roles. Around 80 % of the employees in the Group are to be certified internally by 2020. The motivation and customer-centric culture this fosters – not to mention the improved, holistic understand- ing of operational processes – help to differentiate our ser- vices in the market internationally. During the year under review, we developed new programme modules and cer- tified additional employees. Grow: We intend to benefit from growth in the e-com- merce segment and in the developing and emerging markets. For instance, we invested in the domestic and cross-border parcel business in Europe as well as in our already compre- hensive Express network. We also entered additional mar- kets in Malaysia, Vietnam and Chile through our DHL eCommerce business. Our general objective is to increase our presence where the long-term growth potential is great- est. Indeed, we aim to generate a minimum of 30 % of Group revenue in emerging markets by the year 2020. We are proactively shaping the digital future of the Group. Key building blocks include the “Saloodo!” freight platform and our StreetScooter electric vehicles. We also introduced an internal incubator programme and entered into a strategic partnership with Plug and Play, a global start-up ecosystem and venture capital fund. As a corporate partner in Plug and Play’s accelerator programme, we aim to work with young start-ups to develop and implement new solutions in the areas of mobility, supply chain and logistics. Our strategy is designed to establish a unique market presence by the year 2020 – both geographically and in terms of our portfolio’s performance. Our aim is to be inter- nationally renowned not only as a highly customer-centric company but also as quality leaders. When people think logistics, we want them to think Deutsche Post DHL Group. STRATEGY AND GOALS OF THE DIVISIONS Post - eCommerce - Parcel division Our goal is to offer our customers the best service at all times, at the highest level of quality and at reasonable prices. Therefore, we extend our offering in the Post business unit based on market demand, continuously expand our range of services in the German parcel business and develop digi- tal service offerings. As part of our Group-wide “Certified” initiative, we aim to certify our employees as PeP Experts by 2020, because for us dedicated and satisfied employees are the key to high-quality performance. In addition, we are systemat- ically driving forwards the networking of our division by co-operating with institutions outside of the Group as well as with other Group divisions. To benefit from growing e-commerce, we are expanding into new markets and segments. We are also expanding our networks and product offerings in our existing markets. Furthermore, we are engaged in growth areas such as elec- tric mobility and food logistics. In order to continue to grow profitably, we are design- ing a market-based cost structure by adapting our networks to the dynamic market conditions and shipment structures. We also cut costs wherever possible and sensible, whilst investing in technologies, automation, innovation and growth areas. Group Management Report — GENERAL INFORMATION — Objectives and strategies 35 EXPRESS division Our return on sales improves when growing volumes lead to economies of scale in the network, innovation and auto- mation enhance productivity, and costs are strictly man- aged. We optimise indirect costs by standardising processes. For example, we are gradually streamlining our IT systems architecture and are ensuring adherence to global standards and quality requirements, especially as regards facilities and operating resources. We concentrate upon shipments whose size and weight make them a match for our network, thereby using it as well as possible. In terms of our pricing policy, we encourage global co-ordination and discipline. At the same time, we continuously improve our customer approach. Using global campaigns, we specifically target small and medium-sized businesses, which could often benefit from increasing exports. The majority of our costs are attributable to our air and ground network. Old aeroplanes are replaced with newer, more efficient and thus more cost-effective aircraft. We sell available cargo space to freight and forwarding companies – especially to DHL Global Forwarding – improving our net- work utilisation and reducing costs. On the ground, pro- cesses are automated and standardised. Our Certified International Specialist (CIS) training programme ensures that our employees have the requisite knowledge of the international express business at their dis- posal. Training is carried out by our own employees, both within their departments and at a cross-functional level. This enhances mutual understanding whilst reinforcing the team atmosphere and loyalty within the division. We want to keep our employees around the world motivated and to systematically recognise outstanding performance. GLObAL FORWARDING, FREIGhT division In the Global Forwarding business unit, we intend to in- crease the profitability of contracts. We also want to bring costs into line with our business performance, thus improv- ing the conversion rate from gross profit to profit from op- erating activities. Over the medium term, we aim to reach a conversion rate on a level with our leading competitors. IT in the Global Forwarding business unit will be re- newed in accordance with the IT Renewal Roadmap, with a view to enhancing or replacing existing systems and thus integrating industry-proven solutions. In future, we shall focus upon improved shipment visibility, electronic docu- ment management and a new transport management system. In the Freight business unit, the new FREIGHT 2020 strategy includes ten individual initiatives. We aim to in- crease quality and data transparency whilst enhancing productivity. Our systems environment is to be harmonised, the international network optimised and supplier relation- ships systematically improved. We want to continue grow- ing by means of an optimised sales organisation. At the beginning of 2017, we launched “Saloodo!”, our digital freight platform. We plan to expand the platform inter- nationally in the future. SUPPLY chAIN division As the supply chain solutions company for the world, we want to capitalise on market opportunities and continue along a growth trajectory. To achieve this, we are imple- menting our Supply Chain Strategy 2020 along the three pillars of Focus, Connect and Grow. With Focus, we are increasing our efficiency and quality by standardising processes worldwide and reducing com- plexity, thus facilitating innovative and customer-centric solutions. The Connect pillar is about connecting people and pro- cesses. A lean management structure including Centres of Excellence improves our cost base and establishes proven and efficient routines. The Certified Supply Chain Specialist programme empowers and motivates our employees world- wide to perform at their best. Finally, the Grow pillar focuses upon those market seg- ments that offer higher profitability and stronger growth. A clear set of global products and key sectors as well as a geo- graphical shift towards fast-growing markets will be key drivers to accelerate future growth. Digitalisation facilitates the delivery of our strategy. Implementing augmented real- ity glasses and robotic process automation yield efficiency gains and predictive analytics are being used to optimise processes. 36 Deutsche Post DHL Group — 2017 Annual Report Group management FINANCIAL PERFORMANCE INDICATORS Impact on management compensation Deutsche Post DHL Group uses both financial and non- financial performance indicators in its management of the Group. The monthly, quarterly and annual changes in these indicators are compared with the prior-year data and the forecast data to assist in making management decisions. The year-to-year changes in financial and non-financial per- formance metrics portrayed here are also particularly rel- evant for calculating management remuneration. The Group’s finan cial performance indicators are intended to preserve a balance between profitability, an efficient use of resources and sufficient liquidity. The performance of these Re- indicators in the year under review is described in the port on economic position on page 51 ff. Profit from operating activities measures earnings power The profitability of the Group’s operating divisions is meas- ured as profit from operating activities (EBIT). EBIT is cal- culated by deducting materials expense and staff costs, depreciation, amortisation and impairment losses, as well as other operating expenses from revenue and other oper- ating income, and adding net income from investments accounted for using the equity method. Interest and other finance costs / other financial income are shown in net finan- cial income / net finance costs. EbIT after asset charge promotes efficient use of resources An additional key performance indicator for the Group is EBIT after asset charge (EAC). EAC is calculated by subtract- ing the cost of capital component, or asset charge, from EBIT. Making the asset charge a part of business decisions encour- ages the efficient use of resources and ensures that the oper- ating business is geared towards increasing value sustain- ably whilst generating increasing cash flow. The asset charge is calculated on the basis of the weighted average cost of capital, or WACC, which is defined as the weighted average net cost of interest-bearing liabil- ities and equity, taking into account company-specific risk factors in accordance with the Capital Asset Pricing Model. A standard WACC of 8.5 % is applied across the divisions, and this figure also represents the minimum target for pro- jects and investments within the Group. The WACC is gen- erally reviewed once annually on the basis of the current situation on the financial markets. To ensure better com- parability of asset charge with previous figures, in 2017 the WACC was maintained at a constant level compared with the previous years. The asset charge calculation is performed each month so that fluctuations in the net asset base can also be taken into account during the year. Table a.17 shows the compo- sition of the net asset base. Free cash flow facilitates liquidity management Along with EBIT and EAC, cash flow is another key per- formance metric used by Group management. This is tar- geted at maintaining sufficient liquidity to cover all of the Group’s financial obligations from debt repayment and div- idends, in addition to operating payment commitments and investments. Cash flow is calculated using the cash flow statement. Operating cash flow (OCF) includes all items that are related directly to operating value creation. OCF is cal- culated by adjusting EBIT for changes in non-current assets (depreciation, amortisation and (reversals of) impairment losses, net income / loss from disposals), other non-cash in- come and expense, dividends received, taxes paid, changes in provisions and other non-current assets and liabilities. Another key parameter of OCF is net working capital. Effec- tive manage ment of net working capital is an important way for the Group to improve cash flow in the short to medium term. Free cash flow (FCF) as a management-related per- formance indicator is calculated on the basis of OCF by adding / subtracting the cash flows from capital expenditure, acquisitions and divestitures as well as net interest paid. Free cash flow is regarded as an indicator of how much cash is available to the company at the end of a reporting period for paying dividends or repaying debt. Group Management Report — GENERAL INFORMATION — Group management Calculations Revenue EBIt EBIt 37 A.17 Other operating income Asset charge Materials expense Staff costs Depreciation, amortisation and  impairment losses Other operating expenses Net income from investments accounted for using the equity method EBIT Profit from operating activities Net asset base Weighted average cost of capital (WACC) EAC EbIT after asset charge Operating assets • Intangible assets • Property, plant and equipment • Goodwill • Trade receivables ( included in net working capital) 1 • Other non­current operating assets 2 Operating liabilities • Operating provisions (not  including provisions for pensions and similar obligations) • Trade payables ( included in net  working capital) 1 • Other non­current operating liabilities 2 Net asset base Depreciation, amortisation and  impairment losses Net income / loss from disposal of non­current assets Non­cash income and expense Change in provisions Change in other non­current assets and liabilities Dividends received Income taxes paid Operating cash flow before changes in working capital (net  working capital) Changes in net working capital Net cash from /used in operating activities (operating cash flow – OcF) Cash inflow /outflow arising from change in property, plant and equipment and intangible assets Cash inflow /outflow arising from acquisitions /divestitures Net interest paid FCF Free cash flow 1 Includes EBIt­related current assets and liabilities. Not included are assets and liabilities related to taxes, financing and cash and cash equivalents, for example. 2 Includes EBIt­related other non­current assets and liabilities. Not included are assets and liabilities related to taxes or bonds, for example. 38 Deutsche Post DHL Group — 2017 Annual Report NON­FINANCIAL PERFORMANCE INDICATORS Results of Employee Opinion Survey used as a management indicator Our annual worldwide Employee Opinion Survey shows us how we are perceived as a group from the perspective of our employees. We place particular significance on the survey’s indication of Employee Engagement and of how employees rate the leadership behaviour of their superiors. The Active Leadership indicator is thus used in the calculation of bonuses for executives. The results of the Employee Opinion Survey carried out in the reporting year can be found in the Employees section on page 71. Reducing dependency upon fossil fuels We aim to reduce our dependency upon fossil fuels, im- prove our carbon efficiency and lower costs. The corres- ponding target of our GoGreen environmental protection programme is greenhouse gas efficiency, which we measure using a carbon efficiency index (CEX). CEX is based upon the business unit-specific emission intensity figures, which are indexed to the base year. We quantify the greenhouse gas emissions upon which our CEX is based in accordance with the Greenhouse Gas Protocol Standards and DIN EN 16258; those attributable to our European air freight busi- ness are calculated in accordance with the requirements of the European Union Emissions Trading System (EU ETS). Pursuant to DIN EN 16258, all gases that are harmful to the environment must be disclosed in the form of CO2 equiv a- lents (CO2e). This indicates the ratio of the respective emis- sions to a matching performance indicator in the Group. CEX is a management indicator of non-financial perform- ance. The figures obtained for the reporting year are pro- vided in the section on Corporate responsibility on page 73 f. Disclosures required by takeover law Disclosures required under sections 289 a and 315 a of the Handelsgesetzbuch (HGB – German Commercial Code) and explanatory report Composition of issued capital, voting rights and transfer of shares As at 31 December 2017, the company’s share capital totalled €1,228,707,545 and was composed of the same number of no-par value registered shares. Each share carries the same rights and obligations stipulated by law and / or in the com- pany’s Articles of Association and entitles the holder to one vote at the Annual General Meeting (AGM). No individual shareholder or group of shareholders is entitled to special rights, particularly rights granting powers of control. The exercise of voting rights and the transfer of shares are based upon statutory provisions and the company’s Articles of Association; the latter do not restrict either of these activities. Shareholdings exceeding 10 % of voting rights KfW Bankengruppe (KfW), Frankfurt am Main, is our larg- est shareholder, holding 20.7 % of the share capital. The Federal Republic of Germany holds an indirect stake in Deutsche Post AG via KfW. Appointment and replacement of members of the Board of Management The members of the Board of Management are appointed and replaced in accordance with the relevant statutory pro- visions (cf. sections 84 and 85 of the Aktiengesetz (AktG – German Stock Corporation Act) and section 31 of the Mit- bestimmungsgesetz (MitbestG – German Co-determination Act)). Article 6 of the Articles of Association stipulates that the Board of Management must have at least two members. Beyond that, the number of board members is determined by the Supervisory Board. Amendments to the Articles of Association In accordance with section 119 (1), number 5 and section 179 (1), sentence 1 of the AktG, amendments to the Articles of Association are adopted by resolution of the AGM. In ac- cordance with article 21 (2) of the Articles of Association in conjunction with sections 179 (2) and 133 (1) of the AktG, such amendments generally require a simple majority of the votes cast and a simple majority of the share capital repre- sented on the date of the resolution. In such instances where the law requires a greater majority for amendments to the Articles of Association, that majority is decisive. Board of Management authorisation, particularly regarding issue and buy-back of shares The Board of Management is authorised, subject to the con- sent of the Supervisory Board, to issue up to 160,000,000 new, no-par value registered shares (Authorised Capital). Details may be found in article 5 (2) of the Articles of Association. The Articles of Association may be viewed on Group Management Report — GENERAL INFORMATION — Group management — Disclosures required by takeover law — Research and development 39 conditions, granted the right to demand early redemption of the respective bonds. In the event of a change in control, any member of the Board of Management is entitled to resign their office for good cause within a period of six months following the change in control after giving three months’ notice to the end of a given month, and to terminate their Board of Manage ment contract (right to early termination). If the right to early termination is exercised or a Board of Manage- ment contract is terminated by mutual consent within nine months of the change in control, the Board of Management member is entitled to payment to compensate the remain- ing term of their Board of Management contract. Such pay- ment is limited to the cap pursuant to the recommendation of No. 4.2.3 of the German Corporate Governance Code, subject to the specifications outlined in the remuneration report. With regard to the Annual Bonus Plan with Share Matching for executives, the holding period for the shares will become invalid with immediate effect in the event of a  change in control of the company. The participating executives will receive the total number of matching shares corresponding to their investment in due course. In such case, the employer will be responsible for any tax dis- advantages resulting from a reduction of the holding period. Exempt  from this are taxes normally incurred after the holding  period. Research and development As a service provider, the Group does not engage in research and development activities in the narrower sense and there- fore has no significant expenses to report in this connection. the company’s website or in the electronic company register. They may also be viewed in the commercial register of the Bonn Local Court. The Board of Management has furthermore been au- thorised by resolution of the Annual General Meetings of 25 May 2011 (agenda item 6), 27 May 2014 (agenda item 8) and 28 April 2017 (agenda item 7) to issue share subscrip- tion rights. The authorisation resolutions are included in the notarised minutes of the AGM that can be viewed in the commercial register of the Bonn Local Court. In order to service both current subscription rights and those yet to be issued, the Annual General Meeting approved conditional capital increases. The details are stipulated in article 5 (3) to (5) of the company’s Articles of Association. As at 31 De- cember 2017, the subscription rights already issued con- ferred rights to up to 37,625,184 Deutsche Post AG shares, assuming the prerequisites are met. Under the approvals granted, up to 82,788,141 additional subscription rights may be issued. The AGM of 28 April 2017 authorised the company to buy back shares on or before 27 April 2022 up to an amount not to exceed 10 % of the share capital existing as at the date of adoption of the resolution. Further details may be found in the authorisation resolution adopted by the AGM of 28 April 2017 (agenda item 8). In addition to this, the AGM of 28 April 2017 also authorised the Board of Management, within the scope specified in agenda item 8, to buy back shares, including through the use of derivatives (agenda item 9). Based on that authorisation resolution, the com- pany had repurchased no shares as at 31 December 2017. Significant agreements that are conditional upon a change in control following a takeover bid and agreements with members of the Board of Management or employees provid- ing for compensation in the event of a change in control Deutsche Post AG holds a syndicated credit facility with a volume of €2 billion that it has taken out with a consortium of banks. If a change in control within the meaning of the contract occurs, each member of the bank consortium is entitled under certain conditions to cancel its share of the credit line as well as its share of outstanding loans and to request repayment. The terms and conditions of the bonds issued under the Debt Issuance Programme established in March 2012 and of the convertible bonds issued in Decem- ber 2012 and December 2017 also contain change-in- control clauses. In the event of a change in control within the mean- ing of the terms and conditions, creditors are, under certain 40 Deutsche Post DHL Group — 2017 Annual Report Remuneration of the Board of  Management and Supervisory Board The remuneration report describes the principles of the remuneration systems for the members of the Board of Manage ment and the Supervisory Board and provides in- formation about the remuneration granted and paid to the members of the Board of Management and the remuner- ation of the Supervisory Board in financial year 2017. It has been prepared in accordance with the recommendations of the German Corporate Governance Code (DCGK) and the requirements of the Handelsgesetzbuch (HGB – German Commercial Code), the German Accounting Standards and the International Financial Reporting Standards (IFRS s). Remuneration structure of the Group Board of Manage ment in financial year 2017 The remuneration system for the Board of Management is aligned to the company’s strategy and is geared toward performance-based and sustainable corporate governance. It creates an incentive for the members of the Board of Manage ment to work for and on behalf of the company over the long term. The Supervisory Board regularly examines the appro- priateness of this remuneration. Criteria for evaluating the appropriateness of remuneration are the tasks performed by each individual Board of Management member, his or her personal performance, the economic situation, the com- pany’s success and future perspectives, and the customary level of remuneration, taking into consideration the peer group and the overall remuneration structure in the com- pany. In this process the Supervisory Board takes into con- sideration the relation thereof to the remuneration of the senior management level and to the workforce overall, in- cluding its development over time. In evaluating the appro- priateness of remuneration, the Supervisory Board is sup- ported by an independent external remuneration expert. The remuneration of the Board of Management is com- posed of a non-performance-related component and vari- able – in other words performance-related – components with a short, medium and long-term effect, as well as pen- sion commitments and fringe benefits. REMUNERATION cAPS The remuneration as a whole as well as its variable compo- nents have been capped. For remuneration granted in financial year 2017 and thereafter, an overall cap of €8 million for the chairman and €5 million for the ordinary members (plus fringe benefits in each case) was introduced in addition to the previously existing thresholds that additionally limit the maximum amount attainable from the target remuneration of a single financial year (overall cap on remuneration granted). In addition to this overall cap on remuneration granted in a financial year, a second overall cap to apply beginning in 2022 will ensure that remuneration paid in a single finan- cial year does not exceed the amount of €8 million for the chairman and €5 million for each ordinary member of the Board of Management (overall cap on remuneration paid). These caps also do not take into account additional fringe benefits. The maximum amounts applicable to the individual vari- able remuneration components and the maximum amount paid from remuneration granted in 2017 are broken down in table A.23. Example illustration of the included remuneration components A.18 Overall cap on remuneration granted Example: 2017 Overall cap on remuneration paid Example: 2022 Remuneration components included Remuneration components included • 2017 base salary • Proportion of 2017 annual bonus • 2022 base salary • Proportion of 2022 annual bonus for immediate payout • Deferral from 2017 annual bonus • Long­Term Incentive Plan 2017 tranche • 2017 pension expense (service cost) for immediate payout • Deferral from 2020 annual bonus • Long­Term Incentive Plan 2016 / 2017 / 2018 1 tranches • 2022 pension expense (service cost) 1 The time the tranches are paid out depends on when they are exercised within the two­year exercise period. NON-PERFORMANcE-RELATED cOMPONENTS Non-performance-related components are the annual base salary (fixed annual remuneration) and fringe benefits. The annual base salary is paid in twelve equal monthly instalments retroactively at the end of each month. Fringe benefits comprise particularly the use of a company car, subsidies for health and long-term care insurance in accord- ance with the provisions of the German Social Security Code, and special allowances and benefits for assignments outside the members’ home country. Group Management Report — GENERAL INFORMATION — Remuneration of the Board of  Management and Supervisory Board Terms of variable remuneration in target remuneration Grant year Year 2 Year 3 Year 4 Year 5 Year 6 Annual bonus Deferral Long-Term Incentive Plan (LTIP) LTIP payment period 41 A.19 PERFORMANcE-RELATED cOMPONENTS The variable remuneration paid to the Board of Manage- ment is almost entirely multi-annual, in other words based on medium- and long-term performance. More than half of the variable target remuneration for 2017 consists of a long- term incentive plan (LTIP) with a four-year calculation period; the rest is made up of an annual bonus linked to the company’s yearly profits, with 50 % of the annual bonus flowing into a medium-term component with a three-year calculation period (deferral). All of the variable remuner- ation components are forward-looking. Less than a quarter of the variable remuneration com- ponent is granted on the basis of a one-year calculation, as shown in the following graphic. Weighting of one-year and multi-year variable remuneration components (variable target remuneration) A.20 One­year variable remuneration components approx. 20 % Multi­year variable remuneration components approx. 80 % ANNUAL bONUS The members of the Board of Management receive an an- nual bonus whose individual amount reflects the extent to which predefined targets are achieved, missed or exceeded. Achievement of the upper targets for the financial year that have been agreed based upon demanding objectives is re- warded with the maximum annual bonus. If the targets specified for the financial year are only partially reached or completely missed, the annual bonus will be paid on a pro- rata basis or not at all. The Supervisory Board assesses achievement based on the agreed performance criteria. The maximum amount of the annual bonus may not exceed 100 % of the annual base salary. The same performance criteria were used to calculate the amount of the annual bonus for the year under review as for the previous year. A key parameter for all Board of Management members is the Group’s EBIT after asset charge performance metric, including the asset charge on goodwill before goodwill impairment (EAC). For the Board of Manage ment members in charge of the Post - eCommerce - Parcel, Express, Global Forwarding, Freight and Supply Chain divisions, the EAC of their respective division is also a key parameter. The Group’s reported free cash flow is one of the targets applicable to all members of the Board of Management. Target setting is based on the capital market guidance. Furthermore, an employee-related target is agreed with all Board of Management members based upon the annual Employee Opinion Survey. In financial year 2017, the employee engagement KPI was relevant for the perform- ance assessment. As in the previous years, further targets are additionally agreed with the members of the Board of Management that reflect the focus of their work in the re- spective financial year, in accordance with the Group strat- egy. The granted variable annual bonus consists of financial targets (75 %) and non-financial targets (25 %). 42 Deutsche Post DHL Group — 2017 Annual Report DEFERRAL Even if the agreed targets are reached, the annual bonus is not paid out in full in a single instalment. Instead, 50 % of the annual bonus flows into a medium-term component with a three-year calculation period with a performance phase of one year and a sustainability phase of two years (deferral). That medium-term component will be paid out after expiry of the sustainability phase subject to the condi- tion that EAC – an indicator of sustainability – is addition- ally reached during the sustainability phase. This is the case when at least the cost of capital has been earned. Otherwise, payment of the medium-term component is forfeited with- out compensation. This demerit system puts greater em- phasis on sustainable company development in determin- ing Board of Management remuneration and sets long-term incentives. LONG-TERM INcENTIVE PLAN Since financial year 2006, the company has granted the Board of Management members share-price-based, long- term cash remuneration by issuing stock appreciation rights (SAR s) within the scope of a long-term incentive plan (LTIP). To participate in the LTIP, the Board of Management members have to make a personal financial investment con- sisting of 10 % of their annual base salary on the grant date, primarily in stock. In financial year 2017, the Board of Management mem- bers received SAR s with a value of one base salary on the grant date. Beginning in financial year 2018, they will re- ceive SAR s with a value of 50 % to 150 % of one base salary on the grant date, depending on the attainment of one-year strategic targets. The relevant target categories for the grant- ing of SAR s in 2018 are the development of the share price compared with the company’s competitors and strategic individual targets, including a digital transformation target in each case. The SAR s granted can be fully or partly exercised after the expiration of a four-year waiting period at the earliest, provided absolute or relative performance targets have been achieved at the end of this waiting period. SAR s lapse if they are not exercised within two years after the waiting period expires (exercise period). To determine whether and how many of the SAR s granted are exercisable, four share-price-related (absolute) and two reference-index-based (relative) performance tar- gets are measured. Within the scope of the absolute per- formance targets, a sixth of the SAR s granted is earned in each case if the closing price of Deutsche Post shares at the end of the waiting period exceeds the issue price by at least 10, 15, 20 or 25 %. Both relative performance targets are tied to the performance of the shares in relation to the STOXX Europe 600 Index (SXXP; ISIN EU0009658202). They are met if the share price equals the index performance or out- performs it by more than 10 %. Mechanism of the stock appreciation rights A.21 SAR performance targets Thresholds Number of exercisable SAR s Performance versus STOXX Europe 600 Absolute increase in share price + 10 % + 0 % + 25 % + 20 % + 15 % + 10 % 1 /6 1 /6 1 /6 1 /6 1 /6 1 /6 To determine the share price performance, the average price of Deutsche Post shares or the average index value for a reference period is compared with that of a performance period. The reference period comprises the last 20 con- secutive trading days prior to the issue date. The average price of Deutsche Post shares during the reference period of the 2017 tranche was €34.72 and the average index value was 375.59 points. The performance period is the last 60 trading days before the end of the waiting period. The aver- age (closing) price is calculated as the average closing price of Deutsche Post shares in Deutsche Börse AG’s Xetra trading system. If absolute or relative performance targets are not met by the end of the waiting period, the SAR s attributable to them will expire without replacement or compensation. Each exercised SAR entitles the Board of Management member to receive a cash settlement equal to the difference between the average closing price of Deutsche Post shares for the five trading days preceding the exercise date and the exercise price of the SAR. The proceeds from stock appreci- ation rights are limited to a maximum amount. Table A.23 Group Management Report — GENERAL INFORMATION — Remuneration of the Board of  Management and Supervisory Board 43 shows the individual maximum amounts for the 2017 tranche. The remuneration from stock appreciation rights may be limited by the Supervisory Board in the event of extraordinary circumstances. Pension commitments (retirement and surviving dependants’ benefits) The members of the Board of Management have been granted contribution-based pension commitments; Frank Appel and Jürgen Gerdes still have final-salary-based exist- ing pension commitments. Under the contribution- based pension plan, the company credits an annual amount of 35 % of the annual base salary to a virtual pension account for each Board of Management member. The maximum con- tribution period is 15 years. The pension capital accrues interest at an annual rate equal to the “iBoxx Corporates AA 10+ Annual Yield” rate, or at an annual rate of 2.25 % at minimum, and will continue to do so until the pension benefits fall due. The pension benefits are paid out in a lump sum in the amount of the value accumulated in the pension account. The benefits fall due when the Board of Management member reaches the age of 62, or in the case of invalidity whilst in office or death. In the event of benefits falling due, the pension benefi- ciary may opt to receive an annuity payment in lieu of a lump sum payment. If this option is exercised, the capital is converted to an annuity payment, taking into account the average “iBoxx Corporates AA 10+ Annual Yield” for the past ten full calendar years as well as the individual data of the surviving dependants and a future pension increase of 1 % per year. Function of the contribution-based pension plan Capital components A.22 Pension account 1 2 3 4 5 Term (years) Upon their initial appointment to the Board of Manage- ment, Frank Appel and Jürgen Gerdes were granted the final- salary- based direct pension commitments customary in the company at the time which provide for benefits in the case of permanent invalidity, death or retirement. After five years of service on the Board of Management, the entitle- ments they have acquired will vest in full; both Frank Appel and Jürgen Gerdes have exceeded this minimum duration of service. Frank Appel’s pension commitment provides for retirement benefits to be granted at the earliest from the age of 55. As he has been appointed to the Board of Manage- ment beyond this age, he has not availed himself of this provision. Jürgen Gerdes will not be eligible for retirement benefits until he turns 62. The pensions of Frank Appel and Jürgen Gerdes are geared towards annuity payments. They also have the op- tion of choosing a lump sum instead. The benefit amount depends on the pensionable income and the pension level derived from the years of service. Pensionable income con- sists of the annual base salary (fixed annual remuneration) computed on the basis of the average salary over the last twelve calendar months of employment. Both Frank Appel and Jürgen Gerdes attained the maximum pension level (50 %) after ten years of service. Subsequent retirement benefits increase or decrease to reflect changes in the con- sumer price index in Germany. Provisions to cap severance payments pursuant to the Corporate Governance Code recommendation, change-of- control provisions and post-contractual non-compete clauses In accordance with the recommendation of the DCGK, Board of Management contracts contain a provision stipu- lating that in the event of premature termination of a Board of Management member’s contract, the severance payment may compensate no more than the remaining term of the contract. The severance payment is limited to a maximum amount of two years’ remuneration including fringe bene- fits (severance payment cap). The severance payment cap is calculated exclusive of any special remuneration or the value of rights allocated from LTIP s. In the event of a change of control, any member of the Board of Management is entitled to resign from office for good cause within a period of six months following the change in control, after giving three months’ notice to the end of a given month, and to terminate their Board of Manage ment contract (right to early termination). 44 Deutsche Post DHL Group — 2017 Annual Report The contractual provisions stipulate that a change in control exists if a shareholder has acquired control within the meaning of section 29 (2) of the Wertpapiererwerbs- und Übernahmegesetz (WpÜG – German Securities Acquisition and Takeover Act) via possession of at least 30 % of the vot- ing rights, including the voting rights attributable to such shareholder by virtue of acting in concert with other share- holders as set forth in section 30 of the WpÜG or if a control agreement has been concluded with the company as a de- pendent entity in accordance with section 291 of the Aktien- gesetz (AktG – German Stock Corporation Act) and such agreement has taken effect or if the company has merged with another legal entity outside of the Group pursuant to section 2 of the Umwandlungsgesetz (UmwG – German Reorganisation and Transformation Act), unless the value of such other legal entity, as determined by the agreed con- version rate, is less than 50 % of the value of the company. In the event that the right to early termination is exer- cised or a Board of Management contract is terminated by mutual consent within nine months of the change in control, the Board of Management member is entitled to payment to compensate the remaining term of their Board of Manage- ment contract. Such payment is limited to 150 % of the sev- erance payment cap pursuant to the DCGK recommenda- tion. The amount of the payment is reduced by 25 % if the Board of Management member has not reached the age of 60 upon leaving the company. If the remaining term of the Board of Management contract is less than two years and the Board of Management member has not reached the age of 62 upon leaving the company, the payment will cor- respond to the severance payment cap. The same applies if a Board of Management contract expires prior to the Board of Management member’s reaching the age of 62 because less than nine months remained on the term of the contract at the time of the change in control and the contract was not renewed. Board of Management members are also subject to a non-compete clause, taking effect on the cessation of their contracts. During the one-year non-compete period, former Board of Management members receive 100 % of their last contractually stipulated annual base salary on a pro-rata basis as compensation each month. Any other income earned during the non-compete period is subtracted from the compensation paid. The amount of the compensation payment itself is deducted from any severance payments or pension payments. Prior to, or concurrent with, cessation of the Board of Management contract, the company may declare its waiver of adherence to the non-compete clause. In such a case, the company will be released from the obli- gation to pay compensation due to a restraint on competi- tion six months after receipt of such declaration. Amount of remuneration paid to members of the Group Board of Management in financial year 2017 The remuneration paid to members of the Board of Manage- ment in financial year 2017 totalled €11.57 million (previous year: €12.26 million) in accordance with the applicable ac- counting standards. That amount comprised €7.57 million (previous year: €6.63 million) in non-performance- related components and €4.00 million (previous year: €5.63 mil- lion) in performance-related components, i. e., paid-out annual bonus amounts. The target criteria for the annual bonus are explained on page 41. An additional €3.06 mil- lion of the annual bonus was transferred to the medium- term component (deferral) and will be paid out in 2020 subject to the condition that the required EAC, an indicator of sustainability, be reached. The members of the Board of Management were granted a total of 2,003,970 SAR s in financial year 2017 with a total value of €7.19 million (previous year: €6.25 million) at the time of issue (1 September 2017). The waiting period for the tranche issued in 2017 ends on 31 August 2021. The total remuneration paid to Board of Management members is presented individually in the tables below. In addition to the applicable accounting principles, the DCGK recommendations were also taken into account. In accordance with the recommendations, table A.23 “Target remuneration” (or “benefits granted” in DCGK ter- minology) does show any actual payments of performance- based remuneration. Instead of the payment amount, the figures stated for the one-year variable remuneration and the portion of the one-year variable remuneration to be de- ferred (the deferral) reflect the target amount (i. e., the amount when achieving 100 % of the target) that was granted for financial year 2017 or for the previous year. In addition, the long-term remuneration (LTIP with a four- year waiting period) granted in the year under review or in the previous year is reported at its fair value at the grant date. With respect to pension commitments, the pension expense, i. e., the service cost in accordance with IAS 19, is presented. The presentation is supplemented by the minimum and maximum values that can be achieved. 45 A.23 Group Management Report — GENERAL INFORMATION — Remuneration of the Board of  Management and Supervisory Board Target remuneration € a) Non-performance-related remuneration Base salary Fringe benefits Total (lit. a) b) Performance-related remuneration One­year variable remuneration Multi­year variable remuneration LtIP with four­year waiting period Deferral with three­year waiting period Dr Frank Appel Chairman Ken Allen Express 2016 2017 Min. 2017 Max. 2017 2016 2017 Min. 2017 Max. 2017 1,962,556 1,978,911 1,978,911 1,978,911 976,500 1,000,913 1,000,913 1,000,913 35,099 35,294 35,294 35,294 102,375 98,197 98,197 98,197 1,997,655 2,014,205 2,014,205 2,014,205 1,078,875 1,099,110 1,099,110 1,099,110 785,022 791,564 2,747,596 2,754,138 1,962,574 1,962,574 785,022 791,564 0 0 0 0 989,456 390,600 400,365 5,895,891 1,367,129 1,406,175 4,906,435 976,529 1,005,810 989,456 390,600 400,365 0 0 0 0 500,457 4,523,698 4,023,241 500,457 Total (lit. a and b) 5,530,273 5,559,907 2,014,205 8,899,552 2,836,604 2,905,650 1,099,110 6,123,265 c) Pension expense (service cost) 899,257 1,041,772 1,041,772 1,041,772 337,497 332,801 332,801 332,801 Total DcGK remuneration (lit. a to c) 6,429,530 6,601,679 3,055,977 9,941,324 3,174,101 3,238,451 1,431,911 6,456,066 Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2017 d) Variable cash remuneration pursuant to DRS 17 One­year variable remuneration (payment amount) Payout from medium­term component Total remuneration (cash components) pursuant to DRS 17 (lit. a and d) a) Non-performance-related remuneration Base salary Fringe benefits Total (lit. a) b) Performance-related remuneration One­year variable remuneration Multi­year variable remuneration LtIP with four­year waiting period Deferral with three­year waiting period 8,000,000 5,000,000 950,662 928,682 952,351 288,300 482,147 447,935 487,945 203,680 3,876,999 3,254,856 2,008,957 1,790,735 Dr h. c. Jürgen Gerdes Post ­ eCommerce ­ Parcel John Gilbert Supply Chain 2016 2017 Min. 2017 Max. 2017 2016 2017 Min. 2017 Max. 2017 1,005,795 1,005,795 1,005,795 1,005,795 35,011 36,289 36,289 36,289 823,750 174,576 912,500 173,167 912,500 173,167 912,500 173,167 1,040,806 1,042,084 1,042,084 1,042,084 998,326 1,085,667 1,085,667 1,085,667 402,318 402,318 1,408,144 1,408,128 1,005,826 1,005,810 402,318 402,318 0 0 0 0 502,898 329,500 365,000 4,526,139 1,189,528 1,295,011 4,023,241 502,898 860,028 329,500 930,011 365,000 0 0 0 0 456,250 4,176,294 3,720,044 456,250 Total (lit. a and b) 2,851,268 2,852,530 1,042,084 6,071,121 2,517,354 2,745,678 1,085,667 5,718,211 c) Pension expense (service cost) 277,604 344,288 344,288 344,288 239,316 273,132 273,132 273,132 Total DcGK remuneration (lit. a to c) 3,128,872 3,196,818 1,386,372 6,415,409 2,756,670 3,018,810 1,358,799 5,991,343 Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2017 d) Variable cash remuneration pursuant to DRS 17 One­year variable remuneration (payment amount) Payout from medium­term component Total remuneration (cash components) pursuant to DRS 17 (lit. a and d) 5,000,000 5,000,000 478,406 470,331 464,074 167,256 389,263 277,726 434,806 156,406 1,989,543 1,673,414 1,665,315 1,676,879 46 Deutsche Post DHL Group — 2017 Annual Report Melanie Kreis Finance Dr Thomas Ogilvie Human Resources (since 1 September 2017) 2016 2017 Min. 2017 Max. 2017 2016 2017 Min. 2017 Max. 2017 a) Non-performance-related remuneration Base salary Fringe benefits Total (lit. a) b) Performance-related remuneration One­year variable remuneration Multi­year variable remuneration LtIP with four­year waiting period Deferral with three­year waiting period 739,167 871,667 871,667 871,667 18,990 17,029 17,029 17,029 758,157 888,696 888,696 888,696 295,667 348,667 1,010,677 1,208,673 715,010 295,667 860,006 348,667 0 0 0 0 435,834 3,875,858 3,440,024 435,834 Total (lit. a and b) 2,064,501 2,446,036 888,696 5,200,388 c) Pension expense (service cost) 241,937 276,923 276,923 276,923 Total DcGK remuneration (lit. a to c) 2,306,438 2,722,959 1,165,619 5,477,311 Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2017 d) Variable cash remuneration pursuant to DRS 17 One­year variable remuneration (payment amount) Payout from medium­term component Total remuneration (cash components) pursuant to DRS 17 (lit. a and d) 364,964 58,056 405,892 120,656 1,181,177 1,415,244 5,000,000 – – – – – – – – – – – – – 238,333 238,333 238,333 3,159 3,159 3,159 241,492 241,492 241,492 95,333 810,353 715,020 95,333 0 0 0 0 119,167 2,979,248 2,860,081 119,167 1,147,178 241,492 3,339,907 – – – 1,147,178 241,492 3,339,907 n. a. 116,188 – 357,680 Tim Scharwath Global Forwarding, Freight (since 1 June 2017) 2016 2017 Min. 2017 Max. 2017 a) Non-performance-related remuneration Base salary Fringe benefits Total (lit. a) b) Performance-related remuneration One­year variable remuneration Multi­year variable remuneration LtIP with four­year waiting period Deferral with three­year waiting period Total (lit. a and b) c) Pension expense (service cost) Total DcGK remuneration (lit. a to c) Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2017 d) Variable cash remuneration pursuant to DRS 17 One­year variable remuneration (payment amount) Payout from medium­term component Total remuneration (cash components) pursuant to DRS 17 (lit. a and d) 417,083 29,812 446,895 0 0 0 0 446,895 – 446,895 417,083 29,812 446,895 208,542 3,068,623 2,860,081 208,542 3,724,060 – 3,724,060 n. a. – – – – – – – – – – – – – 417,083 29,812 446,895 166,833 881,853 715,020 166,833 1,495,581 – 1,495,581 196,780 – 1,394,339 Group Management Report — GENERAL INFORMATION — Remuneration of the Board of  Management and Supervisory Board 47 Table A.24 “Payments” below includes the same figures for base salary and fringe benefits as table A.23 “Target remu- neration”. In contrast to the target remuneration table, this payment table states the one-year variable remuneration paid out in financial year 2017 or in the previous year (the payment amount); therefore, the share of the annual bonus transferred to the medium- term component in these years is not included in this table. With regard to the medium- term component (the deferral), the payment amount re- ported is that of the deferral whose calculation period ended upon expiry of the year under review or the previous year. The table also reflects the amount paid (the payment amount) from the tranches of the long-term components that were exercised in financial year 2017 or in the previous year. In addition, the pension expense (service cost in ac- cordance with IAS 19) is stated pursuant to the DCGK rec- ommendations. Although the pension expense does not represent an actual payment per se, it is included in the  presentation for the purpose of illustrating the total remu- neration. Payments € Base salary Fringe benefits Total One­year variable remuneration Multi­year variable remuneration Medium­term component 2014 Medium­term component 2015 LtIP (2011 tranche) LtIP (2012 tranche) LtIP (2013 tranche) Other Total Pension expense (service cost) Total Base salary Fringe benefits Total One­year variable remuneration Multi­year variable remuneration Medium­term component 2014 Medium­term component 2015 LtIP (2011 tranche) LtIP (2012 tranche) LtIP (2013 tranche) Other Total Pension expense (service cost) Total A.24 Dr Frank Appel Chairman Ken Allen Express Dr h. c. Jürgen Gerdes Post ­ eCommerce ­ Parcel 2016 2017 1,962,556 1,978,911 35,099 35,294 2016 976,500 102,375 2017 2016 2017 1,000,913 1,005,795 1,005,795 98,197 35,011 36,289 1,997,655 2,014,205 1,078,875 1,099,110 1,040,806 1,042,084 950,662 952,351 482,147 487,945 478,406 464,074 6,086,462 5,844,840 3,637,093 4,492,254 3,479,244 4,958,436 928,682 – 5,157,780 – – – – 447,935 – 470,331 – 288,300 838,025 – – 203,680 – 167,256 – 3,008,913 – 4,718,515 3,189,158 1,808,056 – – – – 2,480,518 – – – – 2,422,380 2,368,800 – 9,034,779 8,811,396 5,198,115 6,079,309 4,998,456 6,464,594 899,257 1,041,772 337,497 332,801 277,604 344,288 9,934,036 9,853,168 5,535,612 6,412,110 5,276,060 6,808,882 John Gilbert Supply Chain Melanie Kreis Finance Dr Thomas Ogilvie Human Resources (since 1 September 2017) 2016 823,750 174,576 2017 912,500 173,167 998,326 1,085,667 389,263 277,726 277,726 – – – – – 434,806 156,406 – 156,406 – – – – 2016 739,167 18,990 758,157 364,964 58,056 58,056 – – – – – 2017 871,667 17,029 888,696 405,892 120,656 – 120,656 – – – – 1,665,315 1,676,879 1,181,177 1,415,244 239,316 273,132 241,937 276,923 1,904,631 1,950,011 1,423,114 1,692,167 2016 – – – – – – – – – – – – – – 2017 238,333 3,159 241,492 116,188 – – – – – – – 357,680 – 357,680 48 Deutsche Post DHL Group — 2017 Annual Report Base salary Fringe benefits Total One­year variable remuneration Multi­year variable remuneration Medium­term component 2014 Medium­term component 2015 LtIP (2011 tranche) LtIP (2012 tranche) LtIP (2013 tranche) Other Total Pension expense (service cost) Total Tim Scharwath Global Forwarding, Freight (since 1 June 2017) 2016 – – – – – – – – – – – – – – 2017 417,083 29,812 1 446,895 196,780 – – – – – – – 643,675 – 643,675 1 Mr Scharwath also received a payment of €750,664 (included in the total remuneration (cash components) pursuant to DRS 17) as compensation for the lapsing of long­term remuneration rights granted by his previous employer. Long-Term Incentive Plan: number of SAR s granted A.25 Number of shares Dr Frank Appel, Chairman Ken Allen Dr h. c. Jürgen Gerdes John Gilbert Melanie Kreis Dr Thomas Ogilvie (since 1 September 2017) Tim Scharwath (since 1 June 2017) Number of SAR s 2016 tranche Number of SAR s 2017 tranche 377,418 187,794 193,428 165,390 137,502 – – 546,678 280,170 280,170 259,056 239,556 199,170 199,170 Contribution-based pension commitments: individual breakdown € Ken Allen John Gilbert Melanie Kreis Dr Thomas Ogilvie (since 1 September 2017) Tim Scharwath (since 1 June 2017) Total A.26 Total contribution for 2016 Total contribution for 2017 Present value (DBO) as at 31 Dec. 2016 Present value (DBO) as at 31 Dec. 2017 341,775 250,250 250,250 – – 341,775 301,000 301,000 83,417 145,979 2,506,156 2,903,991 704,837 1,020,273 1,049,012 1,359,361 – – 136,411 146,294 842,275 1,173,171 4,260,005 5,566,330 Group Management Report — GENERAL INFORMATION — Remuneration of the Board of  Management and Supervisory Board 49 A.27 Pension commitments Pension level on 31 Dec. 2016 % Pension level on 31 Dec. 2017 % Maximum pension level % Present value (DBO) as at 31 Dec. 2016 € Present value (DBO) as at 31 Dec. 2017 € 50 25 50 50 50 50 18,606,680 20,171,783 8,366,436 8,973,098 26,973,116 29,144,881 Final-salary-based existing pension commitments: individual breakdown Dr Frank Appel, Chairman Dr h. c. Jürgen Gerdes Total Benefits for former Board of Management members Benefits paid to former members of the Board of Manage- ment or their surviving dependants amounted to €7.0 mil- lion in financial year 2017 (previous year: €5.4 million). The defined benefit obligation (DBO) for current pensions cal- culated under IFRS s was €95 million (previous year: €97 million). Remuneration of the Supervisory Board Remuneration for the members of the Supervisory Board is governed by article 17 of the Articles of Association of Deutsche Post AG, according to which they receive only fixed annual remuneration in the amount of €70,000 (as in the previous year). The Supervisory Board chairman and the Supervisory Board committee chairs receive an additional 100 % of the remuneration, and the Supervisory Board deputy chair and committee members receive an additional 50 %. This does not apply to the Mediation or Nomination Committees. Those who only serve on the Supervisory Board or its com- mittees, or act as chair or deputy chair, for part of the finan- cial year are remunerated on a pro-rata basis. As in the previous year, Supervisory Board members receive an attendance allowance of €1,000 for each plenary meeting of the Supervisory Board or committee meeting that they attend. They are entitled to the reimbursement of out-of-pocket cash expenses incurred in the exercise of their office. Any value added tax charged on Supervisory Board remuneration or out-of-pocket expenses is reimbursed. The remuneration for 2017 totalled €2,641,000 (previ- ous year: €2,622,000). Table A.28 shows both totals, bro- ken down as the remuneration paid to each Supervisory Board member. 50 Deutsche Post DHL Group — 2017 Annual Report Remuneration paid to Supervisory Board members € Board members Prof. Dr Wulf von Schimmelmann (Chair) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Dr Nikolaus von Bomhard Ingrid Deltenre Jörg von Dosky Werner Gatzer Prof. Dr Henning Kagermann Thomas Koczelnik Anke Kufalt Ulrike Lennartz­Pipenbacher (since 1 July 2017) Simone Menne Roland Oetker Andreas Schädler Sabine Schielmann Dr Ulrich Schröder Dr Stefan Schulte Stephan Teuscher 1 Helga Thiel (until 30 June 2017) Stefanie Weckesser Prof. Dr­Ing. Katja Windt 2016 2017 Fixed component Attendance allowance 315,000 245,000 140,000 43,750 43,750 70,000 140,000 105,000 175,000 70,000 – 105,000 140,000 70,000 70,000 105,000 140,000 105,000 105,000 105,000 70,000 20,000 19,000 15,000 3,000 2,000 5,000 16,000 7,000 21,000 5,000 – 11,000 15,000 5,000 4,000 6,000 12,000 12,000 11,000 10,000 5,000 Total 335,000 264,000 155,000 46,750 45,750 75,000 156,000 112,000 196,000 75,000 – 116,000 155,000 75,000 74,000 111,000 152,000 117,000 116,000 115,000 75,000 Fixed component Attendance allowance 315,000 245,000 140,000 72,917 70,000 70,000 140,000 105,000 175,000 70,000 35,000 105,000 140,000 70,000 70,000 102,083 140,000 105,000 52,500 122,500 70,000 21,000 21,000 17,000 7,000 6,000 6,000 16,000 10,000 21,000 6,000 4,000 11,000 15,000 6,000 6,000 0 13,000 13,000 6,000 15,000 6,000 A.28 Total 336,000 266,000 157,000 79,917 76,000 76,000 156,000 115,000 196,000 76,000 39,000 116,000 155,000 76,000 76,000 102,083 153,000 118,000 58,500 137,500 76,000 1 Stephan Teuscher receives €1,500 per year for his service on the Supervisory Board of DHL Hub Leipzig GmbH. Annual Corporate Governance Statement and non­financial report dpdhl.com/en/investors and in the The Annual Corporate Governance Statement can be found at Corporate Governance Report, page 96 ff. The separate, summarised non-financial report for Deutsche Post AG and the Group with the disclosures in accordance with sections 289 b ff. and 315 b f. of the HGB can Corporate Responsibility Report, dpdhl.com/cr-re- be found in the port2017. Group Management Report — GENERAL INFORMATION — Remuneration of the Board of  Management and Supervisory Board — Annual Corporate Governance Statement and non­financial report — REPORT ON ECONOMIC POSITION — Overall Board of Management assessment of the Group’s economic position — Forecast / actual comparison 51 REPORT ON ECONOMIC POSITION Overall Board of Management assess­ ment of the Group’s economic position In financial year 2017, Deutsche Post DHL Group increased revenue in all divisions and consolidated EBIT was in line with our expectations at €3.74 billion. The Post  - eCom- merce - Parcel division continues to see dynamic growth in the German parcel business. The DHL divisions are also performing well. Express is registering steady growth, and the turnaround measures implemented within Global For- warding, Freight and Supply Chain are proving effective: all divisions increased revenue despite negative currency ef- fects. Capital expenditure increased year-on-year and, at €1.43 billion, free cash flow significantly exceeded the prior- year level. All in all, the Board of Management views the Group’s financial position as being very sound. Forecast / actual comparison Forecast / actual comparison A.29 Targets 2017 EbIT Results 2017 EbIT • Group: around €3.75 billion. • PeP division: around €1.5 billion. • DHL divisions: around €2.6 billion. • Corporate Center / Other: €–0.35 billion. • Group: €3.74 billion. • PeP division: €1.50 billion. • DHL divisions: €2.59 billion. • Corporate Center / Other: €–0.35 billion. Targets 2018 EbIT • Group: around €4.15 billion. • PeP division: around €1.50 billion. • DHL divisions: around €3.00 billion. • Corporate Center / Other: around €–0.35 billion. EAc EAc EAc • Will develop in line with EBIt and • Developed in line with EBIt and • Will decrease due to initial application increase. Cash flow increased. Cash flow of IFRS 16. Cash flow • Free cash flow of more than €1.4 billion. • Free cash flow increased to €1.43 billion. • Free cash flow of more than €1.5 billion. Capital expenditure (capex) Capital expenditure (capex) Capital expenditure (capex) • Increase investments to around • Invested: €2.3 billion. • Invest (excluding leasing) around €2.5 billion. €2.3 billion. Dividend distribution Dividend distribution Dividend distribution • Pay out 40 % to 60 % of net profit • Proposal: pay out 51.9 % of net profit • Pay out 40 % to 60 % of net profit as dividend. as dividend. as dividend. Employee Opinion Survey Employee Opinion Survey Employee Opinion Survey • Increase approval rating of key performance indicator Active Leadership by one percentage point. • Approval rating of key performance indicator Active Leadership increased by one percentage point to 75 %. • Increase approval rating of key performance indicator Active Leadership by one percentage point. Greenhouse gas efficiency Greenhouse gas efficiency Greenhouse gas efficiency • CEX will increase by one index point. • CEX increased by two index points to 32. • CEX will increase by another index point. 52 Deutsche Post DHL Group — 2017 Annual Report Economic parameters Global economy picks up The global economy picked up speed in 2017, mainly on the back of broad-based economic growth. In the industrial countries, average GDP growth came in at 2.3 %. The growth rate for the emerging markets rose to 4.7 %. A number of the larger threshold economies succeeded in overcoming reces- sions, some of them quite severe. On the whole, global eco- nomic output grew by 3.7 % (previous year: 3.2 %) after ad- justing for purchasing power. This development pushed up global trade even more (IMF: 4.7 %; OECD: 4.8 %) to the strongest figures seen in several years. Global economy: growth indicators, 2017 % China Japan USA Euro zone Germany Gross domestic product (GDP) 6.9 1.6 2.3 2.5 2.2 Export 7.9 6.8 3.4 4.8 4.7 A.30 Domestic demand n. a. 1.1 2.4 2.2 2.2 Some data estimated, as at 14 February 2018. Source: Postbank, national statistics. The Asian threshold economies again provided the strongest economic momentum. At 6.5 %, GDP growth slightly ex- ceeded the prior-year figure of 6.4 %. China provided for a pleasant surprise with a slight acceleration in growth to 6.9 % (previous year: 6.7 %). The main boost to the Chinese economy came from the sharp rise in export activity. In Japan, the economy witnessed a notable revival. Private con- sumption was up moderately, and gross fixed capital forma- tion increased significantly. Strong momentum also came from exports, which benefitted from rising demand and a slightly weaker yen. All in all, GDP growth rose to 1.8 % (pre- vious year: 0.9 %). In the United States, the economy sped up noticeably and corporate investment shot up substantially. Private con- sumption expanded considerably once more and remained the key driver of growth. Foreign trade put a slight damper on growth, despite the fact that export activity registered a notable increase. Total GDP growth was 2.3 %, rising from 1.5 % in the previous year, whilst the unemployment rate dropped again significantly from its already low level. In the euro zone, the economic upswing gathered strength in the year under review, with domestic demand providing for strong momentum once again. Pronounced increases continued to be seen in private consumption and gross fixed capital formation, whilst government spending experienced weaker growth. Foreign trade contributed positively to economic growth, unlike in the previous year where it had a pronounced negative effect. The growth in foreign trade was ultimately responsible for the acceleration in GDP growth to 2.5 % (previous year: 1.8 %). From a re- gional perspective, economic growth was more balanced than in previous years. The average unemployment rate dropped significantly to 9.1 % in line with the robust upturn. Once again, domestic demand provided for sustained momentum in the German economy. Private consumption increased substantially thanks to a sharp increase in in- comes, whilst government spending expanded only moder- ately. Investments in machinery and equipment posted stronger growth, however. Construction spending and ex- ports also reported impressive growth rates, resulting in an increase in GDP growth to 2.2 % (previous year: 1.9 %). The unemployment rate fell to 5.7 % on an annual average (pre- vious year: 6.1 %). At the same time, the average number of employed persons rose to 44.3 million (previous year: 43.6 million). Rise in crude oil prices over the course of 2017 At the end of 2017, the price for one barrel of Brent Crude was US$66.73 (previous year: US$55.21). Over the course of the year, the price of oil fluctuated between US$44 and US$67 per barrel, with the average price for the year increas- ing by around 24 % on the previous year to just over US$54 per barrel. Oil prices hit bottom in June, after which the growing global economy led to steadily increasing demand and prices. Stronger euro thanks to healthy euro zone economy The European Central Bank (ECB) initiated a cautious change in its monetary policy during 2017. In the spring, the bank reduced the monthly volume of its bond-buying programme by €20 billion to €60 billion. As the year pro- gressed, the ECB decided to reduce the monthly volume even further to €30 billion effective from the start of 2018. Euro zone monetary policy nonetheless remained quite ex- pansive. The ECB left its key refinancing rate at 0.00 %, and the deposit rate for the year as a whole was –0.40 %. In the United States, the Federal Reserve continued its gradual exit from crisis-related monetary policy. Against the backdrop of solid economic growth and falling unemployment rates, Group Management Report — REPORT ON ECONOMIC POSITION — Economic parameters 53 the Fed raised its key interest rate in three steps of 0.25 per- centage points each to 1.25 % to 1.50 % at year-end. The euro made noticeable gains on the dollar in 2017, benefitting above all from the growing euro zone economy. At the end of the year, the euro listed at just over US$1.20, a rise of 14.0 % year-on-year. The pound sterling was under downwards pressure throughout much of 2017 due to the UK’s expected exit from the EU and the ensuing negotiations, which have proved lengthy and complicated. However, the Bank of England then propped up the pound by raising its key interest rate. Overall, the euro gained 4.0 % on the pound sterling in 2017. Significant decline in risk premiums for corporate bonds The euro zone bond markets continued to be impacted dur- ing 2017 by the ECB’s expansionary monetary policy, and capital market interest rates remained at a very low level. Towards the end of the year, favourable economic prospects and rising expectations that the ECB would soon tighten its monetary policy led to a slight increase in capital market interest rates. At year-end 2017, yields on ten-year German government bonds had risen to 0.43 % (previous year: 0.21 %). By contrast, yields on ten-year US government bonds fell by 0.03 percentage points year-on-year to 2.41 %. Risk premiums for corporate bonds with good ratings were not only well below the prior-year level at the end of 2017 but also low compared with long-term levels. Stock market prices made pronounced gains during the course of 2017, supported by the acceleration in global GDP growth on the back of extremely low interest rates. Many companies were able to increase revenue and profits, which laid the foundation for rising share prices. Not even the political uncertainty resulting from the euro zone elections and the Brexit negotiations was able to halt the upwards trend more than momentarily. The DAX ended the year at 12,918 points, a year-on-year gain of 12.5 %. The EURO STOXX 50 was up just 6.5 % year-on-year, whilst in the US the broad-market S & P 500 gained an impressive 19.4 %. International trade makes significant gains The global trade movements of relevance to us – air and ocean freight sent in containers, excluding liquids and bulk goods – grew by a total of 5.1 % in the year under review (previous year: 1.7 %). Air freight volumes performed espe- cially well. Ocean freight and air freight imports to Asia evidenced the highest growth rates. Trade volumes: compound annual growth rate, 2016 to 2017 Import % Export Asia Pacific Europe Latin America MEA (Middle East and Africa) North America A.31 MEA Asia Pacific Europe Latin America (Middle East and Africa) North America 6.3 6.0 6.4 8.3 8.8 4.7 0.5 0.9 4.2 4.2 6.8 7.8 3.4 8.7 –1.1 –1.5 2.6 2.5 5.7 8.9 5.6 4.4 3.3 8.2 5.4 Source: Seabury Cargo Advisory, as at 28 November 2017; based upon all relevant ocean and air freight trading volumes in tonnes, excluding liquids and bulk goods. Excluding shipments within the European Union free trade zone. Legal environment In view of our leading market position, a large number of our services are subject to sector-specific regulation under the Postgesetz (PostG – German Postal Act). Further infor- mation regarding this issue and legal risks is contained in note 46 to the consolidated financial statements. 54 Significant events By way of a resolution of the Board of Management dated 21 March 2017, a capital reduction was implemented through notes 3 and 32 to retirement of 27.3 million treasury shares, the consolidated financial statements. In November 2017, Deutsche Post DHL Group and Ad- vent International completed the sale of Williams Lea Tag Deutsche Post DHL Group — 2017 Annual Report Group after approval was issued by the competition author- ities, note 2 to the consolidated financial statements. In December 2017, we placed two bonds in an aggregate principal amount of €1.5 billion: a convertible bond in the amount of €1.0 billion and a term of 7.5 years and a trad- itional bond in the amount of €500 million and a term of ten years, note 40 to the consolidated financial statements. Results of operations Selected indicators for results of operations Revenue Profit from operating activities (EBIt) Return on sales 1 EBIt after asset charge (EAC) Consolidated net profit for the period 2 Earnings per share 3 Dividend per share 1 EBIt / revenue. 2 After deduction of non­controlling interests. 3 Basic earnings per share. 4 Proposal. 2016 57,334 3,491 6.1 1,963 2,639 2.19 1.05 2017 60,444 3,741 6.2 2,175 2,713 2.24 1.15 4 € m € m % € m € m € € A.32 Q 4 2016 Q 4 2017 15,410 1,111 7.2 733 841 0.70 – 16,109 1,181 7.3 796 837 0.69 – Changes in the portfolio In early July 2017, we acquired Brazil-based company Olimpo Holding S. A. including its subsidiaries Polar Trans- portes Ltda. and Rio Lopes Transportes Ltda. They provide temperature-controlled transport in the Life Sciences & Healthcare sector for the Supply Chain division. previous year included a gain of €63 million on the disposal of the remaining shares in King’s Cross. In the current re- porting period, this item includes higher income from work performed and capitalised relating to the production of StreetScooter electric vehicles. In the fourth quarter, we sold Williams Lea Tag Group Materials expense markedly higher and deconsolidated all associated assets and liabilities. Consolidated revenue rises to €60.4 billion Consolidated revenue in financial year 2017 increased by €3,110 million to €60,444 million, with all divisions con- tributing to the improvement. Currency effects reduced the  increase by €1,270 million. The proportion of revenue generated abroad increased from 68.8 % to 69.6 %. At €16,109 million, revenue for the fourth quarter of 2017 ex- ceeded the comparable prior-year figure by 4.5 %. Currency effects decreased revenue by €639 million. Other operating income fell by €17 million to €2,139 million in the year under review. The figure for the Materials expense rose by €2,155 million to €32,775 million in 2017. Higher crude oil prices and other factors lifted transport and fuel costs, whilst currency effects served to reduce them. The increase in headcount at the Post - eCom- merce - Parcel and Express divisions was the main factor behind the rise in staff costs, although currency effects par- tially offset this. Depreciation, amortisation and impair- ment losses rose by €94 million to €1,471 million partly because customer relationship assets from past acquisi- tions in the Supply Chain division were written down. At €4,526 million, other operating expenses were up year-on- year (2016: €4,414 million), due, amongst other things, to higher expenses for advertising and public relations. Group Management Report — REPORT ON ECONOMIC POSITION — Significant events — Results of operations Changes in revenue, other operating income and operating expenses, 2017 Revenue € m 60,444 + / – % 5.4 • Growth recorded in all four divisions • Currency effects reduce amount by €1,270 million Other operating income 2,139 – 0.8 • Contains income from work performed and capitalised • Prior­year figure included higher income from the sale of equity interests Materials expense 32,775 7.0 • Higher transport and fuel costs Staff costs Depreciation, amortisation and impairment losses 20,072 1,471 • Currency effects reduce figure by €692 million 2.4 • Rise in headcount 6.8 • Include write­down of customer relationships in the Supply Chain division Other operating expenses 4,526 2.5 • Higher expenses for advertising and public relations 55 A.33 Consolidated EbIT up 7.2 % Total dividend and dividend per no-par value share Profit from operating activities (EBIT) improved by 7.2 % in the year under review, rising from €3,491 million to €3,741 million. In the fourth quarter of 2017, it increased by 6.3 % to €1,181 million. At €411 million, net finance costs for the year as a whole were down on the prior year (€359 mil- lion). Profit before income taxes rose by €198 million to €3,330 million. Income taxes increased by €126 million to €477 million. Consolidated net profit above prior-year level At €2,853 million, consolidated net profit in financial year 2017 exceeded the prior-year figure of €2,781 million by 2.6 %. Of this amount, €2,713 million was attributable to Deutsche Post AG shareholders and €140 million to non- controlling interest holders. Basic earnings per share im- proved from €2.19 to €2.24 and diluted earnings per share from €2.10 to €2.15. Dividend of €1.15 per share proposed Our finance strategy calls for a payout of 40 % to 60 % of net profits as dividends as a general rule. The Board of Manage- ment and the Supervisory Board will therefore propose a dividend of €1.15 per share for financial year 2017 to share- holders at the Annual General Meeting on 24 April 2018 (previous year: €1.05). Expressed in terms of net profit, which is defined as the consolidated net profit for the period after the deduction of non-controlling interests, the distri- bution ratio is 51.9 %. The net dividend yield based on the year-end closing price for our shares is 2.9 %. The dividend will be distributed on 27 April 2018 and is tax-free for share- holders resident in Germany. It does not entitle recipients to a tax refund or a tax credit. € m 846 846 0.70 0.70 968 0.80 1,030 1,027 0.85 0.85 A.34 1,409 1.15 1,270 1.05 11 12 13 14 15 16 17 1 Dividend per no­par value share (€) 1 Proposal. Increase in EbIT after asset charge (EAc) EBIT after asset charge (EAC) climbed from €1,963 million to €2,175 million in 2017, mainly as a result of the com- pany’s increased profitability. The imputed asset charge also rose, due in particular to higher investments in property, plant and equipment in the Post - eCommerce - Parcel and Express divisions and to lower provisions. EbIT after asset charge (EAc) € m EBIt Asset charge EAc 2016 3,491 –1,528 1,963 2017 3,741 –1,566 2,175 A.35 + / – % 7.2 2.5 10.8 56 Deutsche Post DHL Group — 2017 Annual Report The net asset base decreased by €30 million to €17,441 mil- lion as at the reporting date, largely as a result of negative currency effects. Investments in IT systems, the purchase of freight aircraft, and replacement and expansion investments in warehouses, sorting systems and the vehicle fleet in- creased year-on-year; by contrast, intangible assets declined, due in particular to the sale of Williams Lea Tag Group and negative currency effects. Net working capital remained more or less stable. Operating provisions declined year-on-year, whereas other non-current assets and liabilities rose. Net asset base (consolidated) 1 € m Intangible assets and property, plant and equipment Net working capital Operating provisions (excluding provisions for pensions and similar obligations) Other non­current assets and liabilities Net asset base 31 Dec. 2016 31 Dec. 2017 adjusted 20,943 –1,108 20,594 –1,095 –2,313 –2,089 – 51 17,471 31 17,441 A.36 + / – % –1.7 –1.2 – 9.6 > 100 – 0.2 1 Assets and liabilities as described in the segment reporting, note 10 to the consolidated financial statements. In contrast to previous years, the net asset base is presented on a consolidated basis in order to facilitate comparison with segment reporting. The prior­period amounts have been adjusted. Financial position Selected cash flow indicators € m Cash and cash equivalents as at 31 December Change in cash and cash equivalents Net cash from operating activities Net cash used in investing activities Net cash used in / from financing activities A.37 2016 3,107 – 437 2,439 –1,643 –1,233 2017 3,135 119 3,297 –2,091 –1,087 Q 4 2016 Q 4 2017 3,107 872 1,925 – 586 – 467 3,135 1,596 1,527 –1,042 1,111 Financial management is a centralised function in the Group The Group’s financial management activities include man- aging liquidity along with hedging against fluctuations in interest rates, currencies and commodity prices, arranging Group financing, issuing guarantees and letters of comfort and liaising with rating agencies. Responsibility for these activities rests with Corporate Finance at Group head- quarters in Bonn, which is supported by three Regional Treasury Centres in Bonn (Germany), Weston, Florida (USA) and Singapore. The regional centres act as interfaces between Group headquarters and the operating companies, advise the companies on financial management issues and ensure compliance with Group-wide requirements. Corporate Finance’s main task is to minimise financial risk and the cost of capital in addition to preserving the Group’s financial stability and flexibility over the long term. In order to maintain its unrestricted access to the capital markets, the Group continues to aim for a credit rating ap- propriate to the sector. We therefore monitor the ratio of our operating cash flow to our adjusted debt particularly closely. Adjusted debt refers to the Group’s net debt, allow- ing for unfunded pension obligations and liabilities under operating leases. Maintaining financial flexibility and low cost of capital The Group’s finance strategy builds upon the principles and aims of financial management. In addition to the interests of shareholders, the strategy also takes creditor require- ments into account. The goal is for the Group to maintain its financial flexibility and low cost of capital by ensuring a high degree of continuity and predictability for investors. Group Management Report — REPORT ON ECONOMIC POSITION — Results of operations — Financial position 57 A key component of this strategy is having a target rat- ing of “BBB+”, which is managed via a dynamic perform- ance metric known as funds from operations to debt (FFO to debt). Our strategy additionally includes a sustained divi- dend policy and clear priorities regarding the use of excess liquidity, which is to be used to gradually increase plan assets of our pension plans, to distribute special dividends and to buy back shares. Finance strategy Credit rating A.38 Investors • Maintain “BBB+” and “Baa1” ratings, respectively. • FFO to debt used as dynamic performance metric. • Reliable and consistent information from the company. • Predictability of expected returns. Dividend policy • Pay out 40 % to 60 % of net profit. • Consider cash flows and continuity. Excess liquidity • Increase plan assets of pension plans. • Pay out special dividends or execute share buy­back programme. Debt portfolio • Syndicated credit facility taken out as liquidity reserve. • Debt Issuance Programme established for issuing bonds. • Bonds issued to cover long­term capital requirements. Group • Preserve financial and strategic flexibility. • Assure low cost of capital. FFO to debt € m Operating cash flow before changes in  working capital Interest received Interest paid Adjustment for operating leases Adjustment for pensions Funds from operations (FFO) Reported financial liabilities Financial liabilities at fair value through profit or loss Adjustment for operating leases Adjustment for pensions Surplus cash and near­cash investments 1 A.39 2016 2017 2,514 50 138 1,569 1,003 4,998 6,035 121 7,166 5,467 2,239 3,418 52 160 1,641 567 5,518 6,050 44 9,406 4,323 2,503 Debt FFO to debt (%) 16,308 17,232 30.6 32.0 1 Reported cash and cash equivalents and investment funds callable at sight, less cash  needed for operations. Funds from operations (FFO) represents operating cash flow before changes in working capital plus interest received less interest paid and adjusted for operating leases and pensions, as shown in the calculation above. In addition to financial liabilities and surplus cash and near-cash investments, the figure for debt also includes operating lease liabilities as well as unfunded pension liabilities. Despite the higher debt, the FFO to debt performance metric increased in the year under review compared with the previous year due to the sharp rise in funds from oper- ations. Funds from operations increased by €520 million to €5,518 million, due mainly to the significant rise in operat- ing cash flow before changes in working capital. The adjust- ment for pensions declined year-on-year as a result of lower funding of pension obligations in the year under review. The amount of interest paid went up in the reporting period due to the initial payment of interest on the bonds issued in April 2016. 58 Deutsche Post DHL Group — 2017 Annual Report Debt rose by €924 million compared with the previous year to €17,232 million, primarily as a result of the increase in the adjustment for operating leases driven by the increase in lease obligations. The adjustment for pensions declined year-on-year as a result of further funding of pension obli- gations in the year under review. More information on pen- note 38 to the consolidated financial state- sions can be found in ments. Financial liabilities include the December bond issue in the amount of €1.5 billion as well as a bond repayment in the amount of €0.75 billion. This item also includes the con- version of shares in the convertible bond in the amount of note 40 to the consolidated financial statements, as well €0.3 billion, as the disposal of the obligations from the share buy-back programme in the amount of €0.2 billion. Cash and liquidity managed centrally The cash and liquidity of our globally operating subsidiaries is managed centrally by Corporate Treasury. 80 % of the Group’s external revenue is consolidated in cash pools and used to balance internal liquidity needs. In countries where this practice is ruled out for legal reasons, internal and ex- ternal borrowing and investment are managed centrally by Corporate Treasury. In this context, we observe a balanced banking policy in order to remain independent of indi- vidual banks. Our subsidiaries’ intra-group revenue is also pooled and managed by our in-house bank (inter-company clearing) in order to avoid paying external bank charges and margins. Payment transactions are executed in accordance with uniform guidelines using standardised processes and IT systems. Many Group companies pool their external payment transactions in the intra-group Payment Factory, which executes payments on behalf of the respective com- panies via Deutsche Post AG’s central bank accounts. Limiting market risk The Group uses both primary and derivative financial in- struments to limit market risk. Interest rate risk is managed exclusively via swaps. Currency risk is additionally hedged using forward transactions, cross-currency swaps and op- tions. We pass on most of the risk arising from commodity fluctuations to our customers and, to some extent, use com- modity swaps to manage the remaining risk. The param eters, responsibilities and controls governing the use of deriv a- tives are laid down in internal guidelines. Flexible and stable financing The Group covers its long-term financing requirements by means of equity and debt. This ensures our financial stabil- ity and also provides adequate flexibility. Our most import- ant source of funds is net cash from operating activities. We also have a syndicated credit facility in a total vol- ume of €2 billion that guarantees us favourable market con- ditions and acts as a secure, long-term liquidity reserve. The facility matures in 2020, and does not contain any cov- enants concerning the Group’s financial indicators. In view of our solid liquidity, the syndicated credit facility was not drawn down during the year under review. As part of our banking policy, we spread our business volume widely and maintain long-term relationships with the financial institutions we entrust with our business. In addition to credit lines, we meet our borrowing require- ments through other independent sources of financing, such as bonds and operating leases. Most debt is taken out centrally in order to leverage economies of scale and spe- cialisation benefits and hence minimise borrowing costs. In December 2017, we issued a bond in a volume of €0.5 billion as part of the Debt Issuance Programme estab- lished in 2012 with a volume of up to €8 billion. We also issued a convertible bond in the amount of €1.0 billion in December 2017. The cash funds received that same month were utilised to refinance existing financial liabilities and for the further funding of pension obligations in the United Kingdom in the amount of €0.5 billion. One bond was redeemed in the year under review in the amount of €0.75 billion. A total of €0.3 billion of the convertible bond issued in 2012 in the amount of €1 billion was converted in 2017. Further information on current note 40 to the consolidated financial bond issues is contained in statements. Group Management Report — REPORT ON ECONOMIC POSITION — Financial position 59 Group issues sureties, letters of comfort and guarantees No change in the Group’s credit rating Deutsche Post AG provides security for the loan agreements, leases and supplier contracts entered into by Group com- panies, associates or joint ventures by issuing sureties, let- ters of comfort or guarantees as needed. This practice allows better conditions to be negotiated locally. The sureties are provided and monitored centrally. Agency ratings Fitch Ratings Long­term: BBB+ Short­term: F2 Outlook: stable Rating factors The ratings of “A3” issued by Moody’s Investors Service (Moody’s) and “BBB+” issued by Fitch Ratings (Fitch) re- main in effect with regard to our credit quality. The stable outlook from both rating agencies is also still applicable. We remain well positioned in the transport and logistics sector with these ratings. The following table shows the ratings as at the reporting date and the underlying factors. The com- plete and current analyses by the rating agencies and the rating categories can be found at dpdhl.com/en/investors. A.40 Moody’s Investors Service Long­term: A3 Short­term: P–2 Outlook: stable Rating factors • Balanced business risk profile. • Stable contribution of core mail products. • Growth in internet­led parcel volumes. • Strong position in global time­definite express services with continued growth and margin improvement. • Fairly stable credit metrics and adequate liquidity. Rating factors • Scale and global presence as the world’s largest logistics company. • Large and robust mail business in Germany. • Expectations of progressive improvement in profitability through its network investments and restructuring programmes. • Adequate financial metrics, conservative financial policy and excellent liquidity profile. Rating factors • Structural mail volume decline in the Post ­ eCommerce ­ Parcel division due to secular changes in the industry. • Exposure to global market volatility and competitiveness through the DHL divisions. • Challenging and competitive market conditions. • Exposure to global macroeconomic trends in the logistics businesses. • Structural decline of traditional postal services. • Ongoing turnaround initiatives for Global Forwarding, Freight. Liquidity and sources of funds Financial liabilities € m Bonds Amounts due to banks Finance lease liabilities Financial liabilities at fair value through profit or loss Other financial liabilities As at the reporting date, the Group had cash and cash equiva lents of €3.1 billion (previous year: €3.1 billion) at its disposal. A large portion of that amount is held directly by Deutsche Post AG. The cash is either invested centrally on the money market or deposited in existing bank accounts. These central, short-term financial investments had a vol- ume of €1.7 billion as at the reporting date (previous year: €1.7 billion). In addition, €0.5 billion was invested in a money market fund (previous year: €0.2 billion). The following table gives a breakdown of the financial liabilities reported in our bal- ance sheet. Further information on recognised financial note 40 to the consolidated financial liabilities is contained in statements. A.41 2017 5,350 156 181 44 319 2016 4,990 158 209 121 557 6,035 6,050 60 Deutsche Post DHL Group — 2017 Annual Report Operating leases remain an important source of funding for the Group. We mainly use operating leases to finance real estate, although we also finance aircraft, vehicle fleets and IT equipment. Operating lease obligations by asset class 1 € m Land and buildings Aircraft Transport equipment Technical equipment and machinery Other equipment, operating and office equipment, miscellaneous 1 Undiscounted. A.42 2017 9,403 1,138 611 129 17 11,298 2016 6,657 909 495 79 48 8,188 Operating lease obligations increased quite significantly year-on-year to €11.3 billion. The increase was due in part to new, long-term leases – most of which were entered into for real estate, although some related to aircraft. In addition, existing real estate contracts with renewal and termination options were reassessed. Capital expenditure above prior-year level Investments in property, plant and equipment and intan gible assets (not including goodwill) amounted to €2,277 million in the year under review, or 9.8 % above the prior year’s fig- ure of €2,074 million. Please refer to notes 10, 21 and 22 to the consolidated financial statements for a breakdown of capital ex- penditure (capex) into regions and asset classes. Capex and depreciation, amortisation and impairment losses, full year PeP 2017 2016 adjusted 2 2016 adjusted 2 Global Forwarding, Freight Express Supply Chain Corporate Center / Other 2017 2016 2017 2016 2017 2016 2017 Capex (€ m) 592 666 900 1,049 337 356 465 525 55 79 70 70 328 277 199 214 294 319 201 200 Depreciation, amortisation and impairment losses (€ m) Ratio of capex to depreciation, amortisation and impairment losses 1.76 1.87 1.94 2.00 0.70 1.00 1.12 0.87 0.99 1.07 1 Including rounding. 2 Reassignment of companies in Spain and Portugal from the Express division to the Post ­ eCommerce ­ Parcel division. Capex and depreciation, amortisation and impairment losses, Q 4 PeP 2017 2016 adjusted 2 2016 adjusted 2 Global Forwarding, Freight Express Supply Chain Corporate Center / Other 2017 2016 2017 2016 2017 2016 2017 Capex (€ m) 265 320 279 605 96 89 147 132 18 19 18 19 73 75 83 99 75 50 51 122 –1 A.43 Consolidation 1 Group 2016 adjusted 2 2017 2016 2017 0 1 – 1 1 – 2,074 2,277 1,377 1,471 1.51 1.55 A.44 Consolidation 1 Group 2016 adjusted 2 2017 2016 2017 1 0 – 709 1,149 388 390 1.83 2.95 1 – Depreciation, amortisation and impairment losses (€ m) Ratio of capex to depreciation, amortisation and impairment losses 2.76 3.60 1.90 4.58 0.95 0.95 0.97 0.84 1.50 2.39 1 Including rounding. 2 Reassignment of companies in Spain and Portugal from the Express division to the Post ­ eCommerce ­ Parcel division. In the Post - eCommerce - Parcel division, the largest capex portion was attributable to the expansion of our domestic and international parcel network and production of our StreetScooter electric vehicles. In the Express division, investments were made in ex- panding our hubs, especially in Brussels, East Midlands, Leipzig, Cincinnati and Mexico City. Continuous main- tenance and renewal of our aircraft fleet as well as the pur- Group Management Report — REPORT ON ECONOMIC POSITION — Financial position 61 chase of freighter aircraft from Air Hong Kong represented an additional focus of investment spending. In the Global Forwarding, Freight division, we con- tinued to invest in refurbishing our warehouses and office buildings across all regions as well as in the IT application infrastructure. In the Supply Chain division, the majority of funds was used to support new business, mostly in the EMEA and Americas regions. Cross-divisional capex also increased due to invest- ments made to expand our fleet of vehicles and replace fur- ther vehicles. Higher operating cash flow Net cash from operating activities in the year under review amounted to €3,297 million, an increase of €858 million. In the previous year, €1 billion was used to fund pension obli- gations in Germany, significantly impacting the change in provisions. In 2017, €495 million was used to fund pension obligations in the United Kingdom. EBIT and non-cash components such as depreciation, amortisation and impair- ment losses increased. Our income tax payments amounted to €626 million, up €98 million year-on-year. Net cash used in investing activities increased from €1,643 million to €2,091 million. The sale of Williams Lea Tag Group led to a rise in proceeds from the disposal of subsidiaries and other business units to €316 million. In the previous year, the repayment from the state aid proceedings increased proceeds from the disposal of other non-current financial assets by €378 million, whereas cash payments to acquire subsidiaries and other business units of €278 mil- lion were made in connection with the purchase of UK Mail. Cash paid to acquire property, plant and equipment and intangible assets rose from €1,966 million to €2,203 million in the year under review. At €1,087 million, net cash used in financing activities was below the figure for the previous year (€1,233 million). A bond placement had resulted in a cash inflow of €1.239 bil- lion in the previous year. In the year under review, we raised issuing proceeds of €1.493 billion from the placement of a traditional bond and a convertible bond. At the same time, we repaid a bond in the amount of €750 million that fell due. Payments to acquire treasury shares fell from €836 mil- lion to €148 million with the ex piration of our share buy- back programme. Once again, the dividend distributed to our shareholders was the largest payment item; this rose by €243 million to €1,270 million. Cash and cash equivalents rose from €3,107 million as at 31 December 2016 to €3,135 million as at 31 Decem- ber 2017. Calculation of free cash flow € m Net cash from operating activities Sale of property, plant and equipment and intangible assets Acquisition of property, plant and equipment and intangible assets Cash outflow arising from change in property, plant and equipment and intangible assets Disposals of subsidiaries and other business units Disposals of investments accounted for using the equity method and other investments Acquisition of subsidiaries and other business units Acquisition of investments accounted for using the equity method and other investments Cash outflow/inflow arising from acquisitions/divestitures Interest received Interest paid Net interest paid Free cash flow 2016 2,439 265 –1,966 –1,701 35 82 –304 –19 –206 50 –138 – 88 444 2017 3,297 236 –2,203 –1,967 316 3 – 54 – 55 210 52 –160 –108 1,432 A.45 Q 4 2016 1,925 Q 4 2017 1,527 141 – 545 – 404 10 0 –270 0 –260 7 – 67 – 60 1,201 135 – 914 –779 316 0 0 –32 284 12 – 69 – 57 975 62 Deutsche Post DHL Group — 2017 Annual Report Free cash flow improved significantly from €444 million to €1,432 million, due primarily to the increase in net cash from operating activities to €3,297 million (previous year: €2,439 million). In addition, the purchase of UK Mail Group led to a cash outflow in the previous year, whereas in the reporting period the cash inflow from the sale of Williams Lea Tag Group increased free cash flow. Net assets Selected indicators for net assets A.46 Equity ratio Net debt Net interest cover Net gearing FFO to debt 1 31 Dec. 2016 31 Dec. 2017 % € m % % 29.6 2,261 39.7 16.6 30.6 33.4 1,938 34.6 13.1 31.9 1 For the calculation Financial position, page 57. Increase in consolidated total assets The Group’s total assets amounted to €38,672 million as at 31 December 2017, €377 million higher than at 31 Decem- ber 2016 (€38,295 million). Intangible assets fell by €762 million to €11,792 million, primarily as a result of exchange rate movements. The prop- erty, plant and equipment item increased by €393 million to €8,782 million since additions exceeded depreciation and impairment losses, disposals and negative currency effects. Current financial assets rose from €374 million to €652 mil- lion. We invested €500 million of excess liquidity for the short term on the capital market, up €300 million on the figure as at 31 December 2016. Trade receivables rose by €253 million to €8,218 million. On the equity and liabilities side of the balance sheet, equity attributable to Deutsche Post AG shareholders rose by €1,550 million to €12,637 million: the consolidated net profit for the period, the capital increase in connection with the convertible bond and the remeasurement of net pension provisions served to increase this figure, whilst the dividend payment and negative currency effects decreased it. Provi- sions for pensions and similar obligations fell tangibly from €5,580 million to €4,450 million. Amongst other factors, the funding of pension obligations in the United Kingdom reduced this item by €495 million. At €6,050 million, finan- cial liabilities were at the previous year’s level (€6,035 mil- lion). We repaid a bond and terminated the share buyback programme, whilst also issuing a new bond and placing a convertible bond on the capital market. Current provisions fell by €192 million to €1,131 million due, amongst other things, to a decline in restructuring provisions. Trade pay- ables increased by €165 million to €7,343 million. Net debt declines to €1,938 million Our net debt fell from €2,261 million as at 31 Decem- ber 2016 to €1,938 million as at the reporting date, mainly because portions of the 2012 convertible bond were exer- cised. At 33.4 %, the equity ratio was higher than at 31 De- cember 2016 (29.6 %). The net interest cover ratio – the extent to which net interest obligations are covered by EBIT – fell from 39.7 to 34.6 year-on-year. The net gearing ratio as at 31 December was 13.1 %. Net debt € m Non­current financial liabilities Current financial liabilities Financial liabilities 1 Cash and cash equivalents Current financial assets Positive fair value of non­current financial derivatives 2 Financial assets Net debt A.47 31 Dec. 2016 31 Dec. 2017 4,516 1,381 5,897 3,107 374 155 3,636 2,261 5,101 794 5,895 3,135 652 170 3,957 1,938 1 Less operating financial liabilities, 2 Recognised in non­current financial assets in the balance sheet. note 32.4 to the consolidated financial statements. Group Management Report — REPORT ON ECONOMIC POSITION — Financial position — Net assets — Business performance in the divisions Business performance in the divisions POST ­ ECOMMERCE ­ PARCEL DIVISION Key figures of the Post - eCommerce - Parcel division € m Revenue of which Post eCommerce ­ Parcel Profit from operating activities (EBIt) of which Germany International Parcel and eCommerce Return on sales (%) 2 Operating cash flow 2016 adjusted 1 17,078 9,741 7,337 1,446 1,447 –1 8.5 360 2017 +/– % Q 4 2016 adjusted 1 Q 4 2017 18,168 9,736 8,432 1,502 1,492 10 8.3 1,505 6.4 – 0.1 14.9 3.9 3.1 > 100 – > 100 4,710 2,581 2,129 490 496 – 6 10.4 602 5,052 2,634 2,418 510 503 7 10.1 858 63 A.48 +/– % 7.3 2.1 13.6 4.1 1.4 > 100 – 42.5 1 Reassignment of companies in Spain and Portugal from the Express division, 2 EBIt / revenue. note 10 to the consolidated financial statements. Revenue increases by 6.4 % In the year under review, revenue in the division was €18,168 million, 6.4 % above the prior-year figure of €17,078 million, although there were 2.9 fewer working days in Germany. Most of the growth originated in the eCom- merce - Parcel business unit. Negative currency effects of €72 million were recorded in 2017; excluding these effects, the increase in revenue was 6.8 %. In the fourth quarter of the year, despite 1.9 fewer working days, revenue in the div- ision increased year-on-year by 7.3 %. Revenue in the Post business unit at prior-year level In the Post business unit, revenue was €9,736 million in the  year under review and thus at the prior-year level (€9,741 million). Volumes declined by 0.9 %. In the fourth quarter of 2017, revenue was up by 2.1 % to €2,634 million (previous year: €2,581 million). Additional mail volumes due to special factors such as elections were unable to offset the overall decline in Mail Communication volumes. By contrast, revenue and vol- umes increased in the Dialogue Marketing business, due in part to communication ahead of elections. In the cross-border mail business, although the trend towards merchandise shipments by mail continued, it could not offset volume declines in promotional mailing and document dispatch. Post: revenue € m Mail Communication Dialogue Marketing Other Total 1 Changed product allocations. 2016 adjusted 1 6,527 2,225 989 9,741 2017 +/– % 6,439 2,320 977 9,736 –1.3 4.3 –1.2 – 0.1 Q 4 2016 adjusted 1 1,739 605 237 2,581 Q 4 2017 1,726 653 255 2,634 A.49 +/– % – 0.7 7.9 7.6 2.1 64 Post: volumes Mail items (millions) Total of which Mail Communication of which Dialogue Marketing 1 Changed product allocations. Deutsche Post DHL Group — 2017 Annual Report 2016 adjusted 1 18,628 8,242 8,520 2017 +/– % 18,457 7,860 8,820 – 0.9 – 4.6 3.5 Q 4 2016 adjusted 1 4,987 2,189 2,319 Q 4 2017 4,883 2,058 2,379 A.50 +/– % –2.1 – 6.0 2.6 eCommerce - Parcel business unit continues to grow Revenue in the eCommerce  - Parcel business unit was €8,432 million in the year under review, exceeding the prior- year figure of €7,337 million by 14.9 %. The fourth quarter of 2017 also saw double-digit revenue growth. Europe business, revenue grew by 65.4 % to €1,882 million (previous year: €1,138 million), driven in part by the start of business activities in the United Kingdom through the ac- quisition of UK Mail, which generated revenue of €536 mil- lion in 2017. The Parcel business in Germany continues to grow due to the strong e-commerce trend. Revenue in the Parcel Ger- many business increased by 4.3 % to €5,022 million in 2017 (previous year: €4,814 million). Volumes rose by 7.8 % to 1,323 million parcels. Revenue in the DHL eCommerce business was up by 10.3 % to €1,528 million in the year under review (previous year: €1,385 million), due to strong performance in the US domestic business as well as cross-border business in Asia. Excluding currency effects, growth was 13.1 %. Our domestic and cross-border parcel business in Europe is continuing to perform dynamically. In the Parcel eCommerce - Parcel: revenue € m Parcel Germany Parcel Europe 2 DHL eCommerce 3 Total 2016 adjusted 1 4,814 1,138 1,385 7,337 2017 +/– % 5,022 1,882 1,528 8,432 4.3 65.4 10.3 14.9 Q 4 2016 adjusted 1 1,421 311 397 2,129 Q 4 2017 1,484 519 415 2,418 1 Reassignment of companies in Spain and Portugal from the Express division, 2 Excluding Germany. 3 Outside Europe. note 10 to the consolidated financial statements. Parcel Germany: volumes Parcels (millions) Total 2016 1,227 2017 1,323 + / – % 7.8 Q 4 2016 Q 4 2017 368 394 A.51 +/– % 4.4 66.9 4.5 13.6 A.52 + / – % 7.1 EbIT improves EBIT in the division improved by 3.9 % to €1,502 million in the year under review (previous year: €1,446 million). The increase was driven mainly by higher revenues, whilst increased material and labour costs as well as continued investments in the parcel network prevented a more signifi- cant improvement in earnings. The majority of our EBIT is  still generated in Germany. Return on sales declined slightly from 8.5 % to 8.3 % in 2017. The division’s EBIT in the fourth quarter of the year was €510 million (previous year: €490 million). Operating cash flow improved from €360 million to €1,505 million. This mainly reflects a pay- ment of €955 million made in April 2016 to further fund pension obligations. Group Management Report — REPORT ON ECONOMIC POSITION — Business performance in the divisions EXPRESS DIVISION Key figures of the EXPRESS division € m Revenue of which Europe Americas Asia Pacific MEA (Middle East and Africa) Consolidation / Other Profit from operating activities (EBIt) Return on sales (%) 2 Operating cash flow 2016 adjusted 1 13,748 6,035 2,741 5,194 1,054 15,049 6,696 3,010 5,556 1,110 –1,276 –1,323 1,544 11.2 1,928 1,736 11.5 2,212 2017 +/– % Q 4 2016 adjusted 1 Q 4 2017 9.5 11.0 9.8 7.0 5.3 –3.7 12.4 – 14.7 3,759 1,645 757 1,407 274 –324 434 11.5 728 4,059 1,841 813 1,454 283 –332 499 12.3 723 65 A.53 +/– % 8.0 11.9 7.4 3.3 3.3 –2.5 15.0 – – 0.7 1 Reassignment of companies in Spain and Portugal to the Post ­ eCommerce ­ Parcel division, 2 EBIt / revenue. note 10 to the consolidated financial statements. International business remains on growth path Revenue in the division improved by 9.5 % to €15,049 mil- lion in the year under review (previous year: €13,748 mil- lion). This includes negative currency effects of €486 mil- lion. Excluding these effects, the increase in revenue was 13.0 %. The revenue figure also reflects the fact that fuel surcharges were higher in all regions as the price of crude oil increased compared with the previous year. Excluding foreign currency losses and higher fuel surcharges, revenue was up by 10.8 %. In the Time Definite International (TDI) product line, revenues per day increased by 12.9 % and per-day shipment volumes by 9.9 % in 2017. Revenues per day for the fourth quarter were up by 15.1 % and per-day shipment volumes by 11.1 %. In the Time Definite Domestic (TDD) product line, rev- enues per day increased by 7.5 % and per-day shipment vol- umes by 6.2 % in the year under review. Growth in the fourth quarter amounted to 9.1 % for revenues per day and 6.4 % for per-day volumes. EXPRESS: revenue by product € m per day 1 Time Definite International (tDI) Time Definite Domestic (tDD) 2016 adjusted 2 41.9 4.0 2017 +/– % 47.3 4.3 12.9 7.5 Q 4 2016 adjusted 2 45.7 4.4 Q 4 2017 52.6 4.8 1 To improve comparability, product revenues were translated at uniform exchange rates. These revenues are also the basis for the weighted calculation of working days. 2 Reassignment of companies in Spain and Portugal to the Post ­ eCommerce ­ Parcel division, note 10 to the consolidated financial statements. EXPRESS: volumes by product Thousands of items per day Time Definite International (tDI) Time Definite Domestic (tDD) 2016 adjusted 1 808 434 2017 +/– % 888 461 9.9 6.2 Q 4 2016 adjusted 1 880 481 Q 4 2017 978 512 1 Reassignment of companies in Spain and Portugal to the Post ­ eCommerce ­ Parcel division, note 10 to the consolidated financial statements. A.54 +/– % 15.1 9.1 A.55 +/– % 11.1 6.4 66 Deutsche Post DHL Group — 2017 Annual Report Strong revenue and volume growth in Europe region Higher volumes in MEA region Revenue in the MEA region (Middle East and Africa) im- proved by 5.3 % to €1,110 million in the year under review (previous year: €1,054 million). This figure included nega- tive currency effects of €70 million, most of which related to Egypt, but also to other countries in the region. Exclud- ing these effects, revenue increased by 12.0 %. In the TDI product line, revenues per day were up by 11.6 % and per-day volumes by 23.7 %. Growth in the fourth quarter amounted to 11.8 % for revenues per day and 27.4 % for per-day volumes. EbIT and operating cash flow considerably above prior-year level EBIT in the division rose by 12.4 % to €1,736 million in finan- cial year 2017 (previous year: €1,544 million), driven by network improvement and strong international business growth. Return on sales increased from 11.2 % to 11.5 %. In the fourth quarter, EBIT improved by 15.0 % to €499 million and return on sales increased from 11.5 % to 12.3 %. Operat- ing cash flow rose by 14.7 % to €2,212 million in 2017 (pre- vious year: €1,928 million). Revenue in the Europe region increased by 11.0 % to €6,696 million in the year under review (previous year: €6,035 million). This included negative currency effects of €95 million, which related mainly to the United Kingdom and Turkey. Excluding these effects, revenue growth was 12.5 %. In the TDI product line, revenues per day rose by 14.4 %; per-day TDI shipment volumes improved by 12.8 % in 2017. International per-day shipment revenues for the fourth quarter were up by 15.5 % and per-day shipment vol- umes by 12.5 %. Strong momentum in the Americas region Revenue in the Americas region increased by 9.8 % to €3,010 million in the year under review (previous year: €2,741 million). This figure included negative currency ef- fects of €164 million, which related primarily to Venezuela and the USA. Excluding these effects, revenue growth was 15.8 % compared with the previous year. In the TDI product line, revenues per day were up 15.4 % in 2017. Per-day ship- ment volumes improved by 14.3 %. Revenues per day for the fourth quarter were up by 22.7 % and per-day shipment vol- umes by 17.6 %. Business in the Asia Pacific region grows steadily Revenue in the Asia Pacific region increased by 7.0 % to €5,556 million in the year under review (previous year: €5,194 million). This figure included negative currency ef- fects of €151 million, most of which related to China and Japan. Excluding these effects, the revenue increase was 9.9 % in 2017. In the TDI product line, revenues per day im- proved by 10.4 % and per-day volumes by 3.6 %. Growth in the fourth quarter amounted to 11.8 % for revenues per day and 5.3 % for per-day volumes. 67 A.56 Group Management Report — REPORT ON ECONOMIC POSITION — Business performance in the divisions GLOBAL FORWARDING, FREIGHT DIVISION Key figures of the GLObAL FORWARDING, FREIGhT division € m Revenue of which Global Forwarding Freight Consolidation / Other Profit from operating activities (EBIt) Return on sales (%) 1 Operating cash flow 1 EBIt / revenue. 2016 13,737 9,626 4,274 –163 287 2.1 248 2017 14,482 10,279 4,354 –151 297 2.1 131 + / – % Q 4 2016 Q 4 2017 + / – % 5.4 6.8 1.9 7.4 3.5 – – 47.2 3,623 2,566 1,098 – 41 104 2.9 206 3,791 2,698 1,130 –37 123 3.2 119 4.6 5.1 2.9 9.8 18.3 – – 42.2 Freight forwarding revenue performing well Revenue in the division increased by 5.4 % to €14,482 mil- lion in the year under review (previous year: €13,737 mil- lion). Excluding negative currency effects of €284 million, revenue was up year-on-year by 7.5 %. In the fourth quarter of 2017, revenue amounted to €3,791 million, exceeding the prior-year figure by 4.6 %. In the Global Forwarding business unit, revenue in the year under review increased by 6.8 % to €10,279 million (previous year: €9,626 million). Excluding negative cur- rency effects of €250 million, the increase was 9.4 %. Gross profit is defined as revenue from transport or other services less directly attributable costs. These include transport costs for air and ocean freight, road and rail transport, expenses for commissions, insurances, customs clearance and other revenue-related expenses. Gross profit declined by 1.2 % to €2,390 million (previous year: €2,419 million). Revenue increase in air and ocean freight continues Air and ocean freight revenues and volumes continued to grow in financial year 2017. In air freight, volumes rose by 8.6 % compared with the previous year. Although increased demand raised freight rates, higher air freight prices can only be passed on to cus- tomers with a delay due to our contract structures. As a result, revenue in the year under review only rose by 4.9 % and air freight gross profit fell by 1.4 % despite increased volumes. In the fourth quarter of 2017, we were able to pass higher prices on to customers; air freight revenue rose by 4.0 %, whilst gross profit improved by 11.0 % amidst volume growth of 2.3 %. Ocean freight volumes in 2017 exceeded the prior-year level by 6.5 %, driven mainly by growth on the trade lanes between Asia and Europe as well as in the trans-Pacific mar- ket. Our ocean freight revenue rose by 6.1 % in the year under review, whilst gross profit fell by 5.8 %. The reasons for this development were considerably higher freight rates caused by the consolidation of the shipping company mar- ket as well as increased demand. In the fourth quarter, vol- umes and revenue exceeded the prior-year figures by 4.7 % and 4.5 %, respectively. The performance of our industrial project business (in the following table reported as part of Other in the Global Forwarding business unit) improved significantly compared with the previous year. The share of revenue related to in- dustrial project business and reported under Other in- creased from 21.7 % in the prior year to 25.6 %. Gross profit improved by 19.4 %. 68 Global Forwarding: revenue € m Air freight Ocean freight Other Total Global Forwarding: volumes Thousands Air freight of which exports Ocean freight 1 Twenty­foot equivalent units. Deutsche Post DHL Group — 2017 Annual Report 2016 4,391 3,309 1,926 9,626 2016 3,648 2,081 3,059 2017 4,608 3,512 2,159 10,279 2017 3,961 2,248 3,259 tonnes tonnes tEUS 1 + / – % Q 4 2016 Q 4 2017 + / – % A.57 4.9 6.1 12.1 6.8 1,195 851 520 2,566 1,243 889 566 2,698 4.0 4.5 8.8 5.1 A.58 + / – % Q 4 2016 Q 4 2017 + / – % 8.6 8.0 6.5 1,014 578 783 1,037 600 820 2.3 3.8 4.7 Revenue increase in European overland transport business In the Freight business unit, revenue rose by 1.9 % to €4,354 million in the year under review (previous year: €4,274 million) despite negative currency effects of €36 mil- lion. Transport volumes increased by 3.7 %, driven mainly by e-commerce based business in Sweden as well as by busi- ness in Denmark and Germany. Gross profit was down by 1.9 % to €1,080 million (previous year: €1,101 million) due in part to negative currency effects. Significant EbIT increase in fourth quarter EBIT in the division improved by 3.5 % from €287 million to €297 million in the year under review, despite persistent margin pressure in the core air and ocean freight products resulting from high freight rates. Return on sales was un- changed at 2.1 %. In the fourth quarter of 2017, EBIT im- proved by 18.3 % to €123 million (previous year: €104 mil- lion) due to the improved gross profit in air freight; return on sales rose to 3.2 %. Net working capital increased in the year under review due to the rise in receivables from higher transport volumes. The increase was offset partially by higher liabilities. Oper- ating cash flow amounted to €131 million (previous year: €248 million). Group Management Report — REPORT ON ECONOMIC POSITION — Business performance in the divisions SUPPLY CHAIN DIVISION Key figures of the SUPPLY chAIN division € m Revenue of which EMEA (Europe, Middle East and Africa) Americas Asia Pacific Consolidation / Other Profit from operating activities (EBIt) Return on sales (%) 1 Operating cash flow 1 EBIt / revenue. 69 A.59 2016 13,957 7,336 4,454 2,200 –33 572 4.1 658 2017 14,152 7,245 4,551 2,389 –33 555 3.9 239 + / – % 1.4 –1.2 2.2 8.6 – –3.0 – – 63.7 Q 4 2016 Q 4 2017 + / – % 3,607 1,853 1,170 592 – 8 206 5.7 520 3,619 1,921 1,125 583 –10 184 5.1 28 0.3 3.7 –3.8 –1.5 –25.0 –10.7 – – 94.6 Strong revenue growth offset by adverse currency effects Revenue in the division increased by 1.4 % to €14,152 million in the year under review (previous year: €13,957 million). The increase was driven by good business performance in the Americas and Asia Pacific regions; it was, however, off- set partly by negative currency effects of €444 million. Ex- cluding this effect, revenue growth was 4.6 %. The Life Sciences & Healthcare, Automotive and Technology sectors achieved the highest growth compared with the previous year. In the fourth quarter, revenue increased by 0.3 % to €3,619 million (previous year: €3,607 million); excluding currency effects, it rose by 5.1 %. In the EMEA region, revenue decreased due to negative The Asia Pacific region saw strong revenue growth, driven predominantly by the Life Sciences & Healthcare sector in Australia and the Technology sector. New business worth around €1,490 million secured In 2017, the Supply Chain division concluded additional contracts worth around €1,490 million in annualised rev- enue (excluding Williams Lea Tag Group, note 2 to the con- solidated financial statements), with both new and existing cus- tomers. The Automotive, Consumer and Retail sectors accounted for the majority of the gains. The annualised contract renewal rate remained at a consistently high level. currency effects. One-off effects inhibit EbIT growth By contrast, strong revenue growth in the Americas region in nearly all sectors more than offset adverse cur- rency effects. SUPPLY chAIN: revenue by sector and region, 2017 Total revenue: €14,152 million of which Retail Consumer Automotive Technology Life Sciences & Healthcare Others Engineering & Manufacturing Financial Services of which Europe / Middle East / Africa / Consolidation Americas Asia Pacific A.60 25 % 23 % 14 % 12 % 11 % 8 % 5 % 2 % 51 % 32 % 17 % EBIT in the division was €555 million in the year under re- view (previous year: €572 million). In the previous year, EBIT was influenced by one-time factors such as income from the sale of shares in King’s Cross in the UK, on the one hand, and restructuring efforts, on the other. Overall, these factors had a positive effect. In 2017, earnings were ad- versely affected by the one-time write-down of customer relationship assets. Excluding those effects and despite adverse currency effects, EBIT improved due to business growth and the impact of strategic initiatives. Due to the one-off effects described above, return on sales was slightly below the prior- year level at 3.9 %. EBIT for the fourth quar- ter of 2017 decreased from €206 million to €184 million and return on sales to 5.1 % (previous year: 5.7 %). Operating cash flow declined in the year under review from €658 mil- lion to €239 million. Operational improvement was dimin- ished by a one-time cash outflow of €459 million to further fund pension obligations. 70 Deutsche Post DHL Group — 2017 Annual Report DEUTSCHE POST SHARES Deutsche Post shares: seven-year overview Year­end closing price High Low € € € Number of shares as at 31 December Market capitalisation as at 31 December millions € m 2011 11.88 13.83 9.13 1,209.0 14,363 2012 16.60 16.66 11.88 1,209.0 20,069 2013 26.50 26.71 16.51 1,209.0 32,039 2014 27.05 28.43 22.30 1,211.2 32,758 2015 25.96 31.08 23.15 1,212.8 31,483 2016 31.24 31.35 19.73 1,240.9 38,760 A.61 2017 39.75 40.99 30.60 1,228.7 48,841 Average trading volume per day 1 shares 4,898,924 4,052,323 4,114,460 4,019,689 4,351,223 3,497,213 2,613,290 Annual performance including dividends Annual performance excluding dividends Beta factor 2 Earnings per share 3 Cash flow per share 4 Price­to­earnings ratio 5 Price­to­cash flow ratio 4, 6 Dividend Payout ratio Dividend per share Dividend yield % % € € € m % € % –1.3 – 6.5 1.19 0.96 1.96 12.4 6.1 846 72.7 0.70 5.9 45.6 39.7 0.88 1.36 7 – 0.17 12.2 7 – 97.6 846 51.6 0.70 4.2 63.9 59.6 0.86 1.73 2.47 15.3 10.7 968 46.3 0.80 3.0 5.1 2.1 0.94 1.71 2.51 15.8 10.8 1,030 49.7 0.85 3.1 – 0.9 – 4.0 0.95 1.27 2.84 20.4 9.1 1,027 8 66.7 9 0.85 3.3 23.6 20.3 0.97 2.19 2.03 14.3 15.4 1,270 48.1 1.05 3.4 30.6 27.2 0.99 2.24 2.72 17.7 14.6 1,409 10 51.9 1.15 10 2.9 1 Volumes traded via the Xetra trading venue. to the consolidated financial statements. 7 Adjusted to reflect the application of IAS 19R. 2 Three­year beta; source. Bloomberg. 4 Cash flow from operating activities. 3 Based upon consolidated net profit after deduction of non­controlling interests, note 19 5 Year­end closing price / earnings per share. 6 Year­end closing price / cash flow per share. 8 Reduction due to the share buyback. 9 Excluding one­off effects (NFE and strike­related effects, disposals and other one­off effects, some of which are based upon assumptions by management): 45.8 %. 10 Proposal. Free float stable The investment share of our largest investor – KfW Banken- gruppe – is 20.7 % (previous year: 20.5 %) and the free float is 79.3 %. Based upon our share register’s figures, the share of outstanding stock held by private investors is 11.1 % (pre- vious year. 10.8 %). In terms of the regional distribution of identified institutional investors, the highest percentage of shares (15.8 %) is held by US investors (previous year. 13.9 %), followed by the United Kingdom with a share of 13.8 % ( previous year. 12.6 %). The share of institutional investors in Germany decreased to 12.0 % (previous year. 12.4 %). Our 25 largest institutional investors held a total of 38.9 % of all issued shares (previous year. 41.3 %). Shareholder structure 1 A.62 Shareholder structure by region 1 A.63 b2 a b b1 c d b a a KfW Bankengruppe b Free float b 1 Institutional investors b 2 Private investors 1 As at 31 December 2017. 20.7 % 79.3 % 68.2 % 11.1 % a Germany b Other c USA d UK 1 As at 31 December 2017. 43.8 % 26.6 % 15.8 % 13.8 % Group Management Report — DEUTSCHE POST SHARES — NON-FINANCIAL KEY PERFORMANCE INDICATORS — Employees 71 NON­FINANCIAL KEY PERFORMANCE INDICATORS Employees Facing change in the workplace with an open mind We support our employees in developing their potential and offer them a respectful work environment with competitive pay. In today’s digital world, this also entails responding to changes in our working methods and facing new chal- lenges open-mindedly and without bias. The task of involv- ing employees in the change process falls, in particular, to our executives, who are supported by systematic human resources work. creased due to the sale of Williams Lea Tag Group. The de- cline compensated for the increase in employees due to new and additional business by a narrow margin. Staff levels were up in all regions. We saw the largest percentage increase in the Americas, although we continue to employ most of our personnel Germany. As in the previous year, 18 % of all employees took the opportunity for part-time employment. Over the course of the year, 8.5 % of employees left the Group unplanned (pre- vious year: 7.6 %). Our current planning foresees another slight increase in the number of employees in financial year 2018. Number of employees A.65 2016 2017 +/– % Employee Opinion Survey Our annual Group-wide Employee Opinion Survey com- prises 41 questions categorised in ten key performance in- dicators and one index. We achieved stable or improved results in nearly all areas in 2017, with nearly all figures at or above external benchmarks. The response rate of 76 % – an improvement of two percentage points – underscores the survey’s acceptance level. Full-time equivalents At year-end 1 of which Post ­ eCommerce ­ Parcel 2 Express 2 Global Forwarding, Freight Supply Chain Corporate Center / Other Consolidation 3 459,262 472,208 177,307 82,792 41,886 146,739 10,539 –1 183,679 90,784 41,034 145,575 11,136 0 of which Germany 174,537 180,479 Selected results from the Employee Opinion Survey % Response rate Positive rating of Active Leadership KPI Positive rating of Employee Engagement KPI 2016 2017 74 74 75 76 75 75 Number of employees again rises slightly As at 31 December 2017, we employed 472,208 full-time equivalents, 2.8 % more than in the previous year. The head- count at the end of the year was 519,544. In the Post - eCommerce - Parcel division, we hired new employees particularly with a view to supporting the con- tinued strong growth in the eCommerce - Parcel business unit in Germany, Europe, Asia and the USA. The number of employees in the Express division increased compared with the previous year. Higher shipment volumes made the in- crease necessary in the operations area in particular. In the  Global Forwarding, Freight division, our workforce declined slightly, mainly in the Freight business unit. The number of employees in the Supply Chain division de- A.64 Europe (excluding Germany) Americas Asia Pacific Other regions 113,104 114,360 79,347 73,979 18,295 82,887 76,081 18,401 Average for the year 4 453,990 468,724 Headcount At year-end 4 Average for the year of which hourly workers and salaried employees Civil servants Trainees 508,036 498,459 519,544 513,338 459,990 477,251 32,976 5,493 30,468 5,619 1 Excluding trainees. 2 Reassignment of companies in Spain and Portugal from the Express division to the Post ­ eCommerce ­ Parcel division, note 10 to the consolidated financial statements. 3 Including rounding. 4 Including trainees. Staff costs above prior-year level At €20,072 million, staff costs exceeded the prior-year fig- note 14 to the ure of €19,592 million. Details can be found in consolidated financial statements. 2.8 3.6 9.7 –2.0 – 0.8 5.7 –100 3.4 1.1 4.5 2.8 0.6 3.2 2.3 3.0 3.8 –7.6 2.3 72 Deutsche Post DHL Group — 2017 Annual Report Adequately compensating performance Our performance-related compensation, which is in line with both the market and the company’s long-term require- ments, makes us an attractive employer. We use a systematic job grading system to ensure that our remuneration struc- tures are reasonable and balanced. In addition, we strengthen our employees’ loyalty and motivation by offering additional benefits to supplement the company’s defined benefit and defined contribution re- tirement plans. Age-based and secure working conditions In Germany, we responded as early as 2011 to demographic projections by concluding the Generations Pact between Deutsche Post AG and the trade unions. Today, 24,401 of our hourly workers and salaried employees maintain the re- quired working time account and 3,886 are in partial retire- ment. Since 2016, we have also been offering comparable arrangements for civil servants, 3,629 of whom have estab- lished a lifetime working account and 1,076 have entered partial retirement. Targeted employee development A customer-focused culture requires a shared understand- Ob- ing. As part of our Group-wide “Certified” initiative, jectives and strategies, page 34, we offer our employees a broad range of curricula, allowing them to gain specific know- ledge relevant to their roles and learn more about the greater context of the Group. An important component of our development initia- tives for executives is the further development of their man- agement style on the basis of newly defined leadership at- tributes. The majority of the target group has already taken part in our Certified Logistics Leader programme. In Germany, Austria, Switzerland and Denmark, we offer young people the opportunity to enrol in dual-study apprenticeship programmes consisting of in-house training combined with studies at state vocational schools. In Ger- many alone, students are able to choose from more than 15 state-accredited apprenticeship schemes and twelve dual- study programmes. In 2017, we offered 2,472 positions in our apprenticeship and study programmes. makes us attractive to customers and employees alike. We promote inclusion and equal opportunity in the work- place,  as set out in our Code of Conduct and a Group Statement. A Group-wide monitoring system tracks diversity indi- cators to monitor the effectiveness of the actions we take in this regard. In the year under review, the Diversity Council discussed a number of topics, including measures designed to increase the number of women in executive positions. On 31 December 2017, the worldwide proportion of women in management in the Group was 21.5 % (previous year: 21.1 %). Health and safety Occupational safety: always the top priority The health and safety of our employees are the foundation of the company’s business success. We promote both through a supportive working environment with a special focus upon prevention. More detailed information on workplace safety require- ments is provided in our Occupational Health & Safety Policy Statement. Workplace accidents Accident rate (number of accidents per 200,000 hours worked) 1 Working days lost per accident 1 Number of fatalities due to workplace accidents of which as a result of traffic accidents 1 Coverage: around 99 %. A.66 2017 4.4 15.3 3 1 2016 4.0 14.8 4 2 The change in the accident rate is essentially the result of an increase in the number of incidents during delivery. Our coverage rate improved from 96 % to more than 99 %. We report on occupational safety measures and targets and de- scribe the changes in the accident data for the divisions Corporate Responsibility Report, dpdhl.com/ in more detail in our cr-report2017. Bolstering health Diversity promotes in-house innovation Our organisation unites people from a wide variety of cul- tures who possess different skills, experiences and perspec- tives. This diversity bolsters our innovative strength and We inform employees about health risks by offering courses on health-related topics and carrying out initiatives at a local level. One area of focus in the year under review was how to manage stress and deal with mental illness. Group Management Report — NON-FINANCIAL KEY PERFORMANCE INDICATORS — Employees — Health and safety — Corporate responsibility 73 Our Group-wide employee benefits programme now offers insurance coverage to supplement statutory health insurance plans in more than 100 countries, in some cases enabling access to high-quality and affordable health care in the first place. The worldwide illness rate was 5.2 % in the reporting period (previous year: 5.1 %). Corporate responsibility Commitment to shared values An important part of our Group strategy is to become a benchmark enterprise for responsible business. We have codified responsibility in our Code of Conduct, which is guided by both the principles of the Universal Declaration of Human Rights and the United Nations Global Compact and adheres to recognised legal standards. We also support the United Nation’s sustainable development goals. With responsible business practices we ensure our busi- ness operates in compliance with applicable laws, ethical standards and international guidelines. We co-ordinate the main aspects and issues deemed material via our Group- wide Responsible Business Practice network. Through on- going dialogue with our stakeholders, we ensure that their expectations as regards social and environmental issues are accounted for appropriately and that our business is aligned systematically with their interests. In the year under review, we reviewed the matters defined two years ago as material for continued relevance and completeness by conducting thorough interviews. In most instances, our original classi- fication was confirmed. We also dealt with the new non- financial reporting requirements. The required information Corporate Responsibility Report, dpdhl.com/ is included in our cr- report2017. We use our expertise as a mail and logistics services group for the benefit of society and the environment, and we motivate our employees to engage in volunteer work. We provide logistical support in the wake of natural disasters, are committed to improving the educational and profes- sional opportunities of socially disadvantaged young people, and support local environmental protection and aid pro- jects. In 2017, we continued our initiative to integrate re fugees in Germany by providing assistance with language and job skills and we have carried out initial measures in other countries. cO2e emissions, 2017 Total: 28.44 million tonnes 1 A.67 12 % Ocean transport 64 % Air transport 21 % Ground transport 3 % Buildings 1 Scope 1 to Scope 3. 74 Deutsche Post DHL Group — 2017 Annual Report Measures to increase carbon efficiency and environmentally friendly GoGreen services help us to fulfil our responsibility towards the environment and society, and to create added value for our customers whilst strengthening our market position. One area we focused upon in the year under re- view was increasing the proportion of electric vehicles in our fleet. Efficiency target exceeded In order to measure and manage our greenhouse-gas effi- ciency, we make use of a carbon efficiency index (CEX), Group management, page 38. In 2017, our direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions amounted to 6.34 million tonnes of CO2e (previous year: 6.05 million tonnes of CO2e). The indirect greenhouse gas emissions (Scope 3) of our transport subcontractors amounted to 22.10 million tonnes of CO2e (previous year, adjusted: 20.81 million tonnes of CO2e). We set new environmental targets in the reporting period. By 2025, for example, we plan to improve our CEX by 50 % compared with the 2007 base year. We already achieved an improvement of 32 % versus 2007 in 2017, thus exceeding our goal of improving the CEX by one index point compared with the prior year. Additional information on our environmental activities Corporate Responsibility Report, and targets is included in our dpdhl.com/cr-report2017. Fuel and energy consumption in company fleet and buildings A.68 Consumption by fleet Air transport (jet fuel) 2016 2017 million kilograms 1,332.5 1,406.3 Road transport (petrol, bio­ diesel, diesel, bio­ethanol, LPG) million litres Road transport (biogas, CNG, LNG) Energy for buildings and facilities (including electric vehicles) million kilograms million kilowatt hours 447.2 451.1 4.5 3.6 3,039 1 3,194 1 Adjusted. Customers and quality Facts and figures, customers and quality 93 % D + 1 Letters delivered within Germany the day after posting. APPROXIMATELY 290 locations certified by the Transported Asset Protection Association (tAPA). A.69 Open 54 hours Average weekly opening time of around 27,000 sales points in Germany. MAIL AND PARCEL BUSINESS DHL BUSINESS UNITS Net Promoter Approach Continuously turning criticism into improvements. 93.9 % SATISFIED CUSTOMERS According to independent market study Kundenmonitor Deutschland. MYDHL PORTAL Allowing business customers to easily send express items. TÜV-certified Certified external system for measuring mail transit times (end­to­end) and internal system for measuring parcel transit times. OVER 3,000 ELECTRIC VEHICLES put into operation in 2017. Insanely Customer Centric Culture Keeping a constant eye on customer requirements. CUSTOMER IMPROVE­ MENT PROJECTS More than 80 improvement initiatives successfully implemented in 2017. Sending mail and parcels quickly and reliably Customers rate the quality of our services based upon whether the items they post reach their destinations quickly, reliably and undamaged. According to surveys conducted by Quotas, a quality research institute, 93% of the domestic letters posted in Germany during our daily opening hours or before final collection are delivered to their recipients the next day. Around 99 % reach their recipients within two days. This puts us well above the legally required 80 % (D+1) and 95 % (D+2). The Quotas measurement system is audited and certified each year by TÜV Rheinland for compliance Group Management Report — NON-FINANCIAL KEY PERFORMANCE INDICATORS — Corporate responsibility — Customers and quality 75 with EN 13850 requirements. Transit times for international letters are determined by the International Post Corpor- ation. Here, we rank amongst the top postal companies. In our parcel business, 84 % of items posted reach their recipients the next working day. This figure is based upon parcels we collected from business customers that were de- livered the next day. Our internal system for measuring parcel transit times has been certified by TÜV Rheinland since 2008. In our mail business, we achieved a high level of sorting automation that exceeds 90 %. In our parcel network, we have increased our sorting capacity by more than 50 % since the launch of our Parcel Production Concept in 2012, by increasing productivity in our existing facilities and ex- panding our infrastructure nationwide. With 34 parcel cen- tres in operation, we have a sorting capacity of over one million parcels per hour. More than 75 mechanised delivery bases support our operations. Our approximately 27,000 sales points were open for an average of 54 hours per week (previous year: 53 hours). The annual survey conducted by Kundenmonitor Deutsch- land, the largest consumer survey in Germany, showed a high acceptance of our exclusively partner-operated retail outlets: 93.9 % of customers were satisfied with our quality and service (previous year: 93.8 %). In addition, impartial mystery shoppers from TNS Infratest tested the postal out- lets in retail stores around 30,000 times over the year. The result showed that 94.3 % of customers were served within three minutes (previous year: 93.7 %). Another key quality indicator for us is environmental Corporate Responsibility protection, which we describe in our Report, dpdhl.com/cr-report2017. In the area of electric mobility, which is strategically important to us, we put over 3,000 vehicles into operation in the year under review and began converting our delivery operations in Berlin, Munich, Han- over, Frankfurt, Dresden, Herne and Essen to the exclusive use of electric vehicles. In addition to deploying Street- Scooters for our own operations, we have been offering the vehicles to businesses and municipalities for purchase since 2017. Service quality and insanely customer centric culture in the express business As a global network operator working with standardised processes, we are constantly optimising our services to en- able us to keep our commitments to customers, to respond specifically to their wishes and to deliver the best-possible quality at all times. We therefore keep a constant eye on our customers’ ever-changing requirements, for example through our Insanely Customer Centric Culture (ICCC) programme and as part of our Net Promoter Approach. Our managers speak personally to dissatisfied customers in order to discover the root cause of their dissatisfaction. Customer criticism thereby translates into continuous im- provements. Via the MyDHL portal and the Small Business Solutions section on our website, small and medium-sized business customers in particular can ship their goods with ease and obtain comprehensive shipping information. In Europe, our European Key Account Support service provides our global customers with a central point of con- tact. If customers wish, shipment information can even be updated directly in their systems. At quality control centres, we track shipments across the globe and adjust our processes dynamically as required. All premium products – for example, Medical Express ship- ments – are tracked by default until they are delivered. As of the year under review, our On Demand Delivery service is now already available in more than 100 countries and 40 languages. We also expanded our Paketbox network to around 7,000 Service Point Lockers worldwide. We conduct regular reviews of operational safety, com- pliance with standards and the quality of service at our facilities in co-operation with government authorities. Ap- proximately 290 locations, more than 100 of which are in Asia, have been certified by the security organisation Trans- ported Asset Protection Association (TAPA). This makes us the leader in this area. Since 2013, our sites have been cer- tified globally to the ISO 9001:2008 standard. In addition, we remain certified in certain regions and countries in the areas of environmental protection and energy management. Corporate Responsibility Report, We describe this in detail in our dpdhl.com/cr-report2017. Systematic customer feedback in the forwarding business In the Global Forwarding business unit, we are currently revamping our offering based upon the customer feedback that we systematically and continuously collect using the Net Promoter Approach. Our punctuality, reporting and invoicing improved notably in the year under review thanks to more than 80 Customer Improvement Projects. Operat- ing performance is monitored and improved on an on- going basis. Regular performance dialogues ensure that our em- ployees focus upon the right priorities. In addition, we trained nearly 3,000 of our employees in structured prob- lem-solving techniques in the reporting period. 76 Deutsche Post DHL Group — 2017 Annual Report Our customer satisfaction survey, which we plan to up- date and expand in the future, also forms the basis for up- grading the range of services in the Freight business unit. Our continuous improvement programme will support the FREIGHT 2020 strategy, Objectives and strategies, page 35. Quality leader in contract logistics We aim to build upon quality leader in contract logistics. By applying standardised operations and solutions supported by supply chain champions at all of our sites, we ensure that we meet or exceed our customers’ quality expectations. In the year under review, we revised our survey meth- odology for continuously measuring customer loyalty and satisfaction. Instead of biannual telephone interviews, we now conduct online surveys each quarter. The programme has been rolled out to all Supply Chain countries. As part of our operations excellence programme, a uni- form Service Quality KPI routinely measures whether our locations are meeting defined operating standards. Brands Brand architecture Group A.70 Divisions Post ­ eCommerce ­ Parcel Express Global Forwarding, Freight Supply Chain Brands Brand value continues to improve We manage the Deutsche Post and DHL brands based upon our Group strategy, Objectives and strategies, page 34, and we work constantly to further increase the recognition, image and value of our brands. According to independent studies, our efforts were suc- cessful again in the year under review. The BrandZ study published by market research institute Millward Brown val- ued the DHL brand at US$15.8 billion in 2017, a 19.7 % in- crease (previous year: US$13.2 billion) that moves the com- pany up three places to 70th in the Top 100 Most Valuable Global Brands ranking. Millward Brown determines brand value based upon a company’s current financial position as well as the contribution the brand makes to the company’s business success. Interbrand, a brand consulting company, uses a similar system to rank the world’s most valuable brands each year. In the 2017 ranking, DHL moved up one place to 76th. Interbrand valued the DHL brand at US$5.7 bil- lion (previous year: US$5.7 billion). Consulting company Brand Finance valued the Deutsche Post brand at €2.9 billion in the year under review (previous year: €2.9 billion), moving the company up one place to 28th in the German Top 50 and affirming it in 13th place amongst the most valuable logistics brands in the world. 77 A.71 A.72 59.9 % 21.7 % 14.5 % 3.9 % Group Management Report — NON-FINANCIAL KEY PERFORMANCE INDICATORS — Customers and quality — Brands Value of Group brands in 2017 DHL IS AMONGST THE WORLD’S MOST VALUABLE BRANDS1 BRAND VALUE IMPROVES AGAIN 1 70 + 3 US$15.8 BILLION (2017) US$13.2 BILLION (2016) DEUTSCHE POST BRAND VALUE STABLE 2 GERMAN TOP 50 2017 2 €2.9 BILLION (2016) €2.9 BILLION (2017) 28 + 1 1 Source: Millward Brown, 2017. 2 Source: Brand Finance, 2017. DhL boosts brand with advertising and partnerships In the year under review, DHL continued its brand campaign “The Power of Global Trade” for the third year. Its main theme was again how trade and logistics can improve people’s lives. Print and online advertisements, TV commer- cials and social media activities delivered emotional brand experiences to target groups. We also bolster our brand’s reputation around the world as a partner for high-profile events. For instance, in 2017 we continued our partnerships with Formula 1®, Formula E and the MotoGP™ world motorcycle racing series. We also con- tinued our proven global DHL logistics partnerships with FC Bayern Munich, Fashion Week organisations, the World Touring Car Championship (WTCC) and Gewandhaus- orchester Leipzig. In August 2017, DHL entered into a new logistics partnership with the global drone racing series DR 1 Drone Racing League. Marketing expenditures, 2017 Volume: around €437 million Product development and communication Other Public & customer relations Corporate wear Sports sponsorships strengthen Deutsche Post brand Deutsche Post systematically draws attention to its brand by sponsoring popular national sporting events. In the year under review, the company again focused upon its strategic partnership with the Deutscher Fußball-Bund (DFB – Ger- man football federation). Deutsche Post was involved with the German national football teams and the DFB tournament as well as amateur football leagues and the FUSSBALL.DE platform. The partnerships with the Deutsche Tourenwagen Masters (DTM – German Touring Car Masters) racing series and the Bob- und Schlittenverband für Deutschland (BSD – German bobsleigh, luge and skeleton federation) were like- wise continued. 78 Deutsche Post DHL Group — 2017 Annual Report EXPECTED DEVELOPMENTS Overall Board of Management assess­ ment of the future economic position The Board of Management expects consolidated EBIT to reach around €4.15 billion in financial year 2018. The Post - eCommerce - Parcel division is likely to contribute around €1.50 billion to this figure. We also expect an additional improvement in overall earnings to around €3.00 billion in the DHL divisions. All of the DHL divisions are expected to contribute to the increase. The Corporate Center / Other re- sult is projected to remain stable at around €–0.35 billion. Due to the changes resulting from the initial application of IFRS 16, we expect the asset charge to increase to a greater extent than EBIT and EBIT after asset charge (EAC) to de- cline in 2018 as a result. Free cash flow is expected to exceed €1.5 billion. Forecast period The information contained in the report on expected devel- opments generally refers to financial year 2018. Future economic parameters Good outlook for the global economy The global economy is expected to pick up slightly once more in 2018. A pronounced upturn is currently being seen in the industrial countries, supported by expansionary monetary policy along with expectations of expansionary fiscal stimulus packages. Despite the existing political risks and a gradual decline in available production capacities, the pace of growth seen in the previous year is expected to con- tinue. Higher growth rates are expected in the emerging markets, due in the main to contributions from countries that were just recently in the midst of fighting off recessionary tendencies. By contrast, a slightly weaker up- wards trend is expected for those regions that have been seeing strong growth. Risks jeopardising this outlook con- tinue to stem from the many geopolitical hotspots. None- theless, it is still possible that mutually reinforcing upwards cyclical trends could give global economic growth a signifi- cant boost. Global economy: growth forecast % World trade volume Real gross domestic product World Industrial countries Emerging markets Central and Eastern Europe CIS countries Emerging markets in Asia Middle East and North Africa Latin America and the Caribbean Sub­Saharan Africa A.73 2018 4.6 3.9 2.3 4.9 4.0 2.2 6.5 3.6 1.9 3.3 2017 4.7 3.7 2.3 4.7 5.2 2.2 6.5 2.5 1.3 2.7 Source: International Monetary Fund (IMF), World Economic Outlook, update January 2018. Growth rates calculated on the basis of purchasing power parity. The economy in China is likely to weaken further, with GDP growth expected to soften slightly (IMF: 6.6 %; OECD: 6.6 %). The Japanese economy is projected to record only minimal growth, and economic output is expected to expand at a much slower pace than in 2017 (IMF: 1.2 %; OECD: 1.2 %). GDP in the United States is anticipated to increase more strongly in 2018 than in the previous year (IMF: 2.7 %; OECD: 2.5 %). In the euro zone, the economic recovery is forecast to continue. However, GDP growth is likely to weaken slightly (IMF: 2.2 %; ECB: 2.3 %). Leading indicators suggest that the upswing in Ger- many will remain intact. Growth for the year as a whole is expected to mirror the previous year’s level in 2018 (IMF: 2.3 %; Sachverständigenrat: 2.2 %). The most likely trend for crude oil listings is a slight decrease from the present level. The ECB will very likely maintain its key interest rate at the current level in 2018. The bank is also expected to con- tinue to reduce its bond purchases, or even discontinue the programme entirely, should the euro zone economy remain solid. The US Federal Reserve is expected to raise its key interest rate further over the course of the year, which could moderately increase capital market interest rates. Group Management Report — ExPECTED DEVELOPMENTS — Overall Board of Management assessment of the future economic position — Forecast period — Future economic parameters — Revenue and earnings forecast 79 World trade grows solidly After a strong increase in 2017, we expect growth in the global trade flows relevant to us (air and ocean freight shipped in containers, excluding liquids and bulk goods) to slow somewhat in 2018. All in all, we anticipate an increase of 3.7 %. Parcel market expected to see sustained growth The market for paper-based mail communication will con- tinue to decline, including in Germany. Physical mail vol- umes are falling, primarily because people are communicat- ing digitally to an increasing extent. After raising the stamp price for a standard letter at the beginning of 2016, we shall not make any further price adjustments to regulated ex-ante Glossary, page 181, until after 2018, due to the mail products, price-cap mechanism. The German advertising market is likely to maintain its approximate volumes in 2018. Advertising budgets will continue to shift towards online media. The trend towards automated dialogue marketing campaigns is set to remain unchanged. The parcel market will continue to grow in Germany, the rest of Europe and the world, as will cross-border services. The international mail business is likely to see slight growth overall, particularly due to increasing merchandise shipping. E-commerce encourages further growth in international express market Experience shows that growth in the international express market is highly dependent upon the economic situation. We believe that the steadily growing cross-border e-com- merce sector will continue to drive growth in the inter- national express market in 2018. Market trends in freight forwarding business likely to  continue In 2018, we anticipate developments in the air freight mar- ket to follow a similar trend to that of the year under review. Although freight carriers will further expand capacities by adding new wide-body passenger planes and additional cargo aircraft, this will mostly impact smaller destinations and not the main trade lanes. We expect demand to rise on the whole, driven in part by rapid growth in e-commerce volumes. Freight rates are likely to increase on the main trade lanes. With regard to ocean freight, we anticipate solid market growth to continue. Alliances and mergers will allow ship- ping companies to better manage capacities and to raise freight rates over the medium term. For the European road transport market, we expect market prices and volume growth to accelerate in 2018. This will be driven by the continued expansion in the largest European economies and the sustainable upwards trend in  manufacturing activity, accompanied by limited haulier capacities. In a fragmented market environment, we expect selective consolidation efforts to re-emerge in the future. Contract logistics market continues to grow The trend towards outsourcing warehousing and distribu- tion as well as demand for value-added logistics services are set to continue, although short to mid-term growth pros- pects in some emerging markets have slowed. Projections indicate that the market for contract logistics will continue to experience stable growth of around 5 %. Demand for supply chain services is expected to see a particularly strong rise in rapidly growing economies such as south-east Asia and India. Revenue and earnings forecast In addition to the overall state of the global economy – which is expected to be robust, insofar as can be foreseen – one of the main factors impacting our Group continues to be structural growth arising from e-commerce transactions. E-commerce growth is making a positive contribution in all regions and divisions, albeit to varying extents. We there- fore expect the Group to record another positive revenue trend. The IFRS 16 accounting standard will be applied for the first time in our 2018 reports. The change in the recognition of lease obligations will, for example, impact reported earn- ings. EBITDA (earnings before interest, tax, depreciation and amortisation) will be significantly higher than under the previous method as the operating lease expense is no longer included. By contrast, EBIT (earnings before interest and tax) will rise only slightly due to the increase in depre- ciation charges recognised for leased assets. Based upon the leases as at 1 January, consolidated EBIT is expected to in- crease by around €150 million. 80 Deutsche Post DHL Group — 2017 Annual Report Capital expenditure of around €2.5 billion expected In 2018, we plan to increase capital expenditure (excluding leasing) to around €2.5 billion in support of our strategic objectives and further growth. The focus of capital expend- iture will be similar to that of previous years. Performance of further indicators relevant for internal management EAc impacted by IFRS 16 Due to the changes resulting from the initial application of IFRS 16, note 5 to the consolidated financial statements, EAC will decline to a fundamentally lower level, as the respective cost of capital (asset charge) of the divisions increases dispropor- tionately to EBIT. Without this effect, EAC tends to follow the respective development of EBIT. Free cash flow is ex- pected to exceed €1.5 billion. Employee Opinion Survey results again positive We intend to keep up the positive results that our Employee Opinion Survey achieved in the reporting year. For 2018, we expect to see an increase to 76 % in the approval rating for the Active Leadership key performance indicator. Further improve greenhouse gas efficiency We expect the Group to further improve its carbon effi- ciency. Our CEX score is projected to increase by one index point during financial year 2018. Against this backdrop, we expect consolidated EBIT to reach around €4.15 billion in financial year 2018. The Post - eCommerce - Parcel division is likely to contribute around €1.50 billion to this figure. We also expect an improvement in overall earnings to around €3.00 billion in the DHL div- isions. All of the DHL divisions are expected to contribute to the increase. The Corporate Center / Other result is pro- jected to remain stable at around €–0.35 billion. In line with our Group strategy, we plan to focus upon organic growth and anticipate only a few very selective acquisitions in 2018, as in the previous year. Our finance strategy continues to call for a payout of 40 % to 60 % of net profits as dividends as a general rule. At the Annual General Meeting on 24 April 2018, we intend to propose to the shareholders that a dividend per share of €1.15 be paid for financial year 2017 (previous year: €1.05). Expected financial position No change in the Group’s credit rating In light of the earnings forecast for 2018, we expect the “FFO to debt” indicator to remain stable on the whole and do not expect the rating agencies to change our credit rating from the present level. Liquidity to remain solid We anticipate a reduction in our liquidity in the first half of 2018 as a result of the annual pension prepayment due to the Bundesanstalt für Post und Telekommunikation as well as the dividend payment for financial year 2017 in April 2018. However, our operating liquidity situation will improve again significantly towards the end of the year, due to the upturn in business that is normal in the second half. A bond issued by Deutsche Post AG in the amount of €0.5 billion will fall due in October 2018. Group Management Report — ExPECTED DEVELOPMENTS — Revenue and earnings forecast — Expected financial position — Performance of further indicators relevant for internal management — OPPORTUNITIES AND RISKS — Overall Board of Management assessment of the opportunity and risk situation — Opportunity and risk management 81 OPPORTUNITIES AND RISKS Overall Board of Management assessment of the opportunity and risk situation Identifying and swiftly capitalising upon opportunities and counteracting risks are important objectives for our Group. We already account for the anticipated impact of potential events and developments in our business plan. Opportun- ities and risks are defined as potential deviations from pro- jected earnings. In consideration of our current business plan, the Group’s overall opportunity and risk situation has not changed significantly compared with last year’s risk re- port. According to current assessments, no new risks with a potentially critical impact upon the Group’s result have been identified. Based upon the Group’s early warning system and in the estimation of its Board of Management, there were no identifiable risks for the Group in the current fore- cast period which, individually or collectively, cast doubt upon the Group’s ability to continue as a going concern. Nor are any such risks apparent in the foreseeable future. The assessment of a stable to positive outlook is moreover re- flected in the Group’s credit ratings, as found on page 59. Our early identification process links the Group’s op- portunity and risk management with uniform reporting standards. We continuously improve the IT application used for this purpose. Furthermore, we use a Monte Carlo simu- lation for the purpose of aggregating opportunities and risks in standard evaluations. The simulation is a stochastic model that takes the prob- ability of occurrence of the underlying risks and oppor- tunities into consideration and is based upon the law of large numbers. One million randomly selected scenarios – one for each opportunity and risk – are combined on the basis of the distribution function of each individual oppor- tunity and risk. The resulting totals are shown in a graph of frequency of occurrence. The following graph shows an example of such a simulation: Monte Carlo simulation Frequency of occurrence in one million simulation steps (incidence density) Bandwidth with 95 % probability A.74 Opportunity and risk management – aa € m + bb € m + zz € m Deviation from planned EBIt Planned EBIt “Worse than expected” “Better than expected” Most common value in one million simulation steps (“mode”) Opportunity and risk management process Uniform reporting standards for opportunity and risk management As an internationally operating logistics company, we are facing numerous changes. Our aim is to identify the result- ing opportunities and risks at an early stage and take the necessary measures in the specific areas affected in due time to ensure that we achieve a sustained increase in enterprise value. Our Group-wide opportunity and risk management system facilitates this aim. Each quarter, managers estimate the impact of future scenarios, evaluate opportunities and risks in their departments, and present planned measures as well as those already taken. Queries are made and approv- als given on a hierarchical basis to ensure that different man- a gerial levels are involved in the process. Opportunities and risks can also be reported at any time on an ad-hoc basis. 1 Identify and assess Assess Define measures Analyse Identify 5 Control Review results Review measures Monitor early warning indicators Divisions Internal auditors Internal auditors review processes A.75 2 Aggregate and report Review Supplement and change Aggregate Report 3 Overall strategy / risk management / compliance Determine Manage 4 Operating measures Plan Implement Opportunity and risk­controlling processes Board of Management 82 Deutsche Post DHL Group — 2017 Annual Report The most important steps in our opportunity and risk man- agement process are: 1 Identify and assess: Managers in all divisions and regions evaluate the opportunity and risk situation on a quarter- ly basis and document the action taken. They use scen- arios to assess best, expected and worst cases. Each identified risk is assigned to one or more managers who assess and monitor the risk, specify possible procedures for going forwards and then file a report. The same ap- plies to opportunities. The results are compiled in a database. 2 Aggregate and report: The controlling units collect the results, evaluate them and review them for plausibility. If individual financial effects overlap, they are noted in our database and taken into account when compiling them. After being approved by the department head, all results are passed on to the next level in the hierarchy. The last step is complete when Corporate Controlling reports to the Group Board of Management on signifi- cant opportunities and risks as well as on the potential overall impact each division might experience. For this purpose, opportunities and risks are aggregated for key organisational levels. We use two methods for this. In the first method, we calculate a possible spectrum of results for the divisions and combine the respective scenarios. The totals for “worst case” and “best case” indicate the total spectrum of results for the respective division. Within these extremes, the total “expected cases” shows current expectations. The second method makes use of a Monte Carlo simulation, the divisional results of which are regularly included in the opportu- nity and risk reports to the Board of Management. 3 Overall strategy: The Group Board of Management de- cides on the methodology that will be used to analyse and report on opportunities and risks. The reports cre- ated by Corporate Controlling provide an additional, regular source of information to the Board of Manage- ment for the overall steering of the Group. 4 Operating measures: The measures to be used to take advantage of opportunities and manage risks are deter- mined within the individual organisational units. They use cost-benefit analyses to assess whether risks can be avoided, mitigated or transferred to third parties. 5 Control: For key opportunities and risks, early-warning indicators have been defined that are monitored con- stantly by those responsible. Corporate Internal Audit has the task of ensuring that the Board of Management’s specifications are adhered to. It also reviews the quality of the entire opportunity and risk management oper- ation. The control units regularly analyse all parts of the process as well as the reports from Internal Audit and the independent auditors, with the goal of identifying potential for improvement and making adjustments where necessary. Internal accounting control and risk management system (Disclosures required under section 315 (4) of the Handels- gesetzbuch (HGB – German Commercial Code) and explan- atory report) Deutsche Post DHL Group uses an internal control system (ICS) to ensure that Group accounting adheres to generally accepted accounting principles. The system is intended to make sure that statutory provisions are complied with and that both internal and external accounting provide a valid depiction of business processes in figures. All figures must be entered and processed accurately and completely. Ac- counting mistakes are to be avoided in principle and sig- nificant assessment errors uncovered promptly. Group Management Report — OPPORTUNITIES AND RISKS — Opportunity and risk management 83 The ICS design comprises organisational and technical measures that extend to all companies in the Group. Cen- trally standardised accounting guidelines govern the recon- ciliation of the single-entity financial statements and ensure that international financial reporting standards (EU IFRS s) are applied in a uniform manner throughout the Group. All Group companies are required to use a standard chart of accounts. We immediately assess new developments in inter- national accounting for relevance and announce their im- plementation in a timely manner, in monthly newsletters, for example. Often, accounting processes are pooled in a shared service centre in order to centralise and standardise them. The IFRS financial statements of the separate Group companies are recorded in a standard, SAP-based system and then processed at a central location where one-step consolidation is performed. Other ICS components include automatic plausibility reviews and system validations of the accounting data. In addition, regular, manual checks are carried out decentrally by those responsible at the local level (a chief financial officer, for example), and centrally by Corporate Accounting & Controlling, Taxes and Corporate Finance at the Corporate Center. Over and above ICS and risk management, Corporate Internal Audit is an essential component of the Group’s con- trol and monitoring system. Using risk-based auditing pro- cedures, Corporate Internal Audit regularly examines the processes related to financial reporting and reports its re- sults to the Board of Management. The data reported are checked and analysed chronologically, both upstream and downstream. If necessary, we call in outside experts. Finally, the Group’s standardised process for preparing financial statements using a centrally administered financial state- ments calendar guarantees a structured and efficient ac- counting process. Reporting and assessing opportunities and risks In the following, we have reported mainly on those risks and opportunities which, from the current standpoint, could have a significant impact upon the Group during the fore- cast period beyond the impact already accounted for in the business plan. The risks and opportunities have been as- sessed in terms of their probability of occurrence and their impact. The assessment is used to classify the opportunities and risks into those of low, high or medium relevance. We characterise opportunities and risks of high or medium relevance as significant, shown as black or grey in table A.76. The following assessment scale is used: Classification of risks and opportunities Probability of occurrence (%) Risks Planned Group EBIt Opportunities A.76 > 50 > 15 to ≤ 50 ≤ 15 < – 500 – 500 to – 151 – 150 to 0 0 to 150 151 to 500 > 500 Effects (€ m) Significance for the Group: Low Medium High 84 Deutsche Post DHL Group — 2017 Annual Report The opportunities and risks described here are not necessar- ily the only ones the Group faces or is exposed to. Our busi- ness activities could also be influenced by additional factors of which we are currently unaware or which we do not yet consider to be material. Opportunities and risks are identified and assessed de- centrally at Deutsche Post DHL Group. Reporting on pos- sible deviations from projections, including latent oppor- tunities and risks, occurs primarily at the country or regional level. In view of the degree of detail provided in the internal reports, we have combined the decentrally reported opportunities and risks into the categories shown below for the purposes of this report. It should be noted that the fig- ures provided in the underlying individual reports exhibit a significant correlation with the performance of the world economy and global economic output. Unless otherwise specified, a low relevance is attached to the individual op- portunities and risks within the respective categories and in the forecast period under observation (2018). The oppor- tunities and risks generally apply for all divisions, unless indicated otherwise. Categories of opportunities and risks Opportunities and risks arising from political, regulatory or legal conditions A number of risks arise primarily from the fact that the Group provides some of its services in a regulated market. Many of the postal services rendered by Deutsche Post AG and its subsidiaries (particularly the Post - eCommerce - Parcel division) are subject to sector-specific regulation by the Bundesnetzagentur (German federal network agency), Glossary, page 181, pursuant to the Postgesetz (PostG – Ger- man Postal Act), Glossary, page 181. The Bundesnetzagentur approves or reviews prices, formulates the terms of down- stream access and has special supervisory powers to combat market abuse. In 2015, the Bundesnetzagentur stipulated the condi- tions applicable to the approval of postage rates for letters of up to 1,000 grams under the price cap procedure. These conditions are referred to as parameters and are set to expire on 31 December 2018. The regulator will be setting new parameters in 2018. In a judgement dated 14 July 2016, the General Court of the European Union (EGC) set aside the European Com- mission’s state aid decision dated 25 January 2012 in an action brought by the Federal Republic of Germany. In this decision, the European Commission had argued that the financing of civil servant pensions in part constituted un- lawful state aid that had to be repaid to the federal govern- ment. We have described this in detail in the 2016 Annual Report in note 48 to the consolidated financial statements, dpdhl.com/en/investors. In their actions, Deutsche Post AG and the federal government asserted that the state aid deci- sion  was unlawful. In the aforementioned judgement of 14 July 2016, the EGC allowed that argument as presented in the action brought by the federal government. The proceed- ings brought by Deutsche Post AG against the state aid rul- ing of 25 January 2012 have also been brought to a close. In an order dated 17 March 2017, the EGC declared that there was no longer any need to adjudicate on the action brought by Deutsche Post AG and additionally ruled that the costs were to be borne by the European Commission. Since the European Commission did not file an appeal against the EGC’s judgement of 14 July 2016, that decision is now legally binding. The state aid decision of the European Commis- sion is therefore null and void with final effect and there are no longer any grounds for the obligation to repay the alleged state aid under the state aid decision. The amount of €378 million that had been deposited in a trustee account for the purpose of implementing the state aid decision was released. The action brought by Deutsche Post AG against the 2011 “extension decision” (Ausweitungsbeschluss) is still pending. That action is based on procedural matters involv- ing the validity of the European Commission’s 2011 decision to extend the state aid proceedings. In the action pending, the European Commission has advanced the legal argument that the state aid proceedings initiated in 1999 remain partly open and that it could therefore issue a new final decision bringing the proceedings to a close. With regard to the pos- sible content of this decision, the Commission did not give any particulars. In the legal opinion of Deutsche Post AG, however, the proceedings initiated in 1999 were resolved in full by way of the European Commission’s state aid ruling of 19 June 2002. The European Court of Justice expressly confirmed that opinion in its ruling of 24 October 2013. The European Commission’s state aid decision of 25 Janu- ary 2012 remains null and void with final effect. Group Management Report — OPPORTUNITIES AND RISKS — Opportunity and risk management — Categories of opportunities and risks 85 We describe other significant legal proceedings in note 46 to the consolidated financial statements. However, we do not see these proceedings posing a risk of significant deviation from plan for the 2018 forecast period. The flow of goods and services is becoming more and more international, and this entails a certain level of risk. As a globally operating logistics company, Deutsche Post DHL Group is subject to the import, export and transit regula- tions of more than 220 countries and territories whose foreign trade and customs laws must also be complied with. The number and complexity of such laws and regulations (including their extraterritorial application) have increased in recent years and they are also being applied more aggres- sively by the competent authorities, with stricter penalties imposed. In response to this risk, we have implemented a Group-wide compliance programme. In addition to under- taking the legally prescribed check of senders, receivers, suppliers and employees against current embargo lists, the programme ensures, for example, that the legally required review of shipments is carried out for the purpose of enforc- ing applicable export restrictions as well as country sanc- tions and embargos. Deutsche Post DHL Group co-operates with the authorities responsible, both in working to prevent violations as well as in assisting in the investigation of vio- lations to avoid and limit potential sanctions. Macroeconomic and industry-specific opportunities and risks Macroeconomic and sector-specific conditions are a key factor in determining the success of our business. We there- fore pay close attention to economic trends within the re- gions in which we operate. We are currently watching for both the potential impact of US economic policies as well as the possible consequences of the United Kingdom’s exit from the EU. Alongside other aspects, Brexit would pose a risk to the Group’s net assets, financial position and results of operations owing to potential changes in exchange rates, the economy, aviation traffic rights and customs duties as well as the impact on our customers both within and outside of the UK. To this end, we have established topic-specific working groups to prepare ourselves as thoroughly as pos- sible for the effects of Brexit. Despite the volatile economic climate, demand for logistics services rose overall in 2017, as did the related revenues. A variety of external factors offer us numerous oppor- tunities; indeed we believe that the global market will con- tinue to grow. Advancing globalisation and further world economic growth mean that the logistics industry will con- tinue to expand. This is especially true of Asia, where trade flows to other regions and in particular within the continent will continue to increase. As the market leader, the expan- sion will benefit us with our DHL divisions to an above- average extent. This also applies to other countries in re- gions with strong economic growth such as South America and the Middle East, where we are similarly well positioned to take advantage of the market opportunities arising. Whether and to what extent the logistics market will grow depends on a number of factors. The trend towards outsourcing business processes con- tinues. Supply chains are becoming more complex and more international, but are also more prone to disruption. Cus- tomers are therefore calling for stable, integrated logistics solutions, which is what we provide with our broad-based service portfolio. We continue to see growth opportunities in this area, in particular in the Supply Chain division and as a result of closer co-operation between all our divisions. The booming online marketplace represents another opportunity for us in that it is creating demand for trans- Glossary, porting documents and goods. The B2C market, page 181, is experiencing strong growth, particularly due to the continued upward trend in digital retail trade. This has created high growth potential for the domestic and inter- national parcel business, which we intend to tap into by expanding our parcel network. We are nonetheless unable to rule out the possibility of an economic downturn in specific regions or a stagnation or decrease in transport quantities. However, this would not reduce demand in all business units. Indeed, the opposite effect could arise in the parcel business, for example, because consumers might buy online more frequently for reasons of cost. Companies might also be forced to outsource trans- port services in order to lower costs. Cyclical risks can affect our divisions differently with respect to magnitude as well as point in time, which may mitigate the total effect. Over- all, we consider these to be medium-level risks. Moreover, we have taken measures in recent years to make costs more flexible and to allow us to respond quickly to a change in market demand. Deutsche Post and DHL are in competition with other providers. Such competition can significantly impact our customer base as well as the levels of prices and margins in our markets. In the mail and logistics business, the key fac- tors for success are quality, customer confidence and com- 86 Deutsche Post DHL Group — 2017 Annual Report petitive prices. Thanks to the high quality we offer, along with the cost savings we have generated in recent years, we believe that we shall be able to remain competitive and keep any negative effects at a low level. Financial opportunities and risks As a global operator, we are inevitably exposed to financial opportunities and risks. These are mainly opportunities or risks arising from fluctuating exchange rates, interest rates and commodity prices and the Group’s capital requirements. We attempt to reduce the volatility of our financial perform- ance due to financial risk by implementing both operational and financial measures. Opportunities and risks with respect to currencies may result from scheduled foreign currency transactions or those budgeted for the future. Significant currency risks from budgeted transactions are quantified as a net position over a rolling 24-month period. Highly correlated curren- cies are consolidated in blocks. The most important net surpluses are budgeted at the Group level in the “US dollar block”, pound sterling, Japanese yen and Indian rupee. The Czech crown is the only currency with a considerable net deficit. As of the reporting date, there were no significant currency hedges for planned foreign currency transactions. A potential general devaluation of the euro presents an opportunity for the Group’s earnings position. Based upon current macroeconomic estimates, we consider this oppor- tunity to be of low relevance. The main risk to the Group’s earnings position would be a general appreciation of the euro. The significance of this is deemed low when consid- ering the individual risks arising from the performance of the respective currencies. The overall risk of all these currency effects is currently deemed to be of low relevance for the Group. As a logistics group, our biggest commodity price risks result from changes in fuel prices (kerosene, diesel and mar- ine diesel). In the DHL divisions, most of these risks are passed on to customers via operating measures (fuel sur- charges). The key control parameters for liquidity manage- ment  are the centrally available liquidity reserves. Deutsche Post DHL Group had central liquidity reserves of €4.2 billion as at the reporting date, consisting of central financial investments amounting to €2.2 billion plus a syn- dicated credit line of €2 billion. The Group’s liquidity is therefore sound in the short and medium terms. Moreover, the Group enjoys open access to the capital markets on ac- count of its good ratings within the industry, and is well positioned to secure long-term capital requirements. The Group’s net debt amounted to €1.9 billion at the end of 2017. The share of financial liabilities with short-term interest rate lock-ins in the total financial liabilities in the amount of €6.1 billion was approximately 15 %. Further information on the Group’s financial position and finance strategy as well as on the management of finan- cial risks can be found in the report on the economic pos- note 43 to the consolidated financial statements. Detailed ition and in information on risks and risk mitigation in relation to the Group’s defined benefit retirement plans can be found in note 38 to the consolidated financial statements. Opportunities and risks arising from corporate strategy Over the past few years, the Group has ensured that its business activities are well positioned in the world’s fastest- growing regions and markets. We are also constantly work- ing to create efficient structures in all areas to enable us to flexibly adapt capacities and costs to demand – a prerequis- ite for lasting, profitable business success. With respect to strategic orientation, we are focusing upon our core com- petencies in the mail and logistics businesses with an eye towards growing organically and simplifying our processes for the benefit of our customers. Digitalisation plays a key role in this. Our digital transformation involves the integra- tion of new technologies into a corporate culture that uses the changing environment to its advantage. Opportunities arise, for example, from new infrastructure networking pos- sibilities as well as digital business models. Our earnings projections regularly take account of development oppor- tunities arising from our strategic orientation. Group Management Report — OPPORTUNITIES AND RISKS — Categories of opportunities and risks 87 Risks arising from the current corporate strategy, which extends over a long-term period, are considered to be of low relevance for the Group in the period under review. The divisions face the following special situations: price of transport services as well as the duration of our contracts. Comprehensive knowledge in the area of broker- ing transport services helps us to capitalise on opportunities and minimise risk. In the Post - eCommerce - Parcel division, we are re- sponding to the challenges presented by the structural change from a physical to a digital business. We are counter- acting the risk arising from changing demand by expanding our range of services. Due to the e-commerce boom, we expect our parcel business to continue growing robustly in the coming years and are therefore expanding our parcel network. We are also expanding our range of electronic communications services, securing our standing as the quality leader and, where possible, making our transport and delivery costs more flexible. We follow developments in the market very closely and take these into account in our earnings projections. For the specified forecast period, we do not see these developments as having significant poten- tial to impact our business negatively. In the Express division, our future success depends above all upon general factors such as trends in the com- petitive environment, costs and quantities transported. We plan to keep growing our international business, and expect a further increase in shipment volumes. Based upon this assumption, we are investing in our network, our services, our employees and the DHL brand. Against the backdrop of the past trend and the overall outlook, we do not see any significant strategic opportunities or risks for the Express division beyond those reported in the section on “Oppor- tunities and risks arising from macroeconomic and indus- try-specific conditions”. In the Global Forwarding, Freight division, we pur- chase transport services from airlines, shipping companies and freight carriers rather than providing them ourselves. We should usually succeed in sourcing transport services on a cost-effective basis. We thus have the opportunity of generating higher margins. In the worst-case scenario, we bear the risk of not being able to pass on all price increases to our customers. The extent of the opportunities and risks essentially depends on trends in the supply, demand and In the Supply Chain division, our success is highly de- pendent on our customers’ business success. Since we offer customers a widely diversified range of products in different sectors all over the world, we can diversify our risk portfolio and thus counteract the incumbent risks. Moreover, our future success also depends on our ability to continuously improve our existing business and to grow in our most im- portant markets and customer segments. We do not see any significant strategic opportunities or risks for the Supply Chain division beyond those reported in the section entitled “Opportunities and risks arising from macroeconomic and industry-specific conditions”. Opportunities and risks arising from internal processes For us to render our services, a number of internal processes must be aligned. These include – in addition to the funda- mental operating processes – supporting functions such as sales and purchasing as well as the corresponding manage- ment processes. The extent to which we succeed in aligning our internal processes to meet customer needs whilst simul- taneously lowering costs correlates with potential positive deviations from the current projections. We are steadily improving internal processes with the help of our First Choice initiatives. This improves customer satisfaction whilst reducing our costs. Our earnings projection already incorporates expected cost savings. Logistics services are generally provided in bulk and require a complex operational infrastructure with high quality standards. To consistently guarantee reliability and punctual delivery, processes must be organised so as to pro- ceed smoothly with no technical or personnel-related glitches. Any weaknesses with regard to the tendering, sort- ing, transport, warehousing or delivery of shipments could seriously compromise our competitive position. To enable us to identify possible disruptions in our workflows and take the necessary measures at an early stage, we have de- 88 Deutsche Post DHL Group — 2017 Annual Report veloped a global security management system and the Resilience 360 global IT platform that depicts and integrates our global supply chains and locations. Near real-time in- formation on incidents relevant to security flows into the system, which in cases of disruption also serves as a central communications platform. This poses a competitive advan- tage that has already met with a high degree of interest from both security agencies and customers. Opportunities and risks arising from information technology The security of our information systems is particularly im- portant to us. The goal is to ensure continuous IT system operation and prevent unauthorised access to our systems and databases. To fulfil this responsibility, the Information Security Committee, a sub-committee of the IT Board, has defined guidelines, standards and procedures based upon ISO 27002, the international standard for information se- curity management. In addition, Group Risk Management, IT Audit, Data Protection and Corporate Security monitor and assess IT risk on an ongoing basis. For our processes to run smoothly at all times, the essential IT systems must be constantly available. We ensure this by designing our sys- tems to protect against complete system failures. In add- ition to third-party data centres, we operate central data centres in the Czech Republic, Malaysia and the United States. Our systems are thus geographically separate and can be replicated locally. We limit access to our systems and data such that em- ployees can only access the data they need to perform their duties. All systems and data are backed up on a regular basis, and critical data are replicated across data centres. All of our software is updated regularly to address bugs, close potential gaps in security and increase functionality. We employ a patch management process – a defined proced- ure for managing software upgrades – to control risks that could arise from outdated software or from software upgrades. Based upon the measures described above, we estimate the probability of experiencing a significant IT incident with serious consequences as very low. Opportunities and risks arising from human resources It is essential for us to have qualified and motivated employ- ees in order to achieve long-term success. However, demo- graphic change could lead to a decrease in the pool of avail- able talent in various markets. We respond to this risk with measures designed to motivate our employees as well as promote their development. We use Strategic Resource Management to address the risks arising from an ageing population and the capacity shortages that may result from changing demographic and social structures. The experience gained is used to continu- ously improve strategic resource management as an analysis and planning instrument. The Generations Pact, page 72, agreed upon with trade unions in Germany also contributes to taking advantage of the career experience of employees for as long as possible whilst, at the same time, offering young people long-term career perspectives. Possible increases in both chronic and acute diseases pose another risk to sustaining our business operations. We address this risk with health management programmes, measures tailored to local requirements and cross- divisional co-operation. Any internet sites referred to in the Group Management Report do not form part of the report. CORPORATE GOVERNANCE 89 — 100 90 REPORT OF THE SUPERVISORY BOARD 93 SUPERVISORY BOARD 93 Members of the Supervisory Board 93 94 Mandates held by the Supervisory Board Committees of the Supervisory Board 95 BOARD OF MANAGEMENT 95 Members of the Board of Management 95 Mandates held by the Board of Management 96 CORPORATE GOVERNANCE REPORT C O R P O R A T E G O V E R N A N C E C BB 90 Deutsche Post DHL Group — 2017 Annual Report REPORT OF THE SUPERVISORY BOARD WULF VON SCHIMMELMANN Chairman DEAR SHAREHOLDERS, The year 2017 was both a good and an important financial year for Deutsche Post DHL Group, and one in which we laid a solid foundation for our future success. The Supervisory Board oversaw the Board of Manage- ment’s business activities to ensure they complied with the law and were fit for purpose, and regularly discussed material aspects of business strategy with the Board of Manage ment. The Board of Management informed us on an ongoing basis about the course of business and material transactions, and also kept the Chairman of the Supervisory Board and the Chairman of the Finance and Audit Committee up to date between meetings. We were involved promptly in all deci- sions of material importance for the company and the Group. We thoroughly examined and discussed all key business transactions, developments within the enterprise and re- sults, decisions and planning, including enhancing and pre- serving our competitive position in the medium and long term. We discussed in detail any transactions and measures requiring the approval of the Supervisory Board with the Board of Management. All members of the Supervisory Board attended more than half of the meetings, with the exception of Ulrich Schröder, whose absences were due to health reasons. The overall attendance rate was around 92 %; individual attend- ance figures can be found on page 97. Six plenary Supervisory Board meetings and 22 com- mittee meetings were held in the reporting period. The members of the Board of Management took part in the plenary meetings unless the Chairman of the Supervisory Board decided otherwise. The CEO and the members of the Board of Management responsible for their relevant div- isions attended the committee meetings. Executives from the tier immediately below the Board of Management and / or representatives of the auditors were also invited to attend for individual agenda items. Key topics addressed in Supervisory Board meetings In the plenary meeting on 7 March 2017, we reviewed in depth and then approved, on the recommendation of the Finance and Audit Committee, the annual and consolidated financial statements and the management reports for finan- cial year 2016; we concurred with the Board of Manage- Corporate Governance — REPORT OF THE SUPERVISORY BOARD 91 ment’s proposed resolution on the appropriation of the net retained profit. The auditors reported on the findings of their audit and were available to answer questions. We determined the performance-related remuneration to be paid to the members of the Board of Management for the financial year, based upon the target achievement figures that had been established, and also adopted the Report of the Supervisory Board, the Corporate Governance Report and the proposed resolutions for the Annual General Meet- ing. Additionally, we addressed the results of the efficiency review of our activities. In the meeting on 23 June 2017, we appointed Thomas Ogilvie as the member of the Board of Management for Human Resources and Labour Director, as well as dis- cussed the status of the IT Renewal Roadmap in the Global Forwarding business unit. At the meeting on 26 September 2017, we resolved to adjust the remuneration system for the Board of Manage- ment. In the closed meeting that followed, we discussed the progress made in implementing our Strategy 2020 as well as future strategic challenges, particularly digitalisation, to- gether with the Board of Management, with the support of invited outside presenters. At the last meeting of the Supervisory Board in 2017, which was held on 12 December, we discussed the Express division’s e-commerce and B2C strategy and the course of business in Europe. We also approved the 2018 business plan for the Group, set the Board of Management’s per- formance targets for financial year 2018 and resolved to issue a further unqualified Declaration of Conformity. The extraordinary meetings held on 23 August and 28 November 2017 addressed the sale of our shares in Williams Lea Tag. Key topics addressed in committee meetings The Supervisory Board’s six committees prepare decisions by the full Supervisory Board and resolve issues that they have been delegated to decide. The chairs of the committees report in the plenary meetings on the work of the com- mittees. The Executive Committee met on five occasions. It focused primarily on Board of Management issues and on preparing the Supervisory Board meetings. The Personnel Committee held four meetings. Items discussed included the strategic human resources prior- ities, personnel development, increasing the number of women in executive positions, the further development of the Group-wide “Certified” initiative, which promotes em- ployee commitment and changes in our corporate culture, and the annual employee opinion survey. The Finance and Audit Committee met seven times. It examined the annual financial statements and the manage- ment reports for Deutsche Post AG and the Group in the presence of the auditors. It discussed the quarterly finan- cial reports and the interim report for the first half of the year, which were reviewed by the auditors, before their pub- lication with the Board of Management and the auditors. The Audit Committee recommended to the Supervisory Board that it propose PricewaterhouseCoopers GmbH Wirtschafts prüfungsgesellschaft (PwC), Düsseldorf, to the Annual General Meeting for election as the auditors of the financial statements of Deutsche Post AG and the Group, and as the auditors providing reviews of any interim re- ports; in addition, it issued the audit engagement for the auditors for the reporting period and specified the key audit priorities. The statement of independence required from the auditors was available to the committee. The commit- tee also addressed the non-audit services provided by the auditors, and the enterprise’s accounting process and risk management system, as well as discussing the findings of internal audits. It obtained detailed reports from the Chief Compliance Officer on compliance and on updates to the compliance organisation and compliance management. The Strategy Committee met six times, primarily ad- dressing the business units’ strategic positioning in their respective market segments and the implementation of our Strategy 2020. The primary focus was on cybersecurity and on strategies and measures for digitally transforming the enterprise. The Nomination Committee and the Mediation Com- mittee did not meet in the reporting period. Changes to the Supervisory Board and Board of Management There were no changes to the shareholder representatives during the reporting period. With respect to the employee representatives, Ulrike Lennartz-Pipenbacher was appointed as a member of the Supervisory Board by the court following the departure of Helga Thiel, effective as of 1 July. Tim Scharwath assumed responsibility for the Global Forwarding, Freight division with effect from 1 June. Thomas Ogilvie was appointed as the member of the Board of Manage ment for Human Resources and Labour Director of Deutsche Post AG with effect from 1 September 2017. 92 Deutsche Post DHL Group — 2017 Annual Report the Board of Management’s proposal on the appropriation of the net retained profit were discussed in detail with the Board of Management and representatives of the auditors, who reported on the results of their audit and were avail able to answer questions and provide additional information. The Supervisory Board concurred with the results of the audit and approved the annual and consolidated financial statements for financial year 2017, as recommended by the Finance and Audit Committee. No objections were raised on the basis of the final outcome of the examination by the Supervisory Board and the Finance and Audit Committee of the annual and consolidated financial statements, the management reports and the proposal for the appropri- ation of the net retained profit. Similarly, no objections were raised with regard to the examination of the (consolidated) non-financial report. The Supervisory Board endorsed the Board of Management’s proposal for the appropriation of the net retained profit and the payment of a dividend of €1.15 per share. We would like to thank the members of the Board of Management and the employees of Deutsche Post AG and all Group companies for their hard work, which was instru- mental to our success in financial year 2017. Bonn, 6 March 2018 The Supervisory Board Wulf von Schimmelmann Chairman Managing conflicts of interest None of the Supervisory Board members hold positions on the governing bodies of, or provide consultancy services to, the Group’s main competitors. The Supervisory Board was not informed of any conflicts of interest affecting individual members during the reporting period. Compliance with all recommendations of the German Corporate Governance Code In December 2017, the Board of Management and the Super visory Board issued an unqualified Declaration of Conformity pursuant to section 161 of the Aktiengesetz (AktG – German Stock Corporation Act), which was also published on the company’s website. The declarations from previous years are also available there. Deutsche Post AG also continued to comply with all recommendations of the Government Commission on the German Corporate Governance Code in the version dated 5 May 2015, which was published in the Federal Gazette on 12 June 2015, fol- lowing submission of the Declaration of Conformity in December 2016. It also complied with the recommen- dations of the Government Commission on the German Corporate Governance Code in the version dated 7 Febru- ary 2017, which was published in the Federal Gazette on 24 April / 19 May 2017, and aims to continue to do so in fu- ture. We have also implemented all the suggestions made by the Government Commission, with the exception of broad- casting the full AGM on the internet. Further information regarding corporate governance within the enterprise can be found in the Corporate Governance Report (page 96 ff.). 2017 annual and consolidated financial statements examined The auditors elected by the AGM, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC), Düsseldorf, audited the annual and consolidated financial statements for financial year 2017, including the respective manage- ment reports, and issued unqualified audit opinions. PwC also reviewed the quarterly financial reports and the interim report for the first half of the year. Following a detailed preliminary assessment by the Finance and Audit Committee, the Supervisory Board examined the annual and consolidated financial statements, including the Board of Management’s proposal on the ap- propriation of the net retained profit, and the management reports and (consolidated) non-financial report for finan- cial year 2017 at its meeting on 6 March 2018. The finan- cial statement documents, the auditors’ audit reports and Corporate Governance — REPORT OF THE SUPERVISORY BOARD — SUPERVISORY BOARD — Members of the Supervisory Board — Committees of the Supervisory Board 93 SUPERVISORY BOARD Members of the Supervisory Board Committees of the Supervisory Board b.01 b.02 Shareholder representatives Employee representatives Executive Committee Prof. Dr Wulf von Schimmelmann (Chair) Former CEO of Deutsche Postbank AG Dr Nikolaus von Bomhard Former Chair of the Board of Manage­ ment, Münchener Rückversicherungs­ Gesellschaft AG (Munich Re) (since 27 April 2017) Ingrid Deltenre Former Director General of the European Broadcasting Union (since 4 September 2017) Werner Gatzer State Secretary, Federal Ministry of Finance (until 31 December 2017) CEO of Deutsche Bahn Station & Service AG (since 1 January 2018) Prof. Dr Henning Kagermann Former CEO of SAP AG Simone Menne Member of the Board of Managing Directors, Boehringer Ingelheim GmbH (until 31 December 2017) Roland Oetker Managing Partner, ROI Verwaltungs­ gesellschaft mbH Dr Ulrich Schröder (until 6 February 2018) CEO of KfW Bankengruppe ( until 31 December 2017) Dr Stefan Schulte Chair of the Executive Board of Fraport AG Prof. Dr-Ing. Katja Windt Bernd Rogge Professorship of Global Production Logistics President / member of the Executive Board of Jacobs University Bremen gGmbH (until 14 January 2018) SMS group GmbH, Electric & Automation and Digital Solutions (since 15 January 2018) Andrea Kocsis (Deputy Chair) Deputy Chair of ver.di National Executive Board and Head of Postal Services, Forwarding Companies and Logistics on the ver.di National Executive Board Rolf Bauermeister Head of Postal Services, Co­determination and Youth and Head of National Postal Services Group at ver.di National Administration Jörg von Dosky Chair of the Group and Company Executive Representation Committee, Deutsche Post AG Thomas Koczelnik Chair of the Group Works Council, Deutsche Post AG Anke Kufalt Chair of the Works Council, DHL Global Forwarding GmbH, Hamburg Ulrike Lennartz-Pipenbacher (since 1 July 2017) Deputy Chair of the Central Works Council, Deutsche Post AG Andreas Schädler Business Division Sales Post, Deutsche Post AG Sabine Schielmann Member of the Executive Board of the Central Works Council, Deutsche Post AG Stephan Teuscher Head of Wage, Civil Servant and Social Policies in the Postal Services, Forwarding Companies and Logistics Department, ver.di National Administration Helga Thiel (until 30 June 2017) Deputy Chair of the Central Works Council, Deutsche Post AG Stefanie Weckesser Deputy Chair of the Works Council, Deutsche Post AG, Mail Branch, Augsburg Prof. Dr Wulf von Schimmelmann (Chair) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Dr Nikolaus von Bomhard (since 1 December 2017) Werner Gatzer Roland Oetker (until 30 November 2017) Stefanie Weckesser Personnel Committee Andrea Kocsis (Chair) Prof. Dr Wulf von Schimmelmann (Deputy Chair) Thomas Koczelnik Roland Oetker Finance and Audit Committee Dr Stefan Schulte (Chair) Stephan Teuscher (Deputy Chair) Werner Gatzer Thomas Koczelnik Simone Menne Helga Thiel (until 30 June 2017) Stefanie Weckesser (since 1 July 2017) Strategy Committee Prof. Dr Wulf von Schimmelmann (Chair) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Prof. Dr Henning Kagermann Thomas Koczelnik Dr Ulrich Schröder (until 30 November 2017) Roland Oetker (since 1 December 2017) Nomination Committee Prof. Dr Wulf von Schimmelmann (Chair) Dr Nikolaus von Bomhard (since 1 December 2017) Werner Gatzer Roland Oetker (until 30 November 2017) Mediation Committee (pursuant to section 27 (3) of the German Co-determination Act) Prof. Dr Wulf von Schimmelmann (Chair) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Roland Oetker 94 Deutsche Post DHL Group — 2017 Annual Report Mandates held by the Supervisory Board b.03 Shareholder representatives Employee representatives Membership of supervisory boards required by law Jörg von Dosky PSD Bank München eG Andreas Schädler PSD Bank Köln eG (Chair) Stephan Teuscher DHL Hub Leipzig GmbH (Deputy Chair) Helga Thiel (until 30 June 2017) PSD Bank Köln eG (Deputy Chair) Membership of supervisory boards required by law Prof. Dr Wulf von Schimmelmann (Chair) Allianz Deutschland AG Maxingvest AG Dr Nikolaus von Bomhard ERGO Group AG 1 (Chair) (until 26 April 2017) Munich Health Holding AG 1 (Chair) ( until 26 April 2017) Werner Gatzer Flughafen Berlin Brandenburg GmbH PD­Berater der öffentlichen Hand GmbH (Chair) Prof. Dr Henning Kagermann BMW AG (until 11 May 2017) Deutsche Bank AG Münchener Rückversicherungs­Gesellschaft AG (Munich Re) KUKA AG (since 31 May 2017) Simone Menne BMW AG Dr Ulrich Schröder (until 6 February 2018) Deutsche Telekom AG Prof. Dr-Ing. Katja Windt Fraport AG Membership of comparable bodies Prof. Dr Wulf von Schimmelmann (Chair) Accenture Corp., Ireland (Board of Directors) (until 9 February 2017) Thomson Reuters Corp., Canada (Board of  Directors) Ingrid Deltenre Givaudan SA, Switzerland (Board of Directors) Banque Cantonale Vaudoise SA, Switzerland (Board of Directors) Agence France Presse, France (Board of Directors) (since 28 September 2017) Roland Oetker Rheinisch­Bergische Verlagsgesellschaft mbH (Supervisory Board) Dr Ulrich Schröder (until 6 February 2018) DEG – Deutsche Investitions­ und Entwicklungs­ gesellschaft mbH (Supervisory Board) (until 31 December 2017) “Marguerite 2020”: European Fund for Energy, Climate Change and Infrastructure, Luxembourg (Supervisory Board) Dr Stefan Schulte Fraport Ausbau Süd GmbH (Supervisory Board, Chair) 2 Fraport Regional Airports of Greece A S. A. (Board of Directors, Chair) 2 Fraport Regional Airports of Greece B S. A. (Board of Directors, Chair) 2 Fraport Regional Airports of Greece Manage­ ment Company S. A. (Board of Directors, Chair) 2 Fraport Brasil S. A. Aeroporto de Porto Alegre (Supervisory Board, Chair) 2 (since 4 December 2017) Fraport Brasil S. A. Aeroporto de Fortaleza (Supervisory Board, Chair) 2 (since 4 December 2017) 1 Group mandates, Münchener Rückversicherungs­Gesellschaft AG (Munich Re). 2 Group mandates, Fraport AG. Corporate Governance — SUPERVISORY BOARD — Mandates held by the Supervisory Board — BOARD OF MANAGEMENT — Members of the Board of Management — Mandates held by the Board of Management 95 BOARD OF MANAGEMENT Members of the Board of Management Dr Frank Appel Chief Executive Officer Global Business Services (since 1 January 2017) (Dr Frank Appel was also responsible for Global Forwarding, Freight until 30 June 2017.) Born in 1961 Member since November 2002 CEO since February 2008 Appointed until October 2022 Ken Allen Express Born in 1955 Member since February 2009 Appointed until July 2020 Dr h. c. Jürgen Gerdes Post ­ eCommerce ­ Parcel Born in 1964 Member since July 2007 Appointed until June 2020 John Gilbert Supply Chain Born in 1963 Member since March 2014 Appointed until March 2022 Melanie Kreis Finance (Melanie Kreis was also responsible for Human Resources until 31 August 2017.) Born in 1971 Member since October 2014 Appointed until June 2022 Dr Thomas Ogilvie Human Resources Born in 1976 Member since September 2017 Appointed until August 2020 Tim Scharwath Global Forwarding, Freight Born in 1965 Member since June 2017 Appointed until May 2020 Mandates held by the Board of Management Membership of supervisory boards required by law – Membership of comparable bodies Ken Allen DHL­Sinotrans International Air Courier Ltd, China (Board of Directors) 1 1 Group mandate. b.04 b.05 96 Deutsche Post DHL Group — 2017 Annual Report CORPORATE GOVERNANCE REPORT and Annual Corporate Governance Statement for Deutsche Post AG and Deutsche Post DhL Group Company in compliance with all recommendations of the German Corporate Governance Code In December 2017, the Board of Management and the Super visory Board once again issued an unqualified Declar- ation of Conformity pursuant to section 161 of the Aktien- gesetz (AktG – German Stock Corporation Act): “The Board of Management and the Supervisory Board of Deutsche Post AG declare that the recommendations of the Government Commission German Corporate Govern- ance Code in the version dated 5 May 2015 and published in the Federal Gazette on 12 June 2015 have been complied with also after issuance of the Declaration of Conformity in December 2016 and that all recommendations of the Code in the version dated 7 February 2017 and published in the Federal Gazette on 24 April / 19 May 2017 shall be complied with in the future.” We also intend to implement the suggestions made in the Code, with one exception: the Annual General Meeting will only be broadcast on the internet up to the end of the CEO’s address. This helps ensure frank and open discussion during the shareholders’ debate. The current Declaration of Conformity and those for the last five years can be viewed at dpdhl.com/en/investorS. Corporate governance principles Our business relationships and activities are based on re- sponsible business practice that complies with applicable laws, ethical standards and international guidelines, and this also forms part of our Group strategy. Equally, we re- quire our suppliers to act in this way. We encourage and facilitate long-term relationships with our stakeholders, whose decisions to select Deutsche Post DHL Group as a supplier, employer or investment of choice are increasingly also based on the requirement that we comply with good corporate governance criteria. Our Code of Conduct dpdhl.com/en is firmly established within the company and is applicable in all divisions and regions. The Code of Conduct is based on the principles set out in the Universal Declaration of Human Rights and the United Nations (UN) Global Compact. It is consistent with recognised legal standards, including the applicable anti-corruption legislation and agreements. The Code of Conduct also defines what we mean by diversity within the Group. Diversity and mutual respect are core values that are preconditions for the economic strength of the entire Group. The key criteria for the recruit- ment and professional development of our employees are their skills and qualifications. Our Diversity Council dis- cusses the strategic aspects of diversity management and divisional requirements. Its members comprise executives from the central functions and divisions and it is chaired by the Board member for Human Resources. Members also act as ambassadors for, and promote, diversity in the divisions. The members of the Board of Management and the Super- visory Board support the Group’s diversity strategy, with a particular focus on the goal of increasing the number of women on the Board of Management. Further information on the contents of the Code of Conduct and on diversity Corporate Responsibility management can be found in the Report, dpdhl.com/cr-report2017. The goal of the compliance management system (CMS) is to ensure observance of the statutory provisions and internal policies applicable to the Group. The compliance programme aims to prevent breaches of the rules from oc- curring in the first place, or to identify them at an early stage and to take appropriate action. The effectiveness of the CMS is reviewed on an on-going basis in order to adapt it if nec- essary to relevant developments and new legal requirements. An overview of the compliance organisation and the ele- ments making up the compliance programme can be found Corporate Responsibility Report, dpdhl.com/cr-report2017. in the Co-operation between the Board of Management and the Supervisory Board As a listed German public limited company, Deutsche Post AG has a dual management system. The Board of Management manages the company. The Supervisory Board appoints, oversees and advises the Board of Management. Corporate Governance — CORPORATE GOVERNANCE REPORT 97 The Board of Management comprises the Chief Ex- ecutive Officer (CEO), the Chief Financial Officer (CFO) and the Board member for Human Resources, plus the members responsible for the four operating divisions: Post - eCom- merce - Parcel; Express; Global Forwarding, Freight; and Supply Chain. Group management functions are central- ised in the Corporate Center. The Corporate Strategy, page 34, provides a framework for the whole Group. The Board of Management’s rules of procedure set out the principles governing its internal organisation, management and rep- resentation, as well as co-operation between its individual members. Within this framework, Board members man- age their departments independently and inform the rest of the Board about key developments at regular intervals. The Board of Management as a whole decides on matters of particular significance for the company or the Group, in- cluding all decisions that have to be presented to the Super- visory Board for approval, and all tasks that cannot be dele- gated to individual members of the Board. The Board of Manage ment as a whole also decides on matters presented to it by individual members of the Board of Management for decision. When making decisions, members of the Board of Management may not act in their own personal interest or exploit corporate business opportunities for their own benefit. The Supervisory Board must be informed of any conflicts of interest without delay. No member of the Board of Management is a member of more than three super visory boards of non-Group listed companies or of other super- visory bodies with comparable requirements. The D & O insurance for the members of the Board of Management provides for a deductible as set out in the AktG. The Supervisory Board appoints, advises and oversees the Board of Management. It has established rules of pro- cedure for itself containing the principles for its internal organisation, a catalogue of Board of Management trans- actions requiring its approval and the rules governing the work of the Supervisory Board committees. The Supervisory Board meets at least four times a year. Extraordinary Supervisory Board meetings are held when- ever particular developments or measures need to be dis- cussed or approved at short notice. In financial year 2017, the Supervisory Board held six plenary meetings, 22 com- mittee meetings and one closed meeting, as described in the Report of the Supervisory Board, page 90 ff. At 92 %, the attendance rate remained very high in the reporting period, as the fol- lowing breakdown shows. Ulrich Schröder’s absences were due to health reasons. Attendance at plenary and committee meetings % Supervisory Board member Prof. Dr Wulf von Schimmelmann (Chair) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Dr Nikolaus von Bomhard Ingrid Deltenre Jörg von Dosky Werner Gatzer Prof. Dr Henning Kagermann Thomas Koczelnik Anke Kufalt Ulrike Lennartz­Pipenbacher (since 1 July 2017) Simone Menne Roland Oetker Andreas Schädler Sabine Schielmann Dr Ulrich Schröder Dr Stefan Schulte Stephan Teuscher Helga Thiel (until 30 June 2017) Stefanie Weckesser Prof. Dr­Ing. Katja Windt b.06 Attendance 100 100 100 100 100 100 89 83 91 100 100 85 100 100 100 0 100 100 100 100 100 The at Report of the Supervisory Board, page 90 ff., can also be viewed dpdhl.com/en/investors. The Board of Management and the Supervisory Board regularly discuss the Group’s strategy, the divisions’ object- ives and strategies, the financial position and performance of the company and the Group, key business transactions, the progress of acquisitions and investments, compliance and compliance management, risk exposure and risk man- agement, and all material business planning and related im- plementation issues. The Board of Management informs the Supervisory Board promptly and in full about all issues of significance. The Chairman of the Supervisory Board and the CEO maintain close contact about current issues. 98 Deutsche Post DHL Group — 2017 Annual Report The Supervisory Board carries out an annual efficiency review of its work. In the current reporting period it again concluded that it had performed its monitoring and ad- visory duties efficiently and effectively. Suggestions made by individual members are also taken up and implemented during the year. Supervisory Board decisions are prepared and discussed in advance in separate meetings of the share- holder representatives and the employee representatives, and by the relevant committees. Each plenary Supervisory Board meeting includes a detailed report on the committees’ work and the decisions taken. Supervisory Board members are personally responsible for ensuring they receive the training and professional development measures they need to perform their tasks (e.g. on changes to the legal frame- work and on issues relating to the future); the company sup- ports them in this by arranging presentations by internal and external speakers, among other things. No Supervisory Board members hold positions on the governing bodies of, or provide consultancy services to, the Group’s main competitors. All Supervisory Board members are independent within the meaning of the German Corporate Governance Code. The number of independent Supervisory Board members therefore exceeds the target we had set ourselves of at least 75 % of the Supervisory Board as a whole. In light of the European Commission’s recommendation on the independence of non-executive or supervisory directors and the wide-ranging protection against summary dis- missal and ban on discrimination contained in the Betriebs- verfas sungsgesetz (BetrVG – German Works Constitution Act) and the Mitbestimmungsgesetz (MitbestG – German Co-determination Act), being an employee of the company is not inconsistent with the requirement for independence as defined by the Code. The largest shareholder in the com- pany, KfW Bankengruppe, currently holds approximately 21 % of the shares in Deutsche Post AG. There are therefore no controlling shareholders as defined in the Code with whom relationships might exist that could call the Super- visory Board’s independence into question. With the exception of Wulf von Schimmelmann, who was a member of the Board of Management until June 2007, there are no former members of the Board of Management on the Supervisory Board. The terms of office of those members of the Supervisory Board who are elected individually by the Annual General Meeting comply, in all cases, with the age limit of 72 that has been set and with the requirement that, as a general rule, members should not serve more than three terms of office. Executive committees and Supervisory Board committees Three executive committees prepare the resolutions to be passed by the full Board of Management and take deci- sions on matters delegated to them. The duties of the ex- ecutive committees include preparing and/or approving in- vestments and transactions. The Deutsche Post Executive Committee is responsible for the Post - eCommerce - Parcel division; the DHL Executive Committee is in charge of the DHL divisions; the CC & GBS Executive Committee covers the Corporate Center and Global Business Services. The CEO, the CFO and the Board member for Human Resources have permanent representation on the committees, whilst the Board members responsible for the divisions are rep- resented on the committees in relation to matters affecting their divisions. Executives from the first and second tiers immediately below the Board of Management attend ex- ecutive committee meetings that cover topics relevant to their fields. The Deutsche Post Executive Committee and the DHL Executive Committee each meet once or twice a month, whilst the CC & GBS Executive Committee usually meets every quarter. Business review meetings also take place once a quar- ter. These meetings are part of the strategic performance dialogue between the divisions, the CEO and the CFO. The business review meetings discuss strategic initiatives, oper- ational matters and the budgetary situation in the divisions. members of the Board of Management and the mandates held The by them are listed on page 95. The Supervisory Board has formed six committees to ensure its duties are discharged effectively. In particular, these committees prepare the resolutions to be taken in the plenary Supervisory Board meetings. The procedures ap- plicable in the committees are governed by the rules set out in the rules of procedure for the Supervisory Board, with the necessary modifications. The Executive Committee does the preparatory work for appointing members of the Board of Management and drawing up their contracts of service, and prepares the resolution by the full Supervisory Board that determines their remuneration. The Finance and Audit Committee oversees the com- pany’s accounts, its accounting process, the effectiveness of the internal control system, the risk management and internal auditing systems, and the audit of the financial statements, and in particular the selection of the auditors and their independence. It approves the engagement of the auditor to perform non- audit services. It examines cor- porate compliance issues and discusses the half-yearly and Corporate Governance — CORPORATE GOVERNANCE REPORT 99 quarterly financial reports with the Board of Management before publication. Based on its own assessment, the com- mittee submits proposals for the approval of the annual and consolidated financial statements by the Supervisory Board. The Chairman of the Finance and Audit Committee, Stefan Schulte, is an in dependent financial expert as defined in sections 100 (5) and 107 (4) of the AktG. An agreement has been reached with the auditors that the Chairman of the Supervisory Board and the Chairman of the Finance and Audit Committee shall be informed without delay of any potential grounds for exclusion or for impairment of the auditors’ independence that arise dur- ing the audit, to the extent that these are not immediately remedied. In addition, it has been agreed that the auditors shall inform the Supervisory Board without delay of all material findings and incidents occurring in the course of the audit. Furthermore, the auditors must inform the Super- visory Board if, while conducting the audit, they find any facts leading to the Declaration of Conformity issued by the Board of Management and Supervisory Board being incorrect. The Personnel Committee discusses human resources principles for the Group. The Mediation Committee carries out the duties as- signed to it pursuant to the MitbestG: it makes proposals to the Supervisory Board on the appointment of members of the Board of Management in those cases in which the re- quired majority of two-thirds of the votes of the Supervisory Board members is not reached. The committee did not meet in the past financial year. The Nomination Committee presents the shareholder representatives of the Supervisory Board with recommen- dations for shareholder candidates for election to the Super- visory Board at the Annual General Meeting. The Strategy Committee prepares the Supervisory Board’s strategy discussions and regularly discusses the competitive position of the enterprise as a whole and of the individual divisions. It addition, it does preparatory work on corporate acquisitions and divestitures that require the Supervisory Board’s approval. Further information about the work of the Supervisory Board and its committees in financial year 2017 is contained in the Report of the Supervisory Board, page 90 ff. Details on the members of the Supervisory Board and the composition of the Supervisory Board committees can be found in the section on the Supervisory Board, page 93 f. Targets for the Supervisory Board’s composition and skills profile The Supervisory Board has set itself the following targets for its composition; they also represent the skills profile it has set itself: 1 When proposing candidates to the Annual General Meeting for election as Supervisory Board members, the Super visory Board shall act purely in the interests of the company. Subject to this requirement, the Super- visory Board aims to ensure that independent Super- visory Board members as defined in number 5.4.2 of the German Corporate Governance Code account for at least 75 % of the Supervisory Board, and that at least 30 % of the Supervisory Board members are women. 2 The company’s international activities are already ad- equately reflected in the composition of the Supervisory Board. The Supervisory Board aims to maintain this and its future proposals to the Annual General Meet- ing will therefore consider candidates whose origins, education or professional experience equip them with particular international knowledge and experience. 3 The Supervisory Board should be in a position to collect- ively provide competent advice to the Board of Manage- ment on fundamental future issues; in its opinion this includes, in particular, the digital transformation. 4 The Supervisory Board should collectively have suffi- cient expertise in the areas of accounting or financial statement audits. This includes knowledge of inter- national developments in the field of accounting. Add- itionally, the Supervisory Board believes that the inde- pendence of its members helps guarantee the integrity of the accounting process and ensure the independence of the auditors. 5 Conflicts of interest affecting Supervisory Board mem- bers are an obstacle to providing independent and efficient advice to, and supervision of, the Board of Management. The Supervisory Board will decide how to deal with potential or actual conflicts of interest on a case-by-case basis, in accordance with the law and giving due consideration to the German Corporate Governance Code. 100 Deutsche Post DHL Group — 2017 Annual Report 6 In accordance with the age limit adopted by the Super- visory Board and laid down in the rules of procedure for the Supervisory Board, proposals for the election of Super visory Board members must ensure that their term of office ends no later than the close of the next Annual General Meeting to be held after the Super- visory Board member reaches the age of 72. As a gen- eral rule, Supervisory Board members should not serve more than three full terms of office. The current Supervisory Board meets these targets and this skills profile. Diversity Diversity is an important criterion for the Supervisory Board when it comes to appointing members of the Board of Management. With their varied qualifications, person- alities, skills and experience, the members of the Board of Management play a significant role in the company’s success. The CEO, the CFO and all other members of the Board of Management with operational responsibility have extensive international expertise and experience. Their different ages help ensure a range of opinions within this body. Long-term succession planning in all divisions aims to guarantee that there will be an adequate pipeline of qualified successors for appointments to the Board of Management in the future. Particular attention is given to ensuring that women can advance within the company; specially designed measures support them from the start of their careers, and candidates with potential are given opportunities for development. The current target for the proportion of women on the Board of Management is 1 : 7. This target is met at present. The goal is to achieve a target of 2 : 8 by the end of the Annual General Meeting in 2021. The Board of Management has set target quotas for the proportion of women in the two executive tiers below the Board of Management of 20 % for tier 1 and 30 % for tier 2; these targets apply to the period between 1 January 2017 and 31 December 2019. The two executive tiers are defined on the basis of their reporting lines: tier 1 comprises executives assigned to the N-1 report- ing line, whilst tier 2 consists of executives from the N-2 reporting line. The list of goals mentioned above, which the Super visory Board expanded most recently in December 2017, provides an overview of the key diversity issues for the Super visory Board that it takes into account when considering its own composition. With eight women (40 %), the Super visory Board exceeds the statutory gender quota of 30 %. Shareholders and General Meeting Shareholders exercise their rights, and in particular their right to receive information and to vote, at the General Meeting. Each share in the company entitles the holder to one vote. The agenda for the General Meeting, the reso- lutions proposed by the Board of Management and Super- visory Board to the General Meeting, and additional docu- ments and information about the General Meeting will be made available at dpdhl.com/en/investors at the latest when the General Meeting is convened. We assist our shareholders in exercising their voting rights not only by making it pos- sible to submit postal votes but also by appointing company proxies, who cast their votes solely as instructed to do so by the shareholders and who can also be reached during the General Meeting. Additionally, shareholders can authorise company proxies, submit postal votes and grant proxies to banks and shareholder associations attending the General Meeting via the company’s online service. The Board of Management and the Supervisory Board intend to make use of the option permitted under the AktG at the 2018 Annual General Meeting to allow the General Meeting to resolve on the approval of the remuneration sys- tem for members of the Board of Management. Remuneration of the Board of Management and the  Super visory Board The remuneration of the Board of Management and the Group Management Supervisory Board can be found in the Report, page 40 ff.  125 INCOME STATEMENT DISCLOSURES 125 125 125 126 126 127 127 127 129 129 11 – Revenue 12 – Other operating income 13 – Materials expense 14 – Staff costs / employees 15 – Depreciation, amortisation and impairment losses 16 – Other operating expenses 17 – Net finance costs 18 – Income taxes 19 – Earnings per share 20 – Dividend per share 130 BALANCE SHEET DISCLOSURES 130 132 133 133 134 134 135 135 135 135 136 136 139 139 139 139 140 141 146 147 149 21 – Intangible assets 22 – Property, plant and equipment 23 – Investment property 24 – Investments accounted for using the equity method 25 – Financial assets 26 – Other assets 27 – Deferred taxes 28 – Inventories 29 – Trade receivables 30 – Cash and cash equivalents 31 – Assets held for sale and liabilities associated with assets held for sale 32 – Issued capital and purchase of treasury shares 33 – Capital reserves 34 – Other reserves 35 – Retained earnings 36 – Equity attributable to Deutsche Post AG shareholders 37 – Non­controlling interests 38 – Provisions for pensions and similar obligations 39 – Other provisions 40 – Financial liabilities 41 – Other liabilities 150 CASH FLOW DISCLOSURES 150 42 – Cash flow disclosures 152 OTHER DISCLOSURES 152 162 162 162 163 166 169 169 170 43 – Risks and financial instruments of the Group 44 – Contingent liabilities 45 – Other financial obligations 46 – Litigation 47 – Share­based payment 48 – Related party disclosures 49 – Auditor’s fees 50 – Exemptions under the HGB and local foreign legislation 51 – Declaration of Conformity with the German Corporate Governance Code 170 52 – Significant events after the reporting date and other disclosures 171 RESPONSIBILITY STATEMENT 172 INDEPENDENT AUDITOR’S REPORT C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S D CONSOLIDATED FINANCIAL STATEMENTS 101 — 176 102 INCOME STATEMENT 103 STATEMENT OF COMPREHENSIVE INCOME 104 BALANCE SHEET 105 CASH FLOW STATEMENT 106 STATEMENT OF CHANGES IN EQUITY 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 107 BASIS OF PREPARATION 107 107 109 110 110 112 113 120 121 1 – Basis of accounting 2 – Consolidated group 3 – Significant transactions 4 – Adjustment of prior­period amounts 5 – New developments in international accounting under IFRS s 6 – Currency translation 7 – Accounting policies 8 – Exercise of judgement in applying the accounting policies 9 – Consolidation methods 122 SEGMENT REPORTING 122 10 – Segment reporting CC 102 Deutsche Post DHL Group — 2017 Annual Report INCOME STATEMENT 1 January to 31 December € m Revenue Other operating income Total operating income Materials expense Staff costs Depreciation, amortisation and impairment losses Other operating expenses Total operating expenses Net income from investments accounted for using the equity method Profit from operating activities (EbIT) Financial income Finance costs Foreign currency losses Net finance costs Profit before income taxes Income taxes Consolidated net profit for the period attributable to Deutsche Post AG shareholders attributable to non­controlling interests Basic earnings per share (€) Diluted earnings per share (€) Note 11 12 13 14 15 16 17 18 19 19 2016 57,334 2,156 59,490 –30,620 –19,592 –1,377 – 4,414 – 56,003 4 3,491 90 –384 – 65 –359 3,132 –351 2,781 2,639 142 2.19 2.10 c.01 2017 60,444 2,139 62,583 –32,775 –20,072 –1,471 – 4,526 – 58,844 2 3,741 89 – 482 –18 – 411 3,330 – 477 2,853 2,713 140 2.24 2.15 Consolidated Financial Statements — INCOME STATEMENT — STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF COMPREHENSIVE INCOME 1 January to 31 December € m Consolidated net profit for the period Items that will not be reclassified to profit or loss Change due to remeasurements of net pension provisions Other changes in retained earnings Income taxes relating to components of other comprehensive income Share of other comprehensive income of investments accounted for using the equity method, net of tax Total, net of tax Items that may be reclassified subsequently to profit or loss IAS 39 revaluation reserve Changes from unrealised gains and losses Changes from realised gains and losses IAS 39 hedging reserve Changes from unrealised gains and losses Changes from realised gains and losses Currency translation reserve Changes from unrealised gains and losses Changes from realised gains and losses Income taxes relating to components of other comprehensive income 18 Share of other comprehensive income of investments accounted for using the equity method, net of tax Total, net of tax Other comprehensive income, net of tax Total comprehensive income attributable to Deutsche Post AG shareholders attributable to non­controlling interests 103 c.02 2017 2,853 378 0 –28 0 350 1 –1 37 –14 Note 38 18 2016 2,781 – 876 0 8 0 – 868 – 6 – 63 46 17 –291 –736 0 – 6 3 –300 –1,168 1,613 1,478 135 –7 – 8 – 8 –736 –386 2,467 2,344 123 104 Deutsche Post DHL Group — 2017 Annual Report BALANCE SHEET € m ASSETS Intangible assets Property, plant and equipment Investment property Investments accounted for using the equity method Non­current financial assets Other non­current assets Deferred tax assets Non-current assets Inventories Current financial assets Trade receivables Other current assets Income tax assets Cash and cash equivalents Assets held for sale Current assets Total ASSETS EQUITY AND LIAbILITIES Issued capital Capital reserves Other reserves Retained earnings Equity attributable to Deutsche Post AG shareholders Non­controlling interests Equity Provisions for pensions and similar obligations Deferred tax liabilities Other non­current provisions Non­current provisions Non­current financial liabilities Other non­current liabilities Non­current liabilities Non-current provisions and liabilities Current provisions Current financial liabilities Trade payables Other current liabilities Income tax liabilities Liabilities associated with assets held for sale Current liabilities Current provisions and liabilities Total EQUITY AND LIAbILITIES c.03 Note 31 Dec. 2016 31 Dec. 2017 21 22 23 24 25 26 27 28 25 29 26 30 31 32 33 34 35 36 37 38 27 39 40 41 39 40 41 31 12,554 8,389 23 97 689 222 11,792 8,782 21 85 733 231 2,192 2,272 24,166 23,916 275 374 7,965 2,176 232 3,107 0 327 652 8,218 2,184 236 3,135 4 14,129 14,756 38,295 38,672 1,211 2,932 –284 7,228 11,087 263 1,224 3,327 – 998 9,084 12,637 266 11,350 12,903 5,580 106 1,498 7,184 4,571 372 4,943 4,450 76 1,421 5,947 5,151 272 5,423 12,127 11,370 1,323 1,464 7,178 4,292 561 0 1,131 899 7,343 4,402 624 0 13,495 13,268 14,818 14,399 38,295 38,672 Consolidated Financial Statements — BALANCE SHEET — CASH FLOW STATEMENT CASH FLOW STATEMENT 1 January to 31 December € m Consolidated net profit for the period attributable to Deutsche Post AG shareholders Consolidated net profit for the period attributable to non­controlling interests Income taxes Net finance costs Profit from operating activities (EbIT) Depreciation, amortisation and impairment losses Net income from disposal of non­current assets Non­cash income and expense Change in provisions Change in other non­current assets and liabilities Dividend received Income taxes paid Net cash from operating activities before changes in working capital Changes in working capital Inventories Receivables and other current assets Liabilities and other items Net cash from operating activities Subsidiaries and other business units Property, plant and equipment and intangible assets Investments accounted for using the equity method and other investments Other non­current financial assets Proceeds from disposal of non­current assets Subsidiaries and other business units Property, plant and equipment and intangible assets Investments accounted for using the equity method and other investments Other non­current financial assets Cash paid to acquire non­current assets Interest received Current financial assets Net cash used in investing activities Proceeds from issuance of non­current financial liabilities Repayments of non­current financial liabilities Change in current financial liabilities Other financing activities Proceeds from transactions with non­controlling interests Cash paid for transactions with non­controlling interests Dividend paid to Deutsche Post AG shareholders Dividend paid to non­controlling interest holders Purchase of treasury shares Proceeds from issuing shares or other equity instruments Interest paid Net cash used in financing activities Net change in cash and cash equivalents Effect of changes in exchange rates on cash and cash equivalents Changes in cash and cash equivalents associated with assets held for sale Changes in cash and cash equivalents due to changes in consolidated group Cash and cash equivalents at beginning of reporting period Cash and cash equivalents at end of reporting period 105 c.04 2017 2,713 140 477 411 3,741 1,471 – 82 – 40 – 940 –109 3 – 626 3,418 –75 –1,032 986 3,297 316 236 3 21 576 – 54 –2,203 – 55 –122 –2,434 52 –285 Note 42 2016 2,639 142 351 359 3,491 1,377 –113 – 40 –1,799 120 6 – 528 2,514 3 –377 299 2,439 35 265 82 456 838 –304 –1,966 –19 –33 –2,322 50 –209 42 –1,643 –2,091 1,263 – 95 – 58 –205 0 – 9 1,464 – 821 11 – 51 0 – 45 –1,027 –1,270 –128 – 836 0 –138 –1,233 – 437 – 66 1 1 3,608 3,107 –120 –148 53 –160 –1,087 119 – 91 0 0 3,107 3,135 42 30 106 Deutsche Post DHL Group — 2017 Annual Report STATEMENT OF CHANGES IN EQUITY 1 January to 31 December € m Note Balance at 1 January 2016 Capital transactions with owner Dividend Transactions with non­controlling interests Changes in non­controlling interests due to  changes in consolidated group Issue / retirement of treasury shares Purchase of treasury shares Convertible bonds Share­based payment schemes (issuance) Share­based payment schemes (exercise) Total comprehensive income Consolidated net profit for the period Currency translation differences Change due to remeasurements of net pension provisions Issued capital 32 1,211 Capital reserves 33 2,385 0 –31 28 0 3 0 0 531 70 – 54 Other changes 0 0 – 56 44 11 11 0 3 3 0 1,211 1,211 2,932 2,932 0 – 4 0 15 0 2 80 0 5 277 92 – 59 Balance at 31 December 2016 Balance at 1 January 2017 Capital transactions with owner Dividend Transactions with non­controlling interests Changes in non­controlling interests due to changes in consolidated group Issue / retirement of treasury shares Purchase of treasury shares Differences between purchase and issue prices of treasury shares (share­based payment schemes) Convertible bonds Share­based payment schemes (issuance) Share­based payment schemes (exercise) Total comprehensive income Consolidated net profit for the period Currency translation differences Change due to remeasurements of net pension provisions Other changes 0 0 Balance at 31 December 2017 1,224 3,327 –1 10 16 19 Other reserves IAS 39 revaluation reserve IAS 39 hedging reserve Currency translation reserve 34 67 0 34 – 41 34 –15 0 0 Equity attributable to Deutsche Post AG shareholders 36 11,034 Retained earnings 35 7,427 –1,027 –1,027 4 0 4 0 0 –1,000 –1,031 –1,425 –133 –1,558 c.05 Non­ controlling interests Total equity 37 261 –129 – 4 0 0 0 0 0 0 11,295 –1,156 0 0 0 –1,031 559 70 0 142 – 5 –2 0 135 263 263 2,781 –288 – 868 –12 1,613 11,350 11,350 –120 –3 –1,390 –11 3 0 0 0 0 0 0 3 53 47 0 292 92 0 559 70 0 2,639 –283 – 866 –12 1,478 – 8 0 53 47 0 292 92 0 –794 –120 – 914 2,713 –729 345 15 2,344 12,637 140 –22 5 0 123 266 2,853 –751 350 15 2,467 12,903 –298 –298 7,228 11,087 7,228 11,087 –1,270 –1,270 0 0 51 2,639 0 – 866 0 –283 0 – 8 –27 51 – 5 0 0 57 2,713 0 345 0 –729 –1,027 9,084 Consolidated Financial Statements — STATEMENT OF CHANGES IN EQUITY — NOTES — Basis of preparation 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG BASIS OF PREPARATION Deutsche Post DHL Group is a global mail and logistics group. The Deutsche Post and DHL corporate brands represent a portfolio of logistics (DHL) and communication (Deutsche Post) services. The financial year of Deutsche Post AG and its consolidated subsidiaries is the calendar year. Deutsche Post AG, whose registered office is in Bonn, Germany, is entered in the commercial register of the Bonn Local Court. Basis of accounting 1 As a listed company, Deutsche Post AG prepared its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS s), as adopted by the European Union (EU), and the provisions of commercial law to be additionally ap- plied in accordance with section 315a (1) of the Handelsgesetzbuch (HGB – German Commercial Code). The requirements of the Standards applied have been satisfied in full, and the consolidated financial statements therefore provide a true and fair view of the Group’s net assets, financial position and results of operations. The consolidated financial statements consist of the income statement and the statement of comprehensive income, the balance sheet, the cash flow statement, the statement of changes in equity and the notes. In order to improve the clarity of presentation, vari- ous items in the balance sheet and in the income statement have been combined. These items are disclosed and explained separately in the notes. The income statement has been classified in accordance with the nature of expense method. The accounting policies and the explanations and disclosures in the notes to the IFRS consolidated financial statements for finan- cial year 2017 are fundamentally based on the same accounting policies used in the 2016 consolidated financial statements. Excep- tions to this are the changes in international financial reporting  note 5 that have been required to be under IFRS s described in applied by the Group since 1 January 2017. The accounting policies are explained in  note 7. These consolidated financial statements were authorised for issue by a resolution of the Board of Management of Deutsche Post AG dated 19 February 2018. The consolidated financial statements are prepared in euros (€). Unless otherwise stated, all amounts are given in millions of euros (€ million, € m). Consolidated group 2 The consolidated group includes all companies controlled by Deutsche Post AG. Control exists if Deutsche Post AG has decision- making powers, is exposed, and has rights, to variable returns, and is able to use its decision-making powers to affect the amount of the variable returns. The Group companies are consolidated from the date on which Deutsche Post DHL Group is able to exercise control. When Deutsche Post DHL Group holds less than the majority of voting rights, other contractual arrangements may result in the Group controlling the investee. DHL Sinotrans International Air Courier Ltd. (Sinotrans), China, is a significant company that has been consolidated despite Deutsche Post DHL Group not having a majority of voting rights. Sinotrans provides domestic and international express delivery and transport services and has been assigned to the Express segment. The company is fully integrated into the global DHL network and operates exclusively for Deutsche Post DHL Group. Due to the ar- rangements in the Network Agreement, DHL is able to prevail in decisions concerning Sinotrans’ relevant activities. Sinotrans has therefore been consolidated although Deutsche Post DHL Group holds no more than 50 % of the company’s share capital. The complete list of the Group’s shareholdings in accordance with section 313 (2) nos. 1 to 5 and section 313 (3) of the HGB can be accessed online at  dpdhl.com/en/investors. The companies listed in the following table are consolidated in addition to the parent company Deutsche Post AG: Consolidated group Number of fully consolidated companies (subsidiaries) German Foreign Number of joint operations German Foreign Number of investments accounted for using the equity method German Foreign 2016 2017 132 655 1 1 0 12 129 600 1 0 0 14 The reduction in the number of fully consolidated companies is mainly attributable to the sale of Williams Lea Tag Group in the fourth quarter of 2017. In the first quarter of 2017, 22.56 % of the shares of Israel-based Global-E Online Ltd. were acquired. The com- pany is accounted for in the consolidated financial statements using the equity method. 108 Deutsche Post DHL Group — 2017 Annual Report 2.1 Acquisitions in 2017 The following company was acquired in financial year 2017: Acquisitions in 2017 Name Olimpo Holding S. A. (including subsidiaries) In early 2017, Deutsche Post DHL Group acquired an 80 % interest in Brazil-based Olimpo Holding S.A. (Olimpo), including its sub- sidiaries Polar Transportes Ltda. and Rio Lopes Transportes Ltda. These companies provide transport services in the Life Sciences & Healthcare sector, specialising in temperature-controlled transport. The acquisition enables DHL Supply Chain to extend its range of end-to-end services and transparent supply chains. The remaining 20 % interest will be acquired in increments of 10 % over the next two years. The purchase price for the 80 % interest totals €46 million, €45 million of which was paid in July. The purchase price was paid by transferring cash funds. The future results of the company will determine the purchase price for the remaining shares and payment will be made in several tranches. Country Brazil Segment Supply Chain Share of capital % 80 Acquisition date 10 July 2017 The final purchase price allocation resulted in tax-deductible good- will of €35 million attributable to the controlling interest. It is mainly attributable to the synergy and network effects expected to be generated in the company’s Brazilian transport business. The customer relationships of Rio Lopes and Polar are amortised over a period of 9.5 and 10.5 years, respectively, using the straight-line method. The brand names of Rio Lopes and Polar have a useful life of five (Rio Lopes) and ten years (Polar). Current assets include trade receivables of €4 million. There were no differences between the gross amounts and the carrying amounts. Since their consolidation, the companies have contributed €10 million to consolidated revenue and €2 million to consolidated EBIT. If the companies had already been consolidated as at 1 Janu- ary 2017, they would have provided an additional €11 million in consolidated revenue and an additional €2 million in consolidated EBIT. Olimpo (including subsidiaries) € m 10 July 2017 ASSETS Non­current assets Customer relationship Brand name Property, plant and equipment Deferred taxes Current assets Cash and cash equivalents Total ASSETS EQUITY AND LIAbILITIES Non­current provisions and liabilities Deferred taxes Provisions Current provisions and liabilities Total EQUITY AND LIAbILITIES Net assets Purchase price Difference Non­controlling interests Goodwill Carrying amount 7 – – 7 – 5 0 12 2 1 1 4 6 Adjustment Fair value Transaction costs were below €1 million and are reported in other operating expenses. Preliminary purchase price allocation for UK Mail Group plc and UK Mail Limited, United Kingdom, which were acquired in December 2016, was disclosed in the consolidated financial state- ments for the year ended 31 December 2016. At that time, all of the information necessary for final purchase price allocation was not yet available. This resulted in preliminary goodwill of €201 million. The final purchase price allocation was completed in the first quar- ter of 2017 and did not result in any adjustment of the preliminary purchase price allocation disclosed initially. 13 8 1 3 1 – – 13 5 4 1 – 5 20 8 1 10 1 5 0 25 7 5 2 4 11 14 46 32 3 35 Consolidated Financial Statements — NOTES — Basis of preparation 109 A variable purchase price was additionally agreed for an acqui- sition in prior years: Contingent consideration Company Mitsafetrans S. r. l. Basis EBItDA Period for financial years from / to Results range Fair value of total obligation from / to at the acquisition date Remaining payment obligation at 31 Dec. 2016 Remaining payment obligation at 31 Dec. 2017 2016 to 2018 €0 to 19 million €15 million €15 million €10 million In financial year 2017, €45 million was paid for companies acquired in the financial year and €9 million for companies acquired in pre- vious years. The purchase price for the companies acquired was paid by transferring cash funds. Deutsche Post DHL Group additionally acquired 16.9 % of the owner- ship structure newly established by the buyer (WERTHEIMER PARENTCO UK LIMITED) and extended it a loan. 2.2 Disposal and deconsolidation effects in 2017 Gains are shown in other operating income; losses are reported in other operating expenses. Williams Lea Tag Group – SUPPLY chAIN segment In November 2017, Deutsche Post DHL Group completed the sale of Williams Lea Tag Group to Advent International after approval was issued by the relevant competition authorities. Williams Lea Tag specialises in marketing and communication solutions. The assets and liabilities of the companies in question had previously been reclassified as assets held for sale and liabilities associated with assets held for sale. The most recent measurement of the assets and the disposal group did not indicate any impairment. Disposal and deconsolidation effects € m 1 January to 31 December 2017 ASSETS Non­current assets of which goodwill Current assets Cash and cash equivalents Total ASSETS EQUITY AND LIAbILITIES Non­current provisions and liabilities Current provisions and liabilities Total EQUITY AND LIAbILITIES Net assets Total consideration received Initial recognition of minority interest Gains from the currency translation reserve Losses from the currency translation reserve Goodwill Deconsolidation effect Gains from currency hedge of purchase price Total effect Williams Lea Tag Group 311 72 252 62 625 36 310 346 279 275 – 6 21 –15 – 4 8 4 2.3 Joint operations Joint operations are consolidated in accordance with IFRS 11, based on the interest held. Aerologic GmbH (Aerologic), Germany, a cargo airline domi- ciled in Leipzig, is the only joint operation in this regard. It was jointly established by Lufthansa Cargo AG and Deutsche Post Beteiligungen Holding GmbH, which each hold 50 % of its capital and voting rights. Aero logic has been assigned to the Express seg- ment. Aerologic’s shareholders are simultaneously its customers, giv- ing them access to its freight aircraft capacity. Aerologic serves the DHL Express network from Monday to Friday, whilst it mostly flies for the Lufthansa Cargo network at weekends. In contrast to its cap- ital and voting rights, the company’s assets and liabilities, as well as its income and expenses, are allocated based on this user relationship. Significant transactions 3 In addition to the sale of Williams Lea Tag Group, the significant transactions in financial year 2017 were as follows: By way of a resolution of the Board of Management dated 21 March 2017, a capital reduction was implemented in the first quarter of 2017 through retirement of 27.3 million treasury shares,  note 32. Various holders of the convertible bond issued on 6 Decem- ber 2012 exercised their conversion right in financial year 2017,  notes 32 and 40. In December 2017, Deutsche Post DHL Group placed two bonds in the aggregate principal amount of €1.5 billion with Ger- man and international investors. One was a convertible bond in the aggregate principal amount of €1 billion that will mature in 7.5 years; the other was a traditional bond with a volume of €500 mil-  note 40. The proceeds were used lion that will mature in 10 years, to refinance existing financial liabilities and increase the funding of the Group’s pension obligations in the United Kingdom. For the effects on pension provisions, reference is made to  note 38. 110 Deutsche Post DHL Group — 2017 Annual Report 4 Adjustment of prior-period amounts No prior-period amounts were adjusted in financial year 2017, except for the reallocations in segment reporting,  note 10. 5 New developments in international accounting under IFRS s New Standards required to be applied in financial year 2017 The following Standards, changes to Standards and Interpretations must be applied from 1 January 2017: Standard Subject matter and significance Amendments to IAS 12, Income Taxes – Recognition of Deferred Tax Assets for Unrealised Losses This amendment clarifies that (1) unrealised losses on debt instruments measured at fair value result in deductible temporary differences and (2) an assessment must be made in the aggregate for all deductible temporary differences as to whether it is probable that sufficient taxable income will be available in future to allow the temporary differences to be used and recognised. Requirements and examples explain how future taxable income is to be determined for the accounting for deferred tax assets. The amendment will have no material effect on the consolidated financial statements. Amendments to IAS 7, Statement of Cash Flows – Disclosure Initiative Annual Improvements to IFRS s (2014 – 2016 Cycle) The amendments provide clarifications regarding an entity’s financing activities. Their objective is to make it easier for users of financial statements to  note 42. assess an entity’s financial liabilities. The disclosures are generally relevant and were incorporated into the consolidated financial statements, The improvements relate to IFRS 12. The amendment will not have a material influence on the consolidated financial statements. New accounting pronouncements adopted by the EU but only  required to be applied in future periods The following Standards, changes to Standards and Interpretations have already been endorsed by the EU. However, they will only be required to be applied in future periods. Effective for financial years beginning on or after Subject matter and significance 1 January 2018 Standard (issue date) IFRS 15, Revenue from Contracts with Customers (28 May 2014) including the amendment to IFRS 15 (11 September 2015) and the Clarifications to IFRS 15 (12 April 2016) IFRS 9, Financial Instruments (24 July 2014) 1 January 2018 This Standard will in future replace the existing requirements governing revenue recognition under IAS 18, Revenue, and IAS 11, Construction Contracts, and related interpretations. The new Standard establishes uniform requirements regarding the amount, timing and time period of revenue recognition. It provides a principle­based five­step model that must be applied to all categories of contracts with customers. Revenue will be recognised when the customer obtains control of the goods or services provided. The Group will introduce IFRS 15 based on the modified retrospective method. As a result, the effects of the transition as at 1 January 2018 will be recognised cumulatively in retained earnings. The prior­year figures will not be adjusted. The analysis conducted during the Group­wide project to introduce IFRS 15 did not result in any material effects on the consolidated financial statements. The timing of revenue from certain types of contracts will change because, in future, revenue will be recognised over time rather than at a point in time, or because variable remuneration components will be recognised sooner. The one­off adjustment effects are in the low double­digit millions. In addition, the change in classification of a company as a principal (gross revenue) or agent (net revenue) will reduce revenue, and conversely mainly materials expense, by an amount of around €0.2 billion from 1 January 2018 onward. There will be changes in the balance sheet due to the separate disclos ure of contract assets and liabilities, as well as in the notes due to expanded quantitative and qualitative disclosures. IFRS 9 introduces new requirements governing the recognition and measurement of financial instruments and impairment losses on financial assets. The standard also includes new guidelines on hedge accounting. It thus replaces the previously applicable IAS 39. The effects of initial application as at 1 January 2018 are recognised cumulatively in retained earnings; the prior­period figures will not be adjusted as provided for in the transitional provisions of IFRS 9. According to the review conducted during the Group­wide project to introduce the new rules, it currently appears that there will be no material effect on the financial statements. In future, financial assets must be classified on the basis of the business model in which they are held and their cash flow characteristics. Equity instruments currently reported as available­for­sale financial assets may be recognised at fair value through other comprehensive income. The reclassification of financial assets will only have a minimal effect on the consolidated financial statements and will be presented in a reconciliation. The change in recognition of the impairment of financial assets from the incurred loss model (in which anticipated losses are not recognised until a credit loss event actually occurs) to the expected loss model will result in the earlier recognition of expected losses in the statement of profit or loss. Following the introduction of the Standard, the loss allowances to be recognised on trade receivables will be determined using the full lifetime expected loss model (simplified approach). The default rates will be based on historical and forward­looking data. The one­off effect of the change in accounting for the impairment of financial assets, which is to be recognised in other comprehensive income, will be in the low double­digit millions. The requirements concerning financial liabilities remain mostly unchanged. The Group will exercise the option under IFRS 9 of continuing to apply the requirements of IAS 39 governing hedge accounting. Consolidated Financial Statements — NOTES — Basis of preparation 111 Effective for financial years beginning on or after Subject matter and significance 1 January 2018 Standard (issue date) Amendments to IFRS 4, Insurance Contracts – Applying IFRS 9, Financial Instruments, with IFRS 4, Insurance Contracts (12 September 2016) IFRS 16, Leases (13 January 2016) 1 January 2019 The objective of the amendments to IFRS 4 is to minimise the accounting impact of different effective dates for IFRS 9 and the future new Standard on accounting for insurance contracts (IFRS 17). Entities can choose from two options: The deferral approach allows entities whose primary activity is issuing insurance contracts to delay the initial application of IFRS 9. Alternatively, the overlay approach is available to entities that apply IFRS 4 to existing insurance contracts and enables them to reclassify, from profit or loss to other comprehensive income, an amount equal to the difference between the amount reported in profit or loss for designated financial assets applying IFRS 9 and the amount that would have been reported in profit or loss under IAS 39. Both approaches are optional. The amendments will have no effect on the Group. IFRS 16, Leases, replaces the existing standard on accounting for leases, IAS 17, and the related interpretations. The Group will apply the Standard early as at 1 January 2018. The Group will transition to IFRS 16 in accordance with the modified retrospective approach; the prior­year figures will not be adjusted. The analysis conducted as part of the Group­wide project on initial application indicated that IFRS 16 will have a material effect on components of the consolidated financial statements and the presentation of the net assets, financial position and results of operations of Deutsche Post DHL Group: Balance sheet: IFRS 16 requires lessees to adopt a uniform approach to the presentation of leases. In future, assets must be recognised for the right of use received and liabilities must be recognised for the payment obligations entered into for all leases. The Group will make use of the relief options provided for leases of low­value assets and short­term leases (shorter than twelve months). In contrast, the accounting requirements for lessors remain largely unchanged, particularly with regard to the con­ tinued requirement to classify leases according to IAS 17. For leases that have been classified to date as operating leases in accordance with IAS 17, the lease liability will be recognised at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the time the standard is first applied. The right­of­use asset will generally be measured at the amount of the lease liability plus initial direct costs. Advance payments and liabilities from the previous financial year will also be accounted for. The analysis conducted as part of the Group­wide project on initial application indicated the probable recognition of lease liabilities in the balance sheet totalling around €9.2 billion (1 January 2018) as a result of the transition. Retained earnings will decline only slightly on initial application. As a result of this increase in total assets and liabilities, the Group’s equity ratio will decline by around six percentage points. Net debt will rise accordingly due to the material increase in lease liabilities. Income statement: In contrast to the presentation to date of operating lease expenses, in future depreciation charges on right­ of­ use assets and the interest expense from unwinding of the discount on the lease liabilities will be recognised. IFRS 16 also provides new guidance on the treatment of sale­and­leaseback transactions. The seller / lessee recognises a right­of­use asset in the amount of the proportional original carrying amount that relates to the right of use retained. Accordingly, only the propor­ tional amount of gain or loss from the sale must be recognised. These changes will improve the profit from operating activities (EBIt). Based on the Group’s leases as at 1 January 2018 (including the change in the recognition of sale­and­leaseback trans­ actions), consolidated EBIt is expected to increase by around €150 million in 2018. Cash flow statement: The change in presentation of operating lease expenses will result in a corresponding improvement in cash flows from operating activities and a decline in cash flows from financing activities. Annual Improvements to IFRS s (2014 – 2016 Cycle) (8 December 2016) 1 January 2018 The improvements relate to IFRS 1 and IAS 28. The amendments will have no effect on the consolidated financial statements. 112 Deutsche Post DHL Group — 2017 Annual Report New accounting requirements not yet adopted by the EU ( endorsement procedure) The IASB and the IFRIC issued further Standards, amendments to Standards and Interpretations in financial year 2017 and in previous years whose application is not yet mandatory for financial year 2017. The application of these IFRS s is dependent on their adoption by the EU. Standard (issue date) Amendments to IFRS 2, Share­based Payment – Clarifications of Classification and Measurement of Share­ based Payment Transactions (20 June 2016) IFRIC 22, Foreign Currency Transactions and Advance Consideration (8 December 2016) Amendments to IAS 40, Investment Property (8 December 2016) IFRS 17, Insurance Contracts (18 May 2017) IFRIC 23, Uncertainty over Income Tax Treatments (7 June 2017) Amendments to IFRS 9, Financial Instruments: Prepayment Features with Negative Compensation (12 October 2017) Amendments to IAS 28, Investments in Associates and Joint Ventures: Long­ term Interests in Associates and Joint Ventures (12 October 2017) Annual Improvements to IFRS s (2015–2017 Cycle) (12 December 2017) Effective for financial years beginning on or after Subject matter and significance 1 January 2018 The amendments clarify the accounting for cash­settled share­based payment transactions that include a performance condition. The measurement rules follow the same approach as when accounting for equity­settled awards. An exception was also in­ cluded for the classification of share­based payment transactions with net settlement features for withholding tax obligations. Such commitments are required to be classified in their entirety as equity­settled share­based payment transactions if they would have been classified in this way in the absence of the net settlement feature. The amendments further include clarifica­ tions regarding modifications of the terms and conditions of share­based payment arrangements that change their classification from cash­settled to equity­settled. Early application is permitted. The amendments will not have any effect on the Group. 1 January 2018 IFRIC 22 clarifies the date to be used to determine the exchange rate for transactions that include the receipt or payment of advance consideration in a foreign currency. Early application is permitted. The interpretation will have no effect on the consolidated financial statements. 1 January 2018 The amendment provides clarity on the classification of property under construction or development. The consolidated financial statements will not be affected. 1 January 2021 IFRS 17 outlines the principles governing the recognition, measurement, presentation and disclosure of insurance contracts. The objective of the Standard is to ensure that the reporting entity provides relevant information that faithfully represents those insurance contracts. This information gives users of financial statements better insights into the effects that insurance contracts have on an entity’s net assets, financial position, results of operations and cash flows. The effects on the Group are currently being assessed. 1 January 2019 IFRIC 23 clarifies the requirements for measuring and recognising uncertain income tax items. The Interpretation must be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates when there is uncertainty over income tax treatments under IAS 12. Voluntary early application is permitted. The Group is currently evaluating the possible effects on its financial statements. 1 January 2019 The amendment clarifies how certain financial instruments with prepayment features are classified according to IFRS 9. 1 January 2019 The amendments to IAS 28 clarify that IFRS 9 must be applied to long­term interests that, in substance, form part of the net investment in an associate or joint venture to which the equity method is applied. 1 January 2019 The improvements relate to IFRS 3, Business Combinations, and IFRS 11, Joint Arrangements, as well as IAS 12, Income Taxes, and IAS 23, Borrowing Costs. 6 Currency translation The financial statements of consolidated companies prepared in foreign currencies are translated into euros (€) in accordance with IAS 21 using the functional currency method. The functional cur- rency of foreign companies is determined by the primary economic environment in which they mainly generate and use cash. Within the Group, the functional currency is predominantly the local cur- rency. In the consolidated financial statements, assets and liabilities are therefore translated at the closing rates, whilst periodic income and expenses are generally translated at the monthly closing rates. The resulting currency translation differences are recognised in other comprehensive income. In financial year 2017, currency translation differences amounting to €–751 million (previous year: €–288 million) were recognised in other comprehensive income (see the statement of comprehensive income). Consolidated Financial Statements — NOTES — Basis of preparation 113 Goodwill arising from business combinations after 1 Janu- ary 2005 is treated as an asset of the acquired company and there- fore carried in the functional currency of the acquired company. The exchange rates for the currencies that are significant for the Group were as follows: Closing rates Average rates 2016 2017 2016 2017 EUR 1 = EUR 1 = EUR 1 = EUR 1 = 1.4602 7.3534 0.8560 8.1809 1.5352 7.8161 0.8880 9.3752 1.4849 7.3493 0.8229 8.5646 1.4791 7.6501 0.8763 8.8649 71.6633 76.6308 74.2234 73.7957 123.4555 135.0382 120.4342 127.3132 9.5601 1.0550 9.8332 1.1997 9.4723 1.1035 9.6447 1.1372 Country Australia China United Kingdom Hong Kong India Japan Sweden USA Currency AUD CNY GBP HKD INR JPY SEK USD The carrying amounts of non-monetary assets recognised at sig- nificant consolidated companies operating in hyperinflationary economies are generally indexed in accordance with IAS 29 and thus reflect the current purchasing power at the reporting date. In accordance with IAS 21, receivables and liabilities in the finan cial statements of consolidated companies that have been pre- pared in local currencies are translated at the closing rate as at the reporting date. Currency translation differences are recognised in other operating income and expenses in the income statement. In financial year 2017, income of €174 million (previous year: €222 mil- lion) and expenses of €181 million (previous year: €222 million) resulted from currency translation differences. In contrast, currency translation differences relating to net investments in a foreign operation are recognised in other comprehensive income. 7 Accounting policies Uniform accounting policies are applied to the annual financial statements of the entities that have been included in the consoli- dated financial statements. The consolidated financial statements are prepared under the historical cost convention, except where items are required to be recognised at their fair value. Revenue and expense recognition Deutsche Post DHL Group’s normal business operations consist of the provision of logistics services. All income relating to normal business operations is recognised as revenue in the income state- ment. All other income is reported as other operating income. Rev- enue and other operating income are generally recognised when services are rendered, the amount of revenue and income can be reliably measured and, in all probability, the economic benefits from the transactions will flow to the Group. Operating expenses are rec- ognised in income when the service is utilised or when the expenses are incurred. Intangible assets Intangible assets, which comprise internally generated and pur- chased intangible assets and purchased goodwill, are measured at amortised cost. Internally generated intangible assets are capitalised at cost if it is probable that their production will generate an inflow of future economic benefits and the costs can be reliably measured. In the Group, this concerns internally developed software. If the criteria for capitalisation are not met, the expenses are recognised immedi- ately in income in the year in which they are incurred. In addition to direct costs, the production cost of internally developed software includes an appropriate share of allocable production overhead costs. Any borrowing costs incurred for qualifying assets are in- cluded in the production cost. Value added tax arising in conjunc- tion with the acquisition or production of intangible assets is in- cluded in the cost if it cannot be deducted as input tax. Capitalised software is amortised over its useful life. Intangible assets are amortised using the straight-line method over their useful lives. Impairment losses are recognised in accord- ance with the principles described in the section headed Impair- ment. The useful lives of significant intangible assets are presented in the table below: Useful lives Internally developed software Purchased software Licences Customer relationships Years 1 up to 10 up to 5 term of agreement up to 20 1 The useful lives indicated represent maximum amounts specified by the Group. The actual useful lives may be shorter due to contractual arrangements or other special  factors such as time and location. 114 Deutsche Post DHL Group — 2017 Annual Report The useful life of customer relationships from past acquisitions in the Supply Chain segment was reduced to zero, resulting in a one- time increase of €32 million in amortisation for financial year 2017. This adjustment to the useful life was made prospectively to change an accounting- related estimate. Prior- period figures were not ad- justed retroactively. Intangible assets that are not affected by legal, economic, con- tractual or other factors that might restrict their useful lives are considered to have indefinite useful lives. They are not amortised but are tested for impairment annually or whenever there are in- dications of impairment. Intangible assets generally include brand names from business combinations and goodwill, for example. Im- pairment testing is carried out in accordance with the principles described in the section headed Impairment. Property, plant and equipment Property, plant and equipment is carried at cost, reduced by accu- mulated depreciation and valuation allowances. In addition to dir- ect costs, production cost includes an appropriate share of allocable production overhead costs. Borrowing costs that can be allocated directly to the purchase, construction or manufacture of property, plant and equipment are capitalised. Value added tax arising in con- junction with the acquisition or production of items of property, plant or equipment is included in the cost if it cannot be deducted as input tax. Depreciation is charged using the straight-line method. The estimated useful lives applied to the major asset classes are pre- sented in the table below: Useful lives Buildings Technical equipment and machinery Aircraft It systems Transport equipment and vehicle fleet Other operating and office equipment Years 1 20 to 50 10 to 20 15 to 20 4 to 5 4 to 18 8 to 10 1 The useful lives indicated represent maximum amounts specified by the Group. The actual useful lives may be shorter due to contractual arrangements or other special factors such as time and location. If there are indications of impairment, an impairment test must be carried out; see section headed Impairment. Impairment At each reporting date, the carrying amounts of intangible assets, property, plant and equipment and investment property are re- viewed for indications of impairment. If there are any such indica- tions, an impairment test is carried out. This is done by determining the recoverable amount of the relevant asset and comparing it with the carrying amount. In accordance with IAS 36, the recoverable amount is the asset’s fair value less costs to sell or its value in use (present value of the pre-tax free cash flows expected to be derived from the asset in future), whichever is higher. The discount rate used for the value in use is a pre-tax rate of interest reflecting current market conditions. If the recoverable amount cannot be determined for an individual asset, the recoverable amount is determined for the smallest iden- tifiable group of assets to which the asset in question can be allo- cated and which generates independent cash flows (cash generating unit – CGU). If the recoverable amount of an asset is lower than its carrying amount, an impairment loss is recognised immediately in respect of the asset. If, after an impairment loss has been recognised, a higher recoverable amount is determined for the asset or the CGU at a later date, the impairment loss is reversed up to a carrying amount that does not exceed the recoverable amount. The increased carrying amount attributable to the reversal of the impairment loss is limited to the carrying amount that would have been determined (net of amortisation or depreciation) if no impairment loss had been recognised in the past. The reversal of the impairment loss is recog- nised in the income statement. Impairment losses recognised in respect of goodwill may not be reversed. Since January 2005, goodwill has been accounted for using the impairment-only approach in accordance with IFRS 3. This stipu- lates that goodwill must be subsequently measured at cost, less any cumulative adjustments from impairment losses. Purchased good- will is therefore no longer amortised and instead is tested for im- pairment annually in accordance with IAS 36, regardless of whether any indication of possible impairment exists, as in the case of intan- gible assets with an indefinite useful life. In addition, the obligation remains to conduct an impairment test if there is any indication of impairment. Goodwill resulting from company acquisitions is allo- cated to the identifiable groups of assets (CGU s or groups of CGU s) that are expected to benefit from the synergies of the acquisition. These groups represent the lowest reporting level at which the good- will is monitored for internal management purposes. The carrying amount of a CGU to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the unit may be impaired. Where impairment losses are recognised in connection with a CGU to which goodwill has been allocated, the existing carrying amount of the goodwill is reduced first. If the amount of the impairment loss exceeds the carrying amount of the goodwill, the difference is allocated to the remaining non-current assets in the CGU. Consolidated Financial Statements — NOTES — Basis of preparation 115 Finance leases Financial instruments A lease is an agreement in which the lessor conveys to the lessee the right to use an asset for a specified period in return for a payment or a number of payments. In accordance with IAS 17, beneficial own- ership of leased assets is attributed to the lessee if the lessee substan- tially bears all risks and rewards incidental to ownership of the leased asset. To the extent that beneficial ownership is attributable to the Group as the lessee, the asset is capitalised at the date on which use starts, either at fair value or at the present value of the minimum lease payments if this is less than the fair value. A lease liability in the same amount is recognised under non-current liabil- ities. The lease is subsequently measured at amortised cost using the effective interest method. The depreciation methods and estimated useful lives correspond to those of comparable purchased assets. Operating leases For operating leases, the Group reports the leased asset at amortised cost as an asset under property, plant and equipment where it is the lessor. The lease payments received in the period are shown under other operating income. Where the Group is the lessee, the lease payments made are recognised as lease expenses under materials expense. Lease expenses and income are recognised using the straight-line method. Investments accounted for using the equity method Investments accounted for using the equity method cover associates and joint ventures. These are recognised using the equity method in accordance with IAS 28, Investments in Associates and Joint Ven- tures. Based on the cost of acquisition at the time of purchase of the investments, the carrying amount of the investment is increased or reduced annually to reflect the share of earnings, dividends distrib- uted and other changes in the equity of the associates and joint ventures attributable to the investments of Deutsche Post AG or its consolidated subsidiaries. An impairment loss is recognised on in- vestments accounted for using the equity method, including the goodwill in the carrying amount of the investment, if the recover- able amount falls below the carrying amount. Gains and losses from the disposal of investments accounted for using the equity method, as well as impairment losses and their reversals, are recognised in other operating income or other operating expenses. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets include in particular cash and cash equivalents, trade receivables, originated loans and receivables, and derivative financial assets held for trading. Financial liabilities in- clude contractual obligations to deliver cash or another financial asset to another entity. These mainly comprise trade payables, li- abilities to banks, liabilities arising from bonds and finance leases, and derivative financial liabilities. Fair value option Under the fair value option, financial assets or financial liabilities may be measured at fair value through profit or loss on initial rec- ognition if this eliminates or significantly reduces a measurement or recognition inconsistency (accounting mismatch). The Group makes use of the option in order to avoid accounting mismatches. Financial assets Financial assets are accounted for in accordance with the provisions of IAS 39, which distinguishes between four categories of financial instruments. AVAILAbLE-FOR-SALE FINANcIAL ASSETS These financial instruments are non-derivative financial assets and are carried at their fair value, where this can be measured reliably. If a fair value cannot be determined, they are carried at cost. Changes in fair value between reporting dates are generally recognised in other comprehensive income (revaluation reserve). The reserve is reversed to income either upon disposal or if the fair value falls below cost more than temporarily, i.e., the drop is significant or prolonged. If, at a subsequent reporting date, the fair value of a debt instrument has increased objectively as a result of events occurring after the impairment loss was recognised, the impairment loss is reversed in the appropriate amount. Impairment losses recognised on equity instruments may not be reversed to income. If equity instruments are recognised at fair value, any reversals must be rec- ognised in other comprehensive income. No reversals may be made in the case of equity instruments that were recognised at cost. Avail- able-for-sale financial instruments are allocated to non-current assets unless the intention is to dispose of them within twelve months of the reporting date. In particular, investments in uncon- solidated subsidiaries, marketable securities and other equity invest- ments are reported in this category. 116 Deutsche Post DHL Group — 2017 Annual Report hELD-TO-MATURITY FINANcIAL ASSETS Financial instruments are assigned to this category if there is an intention to hold the instrument to maturity and the economic conditions for doing so are met. These financial instruments are non-derivative financial assets that are measured at amortised cost using the effective interest method. LOANS AND REcEIVAbLES These are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. Unless held for trading, they are recognised at cost or amortised cost at the report- ing date. The carrying amounts of money market receivables cor- respond approximately to their fair values due to their short maturity. Loans and receivables are considered current assets if they mature not more than twelve months after the reporting date; otherwise, they are recognised as non-current assets. If the recoverability of receivables is in doubt, they are recognised at amortised cost, less appropriate specific or collective valuation allowances. A write- down on trade receivables is recognised if there are objective indi- cations that the amount of the outstanding receivable cannot be collected in full. The write-down is recognised in the income state- ment via a valuation account. FINANcIAL ASSETS AT FAIR VALUE ThROUGh PROFIT OR LOSS All financial instruments held for trading and derivatives that do not satisfy the criteria for hedge accounting are assigned to this category. They are generally measured at fair value. All changes in fair value are recognised in income. All financial instruments in this category are accounted for at the trade date. Assets in this category are recognised as current assets if they are either held for trading or will likely be realised within twelve months of the reporting date. To avoid variations in earnings resulting from changes in the fair value of derivative financial instruments, hedge accounting is applied where possible and economically useful. Gains and losses from the derivative and the related hedged item are recognised in income simultaneously. Depending on the hedged item and the risk to be hedged, the Group uses fair value hedges and cash flow hedges. The carrying amounts of financial assets not carried at fair value through profit or loss are tested for impairment at each report- ing date and whenever there are indications of impairment. The amount of any impairment loss is determined by comparing the carrying amount and the fair value. If there are objective indications of impairment, an impairment loss is recognised in the income statement under other operating expenses or net financial income / net finance costs. Impairment losses are reversed if there are object- ive reasons arising after the reporting date indicating that the rea- sons for impairment no longer exist. The increased carrying amount resulting from the reversal of the impairment loss may not exceed the carrying amount that would have been determined (net of amortisation or depreciation) if the impairment loss had not been recognised. Impairment losses are recognised within the Group if the debtor is experiencing significant financial difficulties, it is highly probable that the debtor will be the subject of bankruptcy proceedings, there are material changes in the issuer’s technological, economic, legal or market environment, or the fair value of a finan- cial instrument falls below its amortised cost for a prolonged period. A fair value hedge hedges the fair value of recognised assets and liabilities. Changes in the fair value of both the derivatives and the hedged item are recognised in income simultaneously. A cash flow hedge hedges the fluctuations in future cash flows from recognised assets and liabilities (in the case of interest rate risks), highly probable forecast transactions as well as unrecognised firm commitments that entail a currency risk. The effective portion of a cash flow hedge is recognised in the hedging reserve in equity. Ineffective portions resulting from changes in the fair value of the hedging instrument are recognised directly in income. The gains and losses generated by the hedging transactions are initially rec- ognised in equity and are then reclassified to profit or loss in the period in which the asset acquired or liability assumed affects profit or loss. If a hedge of a firm commitment subsequently results in the recognition of a non-financial asset, the gains and losses recognised directly in equity are included in the initial carrying amount of the asset (basis adjustment). Net investment hedges in foreign entities are treated in the same way as cash flow hedges. The gain or loss from the effective portion of the hedge is recognised in other comprehensive income, whilst the gain or loss attributable to the ineffective portion is rec- ognised directly in income. The gains or losses recognised in other comprehensive income remain there until the disposal or partial disposal of the net investment. Detailed information on hedging transactions can be found in  note 43.3. Regular way purchases and sales of financial assets are recog- nised at the settlement date, with the exception of held-for-trading instruments, particularly derivatives. A financial asset is derecog- nised if the rights to receive the cash flows from the asset have ex- pired. Upon transfer of a financial asset, a review is made under the Consolidated Financial Statements — NOTES — Basis of preparation 117 requirements of IAS 39 governing disposal as to whether the asset should be derecognised. A disposal gain / loss arises upon disposal. The remeasurement gains / losses recognised in other comprehen- sive income in prior periods must be reversed as at the disposal date. Financial liabilities are derecognised if the payment obligations arising from them have expired. Investment property In accordance with IAS 40, investment property is property held to earn rentals or for capital appreciation or both, rather than for use in the supply of services, for administrative purposes or for sale in the normal course of the company’s business. It is measured in accordance with the cost model. Depreciable investment property is depreciated over a period of between 20 and 50 years using the straight-line method. The fair value is determined on the basis of expert opinions. Impairment losses are recognised in accordance with the principles described in the section headed Impairment. Inventories Inventories are assets that are held for sale in the ordinary course of business, are in the process of production, or are consumed in the production process or in the rendering of services. They are meas- ured at the lower of cost or net realisable value. Valuation allow- ances are charged for obsolete inventories and slow-moving goods. Government grants In accordance with IAS 20, government grants are recognised at their fair value only when there is reasonable assurance that the conditions attaching to them will be complied with and that the grants will be received. The grants are reported in the income state- ment and are generally recognised as income over the periods in which the costs they are intended to compensate are incurred. Where the grants relate to the purchase or production of assets, they are reported as deferred income and recognised in the income state- ment over the useful lives of the assets. Assets held for sale and liabilities associated with assets held for sale Assets held for sale are assets available for sale in their present con- dition and whose sale is highly probable. The sale must be expected to qualify for recognition as a completed sale within one year of the date of classification. Assets held for sale may consist of individual non-current assets, groups of assets (disposal groups), components of an entity or a subsidiary acquired exclusively for resale (discon- tinued operations). Liabilities intended to be disposed of together with the assets in a single transaction form part of the disposal group or discontinued operation and are also reported separately as liabilities associated with assets held for sale. Assets held for sale are no longer depreciated or amortised, but are recognised at the lower of their fair value less costs to sell and the carrying amount. Gains and losses arising from the remeasurement of individual non-current assets or disposal groups classified as held for sale are reported in profit or loss from continuing operations until the final date of disposal. Gains and losses arising from the measurement at fair value less costs to sell of discontinued operations classified as held for sale are reported in profit or loss from discontinued oper- ations. This also applies to the profit or loss from operations and the gain or loss on disposal of these components of an entity. Cash and cash equivalents Cash and cash equivalents comprise cash, demand deposits and other short-term liquid financial assets with an original maturity of up to three months; they are carried at their principal amount. Overdraft facilities used are recognised in the balance sheet as amounts due to banks. Non-controlling interests Non-controlling interests are the proportionate minority interests in the equity of subsidiaries and are recognised at their carrying amount. If an interest is acquired from, or sold to, other share- holders without this impacting the existing control relationship, this is presented as an equity transaction. The difference between the proportionate net assets acquired from, or sold to, another share- holder / other shareholders and the purchase price is recognised in other comprehensive income. If non-controlling interests are in- creased by the proportionate net assets, no goodwill is allocated to the proportionate net assets. Share-based payments to executives Equity-settled share-based payment transactions are measured at fair value at the grant date. The fair value of the obligation is recog- nised in staff costs over the vesting period. The fair value of equity- settled share-based payment transactions is determined using inter- nationally recognised valuation techniques. Stock appreciation rights are measured on the basis of an op- tion pricing model in accordance with IFRS 2. The stock appreci- ation rights are measured on each reporting date and on the settle- 118 Deutsche Post DHL Group — 2017 Annual Report ment date. The amount determined for stock appreciation rights that will probably be exercised is recognised pro rata in income under staff costs to reflect the services rendered as consideration during the vesting period (lock-up period). A provision is recog- nised for the same amount. Changes in the value of the stock appre- ciation rights (SAR s) due to share price movements occurring after the date the SAR s were granted are no longer included in staff costs starting on 1 January 2017. They are instead recognised as other finance costs in net finance costs. No adjustment was made to the prior-period amounts, because the effects were not material for the consolidated financial statements. Retirement plans There are arrangements (plans) in many countries under which the Group grants post-employment benefits to its hourly workers and salaried employees. These benefits include pensions, lump-sum payments on retirement and other post-employment benefits and are referred to in these disclosures as retirement benefits, pensions and similar benefits, or pensions. A distinction must be made between defined benefit and defined contribution plans. ThE GROUP’S DEFINED bENEFIT RETIREMENT PLANS Defined benefit obligations are measured using the projected unit credit method prescribed by IAS 19. This involves making certain actuarial assumptions. Most of the defined benefit retirement plans are at least partly funded via external plan assets. The remaining net liabilities are funded by provisions for pensions and similar obliga- tions; net assets are presented separately as pension assets. Where necessary, an asset ceiling must be applied when recognising pen- sion assets. With regard to the cost components, the service cost is recognised in staff costs, the net interest cost in net financial income / net finance costs and any remeasurement outside profit and loss in other comprehensive income. Any rights to reimbursement are reported separately in financial assets. DEFINED cONTRIbUTION RETIREMENT PLANS FOR cIVIL SERVANT EMPLOYEES IN GERMANY In accordance with statutory provisions, Deutsche Post AG pays contributions for civil servant employees in Germany to retirement plans which are defined contribution retirement plans for the com- pany. These contributions are recognised in staff costs. Under the provisions of the Gesetz zum Personalrecht der Be- schäftigten der früheren Deutschen Bundespost (PostPersRG – Former Deutsche Bundespost Employees Act), Deutsche Post AG provides retirement benefits and assistance benefits through the Post- beamtenversor gungskasse (PVK – Postal civil servant pension fund) at the Bundes anstalt für Post und Telekommunikation (BAnst PT – German federal post and telecommunications agency) to retired employees or their surviving dependants who are entitled to bene- fits on the basis of a civil service appointment. The amount of Deutsche Post AG’s payment obligations is governed by section 16 of the PostPersRG. This Act obliges Deutsche Post AG to pay into the PVK an annual contribution of 33 % of the gross compensation of its active civil servants and the notional gross compensation of civil servants on leave of absence who are eligible for a pension. Under section 16 of the PostPersRG, the federal government makes good the difference between the current payment obligations of the PVK on the one hand, and the funding companies’ current contributions or other return on assets on the other, and guarantees that the PVK is able at all times to meet the obligations it has as- sumed in respect of its funding companies. Insofar as the federal government makes payments to the PVK under the terms of this guarantee, it cannot claim reimbursement from Deutsche Post AG. DEFINED cONTRIbUTION RETIREMENT PLANS FOR ThE GROUP’S hOURLY WORKERS AND SALARIED EMPLOYEES Defined contribution retirement plans are in place for the Group’s hourly workers and salaried employees, particularly in the UK, the USA and the Netherlands. The contributions to these plans are also reported in staff costs. This also includes contributions to certain multi-employer plans which are basically defined benefit plans, especially in the USA and the Netherlands. However, the relevant institutions do not pro- vide the participating companies with sufficient information to use defined benefit accounting. The plans are therefore accounted for as if they were defined contribution plans. Regarding these multi-employer plans in the USA, contribu- tions are made based on collective agreements between the employer and the local union, with the involvement of the pension fund. There is no employer liability to any of the plans beyond the normal bargained contribution rates except in the event of a withdrawal meeting spe ci fied criteria. Such a withdrawal could involve liability for other entities’ obligations as governed by US federal law. The expected employer contributions to the funds for 2018 are €42 mil- lion (actual  employer contributions in the reporting period: €41 million, in the previous year: €36 million). Some of the plans in which Deutsche Post DHL Group participates are underfunded according to information provided by the funds. There is no in- formation from the plans that would indicate any change from the  contribution rates set by current collective agreements. Deutsche Post DHL Group does not represent a significant level to any fund in terms of contributions, with the exception of one fund where the Group represents the largest employer in terms of contributions. Consolidated Financial Statements — NOTES — Basis of preparation 119 Regarding one multi-employer plan in the Netherlands, cost coverage-based contribution rates are set annually by the board of the pension fund with the involvement of the Central Bank of the Netherlands; the respective contribution rates are equal for all par- ticipating employers and employees. There is no liability for the employer towards the fund beyond the contributions set, even in the case of withdrawal or obligations not met by other entities. Any subsequent underfunding ultimately results in the rights of mem- bers being cut and / or no indexation of their rights. The expected employer contributions to the fund for 2018 are €21 million (actual employer contributions in the reporting period: €21 million, in the previous year: €21 million). As at 31 December 2017, the coverage degree of plan funding was higher than a required minimum of approximately 105 %, according to information provided by the fund. Deutsche Post DHL Group does not represent a significant portion of the fund in terms of contributions. Other provisions Other provisions are recognised for all legal or constructive obliga- tions to third parties existing at the reporting date that have arisen as a result of past events, that are expected to result in an outflow of future economic benefits and whose amount can be measured reli- ably. They represent uncertain obligations that are carried at the best estimate of the expenditure required to settle the obligation. Provi- sions with more than one year to maturity are discounted at market rates of interest that reflect the region and time to settlement of the obligation. The discount rates used in the financial year were be- tween 0.0 % and 9.50 % (previous year: 0.0 % and 11.00 %). The effects arising from changes in interest rates are recognised in net financial income / net finance cost. Provisions for restructurings are only established in accord- ance with the aforementioned criteria for recognition if a detailed, formal restructuring plan has been drawn up and communicated to those affected. The technical reserves (insurance) consist mainly of outstand- ing loss reserves and IBNR (incurred but not reported claims) re- serves. Outstanding loss reserves represent estimates of obligations in respect of actual claims or known incidents expected to give rise to claims, which have been reported to the company but which have yet to be finalised and presented for payment. Outstanding loss re- serves are based on individual claim valuations carried out by the company or its ceding insurers. IBNR reserves represent estimates of obligations in respect of incidents taking place on or before the reporting date that have not been reported to the company. Such reserves also include provisions for potential errors in settling out- standing loss reserves. The company carries out its own assessment of ultimate loss liabilities using actuarial methods and also commis- sions an independent actuarial study of these each year in order to verify the reasonableness of its estimates. Financial liabilities On initial recognition, financial liabilities are carried at fair value less transaction costs. The price determined on a price-efficient and liquid market or a fair value determined using the treasury risk management system deployed within the Group is taken as the fair value. In subsequent periods the financial liabilities are measured at amortised cost. Any differences between the amount received and the amount repayable are recognised in income over the term of the loan using the effective interest method. cONVERTIbLE bONDS ON DEUTSchE POST AG ShARES The convertible bonds on Deutsche Post AG shares are split into an equity and a debt component, in line with the contractual arrange- ments. The debt component, less the transaction costs, is reported under financial liabilities (bonds), with interest added up to the issue amount over the term of the bond using the effective interest method (unwinding of discount). The value of the call option, which allows Deutsche Post AG to redeem the bonds early if a spe- cified share price is reached, is attributed to the debt component in accordance with IAS 32.31. The conversion right is classified as an equity derivative and is reported in capital reserves. The carrying amount is calculated by assigning to the conversion right the re- sidual value that results from deducting the amount calculated sep- arately for the debt component from the fair value of the instrument as a whole. The transaction costs are deducted on a proportion- ate basis. Liabilities Trade payables and other liabilities are carried at amortised cost. Most of the trade payables have a maturity of less than one year. The fair value of the liabilities corresponds more or less to their carrying amount. 120 Deutsche Post DHL Group — 2017 Annual Report Deferred taxes In accordance with IAS 12, deferred taxes are recognised for tem- porary differences between the carrying amounts in the IFRS finan- cial statements and the tax accounts of the individual entities. De- ferred tax assets also include tax reduction claims which arise from the expected future utilisation of existing tax loss carryforwards and which are likely to be realised. The recoverability of the tax reduc- tion claims is assessed on the basis of each entity’s earnings projec- tions, which are derived from the Group projections and take any tax adjustments into account. The planning horizon is five years. In compliance with IAS 12.24 (b) and IAS 12.15 (b), deferred tax assets or liabilities were only recognised for temporary differences between the carrying amounts in the IFRS financial statements and in the tax accounts of Deutsche Post AG where the differences arose after 1 January 1995. No deferred tax assets or liabilities are recog- nised for temporary differences resulting from initial differences in the opening tax accounts of Deutsche Post AG as at 1 January 1995. Further details on deferred taxes from tax loss carryforwards can be found in  note 27. In accordance with IAS 12, deferred tax assets and liabilities are calculated using the tax rates applicable in the individual countries at the reporting date or announced for the time when the deferred tax assets and liabilities are realised. The tax rate applied to German Group companies is unchanged at 30.2 %. It comprises the cor- poration tax rate plus the solidarity surcharge, as well as a municipal trade tax rate that is calculated as the average of the different mu- nicipal trade tax rates. Foreign Group companies use their individ- ual income tax rates to calculate deferred tax items. The income tax rates applied for foreign companies amount to up to 40 % (previous year: 38 %). Income taxes Income tax assets and liabilities are measured at the amounts for which repayments from, or payments to, the tax authorities are ex- pected to be received or made. Tax-related fines are recognised in income taxes if they are included in the calculation of income tax liabilities, due to their inclusion in the tax base and / or tax rate. All income tax assets and liabilities are current and have maturities of less than one year. Contingent liabilities Contingent liabilities represent possible obligations whose existence will be confirmed only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the control of the enterprise. Contingent liabilities also include certain obliga- tions that will probably not lead to an outflow of resources em- bodying economic benefits, or where the amount of the outflow of resources embodying economic benefits cannot be measured with sufficient reliability. In accordance with IAS 37, contingent liabilities are not recognised as liabilities,  note 44. Exercise of judgement in applying the accounting policies 8 The preparation of IFRS-compliant consolidated financial state- ments requires the exercise of judgement by management. All esti- mates are reassessed on an ongoing basis and are based on historical experience and expectations with regard to future events that appear reasonable under the given circumstances. For example, this applies to assets held for sale. In this case, it must be determined whether the assets are available for sale in their present condition and whether their sale is highly probable. If this is the case, the assets and the associated liabilities are reported and measured as assets held for sale and liabilities associated with assets held for sale. Estimates and assessments made by management The preparation of the consolidated financial statements in accord- ance with IFRS s requires management to make certain assumptions and estimates that may affect the amounts of the assets and liabil- ities included in the balance sheet, the amounts of income and ex- penses, and the disclosures relating to contingent liabilities. Ex- amples of the main areas where assumptions, estimates and the exercise of management judgement occur are the recognition of provisions for pensions and similar obligations, the calculation of discounted cash flows for impairment testing and purchase price allocations, taxes and legal proceedings. Disclosures regarding the assumptions made in connection with the Group’s defined benefit retirement plans can be found in  note 38. The Group has operating activities around the globe and is sub- ject to local tax laws. Management can exercise judgement when calculating the amounts of current and deferred taxes in the relevant countries. Although management believes that it has made a rea- sonable estimate relating to tax matters that are inherently uncer- tain, there can be no guarantee that the actual outcome of these uncertain tax matters will correspond exactly to the original esti- mate made. Any difference between actual events and the estimate made could have an effect on tax liabilities and deferred taxes in the period in which the matter is finally decided. The amount recog- nised for deferred tax assets could be reduced if the estimates of planned taxable income or changes to current tax laws restrict the extent to which future tax benefits can be realised. Goodwill is regularly reported in the Group’s balance sheet as a consequence of business combinations. When an acquisition is initially recognised in the consolidated financial statements, all identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. One of the most import- ant estimates this requires is the determination of the fair values of these assets and liabilities at the date of acquisition. Land, buildings and office equipment are generally valued by independent experts, whilst securities for which there is an active market are recognised at the quoted exchange price. If intangible assets are identified in the course of an acquisition, their measurement can be based on the Consolidated Financial Statements — NOTES — Basis of preparation 121 opinion of an independent external expert valuer, depending on the type of intangible asset and the complexity involved in determining its fair value. The independent expert determines the fair value us- ing appropriate valuation techniques, normally based on expected future cash flows. In addition to the assumptions about the devel- opment of future cash flows, these valuations are also significantly affected by the discount rates used. Impairment testing for goodwill is based on assumptions about the future. The Group carries out these tests annually and also whenever there are indications that goodwill has become impaired. The recoverable amount of the CGU must then be calculated. This amount is the higher of fair value less costs to sell and value in use. Determining value in use requires assumptions and estimates to be made with respect to forecasted future cash flows and the discount rate applied. Although management believes that the assumptions made for the purpose of calculating the recoverable amount are appropriate, possible unforeseeable changes in these assumptions – e. g., a reduction in the EBIT margin, an increase in the cost of cap- ital or a decline in the long-term growth rate – could result in an impairment loss that could negatively affect the Group’s net assets, financial position and results of operations. Pending legal proceedings in which the Group is involved are disclosed in  note 46. The outcome of these proceedings could have a significant effect on the net assets, financial position and results of operations of the Group. Management regularly analyses the in- formation currently available about these proceedings and recog- nises provisions for probable obligations including estimated legal costs. Internal and external legal advisers participate in making this assessment. In deciding on the necessity for a provision, manage- ment takes into account the probability of an unfavourable outcome and whether the amount of the obligation can be estimated with sufficient reliability. The fact that an action has been launched or a claim asserted against the Group, or that a legal dispute has been disclosed in the notes, does not necessarily mean that a provision is recognised for the associated risk. All assumptions and estimates are based on the circumstances prevailing and assessments made at the reporting date. For the pur- pose of estimating the future development of the business, a realistic assessment was also made at that date of the economic environment likely to apply in the future to the different sectors and regions in which the Group operates. In the event of developments in this gen- eral environment that diverge from the assumptions made, the ac- tual amounts may differ from the estimated amounts. In such cases, the assumptions made and, where necessary, the carrying amounts of the relevant assets and liabilities are adjusted accordingly. At the date of preparation of the consolidated financial state- ments, there is no indication that any significant change in the as- sumptions and estimates made will be required, so that on the basis of the information currently available it is not expected that there will be significant adjustments in financial year 2018 to the carrying amounts of the assets and liabilities recognised in the finan cial statements. 9 Consolidation methods The consolidated financial statements are based on the IFRS finan- cial statements of Deutsche Post AG and the subsidiaries, joint op- erations and investments accounted for using the equity method included in the consolidated financial statements and prepared in accordance with uniform accounting policies as at 31 Decem- ber 2017. Acquisition accounting for subsidiaries included in the consoli- dated financial statements uses the purchase method of accounting. The cost of the acquisition corresponds to the fair value of the assets given up, the equity instruments issued and the liabilities assumed at the transaction date. Acquisition-related costs are recognised as expenses. Contingent consideration is recognised at fair value at the date of initial consolidation. The assets and liabilities, as well as income and expenses, of joint operations are included in the consolidated financial state- ments in proportion to the interest held in these operations, in ac- cordance with IFRS 11. Accounting for the joint operators’ share of the assets and liabilities, as well as recognition and measurement of goodwill, use the same methods as applied to the consolidation of subsidiaries. In accordance with IAS 28, joint ventures and companies on which the parent can exercise significant influence (associates) are accounted for in accordance with the equity method using the pur- chase method of accounting. Any goodwill is recognised under investments accounted for using the equity method. In the case of step acquisitions, the equity portion previously held is remeasured at the fair value applicable on the date of acqui- sition and the resulting gain or loss recognised in profit or loss. Intra-group revenue, other operating income, and expenses as well as receivables, liabilities and provisions between companies that are consolidated fully or on a proportionate basis are elim- inated. Intercompany profits or losses from intra-group deliveries and services not realised by sale to third parties are eliminated. Un- realised gains and losses from business transactions with invest- ments accounted for using the equity method are eliminated on a proportionate basis. 122 Deutsche Post DHL Group — 2017 Annual Report SEGMENT REPORTING 10 Segment reporting Segments by division € m PeP 1 Express 1 Global Forwarding, Freight Supply Chain Corporate Center / Other Consolidation 1, 2 Group 1 Jan. to 31 Dec. 2016 2017 2016 2017 2016 2017 2016 2017 External revenue 16,926 18,016 13,430 14,693 13,027 13,689 13,828 13,958 Internal revenue 152 152 318 356 710 793 129 194 Total revenue 17,078 18,168 13,748 15,049 13,737 14,482 13,957 14,152 2016 123 1,156 1,279 2017 88 1,159 1,247 2016 2017 2016 2017 0 0 57,334 60,444 –2,465 –2,654 0 0 –2,465 –2,654 57,334 60,444 1,446 1,502 1,544 1,736 287 297 572 555 –359 –349 1 0 3,491 3,741 Profit / loss from operating activities (EBIt) of which net income / loss from investments accounted for using the equity method 1 1 1 –1 0 0 2 2 0 0 Segment assets 6,418 6,748 9,786 10,203 7,798 7,664 6,253 5,564 1,557 1,554 of which invest­ ments accounted for using the equity method 20 27 48 33 25 22 3 3 0 0 Segment liabilities 3,087 3,066 3,528 3,604 2,930 3,046 3,290 3,037 1,486 1,524 Net segment assets / liabilities Capex Depreciation and amortisa­ tion Impairment losses Total depreciation, amortisation and impairment losses Other non­cash income and expenses 3,331 592 3,682 666 6,258 900 6,599 1,049 336 356 438 507 1 0 27 18 337 356 465 525 428 319 307 304 55 79 0 79 93 4,868 4,618 2,963 328 2,527 277 71 199 30 214 291 311 201 200 3 8 0 0 70 68 2 70 294 319 201 200 54 240 178 102 70 Employees 172,717 179,600 81,615 86,313 43,060 42,646 145,788 149,042 10,811 11,123 1 Prior­period amounts adjusted. 2 Including rounding. 0 –79 1 – 59 0 4 2 –72 31,733 31,661 0 97 85 – 57 14,262 14,220 –20 –15 17,471 17,441 0 1 0 1 0 –1 1 1 0 1 0 0 2,074 2,277 1,346 1,443 31 28 1,377 1,471 1,170 925 453,990 468,724 Adjustment of prior-period amounts Adjustments to prior-period amounts resulted from assigning com- panies to different segments. DHL Parcel Iberia S.L. (Spain), Danzas S. L. (Spain) and DHL Parcel Portugal (Portugal), which were for- merly part of the Express segment, were reassigned to the Post - eCommerce - Parcel segment effective 1 January 2017. The employee numbers are expressed as average numbers of FTE s. Information about geographical regions € m 1 Jan. to 31 Dec. External revenue Non­current assets Capex Germany (excluding Germany) Americas Asia Pacific Other regions Group Europe 2016 2017 2016 2017 2016 2017 2016 2017 17,910 18,405 17,006 18,139 10,171 10,768 10,003 10,766 5,498 940 5,610 964 7,328 512 7,328 614 4,279 422 4,076 487 3,562 165 3,303 165 2016 2,244 377 35 2017 2,366 356 47 2016 2017 57,334 21,044 2,074 60,444 20,673 2,277 Consolidated Financial Statements — NOTES — Segment reporting 123 10.1 Segment reporting disclosures EXPRESS The Express division offers time-definite courier and express ser- vices to business and private customers. The division comprises the Europe, Americas, Asia Pacific and MEA (Middle East and Africa) regions. GLObAL FORWARDING, FREIGhT The activities of the Global Forwarding, Freight division comprise the transport of goods by road, air and sea. The division’s business units are Global Forwarding and Freight. SUPPLY chAIN The Supply Chain division delivers customised supply chain solu- tions to its customers based on globally standardised modular com- ponents including warehousing, transport and value-added services. In addition to the reportable segments given above, segment report- ing comprises the following categories: Corporate Center / Other Corporate Center / Other comprises Global Business Services (GBS), the Corporate Center, non-operating activities and other business activities. The profit / loss generated by GBS is allocated to the oper- ating segments, whilst its assets and liabilities remain with GBS (asymmetrical allocation). Consolidation The data for the divisions are presented following consolidation of interdivisional transactions. The transactions between the divisions are eliminated in the Consolidation column. 10.3 Information about geographical regions The main geographical regions in which the Group is active are Germany, Europe, the Americas, Asia Pacific and Other regions. External revenue, non-current assets and capex are disclosed for these regions. Revenue, assets and capex are allocated to the indi- vidual regions on the basis of the domicile of the reporting entity. Non-current assets primarily comprise intangible assets, property, plant and equipment and other non-current assets. Deutsche Post DHL Group reports four operating segments; these are managed independently by the responsible segment manage- ment bodies in line with the products and services offered and the brands, distribution channels and customer profiles involved. Com- ponents of the entity are defined as a segment on the basis of the existence of segment managers with bottom-line responsibility who report directly to Deutsche Post DHL Group’s top management. External revenue is the revenue generated by the divisions from non-Group third parties. Internal revenue is revenue generated with other divisions. If comparable external market prices exist for ser- vices or products offered internally within the Group, these market prices or market-oriented prices are used as transfer prices (arm’s length principle). The transfer prices for services for which no ex- ternal market exists are generally based on incremental costs. The expenses for IT services provided in the IT service centres are allocated to the divisions by their origin. The additional costs resulting from Deutsche Post AG’s universal postal service obliga- tion (nationwide retail outlet network, delivery every working day), and from its obligation to assume the compensation structure as the legal successor to Deutsche Bundespost, are allocated to the PeP division. As part of the central management of currency risk, Corporate Treasury is responsible for deciding on the central absorption of fluctuations between projected and actual exchange rates on the basis of division-specific agreements. In keeping with internal reporting, capital expenditure (capex) is disclosed. Additions to intangible assets net of goodwill and to property, plant and equipment are reported in the capex figure. De- preciation, amortisation and impairment losses relate to the seg- ment assets allocated to the individual divisions. Other non-cash expenses and income relate primarily to expenses from the recog- nition of provisions. The profitability of the Group’s operating divisions is measured as profit from operating activities (EBIT). 10.2 Segments by division Reflecting the Group’s predominant organisational structure, the primary reporting format is based on the divisions. The Group dis- tinguishes between the following divisions: POST - EcOMMERcE - PARcEL The Post - eCommerce - Parcel (PeP) division handles both domes- tic and international mail and is a specialist in dialogue marketing, nationwide press distribution services and all the electronic services associated with mail delivery. The division offers parcel and e-com- merce services not only in Germany, but worldwide. It is divided into two business units: Post, and eCommerce - Parcel. 124 Deutsche Post DHL Group — 2017 Annual Report 10.4 Reconciliation of segment amounts Reconciliation of segment amounts to consolidated amounts Reconciliation to the income statement € m External revenue Internal revenue Total revenue Other operating income Materials expense Staff costs Depreciation, amortisation and impairment losses Other operating expenses Net income from investments accounted for using the equity method Profit / loss from operating activities (EbIT) Net finance costs Profit before income taxes Income taxes Consolidated net profit for the period of which attributable to Deutsche Post AG shareholders non­controlling interests 1 Prior­period amounts adjusted. 2 Including rounding. Total for reportable segments 1 Corporate Center / Other Reconciliation to Group / Consolidation 1, 2 Consolidated amount 2016 57,211 1,309 58,520 2,098 –32,047 –18,690 –1,175 – 4,861 4 3,849 2017 60,356 1,495 61,851 1,899 –34,290 –19,171 –1,270 – 4,931 2 4,090 2016 123 1,156 1,279 1,454 –1,330 – 917 –201 – 644 0 –359 2017 88 1,159 1,247 1,554 –1,390 – 915 –200 – 645 0 –349 2016 0 –2,465 –2,465 –1,396 2,757 15 –1 2017 0 –2,654 –2,654 –1,314 2,905 14 –1 1,091 1,050 0 1 0 0 2016 57,334 0 57,334 2,156 –30,620 –19,592 –1,377 – 4,414 4 3,491 –359 3,132 –351 2,781 2,639 142 2017 60,444 0 60,444 2,139 –32,775 –20,072 –1,471 – 4,526 2 3,741 – 411 3,330 – 477 2,853 2,713 140 The following table shows the reconciliation of Deutsche Post DHL Group’s total assets to the segment assets. Financial assets, income tax assets, deferred taxes, cash and cash equivalents and other asset components are deducted. The following table shows the reconciliation of Deutsche Post DHL Group’s total liabilities to the segment liabilities. Components of the provisions and liabilities as well as income tax liabilities and de- ferred taxes are deducted. Reconciliation to segment assets Reconciliation to segment liabilities € m Total assets Investment property Non­current financial assets Other non­current assets Deferred tax assets Income tax assets Receivables and other current assets Current financial assets Cash and cash equivalents Segment assets of which Corporate Center / Other total for reportable segments consolidation 1 1 Including rounding. 2016 38,295 –23 – 488 –143 2017 38,672 –21 – 543 –153 € m Total equity and liabilities Equity Consolidated liabilities Non­current provisions –2,192 –2,272 Non­current liabilities –232 –16 –361 –3,107 31,733 1,557 30,255 –79 –236 –14 – 637 –3,135 31,661 1,554 30,179 –72 Current provisions Current liabilities Segment liabilities of which Corporate Center / Other total for reportable segments 1 consolidation 1, 2 1 Prior­period amounts adjusted. 2 Including rounding. 2016 38,295 2017 38,672 –11,350 –12,903 26,945 – 5,990 – 4,622 – 98 –1,973 14,262 1,486 12,835 – 59 25,769 – 4,836 – 5,177 –75 –1,461 14,220 1,524 12,753 – 57 Consolidated Financial Statements — NOTES — Segment reporting — Income statement disclosures 125 INCOME STATEMENT DISCLOSURES 11 Revenue Revenue increased by €3,110 million (5.4 %) from €57,334 million to €60,444 million. The change in revenue was due to the following factors: The increase in income from work performed and capitalised is largely attributable to the expanded production of electric vehicles by StreetScooter GmbH for Group companies. Subsidies relate to grants for the purchase or production of assets. The grants are reported as deferred income and recognised in the income statement over the useful lives of the assets. Miscellaneous other operating income includes a large number Factors affecting revenue increase, 2017 € m Organic growth Portfolio changes 1 Currency translation effects Total 1  Note 2. of smaller individual items. 13 Materials expense 3,901 479 –1,270 3,110 € m Cost of raw materials, consumables and  supplies, and of goods purchased and held for resale Aircraft fuel Fuel Good purchased and held for resale Packaging material Spare parts and repair materials Office supplies Other expenses Cost of purchased services Transport costs Cost of temporary staff and services Expenses from non­cancellable leases It services Commissions paid Expenses from cancellable leases Other lease expenses (incidental expenses) Other purchased services Materials expense 2016 2017 Maintenance costs As in the prior period, there was no revenue in financial year 2017 that was generated on the basis of barter transactions. The further classification of revenue by division and the allo- cation of revenue to geographical regions are presented in the seg- ment reporting. 12 Other operating income € m Income from work performed and capitalised Income from the reversal of provisions Insurance income Income from the disposal of assets Income from currency translation differences Income from fees and reimbursements Commission income Income from the remeasurement of liabilities Rental and lease income Reversals of impairment losses on receivables and other assets Income from derivatives Income from prior­period billings Income from loss compensation Income from the derecognition of liabilities Subsidies Recoveries on receivables previously written off Miscellaneous Other operating income 132 231 202 205 222 136 122 122 99 120 68 31 44 26 11 13 233 214 208 193 174 134 126 120 98 94 80 60 23 19 15 11 372 2,156 337 2,139 The increase in transport costs is due to factors such as higher crude oil prices and the recognition in full of UK Mail Group, which was acquired in the previous year. Other expenses include a large number of individual items. 2016 2017 885 708 350 419 110 65 186 1,102 740 435 427 117 66 252 2,723 3,139 18,752 2,490 2,143 1,158 538 570 492 384 1,370 27,897 30,620 20,381 2,556 2,226 1,207 579 574 487 347 1,279 29,636 32,775 126 Deutsche Post DHL Group — 2017 Annual Report 14 Staff costs / employees 15 Depreciation, amortisation and impairment losses € m € m Wages, salaries and compensation Social security contributions Retirement benefit expenses Expenses for other employee benefits Staff costs 2016 16,092 2,324 607 569 2017 16,192 2,419 891 570 19,592 20,072 Staff costs relate mainly to wages, salaries and compensation, as well as all other benefits paid to employees of the Group for their ser- vices in the financial year. Social security contributions relate, in particular, to statutory social security contributions paid by employers. Retirement benefit expenses include the service cost related to the defined benefit retirement plans. These expenses also include contributions to defined contribution retirement plans for civil servant employees in Germany in the amount of €461 million (pre- vious year: €493 million), as well as for the Group’s hourly workers and salaried employees, totalling €300 million (previous year: €305 million),  note 7. For the changes in retirement benefit ex- penses, see  note 38 in particular. The average number of Group employees in the reporting period, broken down by employee group, was as follows: Amortisation of and impairment losses on  intangible assets, excluding impairment of goodwill Depreciation of and impairment losses on  property, plant and equipment Land and buildings (including leasehold improvements) Technical equipment and machinery Other equipment, operating and office equipment Vehicle fleet, transport equipment Aircraft Total depreciation of and impairment losses on property, plant and equipment Depreciation of and impairment losses on  investment property Impairment of goodwill Depreciation, amortisation and impairment losses 2016 2017 247 287 176 290 236 200 228 182 314 231 208 247 1,130 1,182 0 0 2 0 1,377 1,471 Depreciation, amortisation and impairment losses increased by €94 million to €1,471 million due, amongst other things, to the fact that customer relationship assets from past acquisitions were writ- ten down in the Supply Chain division, see also  note 7. The impairment losses are attributable to the segments as follows: Employees Headcount Headcount (annual average) Hourly workers and salaried employees Civil servants Trainees Total Full-time equivalents As at 31 December 1 Average for the year 2 1 Excluding trainees. 2 Including trainees. Impairment 2016 2017 € m 459,990 32,976 5,493 498,459 459,262 453,990 477,251 30,468 5,619 513,338 472,208 468,724 Post - eCommerce - Parcel Property, plant and equipment Express Property, plant and equipment Global Forwarding, Freight Investment property Supply Chain Software Property, plant and equipment Impairment losses 2016 2017 1 27 0 0 3 31 0 18 2 1 7 28 The employees of companies acquired or disposed of during the financial year were included rateably. The number of full-time equivalents at joint operations included in the consolidated finan- cial statements as at 31 December 2017 amounted to 254 on a pro- portionate basis (previous year: 217). As in the previous year, €18 million of the impairment losses related to aircraft for sale in the Express segment, for which a final impair- ment loss was recognised, writing the aircraft down in full, prior to their reclassification to assets held for sale. Consolidated Financial Statements — NOTES — Income statement disclosures 127 17 Net finance costs 2016 2017 € m 2016 2017 16 Other operating expenses € m Expenses for advertising and public relations Cost of purchased cleaning and security services Travel and training costs Insurance costs Warranty expenses, refunds and compensation payments Other business taxes Telecommunication costs Write­downs of current assets Entertainment and corporate hospitality expenses Currency translation expenses Office supplies Customs clearance­related charges Services provided by the Bundesanstalt für Post und Telekommunikation (German federal post and telecommunications agency) Consulting costs (including tax advice) Contributions and fees Voluntary social benefits Commissions paid Losses on disposal of assets Expenses from derivatives Legal costs Monetary transaction costs Audit costs Donations Expenses from prior­period billings Miscellaneous Other operating expenses 385 360 315 331 301 267 230 223 166 222 167 115 126 134 98 81 63 76 65 75 48 32 24 27 437 378 341 328 305 279 228 211 182 181 180 163 145 144 106 91 65 64 62 58 57 37 22 19 483 4,414 443 4,526 Taxes other than income taxes are either recognised in the related expense item or, if no specific allocation is possible, in other oper- ating expenses. Miscellaneous other operating expenses include a large number of smaller individual items. Financial income Interest income Income from other equity investments and financial assets Other financial income Finance costs Interest expenses of which unwinding of discounts for net pension provisions and other provisions Other finance costs Foreign currency losses Net finance costs 54 1 35 90 –302 –156 – 82 –384 – 65 –359 55 1 33 89 –282 –130 –200 – 482 –18 – 411 Amongst other factors, the deterioration in net finance costs re- sulted from changes in the value of stock appreciation rights due to share price movements, see also  note 7, as well as write-downs of financial assets. Interest income and interest expenses result from financial assets and liabilities that were not measured at fair value through profit or loss. Information on the unwinding of discounted net pension pro- visions can be found in  note 38. 18 Income taxes € m Current income tax expense Current recoverable income tax Deferred tax expense (previous year: income) from temporary differences Deferred tax income from tax loss carryforwards Income taxes 2016 – 607 40 – 567 84 132 216 –351 2017 –727 36 – 691 –231 445 214 – 477 128 Deutsche Post DHL Group — 2017 Annual Report The reconciliation to the effective income tax expense is shown below, based on consolidated net profit before income taxes and the expected income tax expense: Reconciliation € m Profit before income taxes Expected income taxes Deferred tax assets not recognised for initial differences Deferred tax assets of German Group companies not recognised for tax loss carryforwards and temporary differences Deferred tax assets of foreign Group companies not recognised for tax loss carryforwards and temporary differences Effect from previous years on current taxes Tax­exempt income and non­deductible expenses Differences in tax rates at foreign companies Income taxes 2016 3,132 – 946 12 2017 3,330 –1,006 3 569 700 168 –26 –205 77 –351 5 –33 –224 78 – 477 of deductible temporary differences from a prior period (and result- ing mainly from Germany) reduced the deferred tax expense by €857 million (previous year: €154 million). Effects from unrecog- nised deferred tax assets amounting to €3 million (previous year: €1 million) were due to a valuation allowance recognised for a de- ferred tax asset. Other effects from unrecognised deferred tax assets relate primarily to tax loss carryforwards for which no deferred taxes were recognised. A deferred tax asset in the amount of €5 million was recognised in the balance sheet for companies that reported a loss in the previ- ous year or in the current period as, based on tax planning, realisa- tion of the tax asset is probable. In financial year 2017, the change in the US tax rate gave rise to a deferred tax expense of €151 million. In other tax jurisdictions abroad, tax rate changes had no material effect; there was no effect whatsoever at domestic Group companies. The effective income tax expense includes prior-period tax ex- penses from German and foreign companies in the amount of €33 million (tax expense) (previous year: expense of €26 million). The following table presents the tax effects on the components of other comprehensive income: The difference from deferred tax assets not recognised for initial differences is due to differences between the carrying amounts in the opening tax accounts of Deutsche Post AG and the carrying amounts in the IFRS financial statements as at 1 January 1995 (initial differences). In accordance with IAS 12.15 (b) and IAS 12.24 (b), the Group did not recognise any deferred tax assets in respect of these temporary differences, which related mainly to property, plant and equipment as well as to provisions for pensions and similar obliga- tions. The remaining temporary differences between the original IFRS carrying amounts, net of accumulated depreciation or amort- isation, and the tax base amounted to €285 million as at 31 Decem- ber 2017 (previous year: €295 million). The effects from deferred tax assets of German Group com- panies not recognised for tax loss carryforwards and temporary differences relate primarily to Deutsche Post AG and members of its consolidated tax group. Effects from deferred tax assets of foreign companies not recognised for tax loss carryforwards and temporary differences relate primarily to the Americas region. €10 million (previous year: €679 million) of the effects from deferred tax assets not recognised for tax loss carryforwards and temporary differences relates to the reduction of the effective in- come tax expense due to the utilisation of tax loss carryforwards and temporary differences, for which deferred tax assets had previ- ously not been recognised. In addition, the recognition of deferred tax assets previously not recognised for tax loss carryforwards and Other comprehensive income € m 2017 Change due to remeasurements of net pension provisions IAS 39 revaluation reserve IAS 39 hedging reserve Currency translation reserve Other changes in retained earnings Share of other comprehensive income of investments accounted for using the equity method Other comprehensive income 2016 Change due to remeasurements of net pension provisions IAS 39 revaluation reserve IAS 39 hedging reserve Currency translation reserve Other changes in retained earnings Share of other comprehensive income of investments accounted for using the equity method Before taxes Income taxes After taxes 378 0 23 –743 0 – 8 –350 – 876 – 69 63 –291 0 3 –28 –1 –7 0 0 0 –36 8 13 –19 0 0 0 2 350 –1 16 –743 0 – 8 –386 – 868 – 56 44 –291 0 3 –1,168 Other comprehensive income –1,170 Consolidated Financial Statements — NOTES — Income statement disclosures 129 19 Earnings per share Basic earnings per share are computed in accordance with IAS 33, Earnings per Share, by dividing consolidated net profit by the weighted average number of shares outstanding. Outstanding shares relate to issued capital less any treasury shares held. Basic earnings per share for financial year 2017 were €2.24 (previous year: €2.19). Basic earnings per share Consolidated net profit for the period attributable to Deutsche Post AG shareholders Weighted average number of shares outstanding Basic earnings per share 2016 2017 € m 2,639 2,713 number 1,203,092,606 1,210,097,823 € 2.19 2.24 Diluted earnings per share Consolidated net profit for the period attributable to Deutsche Post AG shareholders Plus interest expense on the convertible bond Less income taxes Adjusted consolidated net profit for the period attributable to Deutsche Post AG shareholders Weighted average number of shares outstanding 2016 2017 2,639 2,713 6 1 2 0 2,644 2,715 € m € m € m € m number 1,203,092,606 1,210,097,823 Potentially dilutive shares number 54,232,677 50,736,444 Weighted average number of shares for diluted earnings Diluted earnings per share number 1,257,325,283 1,260,834,267 € 2.10 2.15 20 Dividend per share A dividend per share of €1.15 is being proposed for financial year 2017 (previous year: €1.05). Further details on the dividend distri- bution can be found in  note 36. To compute diluted earnings per share, the weighted average num- ber of shares outstanding is adjusted for the number of all poten- tially dilutive shares. This item includes the executives’ rights to shares under the Performance Share Plan and Share Matching Scheme share-based payment systems (as at 31 December 2017: 13,532,321 shares; previous year: 8,045,621 shares) and the max- imum number of ordinary shares that can be issued on exercise of the conversion rights under the convertible bonds issued in Decem- ber 2012 and 2017. The prior-year figure also included the shares not yet bought back through the share buyback programme. Con- solidated net profit for the period attributable to Deutsche Post AG shareholders was increased by the amounts spent for the convertible bonds. Diluted earnings per share in the reporting period were €2.15 (previous year: €2.10). 130 Deutsche Post DHL Group — 2017 Annual Report BALANCE SHEET DISCLOSURES 21 Intangible assets 21.1 Overview € m Cost Balance at 1 January 2016 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2016 / 1 January 2017 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2017 Amortisation and impairment losses Balance at 1 January 2016 Additions from business combinations Amortisation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2016 / 1 January 2017 Additions from business combinations Amortisation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2017 Carrying amount at 31 December 2017 Carrying amount at 31 December 2016 Internally generated intangible assets Purchased brand names Purchased customer lists Other purchased intangible assets Advance payments and intangible assets under development 90 0 101 – 95 –2 –3 91 0 76 –76 –24 –1 66 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 66 91 Total 17,286 282 185 22 –101 –283 17,391 44 184 38 –1,300 – 598 15,759 4,796 13 247 0 1 0 –79 –141 4,837 0 287 0 0 0 –1,036 –121 3,967 11,792 12,554 Goodwill 12,704 236 0 0 – 4 –145 12,791 35 0 0 – 97 – 490 12,239 1,634 25 57 59 – 83 – 6 1,686 0 68 76 –151 –26 1,653 1,289 1,159 13 125 0 –2 0 –70 – 6 1,349 0 136 0 2 0 –139 –21 1,327 326 337 0 0 0 0 0 0 –26 1,133 0 0 0 0 0 –25 –38 1,070 11,169 11,658 1,240 579 0 27 58 –12 –2 1,311 0 40 38 – 82 – 4 1,303 1,053 0 80 0 3 0 – 9 –2 1,125 0 76 0 –2 0 – 66 –2 1,131 172 186 4 0 0 0 –77 506 1 0 0 –32 –20 455 508 0 0 0 0 0 0 –72 436 0 3 0 0 0 0 –14 425 30 70 1,039 17 0 0 0 – 50 1,006 8 0 0 – 914 – 57 43 787 0 42 0 0 0 0 –35 794 0 72 0 0 0 – 806 – 46 14 29 212 The additions to goodwill in the amount of €35 million relate to the acquisition of the Brazilian companies. The disposals relate to the sale of Williams Lea Tag Group in the amount of €72 million,  note 2. Purchased software, concessions, industrial rights, licences and similar rights and assets are reported under purchased intangible assets. Internally generated intangible assets relate to development costs for internally developed software. Consolidated Financial Statements — NOTES — Balance sheet disclosures 131 21.2 Allocation of goodwill to cGU s € m Total goodwill Post - eCommerce - Parcel Express Global Forwarding, Freight DHL Global Forwarding DHL Freight Supply Chain 2016 2017 11,658 11,169 1,135 3,945 4,156 277 2,145 1,101 3,911 3,891 275 1,991 For the purposes of annual impairment testing in accordance with IAS 36, the Group determines the recoverable amount of a CGU on the basis of its value in use. This calculation is based on projections of free cash flows that are initially discounted at a rate correspond- ing to the post-tax cost of capital. Pre-tax discount rates are then determined iteratively. The cash flow projections are based on the detailed planning for EBIT, depreciation / amortisation and investment planning adopted by management, as well as changes in net working capital, and take both internal historical data and external macroeconomic data into account. From a methodological perspective, the detailed planning phase covers a three-year planning horizon from 2018 to 2020. It is supplemented by a perpetual annuity representing the value added from 2021 onwards. This is calculated using a long- term growth rate, which is determined for each CGU separately and which is shown in the table below. The growth rates applied are based on long-term real growth figures for the relevant economies, growth expectations for the relevant sectors and long-term inflation forecasts for the countries in which the CGU s operate. The cash flow forecasts are based both on past experience and on the effects of the anticipated future general market trend. In addition, the forecasts take into account growth in the respective geographical submarkets and in global trade, and the ongoing trend towards outsourcing logistics activities. Cost trend forecasts for the transport network and services also have an impact on value in use. Another key plan- ning assumption for the impairment test is the EBIT margin for the perpetual annuity. The pre-tax cost of capital is based on the weighted average cost of capital. The (pre-tax) discount rates for the individual CGU s and the growth rates assumed in each case for the perpetual annuity are shown in the following table: % Supply Chain Global Forwarding, Freight DHL Freight DHL Global Forwarding Post - eCommerce - Parcel Express Discount rates Growth rates 2016 8.2 8.4 8.1 7.5 7.6 2017 8.4 8.6 8.4 8.0 8.3 2016 2.5 2.0 2.5 0.5 2.0 2017 2.5 2.0 2.5 0.5 2.0 On the basis of these assumptions and the impairment tests carried out for the individual CGU s to which goodwill was allocated, it was established that the recoverable amounts for all CGU s exceed their carrying amounts. No impairment losses were recognised on good- will in any of the CGU s as at 31 December 2017. When performing the impairment test, Deutsche Post DHL Group conducted sensitivity analyses as required by IAS 36.134 for the EBIT margin, the discount rate and the growth rate. These analyses – which included varying the essential valuation param- eters within an appropriate range – did not reveal any risk of im- pairment to goodwill. 132 Deutsche Post DHL Group — 2017 Annual Report 22 Property, plant and equipment 22.1 Overview € m Cost Balance at 1 January 2016 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2016 / 1 January 2017 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2017 Depreciation and impairment losses Balance at 1 January 2016 Additions from business combinations Depreciation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2016 / 1 January 2017 Additions from business combinations Depreciation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2017 Carrying amount at 31 December 2017 Carrying amount at 31 December 2016 Land and buildings Technical equipment and machinery Other equipment, operating and office equipment Vehicle fleet and transport equipment Advance payments and assets under development Aircraft 4,564 4,857 2,562 1,924 2,400 60 192 276 –230 –26 4,836 8 157 157 – 495 –135 4,528 52 126 533 –166 –12 5,390 1 141 372 –272 –148 5,484 2,258 3,099 10 175 1 14 0 –128 –11 2,319 3 182 0 9 0 –307 –77 2,129 2,399 2,517 28 287 3 –16 0 –141 –11 3,249 0 307 7 –12 0 –245 – 86 3,220 2,264 2,141 19 211 90 –207 – 5 2,670 1 187 72 –344 –79 2,507 1,959 14 236 0 4 0 –197 – 4 2,012 1 230 1 2 0 –322 – 58 1,866 641 658 0 94 292 –243 15 2,082 0 78 397 –281 – 58 2,218 880 0 201 27 0 0 –233 4 879 0 229 18 0 0 –273 –16 837 1,381 1,203 16 221 27 –229 –28 2,407 11 225 125 –203 –34 2,531 1,190 7 200 0 0 0 –187 –19 1,191 2 208 0 1 0 –172 –21 1,209 1,322 1,216 874 0 1,045 –1,241 –12 –12 654 0 1,305 –1,145 – 8 –31 775 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 775 654 Total 17,181 147 1,889 –23 –1,087 – 68 18,039 21 2,093 –22 –1,603 – 485 18,043 9,386 59 1,099 31 2 0 – 886 – 41 9,650 6 1,156 26 0 0 –1,319 –258 9,261 8,782 8,389 The changes in disposals are mainly the result of property sales and the sale of Williams Lea Tag Group. Advance payments relate only to advance payments on items of property, plant and equipment for which the Group has paid advances in connection with uncompleted transactions. Assets under development relate to items of property, plant and equip- ment in progress at the reporting date for whose production inter- nal or third-party costs have already been incurred. Consolidated Financial Statements — NOTES — Balance sheet disclosures 22.2 Finance leases The following assets are carried as non-current assets resulting from finance leases: € m € m Land and buildings Other equipment, operating and office equipment Vehicle fleet, transport equipment Technical equipment and machinery Aircraft Finance leases 2016 180 16 4 1 2 2017 153 12 3 1 0 203 169 Information on the corresponding liabilities can be found under financial liabilities,  note 40.2. 23 Investment property The investment property largely comprises leased property encum- bered by heritable building rights, and developed and undeveloped land. Cost At 1 January Additions Reclassifications Disposals Currency translation differences At 31 December Depreciation and impairment losses At 1 January Additions Impairment losses Disposals Reclassifications Currency translation differences At 31 December Carrying amount at 31 December 133 2016 2017 39 2 0 –7 0 34 14 0 0 –2 –1 0 11 23 34 2 0 –1 –1 34 11 0 2 0 0 0 13 21 Rental income for investment property amounted to €2 million (previous year: €1 million), whilst the related expenses were €1 mil- lion (previous year: €0 million). The fair value amounted to €54 million (previous year: €58 million). 24 Investments accounted for using the equity method Investments accounted for using the equity method changed as follows: € m Balance at 1 January Additions Disposals Impairment losses Changes in the Group’s share of equity Changes recognised in profit or loss Profit distributions Changes recognised in other comprehensive income Balance at 31 December Associates Joint ventures 2016 75 19 –3 0 3 –2 3 95 2017 95 22 –26 0 1 –2 – 8 82 2016 2017 2016 1 0 0 0 1 0 0 2 2 0 0 0 1 0 0 3 76 19 –3 0 4 –2 3 97 Total 2017 97 22 –26 0 2 –2 – 8 85 The additions relate to the acquisition in the first quarter of 2017 of 22.56 % of the shares of Israel-based Global-E Online Ltd. The dis- posals relate exclusively to the reclassification of AHK Air Hong Kong Limited, China, to assets held for sale and liabilities associated with assets held for sale,  note 31. 134 Deutsche Post DHL Group — 2017 Annual Report 24.1 Aggregate financial data The following table gives an aggregated overview of the carrying amount in the consolidated financial statements and selected finan- cial data for those companies which, both individually and in the aggregate, are not of material significance for the Group. Aggregate financial data for associates and joint ventures € m Carrying amount in the consolidated financial statements 1 Profit before income taxes Profit after income taxes Other comprehensive income Total comprehensive income 1 Based on the interest held. 25 Financial assets € m Available­for­sale financial assets of which measured at fair value Loans and receivables Assets at fair value through profit or loss Lease receivables Financial assets The increase in financial assets resulted primarily from investments in money market funds, which are recognised in available- for-sale financial assets. Write-downs of non-current financial assets at fair value through profit or loss amounting to €1 million (previous year: €12 million) were recognised in the income statement, whilst a write-up in the same amount was recognised for liabilities. Compared with the market rates of interest prevailing at 31 De- cember 2017 for comparable non-current financial assets, most of the housing promotion loans are low-interest or interest-free loans. They are recognised in the balance sheet at a present value of €3 mil- lion (previous year: €6 million). The principal amount of these loans totals €3 million (previous year: €6 million). Details on restraints on disposal are contained in  note 43.2. Associates Joint ventures 2017 2016 2017 82 1 1 – 8 –7 2 1 1 0 1 3 2 1 0 1 2016 95 4 3 3 6 Non­current Current 2016 2017 32 21 458 155 44 689 59 45 466 170 38 733 2016 200 200 73 94 7 374 2017 500 500 69 76 7 652 26 Other assets € m Prepaid expenses Current tax receivables Pension assets, non­current only Receivables from private postal agencies Income from cost absorption Creditors with debit balances Receivables from insurance business Receivables from loss compensation (recourse claims) Receivables from employees Receivables from asset disposals Receivables from cash­on­delivery Other assets, of which non­current: 78 (previous year: 79) Other assets of which current non­current 2016 97 5 4 3 7 2016 232 221 531 249 51 Total 2017 85 3 2 – 8 – 6 Total 2017 559 545 535 246 45 1,063 1,385 2016 705 463 143 127 86 39 35 32 32 0 4 732 2,398 2,176 222 2017 604 466 153 116 113 44 37 32 30 16 7 797 2,415 2,184 231 Information on pension assets can be found in  note 38. Consolidated Financial Statements — NOTES — Balance sheet disclosures 135 Of the tax receivables, €356 million (previous year: €346 mil- lion) relates to VAT, €67 million (previous year: €62 million) to cus- toms and duties, and €43 million (previous year: €55 million) to other tax receivables. Miscellaneous other assets include a large number of individual items. 27 Deferred taxes Breakdown by balance sheet item and maturity € m Intangible assets Property, plant and equipment Non­current financial assets Other non­current assets Other current assets Provisions Financial liabilities Other liabilities Tax loss carryforwards Gross amount of which current non­current Netting Carrying amount 2016 2017 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities 25 140 5 77 24 580 93 143 1,337 2,424 860 1,564 –232 2,192 131 98 11 7 56 20 13 2 – 338 119 219 –232 106 12 52 7 16 19 449 74 104 1,755 2,488 569 1,919 –216 2,272 88 52 12 5 70 43 19 3 – 292 102 190 –216 76 Deferred taxes on tax loss carryforwards in the amount of €1,486 million (previous year: €1,110 million) relate to tax loss carry forwards in Germany and €269 million (previous year: €227 million) to foreign tax loss carryforwards. No deferred tax assets were recognised for tax loss carry- forwards of around €6.4 billion (previous year: €10.1 billion) and for temporary differences of around €2.6 billion (previous year: €3.0 billion), as it can be assumed that the Group will probably not be able to use these tax loss carryforwards and temporary differ- ences in its tax planning. Most of the tax loss carryforwards in Germany are attributable to Deutsche Post AG. It will be possible to utilise them for an in- definite period of time. In the case of the foreign companies, the significant tax loss carryforwards will not lapse before 2025. Deferred taxes have not been recognised for temporary differ- ences of €505 million (previous year: €813 million) relating to earn- ings of German and foreign subsidiaries because these temporary differences will probably not reverse in the foreseeable future. 28 Inventories € m Raw materials, consumables and supplies Finished goods and goods purchased and held for resale Work in progress Advance payments Inventories 2016 150 61 59 5 275 2017 179 100 45 3 327 There was no requirement to charge significant valuation allowances on these inventories. 29 Trade receivables € m Trade receivables Deferred revenue Trade receivables 30 Cash and cash equivalents € m Cash equivalents Bank balances / cash in transit Cash Other cash and cash equivalents Cash and cash equivalents 2016 7,306 659 7,965 2017 7,558 660 8,218 2016 1,198 1,837 19 53 2017 1,342 1,717 18 58 3,107 3,135 Of the €3,135 million in cash and cash equivalents, €973 million was not available for general use by the Group as at the reporting date (previous year: €955 million). Of this amount, €895 million (previ- ous year: €886 million) was attributable to countries where exchange controls or other legal restrictions apply (mostly China, India and Thailand) and €78 million (previous year: €69 million) primarily to companies with non-controlling interest holders. 136 Deutsche Post DHL Group — 2017 Annual Report 31 Assets held for sale and liabilities associated with assets held for sale The amounts reported in this item relate mainly to the following items: € m AHK Air Hong Kong Limited, China – equity interest (Express segment) Other Assets held for sale and liabilities associated with assets held for sale The Group intends to sell its 40 % interest in AHK Air Hong Kong Limited, China, to date an investment accounted for using the equity method, to Cathay Pacific, holder of the remaining 60 % interest and party to a joint agreement with the Group on express freight delivery in Asia ending on 31 December 2018, as stipulated in the contract. The most recent remeasurement prior to reclassifi- cation to assets held for sale and liabilities associated with assets held for sale did not result in an impairment loss. The “other” item relates to legacy aircraft held for sale. Another five aircraft with a carrying amount of €1.00 each were reclassified to this balance sheet item during the financial year. The most recent measurement prior to reclassification led to an impairment loss of €18 million. 32 Issued capital and purchase of treasury shares As at 31 December 2017, KfW Bankengruppe (KfW) held a 20.7 %  (previous year: 20.5 %) interest in the share capital of Deutsche Post AG. The remaining 79.3 % (previous year: 79.5 %) of the shares were in free float. KfW holds the shares in trust for the Federal Republic of Germany. 32.1 Changes in issued capital The issued capital amounts to €1,229 million. It is composed of 1,228,707,545 no-par value registered shares (ordinary shares) with a notional interest in the share capital of €1 per share and is fully paid up. 2016 0 0 0 Assets 2017 4 0 4 Liabilities 2016 2017 0 0 0 0 0 0 Changes in issued capital and treasury shares € Issued capital Balance at 1 January 2016 2017 1,212,753,687 1,240,915,883 Addition due to contingent capital increase (convertible bond) 28,162,196 15,091,662 Capital reduction through retirement of treasury shares Balance at 31 December (according to commercial register) Treasury shares Balance at 1 January Purchase of treasury shares Issue / sale of treasury shares Capital reduction through retirement of treasury shares 0 –27,300,000 1,240,915,883 1,228,707,545 –1,568,593 –29,587,229 –30,896,650 – 4,660,410 2,878,014 2,434,057 0 27,300,000 Balance at 31 December –29,587,229 – 4,513,582 Total at 31 December 1,211,328,654 1,224,193,963 Consolidated Financial Statements — NOTES — Balance sheet disclosures 137 32.2 Authorised and contingent capital Contingent Capital 2011 Authorised / contingent capital at 31 December 2017 Authorised Capital 2013 Authorised Capital 2017 Contingent Capital 2011 Contingent Capital 2013 Contingent Capital 2014 Contingent Capital 2017 Amount € m Purpose  – 160 Increase in share capital against cash / non­cash contributions (until 28 May 2018) Increase in share capital against cash / non­cash contributions (until 27 April 2022) 32  – 40 75 Issue of options / conversion rights (until 24 May 2016) Issue of options / conversion rights (until 28 May 2018) Issue of subscription rights to executives (until 26 May 2019) Issue of options / conversion rights (until 27 April 2022) Authorised Capital 2013 As resolved by the Annual General Meeting on 29 May 2013, the Board of Management was authorised, subject to the consent of the Supervisory Board, to issue up to 240 million new, no-par value registered shares until 28 May 2018 in exchange for cash and / or non-cash contributions and thereby increase the company’s share capital. The authorisation was exercised in part in 2014 and 2015. The authorised capital amounted to €236 million. As resolved by the Annual General Meeting on 28 April 2017, it was replaced by a new authorisation (Authorised Capital 2017). Authorised Capital 2017 As resolved by the Annual General Meeting on 28 April 2017, the Board of Management is authorised, subject to the consent of the Supervisory Board, to issue up to 160 million new, no-par value registered shares until 27 April 2022 in exchange for cash and / or non-cash contributions and thereby increase the company’s share capital. The authorisation may be used in full or for partial amounts. Shareholders generally have subscription rights. However, subject to the approval of the Supervisory Board, the Board of Management may disapply the shareholders’ subscription rights to the shares covered by the authorisation. No use was made of the authorisation in the reporting period. In its resolution dated 25 May 2011, the Annual General Meeting authorised the Board of Management, subject to the consent of the Supervisory Board, to issue bonds with warrants, convertible bonds and / or income bonds as well as profit participation certificates, or a combination thereof, in an aggregate principal amount of up to €1 billion, on one or more occasions until 24 May 2016, thereby granting options or conversion rights for up to 75 million shares with a proportionate interest in the share capital not to exceed €75 million. Full use was made of the authorisation in December 2012 by  issuing a €1 billion convertible bond. The share capital was in- creased on a contingent basis by up to €75 million. Contingent cap- ital was reduced through the issue of new shares, by €4,832 in 2015, by €28,162,196 in 2016 and by €15,091,662 in 2017. Contingent Capital 2013 In its resolution dated 29 May 2013, the Annual General Meeting authorised the Board of Management, subject to the consent of the Supervisory Board, to issue bonds with warrants, convertible bonds and / or income bonds as well as profit participation certificates, or a combination thereof, in an aggregate principal amount of up to €1.5 billion, on one or more occasions until 28 May 2018, thereby granting options or conversion rights for up to 75 million shares with a proportionate interest in the share capital not to exceed €75 million. The share capital was increased on a contingent basis by up to €75 million. No use was made of the authorisation. As resolved by the Annual General Meeting on 28 April 2017, it was replaced by a new authorisation (Contingent Capital 2017). Contingent Capital 2014 In its resolution dated 27 May 2014, the Annual General Meeting authorised the Board of Management to contingently increase the share capital by up to €40 million through the issue of up to 40 mil- lion new no-par value registered shares. The contingent capital in- crease serves to grant subscription rights to selected Group execu- tives. The subscription rights may only be issued based on the aforementioned Annual General Meeting resolution of 27 May 2014. The contingent capital increase will only be implemented to the extent that shares are issued based on the subscription rights granted and the company does not settle the subscription rights by cash payment or delivery of treasury shares. The new shares par- ticipate in profit from the beginning of the financial year in which they are issued. The share capital was increased on a contingent basis by up to €40 million. No use was made of the authorisation in the reporting period. 138 Deutsche Post DHL Group — 2017 Annual Report Contingent Capital 2017 In its resolution dated 28 April 2017, the Annual General Meeting authorised the Board of Management, subject to the consent of the Supervisory Board, to issue bonds with warrants, convertible bonds and / or income bonds as well as profit participation certificates, or a combination thereof, in an aggregate principal amount of up to €1.5 billion, on one or more occasions until 27 April 2022, thereby granting options or conversion rights for up to 75 million shares with a proportionate interest in the share capital not to exceed €75 million. The new shares participate in profit from the beginning of the financial year in which they are issued. The authorisation was exercised in part in December 2017 by issuing a convertible bond in an aggregate principal amount of €1 billion. The share capital was increased on a contingent basis by up to €75 million. 32.3 Authorisation to acquire treasury shares By way of a resolution adopted by the Annual General Meeting on 28 April 2017, the company is authorised to acquire treasury shares in the period to 27 April 2022 of up to 10 % of the share capital ex- isting when the resolution was adopted. The authorisation permits the Board of Management to exercise it for every purpose permitted by law, and in particular to pursue the goals mentioned in the resolution by the Annual General Meeting. Treasury shares acquired on the basis of the authorisation, with shareholders’ subscription rights disapplied, may continue to be used for the purposes of listing on a stock exchange outside Ger- many. In addition, the Board of Management remains authorised to acquire treasury shares using derivatives. Share buyback programme The share buyback programme begun on 1 April 2016 ended on 6 March 2017. The repurchased shares were intended to either be retired, used to service long-term executive remuneration plans or used to meet potential obligations if rights accruing under the 2012 / 2019 convertible bond are exercised. In the first quarter of 2017, another 3.3 million shares were acquired for tranche III at an average price of €31.65 for a total of €106 mil- lion. A total of 32.9 million shares were acquired for €911 million through the share buyback programme. By way of a resolution of the Board of Management dated 21 March 2017, 27.3 million treas- ury shares held were retired in the course of a capital reduction. Share Matching Scheme To settle the 2016 tranche of the Share Matching Scheme, 1,297,200 shares were purchased at an average price of €31.60 per share for a total of €41 million in March 2017. Another 23,037 shares were pur- chased for an average price of €31.67 per share and issued to the executives concerned in April. In April 2017, the rights to matching shares under the 2012 tranche were settled and 1,113,820 shares were issued to executives. As at 31 December 2017, Deutsche Post AG held 4,513,582 treas- ury shares (previous year: 29,587,229 treasury shares). 32.4 Disclosures on corporate capital In financial year 2017, the equity ratio was 33.4 % (previous year: 29.6 %). The company’s capital is monitored using the net gearing ratio, which is defined as net debt divided by the total of equity and net debt. Corporate capital € m Financial liabilities Less operating financial liabilities 1 Less cash and cash equivalents Less current financial assets Less non­current derivative financial instruments Net debt Plus total equity Total capital Net gearing ratio (%) 2016 6,035 –138 2017 6,050 –155 –3,107 –3,135 –374 –155 2,261 11,350 13,611 16.6 – 652 –170 1,938 12,903 14,841 13.1 Share buyback programme tranches 1 Relates to, e. g., liabilities from leases, overpayments. Tranche I II III Period 1 April 2016 to 3 May 2016 30 May 2016 to 26 August 2016 29 August 2016 to 6 March 2017 Volume € m 100 250 650 Consolidated Financial Statements — NOTES — Balance sheet disclosures 139 33 Capital reserves € m Balance at 1 January Share Matching Scheme Addition Exercise Total for Share Matching Scheme Performance Share Plan Addition Total for Performance Share Plan Capital reduction through retirement of treasury shares Differences between purchase and issue prices of treasury shares Capital increase through exercise of conversion rights under convertible bond Conversion right under convertible bond 2017 / 2025 Deferred taxes on conversion right under convertible bond 2017 / 2025 Balance at 31 December 2016 2,385 53 – 54 –1 17 17 0 0 531 0 0 2,932 2017 2,932 67 – 59 8 25 25 27 5 286 53 – 9 3,327 The rights to matching shares under the 2012 tranche were settled, and the rights to deferred incentive and investment shares under the 2016 tranche were granted in April 2017. 34 Other reserves IAS 39 hedging reserve In the financial year, realised losses of €77 million and realised gains of €91 million were recognised in other comprehensive income (previous year: realised losses of €86 million and realised gains of €69 million). 35 Retained earnings In addition to the items reported in the statement of changes in equity, retained earnings also include changes due to the purchase of treasury shares: € m Purchase of treasury shares of which share buyback under tranches I to III obligation to repurchase shares under tranche III purchase / sale of treasury shares Share Matching Scheme 2016 –1,000 –775 –195 –30 2017 51 –103 195 – 41 As at 31 December 2016, the obligation to repurchase shares as part of tranche III of the share buyback programme was recognised in the amount of €195 million for the buyback transactions yet to be carried out. By March 2017, the buyback transactions undertaken had decreased the obligation. The remaining obligation of €89 mil- lion was derecognised directly in equity when the share buyback programme ended. The changes in transactions with non-controlling interests are chiefly attributable to the purchase price liability relating to the ac- quisition of the remaining shares of Olimpo Holding S. A. 36 Equity attributable to Deutsche Post AG shareholders The equity attributable to Deutsche Post AG shareholders in financial year 2017 amounted to €12,637 million (previous year: €11,087 mil- lion). Dividends Dividends paid to the shareholders of Deutsche Post AG are based  on the net retained profit of €6,103 million reported in Deutsche Post AG’s annual financial statements in accordance with the HGB. The Board of Management is proposing a dividend of €1.15 per no-par value share carrying dividend rights. This corresponds to a total dividend of €1,409 million. The amount of €4,694 million remaining after deduction of the planned total dividend will be car- ried forward to new account. The final total dividend will be based on the number of shares carrying dividend rights at the time the Annual General Meeting resolves upon the appropriation of the net retained profit on the day the AGM convenes. Dividend distributed in financial year 2017 for the year 2016 Dividend distributed in financial year 2016 for the year 2015 Total dividend € m 1,270 1,027 Dividend per share € 1.05 0.85 As the dividend is paid in full from the tax-specific capital contri- bution account (steuerliches Einlagekonto as defined by section 27 of the Körperschaftssteuergesetz (KStG – German Corporation Tax Act)) (contributions not made to subscribed capital), payment will be made without the deduction of capital gains tax or the solidarity surcharge. The dividend is tax exempt for shareholders resident in Germany. It does not entitle recipients to a tax refund or a tax credit. In terms of taxation, the dividend distribution is considered as a repayment of contributions from the capital contribution account and – in the opinion of the tax authorities – serves to reduce the cost of acquiring the shares. 140 Deutsche Post DHL Group — 2017 Annual Report 37 Non-controlling interests This balance sheet item includes adjustments for the interests of non-Group shareholders in the consolidated equity from acquisi- tion accounting, as well as their interests in profit or loss. The following table shows the companies to which the material non-controlling interests relate: € m DHL Sinotrans International Air Courier Ltd., China Blue Dart Express Limited, India Pt. Birotika Semesta, Indonesia DHL Global Forwarding Abu Dhabi LLC, United Arab Emirates Exel Saudia LLC, Saudi Arabia Other companies Non-controlling interests 2016 162 14 13 11 11 52 2017 164 17 15 10 9 51 263 266 Financial data for material non-controlling interests € m Balance sheet ASSETS Non­current assets Current assets Total ASSETS EQUITY AND LIAbILITIES Non­current provisions and liabilities Current provisions and liabilities Total EQUITY AND LIAbILITIES Net assets Non­controlling interests Income statement Revenue Profit before income taxes Income taxes Profit after income taxes Other comprehensive income Total comprehensive income attributable to non­controlling interests Dividend distributed to non­controlling interests Consolidated net profit attributable to non­controlling interests Cash flow statement Net cash from operating activities Net cash used in / from investing activities Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents at 1 January Effect of changes in exchange rates on cash and cash equivalents Cash and cash equivalents at 31 December Material non-controlling interests exist in the following two com- panies: DHL Sinotrans International Air Courier Ltd., China, which has been assigned to the Express segment, provides domestic and  international express delivery and transport services. Deutsche Post DHL Group holds a 50 % share in the company. Blue Dart Express Limited (Blue Dart), India, has been assigned to the PeP segment. Deutsche Post AG holds a share of 75 % in Blue Dart, which is a courier service provider. The following table gives an overview of the aggregated finan- cial data of significant companies with non-controlling interests: Sinotrans Blue Dart 2016 2017 2016 2017 115 433 548 8 216 224 324 162 97 447 544 8 207 215 329 164 1,335 1,461 293 74 219 –15 204 102 116 109 262 –12 –231 19 204 – 9 214 316 80 236 –24 212 106 104 118 250 – 6 –207 37 214 –16 235 80 103 183 28 78 106 77 14 354 32 12 20 0 20 5 2 5 22 16 –23 15 7 0 22 72 91 163 14 63 77 86 17 371 30 12 18 – 4 14 3 1 4 23 6 –32 –3 22 –1 18 Consolidated Financial Statements — NOTES — Balance sheet disclosures 141 The portion of other comprehensive income attributable to non-con- trolling interests largely relates to the currency translation reserve. The changes are shown in the following table: € m Balance at 1 January Transaction with non­controlling interests Total comprehensive income Changes from unrealised gains and losses Changes from realised gains and losses Currency translation reserve at 31 December 2016 15 0 – 5 0 10 2017 10 0 –22 0 –12 38 Provisions for pensions and similar obligations The Group’s most significant defined benefit retirement plans are in Germany and the UK. A wide variety of other defined benefit retire- ment plans in the Group are to be found in the Netherlands, Switzerland, the USA and a large number of other countries. There are specific risks associated with these plans along with measures to mitigate them. 38.1 Plan features Germany In Germany, Deutsche Post AG has an occupational retirement ar- rangement based on a collective agreement, which is open to new hourly workers and salaried employees. This system was redesigned in the previous year by entering into a new collective agreement. As from 1 January 2016, depending on the weekly working hours and wage / salary group, retirement benefit components are calculated annually for each hourly worker and salaried employee, and credited to an individual pension account. A 2.5 % increase on the previous year is included in every newly allocated component. When the statutory pension falls due, the hourly workers and salaried employ- ees can choose whether to receive payment as a lump sum or in instalments, or life-long monthly benefit payments that increase by 1 % each year. Employees already on the payroll as at 31 Decem- ber 2015 received an initial benefit component for the entitlements accrued by that date, which was credited to the pension account on a one-time basis. The large majority of Deutsche Post AG’s obliga- tions relates to older vested entitlements of hourly workers and salaried employees, and to legacy pension commitments towards former hourly workers and salaried employees who have left or re- tired from the company. In addition, retirement arrangements are available to executives below the Board of Management level and to  specific employee groups through deferred compensation in particular. Details on the retirement benefit arrangements for the Board of Management can be found in the Group Management Report,  page 43. The prime source of external funding for Deutsche Post AG’s respective retirement benefit obligations is a contractual trust ar- rangement, which also includes a pension fund. A support fund that was previously also included was liquidated in 2016 and its assets were transferred to the trust. The trust is funded on a case-by-case basis in line with the Group’s finance strategy. In the case of the pension fund, the regulatory funding requirements can, in principle, be met without additional employer contributions. Part of the plan assets consists of real estate that is leased out to the Group on a long-term basis. In addition, the Versorgungsanstalt der Deutschen Bundespost (VAP – Deutsche Bundespost institution for supplemen- tary retirement pensions), a shared pension fund for successor com- panies to Deutsche Bundespost, is used for some of the legacy pen- sion commitments. Individual subsidiaries in Germany have retirement plans that were acquired in the context of acquisitions and transfers of oper- ations and that are closed to new entrants. Since the previous year, contractual trust arrangements have been available for three sub- sidiaries with a view to external financing. United Kingdom In the UK, the Group’s defined benefit pension arrangements are largely closed to new entrants and for further service accrual. One exceptional arrangement exists which is open to further service ac- crual and a limited number of existing employees who have not yet joined this arrangement. It provides for monthly payments from retirement, depending on length of service and final salary. In addition, a pension commencement lump-sum payment must be made. Annual increases in pension payments are linked to inflation. The Group’s defined benefit pension arrangements in the UK have mainly been consolidated into a group plan with different sec- tions for the participating divisions. These are funded mainly via a group trust. The amount of the employer contributions must be negotiated with the trustee in the course of funding valuations. Employee beneficiaries make their own funding contributions in the case of the single open defined benefit arrangement. Other In the Netherlands, collective agreements require that those em- ployees who are not covered by a sector-specific plan participate in a dedicated defined benefit retirement plan. The dedicated plan provides for annual accruals which are subject to a pensionable salary cap. Furthermore, the plan provides for monthly pension payments that are indexed to the agreed wage and salary increases, on the one hand, and the funds available for such indexation, on the other. In Switzerland, employees receive an occupational pension in line with statutory requirements, where pension payments de- pend on the contributions paid, an interest rate that is fixed each year, certain annuity factors and any pension increases specified. A separate plan providing for lump-sum payments instead of life-long pension payments exists for specific higher wage components. In the USA, the companies’ defined benefit retirement plans have been closed to new entrants and accrued entitlements have been frozen. 142 Deutsche Post DHL Group — 2017 Annual Report The Group companies primarily fund their dedicated defined benefit retirement plans in these three countries by using the re- spective joint funding institutions. In the Netherlands and in Switz- erland, both employers and employees contribute to plan funding. In the USA no contributions are currently made in this regard. 38.2 Financial performance of the plans and determination of balance sheet items The present value of defined benefit obligations, the fair value of plan assets and net pension provisions changed as follows: € m At 1 January Current service cost, excluding employee contributions Past service cost Settlement gains (–) / losses (+) Other administration costs in accordance with IAS 19.130 Service cost 1 Interest cost on defined benefit obligations Interest income on plan assets Net interest cost Income and expenses recognised in the income statement Actuarial gains (–) / losses (+) – changes in demographic assumptions Actuarial gains (–) / losses (+) – changes in financial assumptions Actuarial gains (–) / losses (+) – experience adjustments Return on plan assets excluding interest income Remeasurements recognised in the statement of comprehensive income Employer contributions Employee contributions Benefit payments Settlement payments Transfers Acquisitions / divestitures Currency translation effects At 31 December Present value of defined benefit obligations Fair value of plan assets Net pension provisions 2016 17,272 162 –356 –7 – –201 483 – 483 282 –16 1,754 – 65 – 1,673 – 32 –747 –71 0 –2 –716 17,723 2017 17,723 2016 11,202 2017 12,286 187 – 8 – 60 – 119 414 – 414 533 – 95 338 35 – 278 – 32 –736 –139 0 –7 –303 17,381 – – – –10 –10 – 346 346 336 – – – 797 797 1,162 18 – 481 –71 –12 –1 – 664 12,286 – – – –11 –11 – 291 291 280 – – – 656 656 701 18 – 465 –139 0 1 –254 13,084 2016 6,070 162 –356 –7 10 –191 483 –346 137 – 54 –16 1,754 – 65 –797 876 –1,162 14 –266 0 12 –1 – 52 5,437 2017 5,437 187 – 8 – 60 11 130 414 –291 123 253 – 95 338 35 – 656 –378 –701 14 –271 0 0 – 8 – 49 4,297 1 Including other administration costs in accordance with IAS 19.130 which are expensed out of plan assets. As at 31 December 2017, the effects of asset ceilings amounted to €3 million; an expedient was applied to their recognition by deduct- ing this amount from the fair value of plan assets (1 January 2017 / 31 December 2016: €2 million; 1 January 2016: €0 million). reduced the expected future employer contributions significantly. The tempor ary investment was made in short-term fixed income securities as at 31 December 2017. Secondly, real estate was contrib- uted to the trust in Germany. In the reporting period a lump-sum settlement programme was executed for retirees in Germany, leading to settlement pay- ments and the discontinuation of pension obligations. In addition, employer contributions were impacted by two special measures. Firstly, a special contribution was made to increase the funding of the Group’s pension obligations in the United Kingdom. This also Total payments amounting to €384 million are expected with regard to net pension provisions in 2018. Of this amount, €335 mil- lion is attributable to the Group’s expected direct benefit payments and €49 million to expected employer contributions to pension funds. Consolidated Financial Statements — NOTES — Balance sheet disclosures 143 The disaggregation of the present value of defined benefit obligations, fair value of plan assets and net pension provisions as well as the determination of the balance sheet items are as follows: € m 2017 Present value of defined benefit obligations at 31 December Fair value of plan assets at 31 December Net pension provisions at 31 December Reported separately Pension assets at 31 December Provisions for pensions and similar obligations at 31 December 2016 Present value of defined benefit obligations at 31 December Fair value of plan assets at 31 December Net pension provisions at 31 December Reported separately Pension assets at 31 December Provisions for pensions and similar obligations at 31 December In the Other area, the Netherlands, Switzerland and the USA ac- count for a share in the corresponding present value of the defined benefit obligations of 44 %, 20 % and 13 %, respectively (previous year: 40 %, 24 % and 13 %). Additionally, rights to reimbursement from former Group companies existed in the Group in Germany in the amount of around €19 million (previous year: €20 million) which are reported separately. Corresponding benefit payments are being made directly by the former Group companies. 38.3 Additional information on the present value of defined benefit obligations The significant financial assumptions are as follows: % 31 December 2017 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase 31 December 2016 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase Germany UK Other Total 9,554 – 5,748 3,806 0 3,806 9,866 – 5,518 4,348 0 4,348 5,240 – 5,112 128 46 174 5,270 – 4,590 680 1 681 2,587 –2,224 363 17,381 –13,084 4,297 107 470 153 4,450 2,587 –2,178 409 17,723 –12,286 5,437 142 551 143 5,580 Germany UK Other Total 2.25 2.50 2.00 2.25 2.50 2.00 2.50 3.25 2.85 2.75 3.25 2.85 2.23 2.05 1.26 2.19 2.02 0.93 2.32 2.43 2.18 2.39 2.43 2.15 144 Deutsche Post DHL Group — 2017 Annual Report The discount rates for defined benefit obligations in the euro zone and the UK were each derived from a yield curve comprising the yields of AA-rated corporate bonds and taking membership com- position as well as duration into account in each case. For other countries, the discount rate for defined benefit obligations was de- termined in a similar way, provided there was a deep market for AA-rated (or, in some cases, AA and AAA-rated) corporate bonds. By contrast, government bond yields were used for countries without a deep market for such corporate bonds. For the annual pension increase in Germany, fixed rates in par- ticular must be taken into account in addition to the assumptions shown. The effective weighted average therefore amounts to 1.00 % (previous year: 1.00 %). The most significant demographic assumptions made relate to life expectancy and / or mortality. For the German Group companies, they were based on the Richttafeln 2005 G mortality tables pub- lished by Klaus Heubeck. Life expectancy for the retirement plans in the UK was based on the S1PMA / S1PFA tables of the Continuous Mortality Investigation of the Institute and Faculty of Actuaries adjusted to reflect plan-specific mortality according to the current funding valuation. In the reporting period, current projections of future mortality improvements that were published after year-end 2016 were taken into account by applying a long-term rate of 1.5 %. Country-specific current standard mortality tables were used for other countries. If one of the significant financial assumptions were to change, the present value of the defined benefit obligations would change as follows: 31 December 2017 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase 31 December 2016 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase Change in assumption Percentage points 1.00 –1.00 0.50 – 0.50 0.50 – 0.50 1.00 –1.00 0.50 – 0.50 0.50 – 0.50 Change in present value of defined benefit obligations % Germany UK Other Total –12.52 15.81 0.18 – 0.17 0.42 – 0.38 –12.58 15.91 0.18 – 0.17 0.42 – 0.38 –14.92 19.39 0.08 – 0.08 5.63 – 5.53 –15.02 19.62 0.08 – 0.08 5.94 – 5.41 –14.51 19.02 0.95 – 0.90 6.39 – 4.71 –14.48 18.67 1.08 –1.01 6.23 – 4.29 –13.53 17.36 0.26 – 0.25 2.87 –2.57 –13.58 17.41 0.28 – 0.26 2.90 –2.44 These are effective weighted changes in the respective present value of the defined benefit obligations, e. g., taking into account the largely fixed nature of the pension increase for Germany. A one-year increase in life expectancy for a 65-year-old bene- ficiary would increase the present value of the defined benefit obli- gations by 4.55 % in Germany (previous year: 4.56 %) and by 4.25 % in the UK (previous year: 4.06 %). The corresponding increase for other countries would be 2.93 % (previous year: 2.56 %) and the total increase 4.22 % (previous year: 4.12 %). When determining the sensitivity disclosures, the present values were calculated using the same methodology used to calcu- late the present values at the reporting date. The presentation does not take into account interdependencies between the assumptions; rather, it supposes that the assumptions change in isolation. This would be unusual in practice, since assumptions are often correlated. The weighted average duration of the Group’s defined bene- fit  obligations at 31 December 2017 was 14.3 years in Germany ( previous year: 14.4 years) and 18.0 years in the UK (previous year: 18.0 years). In the other countries it was 17.6 years (previous year: 17.5 years), and in total it was 15.9 years (previous year: 15.9 years). A total of 30.0 % (previous year: 29.2 %) of the present value of the defined benefit obligations was attributable to active benefi- ciaries, 17.2 % (previous year: 16.8 %) to terminated beneficiaries and 52.8 % (previous year: 54.0 %) to retirees. Consolidated Financial Statements — NOTES — Balance sheet disclosures 145 38.4 Additional information on the fair value of plan assets The fair value of the plan assets can be disaggregated as follows: € m 31 December 2017 Equities Fixed income securities Real estate Alternatives 1 Insurances Cash Other Fair value of plan assets 31 December 2016 Equities Fixed income securities Real estate Alternatives 1 Insurances Cash Other Germany UK Other Total 1,044 1,956 1,609 415 554 163 7 765 3,685 187 432 0 33 10 819 826 273 31 127 50 98 2,628 6,467 2,069 878 681 246 115 5,748 5,112 2,224 13,084 1,053 1,986 1,377 434 562 99 7 662 3,173 183 457 0 103 12 742 910 262 33 119 20 92 2,457 6,069 1,822 924 681 222 111 Fair value of plan assets 5,518 4,590 2,178 12,286 1 Primarily includes absolute return products. Quoted market prices in an active market exist for around 79 % (pre- vious year: 80 %) of the total fair values of plan assets. The remaining assets for which no such quoted market prices exist are mainly at- tributable as follows: 14 % (previous year: 13 %) to real estate, 5 % (previous year: 6 %) to insurances, 1 % (previous year: 1 %) to alter- natives and 1 % (previous year: 0 %) to fixed income securities. The majority of the investments on the active markets are globally diversified, with certain country-specific focus areas. Real estate in Germany with a fair value of €1,590 million (which can be offset as plan assets) (previous year: €1,358 million) is occupied by Deutsche Post AG. Asset-liability studies are performed at regular intervals in Ger- many, the UK and, for example, also in the Netherlands, Switzerland and the USA, to examine the match between assets and liabil ities; the strategic allocation of plan assets is adjusted in line with this. 38.5 Risk Specific risks are associated with the defined benefit retirement plans. This can result in a (negative or positive) change in Deutsche Post DHL Group’s equity through other comprehensive income, whose overall relevance is classed as medium to high. In contrast, a low relevance is attached to the short-term effects on staff costs and net finance costs. Potential risk mitigation is applied de- pending on the specifics of the plans. INTEREST RATE RISK A decrease (increase) in the respective discount rate would lead to an increase (decrease) in the present value of the total obligation and would in principle be accompanied by an increase (decrease) in the fair value of the fixed income securities contained in the plan assets. Further hedging measures are applied, in some cases using derivatives. INFLATION RISK Pension obligations – especially relating to final salary schemes or schemes involving increases during the pension payment phase – can be linked directly or indirectly to inflation. The risk of increas- ing inflation rates with regard to the present value of the defined benefit obligations has been mitigated in the case of Germany, for example, by switching to a system of retirement benefit components and, in the case of the UK, by largely closing the defined benefit arrangements. In addition, fixed rates of increase have been set and increases partially capped and / or lump-sum payments provided for in each case. There is also a positive correlation with interest rates. INVESTMENT RISK The investment is in principle subject to a large number of risks; in particular, it is exposed to the risk that market prices may change. This is managed primarily by ensuring broad diversification and the use of hedging instruments. 146 Deutsche Post DHL Group — 2017 Annual Report LONGEVITY RISK Longevity risk may arise in connection with the benefits payable in the future due to a future increase in life expectancy. This is miti- gated in particular by using current standard mortality tables when calculating the present value of the defined benefit obligations. The mortality tables used in Germany and the UK, for example, already include an allowance for an expected future increase in life expec- tancy. 39 Other provisions Other provisions break down into the following main types of pro- vision: € m Other employee benefits Restructuring provisions Technical reserves (insurance) Postage stamps Tax provisions Miscellaneous provisions Other provisions 39.1 Changes in other provisions € m Balance at 1 January 2017 Changes in consolidated group Utilisation Currency translation differences Reversal Unwinding of discount / changes in discount rate Reclassification Addition Balance at 31 December 2017 Non­current 2017 521 54 411 0 0 435 1,421 2016 541 72 435 0 0 450 1,498 Current 2017 141 49 231 173 163 374 2016 230 181 235 242 113 322 2016 771 253 670 242 113 772 Total 2017 662 103 642 173 163 809 1,323 1,131 2,821 2,552 Other employee benefits Restructuring provisions Technical reserves (insurance) 771 – 6 – 424 – 49 –12 0 –1 383 662 253 0 – 87 –16 – 81 0 –1 35 103 670 0 – 48 –14 –33 0 1 66 642 Postage stamps 242 0 –242 0 0 0 0 173 173 Tax provisions Miscellaneous provisions 113 0 –34 – 5 –25 0 10 104 163 772 – 4 –189 –31 – 63 5 – 9 328 809 Total 2,821 –10 –1,024 –115 –214 5 0 1,089 2,552 The provision for other employee benefits primarily covers work- force reduction expenses (severance payments, transitional benefits, partial retirement, etc.), stock appreciation rights (SAR s) and jubilee payments. The restructuring provisions comprise all expenses resulting from the restructuring measures within the US Express business as well as in other areas of the Group. These measures relate primarily to rentals for idle plant, litigation risks and expenses from the closure of terminals, for example. The decline was attributable pri- marily to courts handing down decisions in legal disputes involving the US Express business. Technical reserves (insurance) consist mainly of outstanding loss reserves and IBNR reserves; further details can be found in  note 7. The provision for postage stamps covers outstanding obliga- tions to customers for letter and parcel deliveries from postage stamps sold but still unused by customers. It is based on external expert reports and extrapolations made on the basis of internal data. The provision is measured at the nominal value of the stamps issued. Of the tax provisions, €57 million (previous year: €47 million) relates to VAT, €62 million (previous year: €22 million) to customs and duties and €44 million (previous year: €44 million) to other tax provisions. Consolidated Financial Statements — NOTES — Balance sheet disclosures 147 39.2 Miscellaneous provisions Miscellaneous provisions, which include a large number of individ- ual items, break down as follows: € m Aircraft maintenance, of which non­current: 155 (previous year: 144) Litigation costs, of which non­current: 71 (previous year: 78) Risks from business activities, of which non­current: 10 (previous year: 12) Miscellaneous other provisions, of which non­current: 199 (previous year: 216) Miscellaneous provisions 2016 2017 149 127 42 454 772 190 117 42 460 809 39.3 Maturity structure The maturity structure of the provisions recognised in financial year 2017 is as follows: € m 2017 Other employee benefits Restructuring provisions Technical reserves (insurance) Postage stamps Tax provisions Miscellaneous provisions Total 40 Financial liabilities € m Bonds Amounts due to banks Finance lease liabilities Financial liabilities at fair value through profit or loss Other financial liabilities Financial liabilities More than 1 year to 2 years More than 2 years to 3 years More than 3 years to 4 years More than 4 years to 5 years More than 5 years Up to 1 year 141 49 231 173 163 374 1,131 127 9 186 0 0 170 492 43 18 84 0 0 92 237 Non­current 2017 4,835 39 159 9 109 2016 4,217 20 181 23 130 4,571 5,151 34 3 51 0 0 39 127 2016 773 138 28 98 427 1,464 43 6 35 0 0 40 124 Current 2017 515 117 22 35 210 899 274 18 55 0 0 94 441 2016 4,990 158 209 121 557 6,035 6,050 Total 662 103 642 173 163 809 2,552 Total 2017 5,350 156 181 44 319 The amounts due to banks mainly comprise current overdraft facil- ities due to various banks. The amounts reported under financial liabilities at fair value through profit or loss relate to the negative fair values of derivative financial instruments. 148 40.1 Bonds The following table contains further details on the company’s most significant bonds. The bond issued by Deutsche Post Finance B. V. is fully guaranteed by Deutsche Post AG. Deutsche Post DHL Group — 2017 Annual Report Significant bonds Bond 2012 / 2017 Bond 2012 / 2022 Bond 2012 / 2020 Bond 2012 / 2024 Bond 2013 / 2018 Bond 2013 / 2023 Bond 2016 / 2021 Bond 2016 / 2026 Bond 2017 / 2027 Convertible bond 2012 / 2019 1 Convertible bond 2017 / 2025 2 Nominal coupon % Issue volume € m Issuer 1.875 2.950 1.875 2.875 1.500 2.750 0.375 1.250 1.000 0.600 0.050 750 Deutsche Post Finance B. V. 500 Deutsche Post Finance B. V. 300 Deutsche Post AG 700 Deutsche Post AG 500 Deutsche Post AG 500 Deutsche Post AG 750 Deutsche Post AG 500 Deutsche Post AG 500 Deutsche Post AG 1,000 Deutsche Post AG 1,000 Deutsche Post AG 2016 2017 Carrying amount € m Fair value € m Carrying amount € m Fair value € m 749 497 298 697 498 496 744 496 – 405 – 758 572 322 819 514 575 760 515 – 428 – – 498 299 698 503 497 746 497 494 108 946 – 561 317 806 507 566 757 517 494 112 940 1 Debt component of the convertible bond; the fair value of the convertible bond is €215 million (previous year: €629 million). 2 Debt component of the convertible bond; the fair value of the convertible bond is €1,057 million. The bond 2012 / 2017 was repaid in the financial year. A traditional bond (2017 / 2027) and a convertible bond (2017 / 2025) were placed in December 2017. Convertible bonds Convertible bonds The convertible bonds issued have a conversion right which allows holders to convert the bond into a predetermined number of Deutsche Post AG shares. In addition, Deutsche Post AG was granted call options allow- ing it to repay the bonds early at face value plus accrued interest if Deutsche Post AG’s share price more than temporarily exceeds 130 % of the conversion price applicable at that time. The convertible bonds have a debt component and an equity component. In subsequent years, interest will be added to the carrying amount of the bonds, up to the issue amount, using the eff ective interest method and recognised in profit or loss. Issue date Issue volume Outstanding volume Exercise period, conversion right Exercise period, call option Value of debt component at issue date 2 Value of equity component at issue date 3 Transaction costs (debt / equity component) Conversion price at issue Conversion price after adjustment 4 in 2014 in 2015 in 2016 in 2017 Conversions to date (number of new shares) 5 in 2015 in 2016 in 2017 2012 / 2019 6 Dec. 2012 €1 billion €110.8 million 16 Jan. 2013 to 22 Nov. 2019 6 Dec. 2017 to 16 Nov. 2019 2017 / 2025 13 Dec. 2017 €1 billion €1 billion 13 Dec. 2020 to 13 June 2025 1 2 Jan. 2023 to 10 June 2025 €920 million €946 million €74 million €53 million €5.8 / 0.5 million €4.7 / 0.3 million €20.74 €20.69 €20.63 €20.60 €20.47 5 thousand 28 million 15 million €55.69 – – – – – – – 1 Excluding possible contingent conversion periods according to the bond terms. 2 Including transaction costs and call option granted. 3 Recognised in capital reserves. 4 After dividend payment. 5 Carrying dividend rights for the respective financial year. Consolidated Financial Statements — NOTES — Balance sheet disclosures 149 40.2 Finance lease liabilities Finance lease liabilities relate mainly to the following items: Leasing partner Interest rate % End of term Asset Deutsche Post Immobilien GmbH, Germany Various leasing partners 5.09 / 5.23 2023 / 2028 Real estate DHL Aviation NV / SA, Brussels DHL International (UK) Limited, UK Deutsche Post AG, Germany Cercis Parc Howard Lewisham Limited; SEGRO Airport Property Partnership t­Systems International GmbH 4.25 5.00 4.25 2031 Real estate 2030 / 2031 Real estate 2019 It systems 2016 € m 97 38 23 13 2017 € m 90 38 22 9 Leased assets are recognised in property, plant and equipment at a carrying amount of €169 million (previous year: €203 million). The notional amount of the minimum lease payments totals €237 mil- lion (previous year: €259 million). Maturity structure € m Up to 1 year More than 1 year to 5 years More than 5 years Total Present value (finance lease liabilities) Minimum lease payments (notional amount) 2016 28 74 107 209 2017 22 60 99 181 2016 30 102 127 259 2017 25 88 124 237 41 Other liabilities € m Tax liabilities Incentive bonuses Wages, salaries, severance payments Deferred income, of which non­current: 100 (previous year: 116) Compensated absences Payables to employees and members of executive bodies Social security liabilities Debtors with credit balances Overtime claims Liabilities from the sale of residential building loans, of which non­current: 86 (previous year: 123) COD liabilities Accrued rentals Liabilities from cheques issued Insurance liabilities Other compensated absences 40.3 Other financial liabilities € m Purchase price liability related to the acquisition of the remaining interest in Olimpo Loan notes related to the early termination of a finance lease Obligation from tranche III of the share buyback programme Put option related to the acquisition of the  remaining interest in Giorgio Gori Group Miscellaneous financial liabilities Other financial liabilities 2016 2017 Liabilities from loss compensation Accrued insurance premiums for damages and similar liabilities Miscellaneous other liabilities, of which non­current: 86 (previous year: 133) Other liabilities of which current non­current 0 14 195 41 307 557 11 7 0 0 301 319 2016 1,109 2017 1,123 679 374 398 335 203 174 159 90 125 61 45 28 17 28 17 12 688 389 356 352 199 172 124 115 105 68 40 35 33 28 12 12 810 4,664 4,292 372 823 4,674 4,402 272 Of the tax liabilities, €590 million (previous year: €603 million) relates to VAT, €371 million (previous year: €330 million) to customs and duties, and €162 million (previous year: €176 million) to other tax liabilities. 150 Deutsche Post DHL Group — 2017 Annual Report The liabilities from the sale of residential building loans relate to obligations of Deutsche Post AG to pay interest subsidies to bor- rowers to offset the deterioration in borrowing terms in conjunction with the assignment of receivables in previous years, as well as pass- through obligations from repayments of principal and interest for residential building loans sold. Miscellaneous other liabilities include a large number of indi- vidual items. 41.1 Maturity structure € m Up to 1 year More than 1 year to 2 years More than 2 years to 3 years More than 3 years to 4 years More than 4 years to 5 years More than 5 years Other liabilities 2016 4,292 131 44 30 20 147 4,664 2017 4,402 122 45 32 22 51 4,674 There is no significant difference between the carrying amounts and the fair values of the other liabilities due to their short maturities or market interest rates. There is no significant interest rate risk be- cause most of these instruments bear floating rates of interest at market rates. CASH FLOW DISCLOSURES 42 Cash flow disclosures The following table shows the reconciliation of changes in liabilities arising from financing activities in accordance with the new IFRS requirements: € m Bonds Amounts due to banks Finance lease liabilities Other financial liabilities 2 Liabilities arising from financing activities Non­cash changes 1 Cash changes Addition, finance leases Currency translation Fair value adjustment 668 49 –26 –37 654 0 0 7 0 7 – 5 –23 –2 – 8 –38 0 –27 0 – 8 –35 31 Dec. 2016 4,990 158 209 418 5,775 Other changes –303 –1 –7 –200 – 511 Total –308 – 51 –2 –216 – 577 31 Dec. 2017 5,350 156 181 165 5,852 1 Includes reclassifications of cash to other cash flow items. 2 Differences from financial liabilities,  note 40, are due to cash­related factors presented in other cash flow items, e. g., changes in cash and cash equivalents resulting from earn­outs or derivatives. Consolidated Financial Statements — NOTES — Balance sheet disclosures — Cash flow disclosures 151 The other non-cash changes relate primarily to the share buyback programme in the amount of €–195 million and the non-cash exer- cise of the convertible bond 2012 / 2019 totalling €–301 million. As at the reporting date, there were no hedges attributable solely to the liabilities arising from financing activities. The effects on the cash flows from portfolio hedges and from net investment hedges are presented in the other financing activities cash flow item in the amount of €–51 million in the reporting period. In financial year 2017, non-cash transactions were entered into which were not included in the cash flow statement in accordance with IAS 7.43 and 7.44. They related to 18 properties that were con- tributed to Deutsche Post Pensions-Treuhand GmbH & Co. KG. Al- though income was recognised as a result of the contribution, no cash or cash equivalents were received. 42.1 Net cash from operating activities In addition to improved EBIT, the increase in net cash from operat- ing activities is chiefly the result of the change in provisions. In the previous year, funding of pension obligations in Germany amounted to €1 billion, whilst in the 2017 financial year, €495 million was used to fund pension obligations in the United Kingdom. Non-cash income and expenses are as follows: 42.2 Net cash used in investing activities Net cash used in investing activities rose from €1,643 million to €2,091 million. In the previous year, the state aid repayment added €378 million to other non-current financial assets. During the same period, €278 million was paid to acquire UK Mail Group. In the reporting period, proceeds from the disposal of subsidiaries grew to €316 million, due to the sale of Williams Lea Tag Group. This cash flow comprised the cash-related component of the selling price (€256 million), the cash inflow from the redemption of internal debt (€114 million) and the inflow from the currency hedge (€8 million) less the cash outflow of €62 million resulting from deconsolida- tion. The payment of €30 million made to acquire an interest in WERTHEIMER PARENTCO is recognised in cash paid to acquire in- vestments accounted for using the equity method and other invest- ments, whilst a loan extended in the amount of €110 million is shown in cash paid to acquire other non-current financial assets,  note 2. Cash paid to acquire property, plant and equipment and intangible assets increased from €1,966 million to €2,203 million in the reporting period. The assets acquired and liabilities assumed in the course of company acquisitions undertaken in financial years 2017 and 2016 are presented below, in accordance with IAS 7.40 (d),  note 2. Non-cash income and expenses € m Expense from the remeasurement of assets Income from the remeasurement of liabilities Income from the disposal of assets Staff costs relating to equity­settled share­based payments Other Non-cash income (–) and expenses (+) 2016 94 –141 –26 45 –12 – 40 2017 102 –131 – 54 49 – 6 – 40 € m Non­current assets Current assets (excluding cash and cash equivalents) Non­current provisions and liabilities Current provisions and liabilities 2016 123 97 –15 –118 2017 20 5 –7 – 4 42.3 Net cash used in financing activities At €1,087 million, net cash used in financing activities was €146 mil- lion lower than in the previous year. The placement of a bond resulted in issuing proceeds of €1.2 billion in the previous year, whilst in the reporting period the placement of a bond and a convertible bond produced issuing pro- ceeds in the amount of €1.5 billion. In the reporting period, non- current financial liabilities were also repaid through redemption of a bond in the amount of €750 million. Expiration of the share buy- back programme reduced cash paid to acquire treasury shares from €836 million to €148 million. Further details on the cash flow statement and free cash flow can be found in the  Group Management Report, page 61 f. 152 Deutsche Post DHL Group — 2017 Annual Report OTHER DISCLOSURES 43 Risks and financial instruments of the Group 43.1 Risk management As a result of its operating activities, the Group is exposed to finan- cial risks that may arise from changes in exchange rates, commodity prices and interest rates. Deutsche Post DHL Group manages these risks centrally through the use of non-derivative and derivative finan cial instruments. Derivatives are used exclusively to mitigate non-derivative financial risks, and fluctuations in their fair value should not be assessed separately from the underlying transaction. The Group’s internal risk guidelines govern the universe of ac- tions, responsibilities and necessary controls regarding the use of derivatives. Financial transactions are recorded, assessed and pro- cessed using proven risk management software, which also regularly documents the effectiveness of hedging relationships. Portfolios of derivatives are regularly reconciled with the banks concerned. To limit counterparty risk from financial transactions, the Group may only enter into this type of contract with prime-rated banks. The conditions for the counterparty limits individually as- signed to the banks are reviewed on a daily basis. The Group’s Board of Management is informed internally at regular intervals about existing financial risks and the hedging instruments deployed to mitigate them. Financial instruments are accounted for and meas- ured in accordance with IAS 39. Disclosures regarding risks associated with the Group’s defined benefit retirement plans and their mitigation can be found in  note 38.5. Liquidity management The ultimate objective of liquidity management is to secure the solv- ency of Deutsche Post DHL Group and all Group companies. Con- sequently, liquidity in the Group is centralised as much as possible in cash pools and managed in the Corporate Center. The centrally available liquidity reserves (funding availability), consisting of central short-term financial investments and commit- ted credit lines, are the key control parameter. The target is to have at least €2 billion available in a central credit line. The Group had central liquidity reserves of €4.2 billion (previ- ous year: €3.9 billion) as at 31 December 2017, consisting of central financial investments amounting to €2.2 billion plus a syndicated credit line of €2 billion. The maturity structure of non-derivative financial liabilities within the scope of IFRS 7 based on cash flows is as follows: Maturity structure of financial liabilities € m At 31 December 2017 Non­current financial liabilities 1 Other non­current liabilities Non-current liabilities Current financial liabilities Trade payables Other current liabilities Current liabilities At 31 December 2016 Non­current financial liabilities 1 Other non­current liabilities Non-current liabilities Current financial liabilities Trade payables Other current liabilities Current liabilities More than 1 year to 2 years More than 2 years to 3 years More than 3 years to 4 years More than 4 years to 5 years More than 5 years Up to 1 year 287 1 288 707 1 708 403 2 405 1,134 1 1,135 839 1 840 385 1 386 591 1 592 823 1 824 3,430 81 3,511 2,474 119 2,593 86 0 86 877 7,343 337 8,557 77 0 77 1,389 7,178 341 8,908 1 In 2016, all of the convertible bond 2012/2019 was shown in the “More than 2 years to 3 years” range. As at 31 December 2017, the liabilities from the convertible bond amounted to €111 million and were shown in the “More than 1 year to 2 years” range. All of the convertible bond 2017 / 2025 was shown in the “More than 5 years” range. Consolidated Financial Statements — NOTES — Other disclosures 153 The maturity structure of the derivative financial instruments based on cash flows is as follows: Maturity structure of derivative financial instruments € m More than 1 year to 2 years More than 2 years to 3 years More than 3 years to 4 years More than 4 years to 5 years More than 5 years Up to 1 year At 31 December 2017 Derivative receivables – gross settlement Cash outflows Cash inflows Net settlement Cash inflows Derivative liabilities – gross settlement Cash outflows Cash inflows Net settlement Cash outflows At 31 December 2016 Derivative receivables – gross settlement Cash outflows Cash inflows Net settlement Cash inflows Derivative liabilities – gross settlement Cash outflows Cash inflows Net settlement Cash outflows –2,421 2,489 13 – 922 898 –17 –2,124 2,184 –312 325 2 – 87 84 – 5 –231 237 6 0 –2,675 2,602 –188 175 –22 – 5 0 0 0 0 0 0 0 0 0 –2 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Derivative financial instruments entail both rights and obligations. The contractual arrangement defines whether these rights and ob- ligations can be offset against each other and therefore result in a net settlement, or whether both parties to the contract will have to perform their obligations in full (gross settlement). cURRENcY RISK AND cURRENcY MANAGEMENT The international business activities of Deutsche Post DHL Group expose it to currency risks from recognised or planned future trans- actions: Accounting-related currency risks arise from the measurement and settlement of items in foreign currencies that are recognised if the exchange rate on the measurement or settlement date differs from the rate on recognition. The resulting foreign exchange differ- ences directly impact on profit or loss. In order to mitigate this impact as far as possible, all significant accounting-related currency risks within the Group are centralised at Deutsche Post AG through the in-house bank function. The centralised risks are aggregated by  Corporate Treasury to calculate a net position per currency, and hedged externally based on value-at-risk limits. The currency- related value at risk (95 % / one-month holding period) for the port- folio totalled €5 million (previous year: €5 million) at the reporting date; the current limit was a maximum of €5 million. The notional amount of the currency forwards and currency swaps used to manage accounting-related currency risks amounted to €1,630 million at the reporting date (previous year: €2,425 mil- lion); the fair value was €10 million (previous year: €–20 million). For simplification purposes, fair value hedge accounting was not applied to the derivatives used, which are reported as trading de- rivatives instead. Currency risks arise from planned foreign currency transac- tions if the future foreign currency transactions are settled at ex- change rates that differ from the rates originally planned or calcu- lated. These currency risks are captured and quantified centrally in Corporate Treasury. The rule-based, rolling hedging programme in place to date for these risks was discontinued in the course of 2017. Most of the existing hedges for 2018 / 2019 were closed out with reversing trades. Currency risks from planned transactions and transactions with existing contracts will only be hedged in selected cases in the future. The relevant hedging transactions are recognised using cash flow hedge accounting,  note 43.3, Cash flow hedges. 154 Deutsche Post DHL Group — 2017 Annual Report Currency risks also result from translating assets and liabilities of foreign operations into the Group’s currency (translation risk). However, at the end of 2017, there were no longer any hedges in place for currency translation risks. In total, currency forwards and currency swaps with a notional amount of €4,321 million (previous year: €5,737 million) were out- standing at the reporting date. The corresponding fair value was €56 million (previous year: €1 million). As at the reporting date, there were no currency options or cross-currency swaps. Of the unrealised gains or losses from currency derivatives recognised in equity as at 31 December 2017 in accordance with IAS 39, €36 million (previous year: €–90 million) is expected to be recognised in income in the course of 2018. IFRS 7 requires the disclosure of quantitative risk data showing how profit or loss and equity are affected by changes in exchange rates at the reporting date. The impact of these changes in exchange rates on the portfolio of foreign currency financial instruments is assessed by means of a value-at-risk calculation (95 % confidence / one-month holding period). It is assumed that the portfolio as at the reporting date is representative for the full year. Effects of hypo- thetical changes in exchange rates on translation risk do not fall within the scope of IFRS 7. The following assumptions are used as a basis for the sensitivity analysis: Primary financial instruments in foreign currencies used by Group companies are hedged by Deutsche Post AG’s in-house bank, with Deutsche Post AG setting and guaranteeing monthly exchange rates. Exchange rate-related changes therefore have no effect on the profit or loss and equity of the Group companies. Where, in indi- vidual cases, Group companies are not permitted to participate in in-house banking for legal reasons, their currency risks from pri- mary financial instruments are fully hedged locally through the use of derivatives. They therefore have no impact on the Group’s risk position. Hypothetical changes in exchange rates have an effect on the fair values of Deutsche Post AG’s external derivatives that is reported in profit or loss; they also affect the foreign currency gains and losses from remeasurement at the closing date of the in-house bank balances, balances from external bank accounts as well as internal and external loans extended by Deutsche Post AG. The foreign cur- rency value at risk of the foreign currency items concerned was €5 million at the reporting date (previous year: €5 million). In add- ition, hypothetical changes in exchange rates affect equity and the fair values of those derivatives used to hedge unrecognised firm commitments and highly probable forecast currency transactions, which are designated as cash flow hedges. The foreign currency value at risk of this risk position was €7 million as at 31 Decem- ber 2017 (previous year: €76 million). The total foreign currency value at risk was €9 million at the reporting date (previous year: €80 million). The total amount is lower than the sum of the individ- ual amounts given above, owing to interdependencies. INTEREST RATE RISK AND INTEREST RATE MANAGEMENT No interest rate hedging instruments were recognised as at the re- porting date. The proportion of financial liabilities with short-term  note 40, amounts to 14 % (previous year: 24 %) of interest lock-ins, the total financial liabilities as at the reporting date. The effect of potential interest rate changes on the Group’s financial position re- mains insignificant. The quantitative risk data relating to interest rate risk required by IFRS 7 is presented in the form of a sensitivity analysis. This method determines the effects of hypothetical changes in market interest rates on interest income, interest expense and equity as at the reporting date. The following assumptions are used as a basis for the sensitivity analysis: Primary variable-rate financial instruments are subject to interest rate risk and must therefore be included in the sensitivity analysis. Fixed-income financial instruments measured at amort- ised cost are not subject to interest rate risk. If the market interest rate level as at 31 December 2017 had been 100 basis points higher or lower, net finance costs would not have been affected as in the previous year. All interest rate deriva- tives had expired or been unwound at the reporting date. No inter- est rate risk with an impact on equity was determined. MARKET RISK As in the previous year, most of the risks arising from commodity price fluctuations, in particular fluctuating prices for kerosene and marine diesel fuels, were passed on to customers via operating measures. However, the impact of the related fuel surcharges is de- layed by one to two months, so that earnings may be affected tem- porarily if there are significant short-term fuel price variations. In addition, a small number of commodity swaps for diesel and marine diesel fuel were used to control residual risks. The no- tional amount of these commodity swaps was €8 million (previous year: €52 million) with a fair value of €1 million (previous year: €–4 million). IFRS 7 requires the disclosure of a sensitivity analysis, present- ing the effects of hypothetical commodity price changes on profit or loss and equity. Consolidated Financial Statements — NOTES — Other disclosures 155 Changes in commodity prices affect the fair values of the de- rivatives used to hedge highly probable forecast commodity pur- chases (cash flow hedges) and the hedging reserve in equity. If, on the reporting date, the commodity prices underlying the derivatives had been 10 % higher than the commodity prices determined on the market, this would not have increased fair values and equity (pre- vious year: increase of €3 million). A corresponding decline in com- modity prices would also have had no effect. In the interests of simplicity, some of the commodity price hedges are not recognised as cash flow hedges. For these derivatives, commodity price changes affect the fair values of the derivatives and, consequently, the income statement. As in the previous year, if the underlying commodity prices had been 10 % higher at the reporting date, this would have increased the fair values in question and, con- sequently, operating profit by €1 million. A corresponding decline in the commodity prices would have reduced the fair values of the derivatives and operating profit by €1 million. cREDIT RISK The credit risk incurred by the Group is the risk that counterparties fail to meet their obligations arising from operating activities and from financial transactions. To minimise credit risk from financial transactions, the Group only enters into transactions with prime- rated counterparties. The Group’s heterogeneous customer struc- ture means that there is no risk concentration. Each counterparty is assigned an individual limit, the utilisation of which is regularly monitored. A test is performed at the reporting dates to establish whether an impairment loss needs to be charged on the positive fair values due to the individual counterparties’ credit quality. This was not the case for any of the counterparties as at 31 December 2017. In 2017, factoring agreements were in place on the basis of which the banks are obliged to purchase existing and future trade receivables. The banks’ purchase obligations are limited to a max- imum portfolio of receivables of €313 million. Deutsche Post DHL Group can decide freely whether, and to what extent, the revolving notional volume is utilised. The risks relevant to the derecognition of the receivables include credit risk and the risk of delayed payment (late payment risk). Credit risk represents primarily all the risks and rewards asso- ciated with ownership of the receivables. This risk is transferred in full to the bank against payment of a fixed fee for doubtful accounts. A significant late payment risk does not exist. Consequently, credit risk is the main risk associated with the receivables, and this risk is transferred in full to the bank against payment of a fixed fee. The receivables are therefore derecognised in their entirety. In financial year 2017, the Group recognised programme fees (interest, allow- ances for doubtful accounts) of €2 million (previous year: €1 mil- lion) as an expense in relation to its continuing exposure. The no- tional volume of receivables factored as at 31 December 2017 amounted to €267 million. Default risks are continuously monitored in the operating busi- ness. The aggregate carrying amounts of financial assets represent the maximum default risk. Trade receivables amounting to €8,218 million (previous year: €7,965 million) are due within one year. The following table gives an overview of receivables that are past due: Receivables that are past due € m Carrying amount before impairment losses Neither impaired nor due at the reporting date Past due and not impaired at the reporting date Up to 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 150 days 151 to 180 days More than 180 days Trade receivables changed as follows: Receivables € m Gross receivables At 1 January Changes At 31 December Valuation allowances At 1 January Changes At 31 December Carrying amount at 31 December 2016 8,133 5,517 1,027 426 187 70 29 11 0 2017 8,365 5,527 1,190 441 190 74 37 16 8 2016 2017 7,910 223 8,133 –216 48 –168 7,965 8,133 232 8,365 –168 21 –147 8,218 All other financial instruments are neither past due nor impaired. Impairment losses of €25 million (previous year: €23 million) were recognised for other assets. 156 43.2 Collateral Collateral provided € m Non­current financial assets of which for assets for the settlement of residential building loans sureties paid Current financial assets of which for US cross­border lease (QtE lease) transactions sureties paid 2016 188 101 87 35 8 14 2017 169 87 76 39 7 14 43.3 Derivative financial instruments FAIR VALUE hEDGES There were no fair value hedges as at 31 December 2017, as in the previous year. At the reporting date, the unwinding of interest rate swaps resulted in carrying amount adjustments of €32 million (pre- vious year: €43 million). The adjustments in the carrying amount will be amortised using the effective interest method over the re- maining term of the liabilities and will reduce the interest expense in future. Deutsche Post DHL Group — 2017 Annual Report cASh FLOW hEDGES The Group uses currency forwards and currency swaps to hedge the cash flow risk from future foreign currency operating revenue and expenses. The fair values of currency forwards and currency swaps amounted to €46 million at the reporting date (previous year: €28 million). The hedged items will have an impact on cash flow by 2019. The risks from the purchase of diesel and marine diesel fuel, which cannot be passed on to customers, were hedged using com- modity swaps that will affect cash flow by 2018. The fair value of these cash flow hedges amounted to €0 million (previous year: €–5 million). NET INVESTMENT hEDGES Currency risks resulting from the translation of foreign operations were no longer hedged as at the end of 2017 (previous year: fair value of €–7 million). 43.4 Additional disclosures on the financial instruments used in the Group The Group classifies financial instruments in line with the respective balance sheet items. The following table reconciles the financial in- struments to the categories given in IAS 39 and their respective fair values as at the reporting date: Consolidated Financial Statements — NOTES — Other disclosures 157 Reconciliation of carrying amounts in the balance sheet at 31 December 2017 € m Carrying amount by IAS 39 measurement category Other financial instruments outside IAS 39 1 Carrying amount Fair value within IFRS 7 ASSETS Non­current financial assets at cost of which available­for­sale financial assets 2 loans and receivables Non­current financial assets at fair value of which fair value option available­for­sale financial assets derivatives designated as hedges Trade receivables at cost of which loans and receivables Other current assets at cost of which loans and receivables Other current assets outside IFRS 7 Current financial assets at cost of which loans and receivables Current financial assets at fair value of which trading available­for­sale financial assets derivatives designated as hedges Cash and cash equivalents of which loans and receivables TOTAL ASSETS EQUITY AND LIAbILITIES Non­current financial liabilities at cost 3 of which other financial liabilities Non­current financial liabilities at fair value of which earn­out obligation derivatives designated as hedges Other non­current liabilities at cost of which other financial liabilities Other non­current liabilities outside IFRS 7 Current financial liabilities at cost of which other financial liabilities Current financial liabilities at fair value of which trading earn­out obligation derivatives designated as hedges Trade payables at cost of which other financial liabilities Other current liabilities at cost of which other financial liabilities Other current liabilities outside IFRS 7 TOTAL EQUITY AND LIAbILITIES 518 215 8,218 370 1,814 76 576 3,135 14,922 5,142 9 86 186 864 35 7,343 19 4,383 18,067 480 14 466 215 156 45 14 8,218 8,218 370 370 69 69 576 16 500 60 3,135 3,135 4,983 4,983 9 6 3 86 86 842 842 35 6 4 25 7,343 7,343 19 19 38 7 159 22 518 215 n. a. n. a. n. a. n. a. 576 n. a. – 5,622 9 86 n. a. 868 35 n. a. n. a. n. a. – 1 Relates to lease receivables or liabilities. 2 The fair value is assumed to be equal to the carrying amount. 3 The Deutsche Post AG and Deutsche Post Finance B. V. bonds included in non­current financial liabilities are carried at amortised cost. Where required, the carrying amounts of unwound interest rate swaps were adjusted. One of the Deutsche Post Finance B. V. bonds was designated as a fair value hedge as at the reporting date. A basis adjustment was recognised for the effective portion of the hedge in accordance with IAS 39. The bond is therefore not recognised fully at either fair value or amortised cost. The convertible bonds issued by Deutsche Post AG in December 2017 and December 2012 had a fair value of €1,057 million and €215 million as at the reporting date. The fair values of the debt components at the reporting date were €940 million and €112 million. 158 Deutsche Post DHL Group — 2017 Annual Report Reconciliation of carrying amounts in the balance sheet at 31 December 2016 € m Carrying amount by IAS 39 measurement category Other financial instruments outside IAS 39 1 Carrying amount Fair value within IFRS 7 ASSETS Non­current financial assets at cost of which available­for­sale financial assets loans and receivables Non­current financial assets at fair value of which fair value option available­for­sale financial assets derivatives designated as hedges Trade receivables at cost of which loans and receivables Other current assets at cost of which loans and receivables Other current assets outside IFRS 7 Current financial assets at cost of which loans and receivables Current financial assets at fair value of which trading available­for­sale financial assets derivatives designated as hedges Cash and cash equivalents of which loans and receivables TOTAL ASSETS EQUITY AND LIAbILITIES Non­current financial liabilities at cost 2 of which other financial liabilities Non­current financial liabilities at fair value of which earn­out obligation derivatives designated as hedges Other non­current liabilities at cost of which other financial liabilities Other non­current liabilities outside IFRS 7 Current financial liabilities at cost of which other financial liabilities Current financial liabilities at fair value of which trading earn­out obligation derivatives designated as hedges Trade payables at cost of which other financial liabilities Other current liabilities at cost of which other financial liabilities Other current liabilities outside IFRS 7 TOTAL EQUITY AND LIAbILITIES 513 176 7,965 357 1,819 80 294 3,107 14,311 4,548 23 123 249 1,366 98 7,178 313 3,979 17,877 469 11 458 176 145 21 10 7,965 7,965 357 357 73 73 294 75 200 19 3,107 3,107 4,367 4,367 23 11 12 123 123 1,338 1,338 98 38 4 56 7,178 7,178 313 313 44 7 181 28 513 176 n. a. n. a. n. a. n. a. 294 n. a. – 5,102 23 123 n. a. 781 98 n. a. n. a. n. a. – 1 Relates to lease receivables or liabilities. 2 The Deutsche Post AG and Deutsche Post Finance B. V. bonds included in non­current financial liabilities are carried at amortised cost. Where required, the carrying amounts of unwound interest rate swaps were adjusted. One of the Deutsche Post Finance B. V. bonds was designated as a fair value hedge as at the reporting date. A basis adjustment was recognised for the effective portion of the hedge in accordance with IAS 39. The bond is therefore not recognised fully at either fair value or amortised cost. The convertible bond issued by Deutsche Post AG in December 2012 had a fair value of €629 million as at the reporting date. The fair value of the debt component at the reporting date was €428 million. Consolidated Financial Statements — NOTES — Other disclosures 159 If there is an active market for a financial instrument (e. g., stock exchange), the fair value is determined by reference to the market or quoted exchange price at the reporting date. If no fair value is available in an active market, the quoted prices in an active market for similar instruments or recognised valuation techniques are used to determine fair value. The valuation techniques used incorporate the key factors determining the fair value of the financial instru- ments using valuation parameters that are derived from the market conditions as at the reporting date. Counterparty risk is analysed on the basis of the current credit default swaps signed by the coun- terparties. The fair values of other non-current receivables and held-to-maturity financial investments with remaining maturities of more than one year correspond to the present values of the pay- ments related to the assets, taking into account current interest rate parameters. Cash and cash equivalents, trade receivables and other receiv- ables have predominantly short remaining maturities. As a result, their carrying amounts as at the reporting date are approximately equivalent to their fair values. Trade payables and other liabilities generally have short remaining maturities; the recognised amounts approximately represent their fair values. The financial assets classified as available for sale include shares in partnerships and corporations for which there is no active market in the amount of €14 million (previous year: €11 million). As no future cash flows can be reliably determined, the fair values cannot be determined using valuation techniques. There are no plans to sell or derecognise significant shares classified as avail- able-for-sale financial assets as at 31 December 2017 in the near future. Available-for-sale financial assets measured at fair value relate to equity and debt instruments. Financial assets at fair value through profit or loss include se- curities to which the fair value option was applied, in order to avoid accounting inconsistencies. An active market exists for the assets, and they are recognised at fair value. The following table presents financial instruments recognised at fair value and financial instruments whose fair value is required to be disclosed. Each class is presented by the level in the fair value hierarchy to which it is assigned. The simplification option under IFRS 7.29a was exercised for cash and cash equivalents, trade receivables, other assets, trade pay- ables and other liabilities with predominantly short maturities. Their carrying amounts as at the reporting date are approximately equivalent to their fair values. Not included are financial invest- ments in equity instruments for which there is no quoted price in an active market and which therefore have to be measured at cost. Financial assets and liabilities € m Class 31 December 2017 Non­current financial assets Current financial assets Financial assets Non­current liabilities Current liabilities Financial liabilities 31 December 2016 Non­current financial assets Current financial assets Financial assets Non­current liabilities Current liabilities Financial liabilities 1 Quoted prices for identical instruments in active markets. 2 Inputs other than quoted prices that are directly or indirectly observable for instruments. 3 Inputs not based on observable market data. Level 1 1 Level 2 2 Level 3 3 Total 201 500 701 5,315 519 5,834 166 200 366 4,730 781 5,511 480 76 556 151 31 182 512 94 606 384 94 478 0 0 0 6 4 10 0 0 0 11 4 15 681 576 1,257 5,472 554 6,026 678 294 972 5,125 879 6,004 160 Deutsche Post DHL Group — 2017 Annual Report Level 1 mainly comprises equity instruments measured at fair value and debt instruments measured at amortised cost. the Black-Scholes option pricing model. All significant inputs used to measure derivatives are observable in the market. In addition to financial assets and financial liabilities measured at amortised cost, commodity, interest rate and currency derivatives are reported under Level 2. The fair values of the derivatives are measured on the basis of discounted expected future cash flows, taking into account forward rates for currencies, interest rates and commodities (market approach). For this purpose, price quotations observable in the market (exchange rates, interest rates and com- modity prices) are imported from standard market information platforms into the treasury management system. The price quota- tions reflect actual transactions involving similar instruments in an active market. If currency options are used, they are measured using Level 3 comprises mainly the fair values of equity investments and subsequent payments associated with M & A transactions. They are measured using recognised valuation models that reflect plausible assumptions. Financial ratios strongly influence the fair values of assets and liabilities. Increasing financial ratios lead to higher fair values, whilst decreasing financial ratios result in lower fair values. No financial instruments were transferred between levels in financial year 2017. The following table shows the effect on net gains and losses of the financial instruments categorised within level 3 as at the reporting date: Unobservable inputs (Level 3) € m 2016 2017 Assets Liabilities Assets Derivatives, Liabilities Derivatives, Equity instruments Debt instruments of which equity derivatives Equity instruments Debt instruments of which equity derivatives 0 0 0 0 0 0 0 0 0 0 0 0 0 0 15 0 0 0 – 5 0 10 0 0 0 0 0 0 0 The net gains and losses mainly include the effects of the fair value measurement, impairment and disposals (disposal gains / losses) of financial instruments. Dividends and interest are not taken into account for the financial instruments measured at fair value through profit or loss. Income and expenses from interest and commission agreements of the financial instruments not measured at fair value through profit or loss are explained in the income statement dis- closures. The following tables show the impact of netting agreements based on master netting arrangements or similar agreements on financial assets and financial liabilities as at the reporting date: At 1 January Gains and losses (recognised in profit or loss) 1 Gains and losses (recognised in OCI) 2 Additions Disposals Currency translation effects At 31 December 83 0 0 0 – 80 –3 0 0 0 0 15 0 0 15 1 Fair value losses are presented in finance costs, fair value gains in financial income. 2 Unrealised gains and losses were recognised in the IAS 39 revaluation reserve. The net gains and losses on financial instruments classified in ac- cordance with the individual IAS 39 measurement categories are as follows: Net gains and losses by measurement category € m Loans and receivables Available­for­sale financial assets Net gains (+) / losses (–) recognised in OCI Net gains (+) / losses (–) reclassified to profit or loss Net gains (+) / losses (–) recognised in profit or loss Financial assets and liabilities at fair value through profit or loss Trading Fair value option Other financial liabilities 2016 –127 2017 –147 – 4 63 – 8 4 0 –15 2 1 –7 –1 0 – 5 Consolidated Financial Statements — NOTES — Other disclosures Offsetting – assets € m At 31 December 2017 Derivative financial assets 1 Trade receivables Funds At 31 December 2016 Derivative financial assets 1 Trade receivables Funds 1 Excluding derivatives from M & A transactions. Offsetting – liabilities € m At 31 December 2017 Derivative financial liabilities 1 Trade payables Funds At 31 December 2016 Derivative financial liabilities 1 Trade payables Funds 1 Excluding derivatives from M & A transactions. Gross amount Gross amount Recognised net amount of assets of liabilities set off of assets set off Assets and liabilities not set off in the balance sheet Liabilities that do not meet offsetting criteria Collateral received 89 8,301 0 104 8,015 384 0 83 0 0 50 331 89 8,218 0 104 7,965 53 34 0 0 67 0 0 0 0 0 0 0 0 Gross amount of liabilities Gross amount Recognised net amount of assets set off of liabilities set off Assets that do not meet offsetting criteria Collateral provided Assets and liabilities not set off in the balance sheet 34 7,426 0 107 7,228 331 0 83 0 0 50 331 34 7,343 0 107 7,178 0 34 0 0 67 0 0 0 0 0 0 0 0 161 Total 55 8,218 0 37 7,965 53 Total 0 7,343 0 40 7,178 0 Financial assets and liabilities are set off on the basis of netting agreements (master netting arrangements) only if an enforceable right of set-off exists and settlement on a net basis is intended as at the reporting date. If the right of set-off is not enforceable in the normal course of business, the financial assets and liabilities are recognised in the balance sheet at their gross amounts as at the reporting date. The master netting arrangement creates a conditional right of set-off that can only be enforced by taking legal action. To hedge cash flow and fair value risks, Deutsche Post AG enters into financial derivative transactions with a large number of financial services institutions. These contracts are subject to a stand- ardised master agreement for financial derivative transactions. This agreement provides for a conditional right of set-off, resulting in the recognition of the gross amount of the financial derivative trans- actions at the reporting date. The conditional right of set-off is pre- sented in the table. Settlement processes arising from services related to postal deliveries are subject to the Universal Postal Convention and the Interconnect Remuneration Agreement – Europe (IRA-E). These agreements, particularly the settlement conditions, are binding on all public postal operators for the specified contractual arrange- ments. Imports and exports between the parties to the agreement during a calendar year are summarised in an annual statement of account and presented on a net basis in the final annual statement. Receivables and payables covered by the Universal Postal Conven- tion and the IRA-E agreement are presented on a net basis at the reporting date. In addition, funds are presented on a net basis if a right of set-off exists in the normal course of business. The tables show the receivables and payables before and after offsetting. 162 Deutsche Post DHL Group — 2017 Annual Report 44 Contingent liabilities The Group’s contingent liabilities break down as follows: Contingent liabilities € m Guarantee obligations Warranties Liabilities from litigation risks Other contingent liabilities Total 2016 91 59 87 746 983 2017 92 95 96 644 927 The reduction in contingent liabilities is attributable primarily to exchange rate movements. Other contingent liabilities also include a potential obligation to make settlement payments in the USA, which had arisen mainly in 2014 as a result of a change in the estimated settlement payment obligations assumed in the context of the restructuring measures in the USA, and other tax-related obligations,  note 46. 45 Other financial obligations In addition to provisions, liabilities and contingent liabilities, there are other financial obligations amounting to €11,298 million (pre- vious year: €8,188 million) in the context of minimum lease pay- ments under operating leases in accordance with IAS 17. The Group’s future payment obligations under leases are attrib- utable to the following asset classes: Lease obligations € m Land and buildings Aircraft Transport equipment Technical equipment and machinery Other equipment, operating and office equipment It equipment Total 2016 6,657 909 495 79 41 7 2017 9,403 1,138 611 129 10 7 8,188 11,298 In addition to newly signed leases, the increase in lease obligations by €3,110 million to €11,298 million was due chiefly to new esti- mates for extension and termination options for certain existing leases, particularly for real estate and aircraft. Maturity structure of minimum lease payments € m Up to 1 year More than 1 year to 2 years More than 2 years to 3 years More than 3 years to 4 years More than 4 years to 5 years More than 5 years Total 2016 1,853 1,410 1,027 826 597 2,475 8,188 2017 2,091 1,696 1,396 1,225 930 3,960 11,298 The present value of discounted minimum lease payments amounts to €9,251 million (previous year: €7,082 million) based on a dis- count factor of 4.00 % (previous year: 3.25 %). Overall, rental and lease payments amounted to €3,060 million (previous year: €3,019 million); €2,226 million (previous year: €2,143 million) of this amount relates to non-cancellable leases. Future lease obliga- tions are attributable primarily to Deutsche Post Immobilien GmbH in the amount of €3,835 million (previous year: €2,789 million). The purchase obligation for investments in non-current assets amounts to €254 million (previous year: €234 million). 46 Litigation Many of the postal services rendered by Deutsche Post AG and its subsidiaries are subject to sector-specific regulation by the Bun- desnetzagentur (German federal network agency) pursuant to the Postgesetz (PostG – German Postal Act). As the regulatory authority, the Bundesnetzagentur approves or reviews such prices, formulates the terms of downstream access and has special supervisory powers to combat market abuse. This general regulatory risk could lead to a decline in revenue and earnings in the event of negative decisions. Legal risks may arise, amongst other things, from pending ad- ministrative court appeals by an association against the price-cap parameter decision handed down, and the price approval granted, by the Bundesnetzagentur under the price cap procedure for 2016 to 2018. The claimant asserts that both of the decisions by the Bun- desnetzagentur are unlawful for various reasons. The Bundesnetz- agentur and Deutsche Post AG do not share the claimant’s opinion. In its decision dated 14 June 2011, the Bundesnetzagentur concluded that First Mail Düsseldorf GmbH, a subsidiary of Deutsche Post AG, and Deutsche Post AG had contravened the dis- counting and discrimination prohibitions under the Postgesetz. The companies were instructed to remedy the breaches that had been identified. Both companies appealed against the ruling. Further- more, First Mail Düsseldorf GmbH filed an application to suspend the execution of the ruling until a decision was reached in the prin- cipal proceedings. The Cologne Administrative Court and the Mün- ster Higher Administrative Court both dismissed this application. First Mail Düsseldorf GmbH discontinued its mail delivery oper- ations at the end of 2011 and retracted its appeal on 19 Decem- ber 2011. Deutsche Post AG continues to pursue its appeal against the Bundesnetzagentur ruling. Consolidated Financial Statements — NOTES — Other disclosures 163 In its ruling of 30 April 2012, the Bundesnetzagentur deter- mined that Deutsche Post AG had contravened the discrimination prohibition under the Postgesetz by charging different fees for the transport of identical invoices and invoices containing different amounts. Deutsche Post AG was requested to discontinue the dis- crimination determined immediately, but no later than 31 De- cember 2012. The ruling was implemented on 1 January 2013. Deutsche Post AG does not share the legal opinion of the Bundesnetz- agentur and appealed the ruling. In its ruling of 28 June 2016, the Bundesnetzagentur deter- mined that the prices for the Dialogpost “Impulspost” product did not meet the pricing standards of the Postgesetz. The agency ordered the prices to be adjusted immediately (adjustment request). Accord- ing to the Bundesnetzagentur, the prices did not cover the cost of efficiently providing the service and had anti-competitive effects. On 26 July 2016, the Bundesnetzagentur barred Deutsche Post AG from charging these prices and declared the prices invalid (prohib- itive order), since at this time Deutsche Post AG had not yet com- plied with the adjustment request. Deutsche Post AG does not share the legal opinion of the Bundesnetzagentur and filed an appeal with the Cologne Administrative Court against the orders issued by the agency. In a judgement dated 14 July 2016, the General Court of the European Union (EGC) set aside the European Commission’s state aid decision dated 25 January 2012 in an action brought by the Fed- eral Republic of Germany. In this decision, the European Commis- sion had argued that the financing of civil servant pensions in part constituted unlawful state aid that had to be repaid to the federal government; further details can be found in the 2015 and 2016 Annual Reports in the notes under Litigation. In their actions, Deutsche Post AG and the federal government asserted that the state aid decision was unlawful. In the aforementioned judgement of 14 July 2016, the EGC allowed that argument as presented in the action brought by the federal government. The proceedings brought by Deutsche Post AG against the state aid ruling have also been brought to a close. In an order dated 17 March 2017, the EGC de- clared that there was no longer any need to adjudicate on the action brought by Deutsche Post AG and additionally ruled that the costs were to be borne by the European Commission. Since the European Commission did not file an appeal against the EGC’s judgement of 14 July 2016, that decision is now legally binding. The state aid de- cision of the European Commission is therefore null and void with final effect and there are no longer any grounds for the obligation to repay the alleged state aid under the state aid decision. The amount of €378 million that had been deposited in a trustee account for the purpose of implementing the state aid decision was released. The action brought by Deutsche Post AG against the 2011 “extension decision” (Ausweitungsbeschluss) is still pending. That action is based on procedural matters involving the validity of the European Commission’s 2011 decision to extend the state aid proceedings. In the action pending, the European Commission has advanced the legal argument that the state aid proceedings initiated in 1999 re- main partly open and that it could therefore issue a new final deci- sion, bringing the proceedings to a close. With regard to the possi- ble content of this decision, the European Commission did not give any particulars. In the legal opinion of Deutsche Post AG, however, the proceedings initiated in 1999 were resolved in full by way of the European Commission’s state aid ruling of 19 June 2002. The Euro- pean Court of Justice expressly confirmed that opinion in its ruling of 24 October 2013. The European Commission’s state aid decision of 25 January 2012 remains null and void with final effect. Since 1 July 2010, as a result of the revision of the relevant tax exemption provisions, the VAT exemption has only applied to those specific universal services in Germany that are not subject to indi- vidually negotiated agreements or provided on special terms (dis- counts, etc.). Deutsche Post AG and the tax authorities hold different opinions on the VAT treatment of certain products. In the inter- est  of  resolving these issues, proceedings have been initiated by Deutsche Post AG and competitors and are pending at German tax courts and the European Court of Justice,  note 44. On 30 June 2014, DHL Express France received a statement of objections from the French competition authority alleging anti- competitive conduct in the domestic express business, a business which  had been divested in June 2010. On 15 December 2015, Deutsche Post DHL Group received the decision of the French au- thority regarding the fuel surcharges and price fixing. The decision has been appealed by the Group. A ruling is expected from the Paris Court of Appeals in May 2018. Further details cannot be given at this point in time. In view of the ongoing or announced legal proceedings men- tioned above, no further details are given on their presentation in the financial statements. 47 Share-based payment Assumptions regarding the price of Deutsche Post AG’s shares and assumptions regarding employee fluctuation are taken into account when measuring the value of share-based payments for executives. All assumptions are reviewed on a quarterly basis. The staff costs are recognised pro rata in profit or loss to reflect the services rendered as consideration during the vesting period (lock-up period). 47.1 Share-based payment for executives (Share Matching Scheme) Under the share-based payment system for executives (Share Matching Scheme), certain executives receive part of their variable remuneration for the financial year in the form of shares of Deutsche Post AG in the following year (deferred incentive shares). All Group executives can specify an increased equity component individually by converting a further portion of their variable remu- neration for the financial year (investment shares). After a four-year lock-up period during which the executive must be employed by the Group, they again receive the same number of Deutsche Post AG shares (matching shares). Assumptions are made regarding the con- version behaviour of executives with respect to their relevant bonus portion. Share-based payment arrangements are entered into each year, with 1 December (from financial year 2015; until 2014: 1 January) of the respective year and 1 April of the following year 164 Deutsche Post DHL Group — 2017 Annual Report being the grant dates for each year’s tranche. Whereas incentive shares and matching shares are classified as equity-settled share- based payments, investment shares are compound financial instru- ments and the debt and equity components must be measured separately. However, in accordance with IFRS 2.37, only the debt component is measured due to the provisions of the Share Matching Scheme. The investment shares are therefore treated as cash-settled share-based payments. Share Matching Scheme Of the expenses under the Share Matching Scheme, €30 mil- lion (previous year: €27 million) relates to equity-settled share- based payments and €25 million (previous year: €20 million) to the deferral of the associated matching shares. Additional information on granting and settlement of these rights can be found in  notes 32 and 33. Grant date of incentive shares and associated matching shares 1 Jan. 2012 1 Jan. 2013 1 Jan. 2014 1 Dec. 2015 1 Dec. 2016 1 Dec. 2017 Grant date of matching shares awarded for investment shares 1 April 2013 1 April 2014 1 April 2015 1 April 2016 1 April 2017 1 April 2018 Term End of term months 63 63 63 52 52 52 March 2017 March 2018 March 2019 March 2020 March 2021 March 2022 2012 tranche 2013 tranche 2014 tranche 2015 tranche 2016 tranche 2017 tranche Share price at grant date (fair value) Incentive shares and associated matching shares Matching shares awarded for investment shares Number of deferred incentive shares Number of matching shares expected Deferred incentive shares Investment shares Matching shares issued € € thousands thousands thousands thousands 12.13 18.22 479 n.a. n.a. 1,114 1 Estimated provisional amount, will be determined on 1 April 2018. 2 Expected number. 17.02 27.18 337 303 567 25.91 29.12 332 299 596 27.12 23.98 366 329 848 29.04 31.77 320 288 901 39.26 41.00 1 180 2 162 495 47.2 Long-Term Incentive Plan (2006 LTIP) for members of the Board of Management Since financial year 2006, the company has granted members of the Board of Management cash remuneration linked to the company’s long-term share price performance through the issue of stock appreciation rights (SAR s) as part of a Long-Term Incentive Plan (LTIP). Participation in the LTIP requires Board of Management members to make a personal investment of 10 % of their annual base salary on the grant date, primarily in shares. The SAR s granted can be exercised, in whole or in part, no earlier than after a four-year waiting period, provided the absolute or relative performance targets have been achieved at the end of that period. After expiration of the waiting period, the SAR s must be exercised within a period of two years (exercise period); any SAR s not exercised expire. How many, if any, of the SAR s granted can be exercised is de- termined in accordance with four (absolute) performance targets based on the share price and two (relative) performance targets based on a benchmark index. One-sixth of the SAR s granted are earned each time the closing price of Deutsche Post shares exceeds the issue price by at least 10, 15, 20 or 25 % at the end of the waiting period (absolute performance targets). Both relative performance targets are tied to the performance of the shares in relation to the STOXX Europe 600 Index (SXXP; ISIN EU0009658202). They are met if the share price equals the index performance or if it outper- forms the index by more than 10 %. Performance is determined by comparing the average price of Deutsche Post shares or the average index value during a reference and a performance period. The ref- erence period comprises the last 20 consecutive trading days prior to the issue date. The performance period is the last 60 trading days before the end of the waiting period. The average (closing) price is calculated as the average closing price of Deutsche Post shares in Deutsche Börse AG’s Xetra trading system. If the absolute or relative performance targets are not met by the end of the waiting period, those SAR s expire without replacement or compensation. Each SAR exercised entitles the Board of Management member to receive a cash settlement equal to the difference between the average closing price of Deutsche Post shares for the five trading days preceding the exercise date and the exercise price of the SAR. Consolidated Financial Statements — NOTES — Other disclosures 165 2006 LTIP 2012 tranche 2013 tranche 2014 tranche 2015 tranche 2016 tranche 2017 tranche Issue date 1 July 2012 1 August 2013 1 September 2014 1 September 2015 1 September 2016 1 September 2017 Issue price € Waiting period expires 13.26 20.49 24.14 25.89 28.18 34.72 30 June 2016 31 July 2017 31 August 2018 31 August 2019 31 August 2020 31 August 2021 The Board of Management members were granted a total of 2,003,970 SAR s (previous year: 1,202,376 SAR s) with a total value, at the time of issue (1 September 2017), of €7.19 million (previous year: €6.25 million as at 1 September 2016). Further disclosures on share-based payment for members of the Board of Management can be found in  note 48.2. 47.3 SAR Plan for executives From July 2006 to August 2013, selected executives received annual tranches of SAR s under the SAR Plan. This allowed them to receive a cash payment within a defined period in the amount of the differ- ence between the respective price of Deutsche Post shares and the fixed issue price if demanding performance targets are met (see disclosures on the 2006 LTIP for members of the Board of Manage- ment). Due to the strong share price performance since SAR s were issued in 2013, all of the related performance targets were met on expiry of the waiting period on 31 July 2017. All SAR s under this tranche were therefore able to be exercised. Most executives exer- cised them as early as 2017. Starting in 2014, SAR s were no longer issued to executives under the SAR Plan. The Performance Share Plan (PSP) for executives replaces the SAR Plan. More details on the tranches still existing are shown in the following table: SAR Plan Issue date Issue price Waiting period expires 2012 tranche 2013 tranche 1 July 2012 1 August 2013 €13.26 €20.49 30 June 2016 31 July 2017 The fair value of the SAR Plan and the 2006 LTIP was determined using a stochastic simulation model. As a result, an expense of €73 million was recognised for financial year 2017 (previous year: €94 million). A provision for the 2006 LTIP and the SAR Plan was recognised at the reporting date in the amount of €73 million (previous year: €134 million), of which €63 million (previous year: €41 million) was attributable to the Board of Management. Of the total provision, €32 million (previous year: €24 million) related to rights exercisable at the reporting date. 47.4 Performance Share Plan for executives The Annual General Meeting on 27 May 2014 resolved to introduce the Performance Share Plan (PSP) for executives. This plan replaces the former share-based payment system (SAR Plan) for executives. Whereas the SAR Plan involved cash-settled share-based payments, under the PSP shares are issued to participants at the end of the waiting period. Under the PSP, the granting of the shares at the end of the waiting period is also linked to the achievement of demand- ing performance targets. The performance targets under the PSP are identical to the performance targets under the LTIP for members of the Board of Management. Performance Share Units (PSU s) were issued to selected ex- ecutives under the PSP for the first time on 1 September 2014. It is not planned that members of the Board of Management will par- ticipate in the PSP. The Long-Term Incentive Plan (2006 LTIP) for members of the Board of Management remains unchanged. In the consolidated financial statements as at 31 December 2017, a total of €25 million (previous year: €17 million) has been added to capital reserves for the purposes of the plan, with an equal amount recognised in staff costs. The value of the PSP is measured using actuarial methods based on option pricing models (fair value measurement). 166 Performance Share Plan Grant date Exercise price Waiting period expires Risk­free interest rate Initial dividend yield of Deutsche Post shares Yield volatility of Deutsche Post shares Yield volatility of Dow Jones EURO StOXX 600 Index Covariance of Deutsche Post shares to Dow Jones EURO StOXX 600 Index Quantity Rights outstanding at 1 January 2017 Rights granted Rights lapsed Rights outstanding at 31 December 2017 Deutsche Post DHL Group — 2017 Annual Report 2014 tranche 2015 tranche 2016 tranche 2017 tranche 1 September 2014 1 September 2015 1 September 2016 1 September 2017 €24.14 €25.89 €28.18 €34.72 31 August 2018 31 August 2019 31 August 2020 31 August 2021 0.11 % 3.52 % 23.46 % 10.81 % 1.74 % 3,992,880 0 212,940 3,779,940 – 0.10 % 3.28 % 24.69 % 16.40 % 2.94 % – 0.62 % 3.73 % 23.94 % 16.83 % 2.93 % 4,032,510 3,782,778 0 230,100 3,802,410 0 163,086 3,619,692 – 0.48 % 3.31 % 23.03 % 16.34 % 2.78 % 0 3,068,226 15,180 3,053,046 Future dividends were taken into account, based on a moderate increase in dividend distributions over the respective measurement period. The average remaining maturity of the outstanding PSU s as at 31 December 2017 was 25 months. 48 Related party disclosures 48.1 Related party disclosures (companies and Federal Republic of Germany) All companies classified as related parties that are controlled by the Group or over which the Group can exercise significant influence are recorded in the list of shareholdings, which can be accessed online at  dpdhl.com/en/investors. Deutsche Post AG maintains a variety of relationships with the Federal Republic of Germany (Federal Republic) and other com- panies controlled by the Federal Republic of Germany. The Federal Republic is a customer of Deutsche Post AG and as such uses the company’s services. Deutsche Post AG has direct busi- ness relationships with the individual public authorities and other government agencies as independent individual customers. The services provided for these customers are insignificant in respect of Deutsche Post AG’s overall revenue. RELATIONShIPS WITh KFW KfW supports the Federal Republic in continuing to privatise com- panies such as Deutsche Post AG or Deutsche Telekom AG. In 1997, KfW, together with the Federal Republic, developed a “placeholder model” as a tool to privatise government-owned companies. Under this model, the Federal Republic sells all or part of its investments to KfW with the aim of fully privatising these state-owned com- panies. On this basis, KfW has purchased shares of Deutsche Post AG from the Federal Republic in several stages since 1997 and executed various capital market transactions using these shares. KfW’s cur- rent interest in Deutsche Post AG’s share capital is 20.7 %. Deutsche Post AG is thus considered to be an associate of the Federal Republic. RELATIONShIPS WITh bUNDESANSTALT FÜR POST UND  TELEKOMMUNIKATION The Bundesanstalt für Post und Telekommunikation (BAnst PT) is a government agency and falls under the technical and legal super- vision of the German Federal Ministry of Finance. The BAnst PT continues to manage the social facilities such as the postal civil serv- ant health insurance fund, the recreation programme, the Post- beamtenversorgungskasse (PVK – Postal civil servant pension fund), the Versorgungsanstalt der Deutschen Bundespost (VAP – Deutsche Bundespost institution for supplementary retirement pensions) and the welfare service for Deutsche Post AG, Deutsche Postbank AG and Deutsche Telekom AG. Tasks are performed on the basis of agency agreements. In 2017, Deutsche Post AG was invoiced for €114 million (previous year: €103 million) in instalment payments relating to services provided by the BAnst PT. Further disclosures on the PVK and the VAP can be found in  notes 7 and 38. RELATIONShIPS WITh ThE GERMAN FEDERAL MINISTRY OF FINANcE In financial year 2001, the German Federal Ministry of Finance and Deutsche Post AG entered into an agreement that governs the terms and conditions of the transfer of income received by Deutsche Post AG from the levying of the settlement payment under the Gesetze über den Abbau der Fehlsubventionierung im Wohnungswesen (German Acts on the Reduction of Misdirected Housing Subsidies) relating to housing benefits granted by Deutsche Post AG. Deutsche Post AG transfers the amounts to the Federal Republic on a monthly basis. Consolidated Financial Statements — NOTES — Other disclosures 167 Deutsche Post AG entered into an agreement with the German Federal Ministry of Finance dated 30 January 2004 relating to the transfer of civil servants to German federal authorities. Under this agreement, civil servants are seconded with the aim of transferring them initially for six months, and are then transferred permanently if they successfully complete their probation. Once a permanent transfer is completed, Deutsche Post AG contributes to the cost in- curred by the Federal Republic by paying a flat fee. In 2017, this initiative resulted in 45 permanent transfers (previous year: 84) and three secondments with the aim of a permanent transfer in 2018 (previous year: 29). RELATIONShIPS WITh ThE GERMAN FEDERAL EMPLOYMENT AGENcY Deutsche Post AG and the German Federal Employment Agency entered into an agreement dated 12 October 2009 relating to the transfer of Deutsche Post AG civil servants to the Federal Employ- ment Agency. In 2017, this initiative resulted in 22 permanent trans- fers (previous year: zero). RELATIONShIPS WITh DEUTSchE TELEKOM AG AND ITS SUbSIDIARIES The Federal Republic holds around 32 % of the shares of Deutsche Telekom AG directly and indirectly (via KfW). A control relation- ship exists between Deutsche Telekom AG and the Federal Republic because the Federal Republic, despite its non-controlling interest, has a secure majority at the Annual General Meeting due to its average presence there. Deutsche Telekom AG is therefore a related party of Deutsche Post AG. In financial year 2017, Deutsche Post DHL Group provided goods and services (mainly transport services for letters and parcels) for Deutsche Telekom AG and purchased goods and services (such as IT products) from Deutsche Telekom AG. RELATIONShIPS WITh DEUTSchE bAhN AG AND ITS SUbSIDIARIES Deutsche Bahn AG is wholly owned by the Federal Republic. Owing to this control relationship, Deutsche Bahn AG is a related party to Deutsche Post AG. Deutsche Post DHL Group has various business relationships with the Deutsche Bahn Group. These mainly consist of transport service agreements. Objekt Leipzig KG are the legal owners, is exclusively let to Deutsche Post Immobilien GmbH. Rental expense for Deutsche Post Immo- bilien GmbH amounted to €101 million in 2017 (previous year: €109 million). The rent was always paid on time. Deutsche Post Pensions-Treuhand GmbH & Co. KG holds all of the shares of Deutsche Post Pensionsfonds AG. Deutsche Post Betriebs renten- Service e.V. (DPRS) was liquidated in the previous year and the  corresponding benefits have been directly committed by Deutsche Post AG since 1 May 2016. Further disclosures on pension funds can be found in  notes 7 and 38. RELATIONShIPS WITh UNcONSOLIDATED cOMPANIES, INVESTMENTS AccOUNTED FOR USING ThE EQUITY METhOD AND jOINT OPERATIONS In addition to the consolidated subsidiaries, the Group has direct and indirect relationships with unconsolidated companies, invest- ments accounted for using the equity method and joint operations deemed to be related parties of the Group in the course of its or- dinary business activities. As part of these activities, all transactions for the provision of goods and services entered into with uncon- solidated companies were conducted on an arm’s length basis at standard market terms and conditions. Transactions were conducted in financial year 2017 with major related parties, resulting in the following items in the consolidated financial statements: € m Trade receivables Loans Receivables from in­house banking Financial liabilities Trade payables Revenue Expenses 1 to / from investments accounted for using the equity method to / from unconsolidated companies 2016 2017 2016 2017 4 21 0 15 0 2 3 4 0 3 15 2 0 1 12 31 6 10 5 1 20 3 16 4 8 2 1 14 1 Relate to materials expense and staff costs. RELATIONShIPS WITh PENSION FUNDS The real estate with a fair value of €1,590 million (which can be offset as plan assets) (previous year: €1,358 million), of which Deutsche Post Pensions- Treuhand GmbH & Co. KG, Deutsche Post Altersvorsorge Sicherung e.V. & Co. Objekt Gronau KG and Deutsche Post Grundstücks- Vermietungsgesellschaft beta mbH Deutsche Post AG issued letters of commitment in the amount of €16 million (previous year: €53 million) for these companies. Of this amount, €11 million (previous year: €48 million) was attributable to investments accounted for using the equity method, €1 million (previous year: €1 million) to joint operations and €4 million (pre- vious year: €4 million) to unconsolidated companies. 168 Deutsche Post DHL Group — 2017 Annual Report 48.2 Related party disclosures (individuals) 48.3 Remuneration disclosures in accordance with the hGb In accordance with IAS 24, the Group also reports on transactions between the Group and related parties or members of their families. Related parties are defined as the Board of Management, the Super- visory Board and the members of their families. There were no reportable transactions or legal transactions in- volving related parties in financial year 2017. The remuneration of key management personnel of the Group requiring disclosure under IAS 24 comprises the remuneration of the active members of the Board of Management and the Super- visory Board. The active members of the Board of Management and the Super visory Board were remunerated as follows: € m Short­term employee benefits (excluding share­based payment) Post­employment benefits Termination benefits Share­based payment Total 2016 2017 15 2 0 24 41 14 2 0 30 46 As well as the aforementioned benefits for their work on the Super- visory Board, the employee representatives on the Supervisory Board and employed by the Group also receive their normal salaries for their work in the company. These salaries are determined at levels that are commensurate with the salary appropriate for the function or work performed in the company. Post-employment benefits are recognised as the service cost resulting from the pension provisions for active members of the Board of Management. The corresponding liability amounted to €35 million as at the reporting date (previous year: €35 million). The share-based payment amount relates to the relevant ex- pense recognised for financial years 2016 and 2017; further details  notes 47.2 and 48.3. The expense is itemised in the can be found in following table: Share-based payment Thousands of € Dr Frank Appel, Chairman Ken Allen Dr h.c. Jürgen Gerdes John Gilbert Melanie Kreis Dr Thomas Ogilvie (since 1 September 2017) Tim Scharwath (since 1 June 2017) Lawrence Rosen (until 30 September 2016) Share-based payment 2016 SAR s 9,603 4,175 4,430 600 241 – – 5,071 24,120 2017 SAR s 13,726 6,169 6,726 2,422 1,085 57 57  – 30,242 bOARD OF MANAGEMENT REMUNERATION The total remuneration paid to the active members of the Board of Management in financial year 2017 including the components with a long-term incentive effect totalled €18.8 million (previous year: €18.5 million). Of this amount, €7.6 million (previous year: €6.6 mil- lion) is attributable to non-performance-related components (an- nual base salary and fringe benefits), €4.0 million (previous year: €5.6 million) to performance-related components (variable compo- nents) and €7.2 million (previous year: €6.3 million) to components with a long-term incentive effect (SAR s). The number of SAR s was 2,003,970 (previous year: 1,202,376). FORMER MEMbERS OF ThE bOARD OF MANAGEMENT Benefits paid to former members of the Board of Management or their surviving dependants amounted to €7.0 million (previous year: €5.4 million). The defined benefit obligation (DBO) for current pensions calculated under IFRS s was €95 million (previous year: €97 million). REMUNERATION OF ThE SUPERVISORY bOARD The total remuneration of the Supervisory Board in financial year 2017 amounted to €2.6 million; as in the prior year, €2.4 million of this amount was attributable to a fixed component and €0.2 million to attendance allowances. Further information on the itemised remuneration of the Board of Management and the Supervisory Board can be found in the re muneration report, which forms part of the Group Manage- ment Report. ShAREhOLDINGS OF ThE bOARD OF MANAGEMENT AND SUPERVISORY bOARD As at 31 December 2017, shares held by the Board of Management and the Supervisory Board of Deutsche Post AG amounted to less than 1 % of the company’s share capital. REPORTAbLE TRANSAcTIONS The transactions of Board of Management and Supervisory Board members involving securities of the company and notified to Deutsche Post AG in accordance with section 15 a of the Wertpapier- handelsgesetz (WpHG – German Securities Trading Act) can be viewed on the company’s website at  dpdhl.com/en/investors. Consolidated Financial Statements — NOTES — Other disclosures 169 49 Auditor’s fees The fee for the auditor of the consolidated financial statements, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, amounted to €12 million in financial year 2017 and was recognised as an expense. Auditor’s fee € m Audit services Other assurance services Tax advisory services Other services Total 2017 11 1 0 0 12 The audit services category includes the fees for auditing the con- solidated financial statements and for auditing the annual financial statements prepared by Deutsche Post AG and its German subsid- iaries. The fees for reviewing the interim reports, accompanying auditors in connection with the implementation of new accounting requirements and the fees for voluntary audits beyond the statutory audit engagement, such as audits of the internal control system, are also reported in this category. The other assurance services category particularly pertains to fees for the voluntary auditing of finan cial information. 50 Exemptions under the hGb and local foreign legislation For financial year 2017, the following German subsidiaries have exercised the simplification options under section 264 (3) of the HGB, section 264b of the HGB and section 291 of the HGB: • Agheera GmbH • Albert Scheid GmbH • All you need GmbH • CSG GmbH • CSG.PB GmbH • CSG.TS GmbH • Danzas Deutschland Holding GmbH • Deutsche Post Adress Beteiligungsgesellschaft mbH • Deutsche Post Assekuranz Vermittlungs GmbH • Deutsche Post Beteiligungen Holding GmbH • Deutsche Post Customer Service Center GmbH • Deutsche Post DHL Beteiligungen GmbH • Deutsche Post DHL Corporate Real Estate Management GmbH • Deutsche Post DHL Corporate Real Estate Management GmbH & Co. Logistikzentren KG • Deutsche Post DHL Express Holding GmbH • Deutsche Post DHL Research and Innovation GmbH • Deutsche Post Dialog Solutions GmbH • Deutsche Post Direkt GmbH • Deutsche Post E-Post Development GmbH • Deutsche Post E-POST Solutions GmbH • Deutsche Post Fleet GmbH • Deutsche Post Immobilien GmbH • Deutsche Post InHaus Services GmbH • Deutsche Post Investments GmbH • Deutsche Post IT BRIEF GmbH • Deutsche Post IT Services GmbH • Deutsche Post Mobility GmbH • Deutsche Post Shop Essen GmbH • Deutsche Post Shop Hannover GmbH • Deutsche Post Shop München GmbH • DHL Airways GmbH • DHL Automotive GmbH • DHL Automotive Offenau GmbH • DHL Consulting GmbH • DHL Delivery Augsburg GmbH • DHL Delivery Bayreuth GmbH • DHL Delivery Berlin GmbH • DHL Delivery Bonn GmbH • DHL Delivery Braunschweig GmbH • DHL Delivery Bremen GmbH • DHL Delivery Dortmund GmbH • DHL Delivery Dresden GmbH • DHL Delivery Duisburg GmbH • DHL Delivery Düsseldorf GmbH • DHL Delivery Erfurt GmbH • DHL Delivery Essen GmbH • DHL Delivery Frankfurt GmbH • DHL Delivery Freiburg GmbH • DHL Delivery Freising GmbH • DHL Delivery Gießen GmbH • DHL Delivery GmbH • DHL Delivery Göppingen GmbH • DHL Delivery Hagen GmbH • DHL Delivery Halle GmbH • DHL Delivery Hamburg GmbH • DHL Delivery Hannover GmbH • DHL Delivery Herford GmbH • DHL Delivery Karlsruhe GmbH • DHL Delivery Kassel GmbH • DHL Delivery Kiel GmbH • DHL Delivery Koblenz GmbH • DHL Delivery Köln West GmbH • DHL Delivery Leipzig GmbH • DHL Delivery Lübeck GmbH • DHL Delivery Magdeburg GmbH • DHL Delivery Mainz GmbH • DHL Delivery Mannheim GmbH • DHL Delivery München GmbH 170 Deutsche Post DHL Group — 2017 Annual Report The following companies in the UK make use of the audit exemption under section 479 A of the UK Companies Act: • DHL Exel Supply Chain Limited • Exel Freight Management (UK) Limited • Exel Investments Limited • Exel Overseas Limited • Freight Indemnity and Guarantee Company Limited • F. X. Coughlin (U.K.) Limited • Joint Retail Logistics Limited • National Carriers Limited • Ocean Group Investments Limited • Ocean Overseas Holdings Limited • Power Europe Development No. 3 Limited • Power Europe Operating Limited • Tibbett & Britten Applied Limited 51 Declaration of Conformity with the German Corporate Governance Code The Board of Management and the Supervisory Board of Deutsche Post AG jointly submitted the Declaration of Conformity with the German Corporate Governance Code for financial year 2017 required by section 161 of the AktG. This Declaration of Con-  corporate-governance-code and at formity can be accessed online at  dpdhl.com/en/investors. 52 Significant events after the reporting date and other disclosures There were no significant reportable events after the reporting date. • DHL Delivery Münster GmbH • DHL Delivery Neubrandenburg GmbH • DHL Delivery Nürnberg GmbH • DHL Delivery Oldenburg GmbH • DHL Delivery Ravensburg GmbH • DHL Delivery Reutlingen GmbH • DHL Delivery Rosenheim GmbH • DHL Delivery Saarbrücken GmbH • DHL Delivery Straubing GmbH • DHL Delivery Stuttgart GmbH • DHL Delivery Wiesbaden GmbH • DHL Delivery Würzburg GmbH • DHL Delivery Zwickau GmbH • DHL Express Customer Service GmbH • DHL Express Germany GmbH • DHL Express Network Management GmbH • DHL Fashion Retail Operations GmbH • DHL FoodLogistics GmbH • DHL Freight Germany Holding GmbH • DHL Freight GmbH • DHL Global Forwarding GmbH • DHL Global Forwarding Management GmbH • DHL Global Management GmbH • DHL Home Delivery GmbH • DHL Hub Leipzig GmbH • DHL International GmbH • DHL Inventory Finance Services GmbH • DHL Paket GmbH • DHL Paketzentrum Obertshausen GmbH • DHL Solutions Fashion GmbH • DHL Solutions GmbH • DHL Sorting Center GmbH • DHL Supply Chain (Leipzig) GmbH • DHL Supply Chain Management GmbH • DHL Supply Chain VAS GmbH • DHL Trade Fairs & Events GmbH • DHL Verwaltungs GmbH • Erste End of Runway Development Leipzig GmbH • Erste Logistik Entwicklungsgesellschaft MG GmbH • European Air Transport Leipzig GmbH • Gerlach Zolldienste GmbH • interServ Gesellschaft für Personal- und Beraterdienst- leistungen mbH • it4logistics GmbH • Saloodo! GmbH • StreetScooter GmbH Consolidated Financial Statements — NOTES — Other disclosures — RESPONSIBILITY STATEMENT 171 RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the management report of the Group includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group. Bonn, 19 February 2018 Deutsche Post AG The Board of Management Dr Frank Appel Ken Allen Dr h. c. Jürgen Gerdes John Gilbert Melanie Kreis Dr Thomas Ogilvie Tim Scharwath 172 Deutsche Post DHL Group — 2017 Annual Report INDEPENDENT AUDITOR’S REPORT To Deutsche Post AG, Bonn REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE GROUP MANAGEMENT REPORT Audit Opinions We have audited the consolidated financial statements of Deutsche Post AG, Bonn, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2017, and the consolidated statement of comprehen- sive income, consolidated statement of profit or loss, consolidated statement of changes in equity and consolidated statement of cash flows for the financial year from 1 January to 31 December 2017, and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the group management report of Deutsche Post AG for the financial year from 1 January to 31 December 2017. We have not audited the con- tent of those parts of the group management report listed in the “Other Information” section of our auditor's report in accordance with the German legal requirements. In our opinion, on the basis of the knowledge obtained in the audit, • the accompanying consolidated financial statements comply, in all material respects, with the IFRS s as adopted by the EU, and the additional requirements of German commercial law pursuant to § [Article] 315e Abs. [paragraph] 1 HGB [Handelsgesetzbuch: Ger- man Commercial Code] and, in compliance with these require- ments, give a true and fair view of the assets, liabilities, and finan- cial position of the Group as at 31 December 2017, and of its financial performance for the financial year from 1 January to 31 December 2017, and • the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material re- spects, this group management report is consistent with the con- solidated financial statements, complies with German legal re- quirements and appropriately presents the opportunities and risks of future development. Our audit opinion on the group manage- ment report does not cover the content of those parts of the group management report listed in the “Other Information” section of our auditor’s report. Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group manage- ment report. Basis for the Audit Opinions We conducted our audit of the consolidated financial statements and of the group management report in accordance with § 317 HGB and the EU Audit Regulation (No. 537/2014, referred to sub sequently as “EU Audit Regulation”) and in compliance with German Gener- ally Accepted Standards for Financial Statement Audits promul- gated by the Institut der Wirtschaftsprüfer [Institute of Public Audi- tors in Germany] (IDW). We performed the audit of the consolidated financial statements in supplementary compliance with the Inter- national Standards on Auditing (ISAs). Our responsibilities under those requirements, principles and standards are further described in the “Auditor's Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” sec- tion of our auditor’s report. We are independent of the group enti- ties in accordance with the requirements of European law and Ger- man commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the group manage- ment report. Key Audit Matters in the Audit of the Consolidated Financial Statements Key audit matters are those matters that, in our professional judg- ment, were of most significance in our audit of the consolidated financial statements for the financial year from 1 January to 31 De- cember 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters. In our view, the matters of most significance in our audit were as follows: 1 Recoverability of goodwill 2 Pension obligations and plan assets 3 Deferred taxes on deductible temporary measurement differences and loss carryforwards Our presentation of these key audit matters has been structured in each case as follows: 1 Matter and issue 2 Audit approach and findings 3 Reference to further information Consolidated Financial Statements — INDEPENDENT AUDITOR’S REPORT 173 Hereinafter we present the key audit matters: 1 Recoverability of goodwill 1 In the consolidated financial statements of Deutsche Post AG, goodwill amounting to EUR 11.2 billion is reported under the balance sheet item “Intangible assets”, representing approxi- mately 29 % of total assets and 87 % of the Group’s reported equity. Goodwill is tested for impairment by the Company on an annual basis as of the balance sheet date or if there are indi- cations that goodwill may be impaired. The impairment test of goodwill is based on the value in use, which is determined by applying a measurement model using the discounted cash flow method. This matter was of particular significance in our audit, because the result of this measurement depends to a large ex- tent on the estimation of future cash inflows by the Company’s executive directors and the discount rate used, and is therefore subject to considerable uncertainty. 2 We satisfied ourselves as to the appropriateness of the future cash inflows used in the calculation by, inter alia, comparing this data with the current budgets in the three-year plan pre- pared by the executive directors and approved by the Company’s supervisory board, and reconciling it against general and sec- tor-specific market expectations. With the knowledge that even relatively small changes in the discount rate can have a material impact on the value in use calculated using this method, we also focused our testing on the parameters used to determine the discount rate applied, including the weighted average cost of capital, and evaluated the Company’s calculation procedure. Due to the materiality of goodwill and the fact that its meas- urement also depends on economic conditions which are out- side of the Company's sphere of influence, we carried out our own additional sensitivity analyses for those cash-generating units with low headroom (value in use compared with the car- rying amount) and found that the respective goodwill is suffi- ciently covered by the discounted future cash inflows. Overall, the measurement parameters and assumptions used by the executive directors to be reproducable. 3 The Company’s disclosures regarding goodwill are contained in note 21 of the notes to the consolidated financial statements. 2 Pension obligations and plan assets 1 In the consolidated financial statements of Deutsche Post AG a total of EUR 4.5 billion is reported under the balance sheet item "Provisions for pensions and similar obligations". The net pen- sion provisions of EUR 4.3 billion (after consideration of re- ported plan assets of EUR 0.2 billion) were calculated on the basis of the present value of the obligations amounting to EUR 17.4 billion, netted against the plan assets of EUR 13.1 bil- lion, which were measured at fair value. The obligations from defined benefit pension plans were measured using the pro- jected unit credit method in accordance with IAS 19. This re- quires in particular that assumptions be made as to the long- term salary and pension trend as well as average life expectancy. Furthermore, the discount rate must be determined as of the balance sheet date by reference to the yield on high-quality corporate bonds with matching currencies and consistent terms. Changes to these measurement assumptions are recog- nized directly in equity as actuarial gains or losses. Changes in the financial measurement parameters resulted in actuarial losses of EUR 0.3 billion. In our view, these matters were of particular significance, as the measurement of the pension ob- ligations and plan assets is to a large extent based on the esti- mates and assumptions made by the Company's executive di- rectors. 2 With the knowledge that estimated values bear an increased risk of accounting misstatements and that the executive direc- tors' measurement decisions have a direct and significant effect on the consolidated financial statements, we assessed the ap- propriateness of the values adopted, in particular the measure- ment parameters used in the calculation of the pension provi- sions, inter alia on the basis of actuarial reports made available to us and taking into account the expert knowledge of our in- ternal specialists for pension valuations. Our evaluation of the fair values of plan assets was in particular based on bank con- firmations submitted to us, as well as other statements of assets and real estate appraisals. On the basis of our audit procedures, we were able to satisfy ourselves that the estimates and assump- tions made by the executive directors were sufficiently docu- mented and supported to justify the recognition and measure- ment of the material pension provisions. 3 The Company’s disclosures relating to provisions for pensions and similar obligations are contained in note 38 of the notes to the consolidated financial statements. 174 Deutsche Post DHL Group — 2017 Annual Report 3 1 Deferred taxes on deductible temporary measurement differ- ences and loss carryforwards In the consolidated financial statements of Deutsche Post AG, deferred tax assets of EUR 2.3 billion (of which EUR 1.8 billion relates to tax loss carryforwards) are reported in the balance sheet. In our view, the deferred tax assets were of particular significance as they depend to a large extent on the estimates and assumptions made by the executive directors and therefore are subject to uncertainty. 2 For the purposes of our audit of these tax matters we included internal tax accounting specialists in our audit team. With their support, we assessed inter alia the internal processes and con- trols implemented for the recording of tax matters. Further- more, we evaluated the recognition and measurement of the deferred taxes. We assessed the recoverability of the deferred tax assets relating to deductible temporary differences and loss carryforwards on the basis of the Company’s internal forecasts of its future taxable income situation and evaluated the appro- priateness of the assumptions used. In addition, we assessed the reconciliation to the tax expense. We were able to follow the assumptions made by the executive directors concerning the recognition and measurement of the deferred taxes, and agree with the estimates made by the executive directors. 3 The Company’s disclosures relating to deferred taxes are con- tained in note 27 of the notes to the consolidated financial statements. Other Information The executive directors are responsible for the other information. The other information comprises the following non-audited parts of the group management report: • the statement on corporate governance pursuant to § 289 f HGB and § 315 d HGB included in the “Statement on Corporate Governance and Non-Financial Report” section of the group management re- port • the separate non-financial report pursuant to § 289 b Abs. 3 HGB and § 315 b Abs.1743 HGB The other information comprises further the remaining parts of the annual report – excluding cross-references to external information – with the exception of the audited consolidated financial statements, the audited group management report and our auditor's report. Our audit opinions on the consolidated financial statements and on the group management report do not cover the other infor- mation, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon. In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information • is materially inconsistent with the consolidated financial state- ments, with the group management report or our knowledge ob- tained in the audit, or • otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the Group Manage- ment Report The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material re- spects, with IFRS s as adopted by the EU and the additional require- ments of German commercial law pursuant to § 315 e Abs. 1 HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, finan- cial position, and financial performance of the Group. In addition the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of con- solidated financial statements that are free from material misstate- ment, whether due to fraud or error. In preparing the consolidated financial statements, the execu- tive directors are responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addi- tion, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. Furthermore, the executive directors are responsible for the preparation of the group management report that, as a whole, pro- vides an appropriate view of the Group’s position and is, in all ma- terial respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately pre- sents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report. Consolidated Financial Statements — INDEPENDENT AUDITOR’S REPORT 175 The supervisory board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and the group management report. • Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from ma- terial misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge ob- tained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the consolidated financial statements and on the group management report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with § 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) and supplementary com- pliance with the ISAs will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report. We exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the con- solidated financial statements and of the group management re- port, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of not detecting a material misstatement result- ing from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrep- resentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems. • Conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence ob- tained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the under- lying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabili- ties, financial position and financial performance of the Group in  compliance with IFRS s as adopted by the EU and the addi- tional requirements of German commercial law pursuant to § 315 e Abs. 1 HGB. • Obtain sufficient appropriate audit evidence regarding the finan- cial information of the entities or business activities within the Group to express audit opinions on the consolidated financial statements and on the group management report. We are respon- sible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions. • Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides. • Perform audit procedures on the prospective information pre- sented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information. 176 Deutsche Post DHL Group — 2017 Annual Report We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a state- ment that we have complied with the relevant independence re- quirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independ- ence, and where applicable, the related safeguards. From the matters communicated with those charged with gov- ernance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. OTHER LEGAL AND REGULATORY REQUIREMENTS Further Information pursuant to Article 10 of the EU Audit Regulation We were elected as group auditor by the annual general meeting on 28 April 2017. We were engaged by the supervisory board on 27 July 2017. We have been the group auditor of Deutsche Post AG, Bonn, without interruption since the Company first met the re- quirements as a public-interest entity within the meaning of § 319 a Abs. 1 Satz 1 HGB in the financial year 2000. We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit com- mittee pursuant to Article 11 of the EU Audit Regulation (long-form audit report). GERMAN PUBLIC AUDITOR RESPONSIBLE FOR THE ENGAGEMENT The German Public Auditor responsible for the engagement is Verena Heineke. Düsseldorf, February 19, 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Gerd Eggemann Wirtschaftsprüfer (German Public Auditor) Verena Heineke Wirtschaftsprüferin (German Public Auditor) FURTHER INFORMATION 177 — 184 178 MULTI­YEAR REVIEW 180 INDEX 181 GLOSSARY 182 GRAPHS AND TABLES 183 CONTACTS 183 ORDERING 184 FINANCIAL CALENDAR F U R T H E R I N F O R M A T I O N DD 178 Deutsche Post DHL Group — 2017 Annual Report 2010 2011 2012 2013 adjusted adjusted adjusted adjusted 2014 adjusted 2015 2016 adjusted 2017 MULTI­YEAR REVIEW Key figures 2010 to 2017 € m Revenue Post ­ eCommerce ­ Parcel (until 2013 Mail) Express Global Forwarding, Freight Supply Chain Divisions total Corporate Center / Other Consolidation Total 13,913 11,111 14,341 13,061 52,426 1,302 –2,340 51,388 13,973 11,691 15,118 13,223 54,005 1,260 –2,436 52,829 Profit/loss from operating activities (EbIT) Post ­ eCommerce ­ Parcel (until 2013 Mail) 1,120 1,107 Express Global Forwarding, Freight Supply Chain Divisions total Corporate Center / Other Consolidation Total Consolidated net profit for the period Cash flow / capex / depreciation, amortisation and  impairment losses Net cash from / used in operating activities Net cash from / used in investing activities Net cash used in / from financing activities Free cash flow Capex Depreciation, amortisation and impairment losses Assets and capital structure Non­current assets Current assets Equity (excluding non­controlling interests) Non­controlling interests Current and non­current provisions Current and non­current liabilities Total assets 497 383 231 2,231 –395 –1 1,835 2,630 1,927 8 –1,651 484 1,262 1,296 24,493 13,270 10,511 185 9,427 17,640 37,763 916 440 362 2,825 –389 0 2,436 1,266 2,371 –1,129 –1,547 749 1,716 1,274 21,225 17,183 11,009 190 9,008 18,201 38,408 13,972 12,778 15,666 14,340 56,756 1,203 –2,447 55,512 1,048 1,110 514 419 3,091 – 423 –3 2,665 1,762 –203 –1,697 1,199 –1,885 1,697 1,339 21,568 12,289 9,019 209 8,978 15,651 33,857 15,291 11,821 14,787 14,227 56,126 1,251 –2,465 54,912 1,286 1,083 478 441 3,288 – 421 –2 2,865 2,211 2,989 –1,765 –110 1,669 1,747 1,337 21,370 14,091 9,844 190 8,481 16,946 35,461 15,686 12,491 14,924 14,737 57,838 1,345 –2,553 56,630 1,298 1,260 293 465 3,316 –352 1 2,965 2,177 3,040 –1,087 –2,348 1,345 1,876 1,381 22,902 14,077 9,376 204 10,411 16,988 36,979 16,131 13,661 14,890 15,791 60,473 1,269 –2,512 59,230 1,103 1,391 –181 449 2,762 –351 0 2,411 1,719 3,444 –1,462 –1,367 1,724 2,024 1,665 23,727 14,143 11,034 261 9,361 17,214 37,870 17,078 13,748 13,737 13,957 58,520 1,279 –2,465 57,334 1,446 1,544 287 572 3,849 –359 1 3,491 2,781 2,439 –1,643 –1,233 444 2,074 1,377 24,166 14,129 11,087 263 8,507 18,438 38,295 18,168 15,049 14,482 14,152 61,851 1,247 –2,654 60,444 1,502 1,736 297 555 4,090 –349 0 3,741 2,853 3,297 –2,091 –1,087 1,432 2,277 1,471 23,916 14,756 12,637 266 7,078 18,691 38,672 Further Information — MULTI-YEAR REVIEW 179 D.01 Employees / staff costs Number of employees 1 Full­time equivalents 2 Average number of employees 1 Staff costs Staff cost ratio 3 Key figures revenue / income / assets and capital structure Return on sales 4 Return on equity (ROE) before taxes 5 Return on assets 6 Tax rate 7 Equity ratio 8 Net debt (+) / net liquidity (–) 9 Net gearing 10 Key stock data Basic earnings per share 11 Diluted earnings per share 12 Cash flow per share 11, 13 Dividend distribution Payout ratio Dividend per share Dividend yield Price­to­earnings ratio 16 Price­to­cash flow ratio 17 Number of shares carrying dividend rights Year­end closing price 2010 2011 2012 2013 2014 2015 2016 2017 adjusted adjusted At 31 December At 31 December € m % % % % % % € m % € € € € m % € % 467,088 418,946 464,471 16,609 32.3 3.6 29.8 5.1 6.9 28.3 –1,382 –14.8 2.10 2.10 1.59 786 30.9 0.65 5.1 6.0 8.0 471,654 423,502 467,188 16,730 31.7 473,626 428,129 472,321 17,770 32.0 479,690 434,974 478,903 17,776 32.4 488,824 443,784 484,025 18,189 32.1 497,745 450,508 492,865 19,640 33.2 508,036 519,544 459,262 472,208 498,459 513,338 19,592 20,072 34.2 33.2 4.6 15.2 6.4 23.7 29.2 – 938 – 9.1 0.96 0.96 1.96 846 72.7 0.70 5.9 12.4 6.1 4.8 23.6 7.4 20.2 27.3 1,952 17.5 1.36 1.30 – 0.17 846 51.6 0.70 4.2 12.2 – 97.6 5.2 26.7 8.3 14.0 28.3 1,499 13.0 1.73 1.66 2.47 968 46.3 0.80 3.0 15.3 10.7 5.2 26.3 8.2 15.5 25.9 1,499 13.5 1.71 1.64 2.51 4.1 19.7 6.4 16.4 29.8 1,093 8.8 1.27 1.22 2.84 6.1 6.2 27.7 9.2 11.2 29.6 2,261 16.6 2.19 2.10 2.03 27.5 9.7 14.3 33.4 1,938 13.1 2.24 2.15 2.72 1,030 1,027 1,270 1,409 14, 15 49.7 0.85 3.1 15.8 10.8 66.7 0.85 3.3 20.4 9.1 48.1 1.05 3.4 14.3 15.4 51.9 1.15 14 2.9 17.7 14.6 millions 1,209.0 1,209.0 1,209.0 1,209.0 1,211.2 1,208.7 1,209.1 1,225.1 15 € 12.70 11.88 16.60 26.50 27.05 25.96 31.24 39.75 1 Headcount including trainees. 2 Excluding trainees. 3 Staff costs / revenue. 4 EBIt / revenue. 5 Profit before income taxes/average equity (including non­controlling interests). interests) / total assets. 9 6 EBIt / average total assets. 7 Income taxes/profit before income taxes. 8 Equity (including non­controlling Group Management Report, page 62. 10 Net debt / net debt and equity (including non­controlling interests). 11 The average weighted number of shares outstanding is used for the calculation. 12 The average weighted number of shares outstanding is adjusted for the number of all potentially dilutive shares. price / basic earnings per share. 17 Year­end closing price / cash flow per share. 13 Cash flow from operating activities. 14 Proposal. 15 Estimate. 16 Year­end closing 180 INDEX A F P Deutsche Post DHL Group — 2017 Annual Report Air freight 27, 31, 53, 67 f., 79 Annual General Meeting 38 f., 55, 80, 91 f., 96, 98 ff., 137 ff., 165, 167, 176 Articles of Association 38 f., 49 Auditor’s report 92, 172 ff. Authorised capital 38, 137 Finance strategy 55, 56 f., 80, 86, 141 First Choice 26, 87 Free cash flow 24, 36 f., 41, 51, 61 f., 78, 80, 114, 131, 151, 178 Free float 70, 136 Freight 26, 32, 35, 67 f., 71, 76, 123, 131 Freight forwarding business 31 f., 67 f., 79 Parcel Germany 64 Post ­ eCommerce ­ Parcel 26, 28 f., 34, 41, 51, 54 f., 60, 63 ff., 71, 76, 78 ff., 84, 87, 96, 98, 122 f., 126, 131, 178 Press products 123 Price­to­earnings ratio 70, 179 Profit from operating activities 24, 36 f., 51, 54 f., 61 ff., 78 ff., 83, 102, 105, 108, 111, 121 ff., 131, 151, 178 f. B Balance sheet 59, 62, 79, 83, 104, 107, 110 ff., 122, 124, 128, 130 ff., 140 ff., 150 ff., 157 ff., 167, 170, 172 ff., 178 Board of Management 4 ff., 26 f., 38 ff., 51, 54 f., 78, 81 ff., 90 ff., 95 ff., 107, 109, 137 ff., 141, 152, 164 f., 167 f., 170 f. Board of Management remuneration 40 ff., 98, 100, 117 f., 163 ff., 167 f. Bonds 39, 52 ff., 57 ff., 61 f., 78, 80, 106, 109, 115, 119, 129, 136 ff., 144, 147 f., 150 f., 157 f. Brands 26, 76 f., 107 f., 114, 123, 130 C Capital expenditure 51, 60 f., 64, 80, 122 f., 151, 178 Capital increase 39, 62, 136 ff. Cash flow statement 36, 61 f., 105, 107, 110 f., 140, 150 f., 172 Change of control 39, 43 f. Consolidated net profit 24, 54 f., 62, 102 f., 105 f., 124, 128 f., 178 Consolidated revenue 20, 34, 36 f., 54 f., 102, 108 f., 112 f., 121, 123 ff., 140, 167 f., 178 Contingent capital 137 f. Contract logistics 23, 28 f., 31, 65, 72, 80, 83, 121 f. Corporate governance 39 f., 50, 89 ff., 96 ff., 170 Cost of capital 36 f., 131 Credit lines 58, 152 Credit rating 56 f., 59, 80 f., 86, 144 D Declaration of conformity 91 f., 96, 170 Dialogue marketing 28 f., 63 f., 123 Dividend 24, 36 f., 51, 54 f., 57, 61 f., 70, 80, 92, 105 f., 115, 129, 139 f., 148, 160, 166, 179 E Earnings per share 24, 54 f., 70, 102, 129, 179 EBIt after asset charge 24, 36 f., 41 f., 44, 51, 54 f., 78, 80 eCommerce ­ Parcel 26, 29, 34, 63 f., 71, 123 Employee Opinion Survey 38, 41, 51, 71, 80, 91 Equity ratio 62, 111, 138, 179 Express 26 f., 30 f., 35, 41, 51, 54 f., 59 f., 63, 65 f., 71, 75 f., 79, 87, 91, 96, 107, 109, 122 f., 126, 131, 136, 140, 146, 163, 178 G Global Business Services 26, 95, 98, 123 Global economy 52, 78 f., 84 f. Global Forwarding 26, 30 f., 35, 63 f., 67 f., 76, 91, 123, 131 Global Forwarding, Freight 26 f., 31 f., 35, 41, 51, 59 ff., 67 f., 71, 76, 87, 91, 95 f., 122 f., 126, 131, 178 Global trade 52 f., 78 f., 131 GoGreen 38, 74 Guarantees 56, 59, 162 I IFRS s 16 51, 78 ff., 111 Illness rate 73 Income statement 102, 107, 111, 113, 116, 118 f., 121, 124 ff., 134, 140, 142, 154 f., 160 Income taxes 55, 61, 102 f., 105, 110, 112, 120, 124, 127 ff., 134, 140, 179 Investments 34, 36 f., 38, 51 f., 54 f., 55 f., 60 f., 61, 64, 80, 97 f., 104 f., 105, 109, 113, 115 f., 116, 121, 122, 127, 131, 133, 142, 145, 151, 160, 162, 166, 178 L Letters of comfort 56, 59 Liquidity management 58, 86, 152 ff. M Mail communication 27, 28, 63 f., 79 Mandates 94 f. Market shares 27 ff. N Net debt 24, 62, 86, 111, 138, 179 Net gearing 62, 138, 179 Net interest cover 62 Net working capital 36 f., 56, 58, 131 O Ocean freight 27, 31 f., 53, 67 f., 79 Oil price 32, 52, 54, 65, 78, 125 Operating cash flow 37, 56 f., 61, 63, 65 ff., 69, 105, 140, 151 f., 178 Opportunities and risk management 81 f. Outlook 51, 59, 78 ff., 83 f., 86 f. Q Quality 34 f., 74 ff., 86 f. R Rating 56 f., 59, 80 f., 86, 144 Regulation 26, 53, 84 f., 162 f. Responsibility statement 171 Retail outlets 28, 74 f. Return on sales 24, 35, 54, 63 ff., 179 Revenue 24, 34 ff., 51, 54 f., 58, 63 ff., 79, 102, 108, 110, 113, 121 ff., 135, 140, 162, 167, 178 f. Road transport 27, 32, 67 f., 74, 79, 123 S Segment reporting 56, 110, 122 ff. Share buyback 38, 57 f., 61 f., 129, 138 f., 149, 151 Share capital 38 f., 136 ff., 166, 168 Share price 42, 53, 70, 118, 148, 163 ff. Shareholder structure 70 Staff costs 36 f., 54 f., 71, 102, 118 f., 124, 126, 145, 151, 163, 165, 167, 179 Strategy 34 f., 40 f., 73, 76, 80, 86 f., 90 f., 96 f., 99, 179 Supervisory Board 38, 40 ff., 49 f., 55, 90 ff., 93 f., 96 ff., 137 f., 167 f., 170 Supervisory Board committees 49, 90 ff., 93, 97 ff. Supervisory Board remuneration 40, 49 f., 168 Suppliers 35, 59, 85, 96 Supply Chain 26, 32 f., 35, 41, 51, 54 f., 60 f., 69, 71, 76, 79, 85, 87, 96, 108 f., 114, 122 f., 126, 131, 178 T Tax rate 179 Training 34 f., 71 f., 99, 126, 179 W WACC 36 f., 131 Working capital 36 f., 56, 68, 131 Further Information — INDEx — GLOSSARY 181 GLOSSARY Dialogue marketing Market­orientated activities that apply direct communications to selectively reach target groups using a personal, individualised approach. E-POST Secure, confidential and reliable electronic communication platform. Ex-ante mail products All charges subject to approval pursuant to section 19 of the Postgesetz with a minimum posting quantity of 50 items. German federal network agency ( Bundesnetzagentur) German national regulator for electricity, gas, telecommunications, post and railway. German Postal Act (Postgesetz) The purpose of the German Postal Act, which took effect on 1 January 1998, is to promote postal competition through regulation and ensure the nationwide provision of appropriate and sufficient postal services. It includes regulations on licensing, price control and the universal service. Packstation Parcel machine where parcels and small packages can be deposited and collected around the clock. Paketbox Parcel box for franked parcels and small packages (maximum dimensions: 50 × 40 × 30 cm). Price-cap procedure Procedure whereby the German federal network agency approves prices for certain mail products. The agency approves prices on the basis of par­ ameters it stipulates in advance, which set the average changes in these prices within baskets of services defined by the agency. Standard letter Letter measuring a maximum of 235 × 125 × 5 mm and weighing up to 20 g. b2c The exchange of goods, services and information between businesses and consumers. Block space agreement Freight forwarders or shippers enter into block space agreements with airline companies which provide them with defined freight capacities on a regular flight against payment of a fee. Contract logistics Complex logistics and logistics­related services along the value chain that are performed by a contract logistics service provider. Services are tailored to a particular industry or customer and are generally based on long­term contracts. DhL Customer Solutions & Innovation (cSI) DHL’s cross­divisional commercial and innovation unit. Direct-to-market solutions (D2M) End­to­end logistics solution that integrates DHL’s warehouse management services with order­to­ cash services. This enables manufacturers to bypass traditional wholesalers and/or distributors and build a direct trading relationship with their end customer – either the point of dispensing, e.g., pharmacy or direct with the patient in an e­com­ merce channel. Fulfilment Centre Sites providing customer services such as order processing, warehousing, order picking, packaging and return management. Gateway Collection point for goods intended for export and for further distribution of goods upon import. Hub Collection point for transferring and connecting international shipments from and to multiple countries. Inbound to Manufacturing (I2M) DHL ensures the right components are delivered to the right manufacturing point at the right time. Our solutions provide complete end­to­end logistics management of inventories, facilities and labour associated with the inbound flow of materials. Lead logistics partner A logistics service provider who assumes the organisation of all or key logistics processes for the customer. Medical Express The transport of time­critical or temperature­critical medical shipments such as blood and tissue samples to medical facilities, hospitals, laboratories or research institutes, usually related to clinical trials of new medications. Multimodal transport Combines a minimum of two different means of transport for a shipment, such as air, sea, rail and ground. Supply chain A series of connected resources and processes from sourcing materials to delivering goods to consumers. Time Definite Delivery of time­critical shipments by a pre­selected time. Transported Asset Protection Association (TAPA) A forum that unites manufacturers, logistics pro­ viders, freight carriers, law enforcement authorities and other stakeholders with the common aim of reducing losses from international supply chains. Twenty-foot equivalent unit (TEU) Standardised container unit, 20 feet long and 8 feet wide (6 × 2.4 metres). 182 Deutsche Post DHL Group — 2017 Annual Report GRAPHS AND TABLES 01 Selected Key Figures 24 Report on Economic Position A GROUP MANAGEMENT REPORT General Information A.01 Organisational structure A.02 Market volumes A.03 Nationwide transport and delivery network in Germany, 2017 A.04 German mail communication market, business customers, 2017 A.05 German advertising market, 2017 26 27 28 28 29 A.06 International mail market (outbound), 2017 29 A.07 German parcel market, 2017 A.08 Available capacity A.09 A.10 A.11 International express market – Europe, 2016: top 4 International express market – the Americas, 2016: top 4 International express market – Asia Pacific, 2016: top 4 A.12 Air freight market, 2016: top 4 A.13 Ocean freight market, 2016: top 4 A.14 A.15 European road transport market, 2016: top 5 Logistics and value­added services along the supply chain A.16 Contract logistics market, 2016: top 10 A.17 A.18 A.19 Calculations Example illustration of the included remuneration components Terms of variable remuneration in target remuneration A.20 Weighting of one­year and multi­year variable remuneration components (variable target remuneration) A.21 Mechanism of the stock appreciation rights A.22 Function of the defined contribution pension plan A.23 Target remuneration A.24 Payments A.25 Long­Term Incentive Plan: number of SAR s granted A.26 Contribution­based pension commitments: individual breakdown A.27 Final­salary­based existing pension commitments: individual breakdown A.28 Remuneration paid to Supervisory Board members 29 30 30 31 31 31 32 32 33 33 37 40 41 41 42 43 45 47 48 48 49 50 A.29 Forecast / actual comparison A.30 Global economy: growth indicators, 2017 A.31 Trade volumes: compound annual growth rate, 2016 to 2017 A.32 Selected indicators for results of operations A.33 Changes in revenue, other operating income and operating expenses, 2017 A.34 Total dividend and dividend per no­par value share A.35 EBIt after asset charge (EAC) A.36 Net asset base (consolidated) A.37 Selected cash flow indicators A.38 Finance strategy A.39 FFO to debt A.40 Agency ratings A.41 Financial liabilities 51 52 53 54 55 55 55 56 56 57 57 59 59 A.42 Operating lease obligations by asset class 60 A.43 Capex and depreciation, amortisation and impairment losses, full year A.44 Capex and depreciation, amortisation and impairment losses, Q 4 A.45 Calculation of free cash flow A.46 Selected indicators for net assets A.47 Net debt A.48 Key figures of the Post ­ eCommerce ­ Parcel division A.49 Post: revenue A.50 Post: volumes A.51 eCommerce ­ Parcel: revenue A.52 Parcel Germany: volumes A.53 Key figures of the EXPRESS division A.54 EXPRESS: revenue by product A.55 EXPRESS: volumes by product A.56 Key figures of the GLOBAL FORWARDING, FREIGHt division A.57 Global Forwarding: revenue A.58 Global Forwarding: volumes A.59 Key figures of the SUPPLY CHAIN division A.60 SUPPLY CHAIN: revenue by sector and region, 2017 60 60 61 62 62 63 63 64 64 64 65 65 65 67 68 68 69 69 Deutsche Post Shares A.61 Deutsche Post shares: seven­year overview 70 A.62 Shareholder structure A.63 Shareholder structure by region Non-financial Key Performance Indicators A.64 Selected results from the Employee Opinion Survey 70 70 71 A.65 Number of employees A.66 Workplace accidents CO2e emissions, 2017 A.67 A.68 Fuel and energy consumption in company fleet and buildings A.69 Facts and figures, customers and quality A.70 Brand architecture A.71 Value of Group brands in 2017 A.72 Marketing expenditures, 2017 Expected Developments A.73 Global economy: growth forecast Opportunities and Risks A.74 Monte Carlo simulation 71 72 73 74 74 76 77 77 78 81 A.75 Opportunity and risk management process 81 A.76 Classification of risks and opportunities 83 B CORPORATE GOVERNANCE B.01 Members of the Supervisory Board B.02 Committees of the Supervisory Board B.03 Mandates held by the Supervisory Board B.04 Members of the Board of Management B.05 Mandates held by the Board of Management B.06 Attendance at plenary and committee meetings C CONSOLIDATED FINANCIAL STATEMENTS C.01 Income Statement C.02 Statement of Comprehensive Income C.03 Balance Sheet C.04 Cash Flow Statement C.05 Statement of Changes in Equity D FURTHER INFORMATION D.01 Key figures 2010 to 2017 93 93 94 95 95 97 102 103 104 105 106 178 Further Information — GRAPHS AND TABLES — CONTACTS — ORDERING 183 ORDERING External E­mail: ir @ dpdhl.com dpdhl.com/en/investors Internal GeT and DHL Webshop Mat. no. 675­602­571 Published on 7 March 2018. The English version of the 2017 Annual Report of Deutsche Post DHL Group constitutes a translation of the original German version. Only the German version is  legally  binding, insofar as this does not conflict with legal  provisions in other countries. Deutsche Post Corporate Language Services et al. CONTACTS Investor Relations Tel.: + 49 (0) 228 182­6 36 36 Fax: + 49 (0) 228 182­6 31 99 E­mail: ir @ dpdhl.com Press Office Tel.: + 49 (0) 228 182­99 44 Fax: + 49 (0) 228 182­98 80 E­mail: pressestelle @ dpdhl.com ONLINE VERSION An online extract and a complete PDF file are available on the internet: annualreport2017.dpdhl.com Printed on Envirotop, recycled paper produced from 100 % recovered fibre, which is manufactured climate neutrally and is, amongst others things, FSC certified, has Nordic Ecolabel 244 053 and complies with the EU Ecolabel At/11/002 guidelines and on white, wood­free, PEFC­certified Omnisilk illustration printing paper. This Annual Report contains forward­looking statements that relate to the business, financial performance and results of operations of Deutsche Post AG. Forward­looking statements are not historical facts and may be identified by words such as “believes”, “expects”, “predicts”, “intends”, “projects”, “plans”, “estimates”, “aims”, “foresees”, “anticipates”, “targets” and similar expressions. As these statements are based upon current plans, estimates and projections, they are subject to risks and uncertainties that could cause actual results to be materially different from the future development, performance or results expressly or implicitly assumed in the forward­looking statements. Readers are cautioned not to place undue reliance on these forward­looking statements, which apply only as at the date of this presentation. Deutsche Post AG does not intend or assume any obligation to update these forward­looking statements to reflect events or circumstances after the date of this Annual Report. 184 Deutsche Post DHL Group — 2017 Annual Report FINANCIAL CALENDAR 2018 2018 ANNUAL GENERAL MEETING DIVIDEND PAYMENT INTERIM REPORT AS AT 31 MARCH 2018 INTERIM REPORT AS AT 30 JUNE 2018 24 APRIL 2018 27 APRIL 2018 8 MAY 2018 7 AUGUST 2018 INTERIM REPORT AS AT 30 SEPTEMBER 2018 6 NOVEMBER 2018 2019 2018 ANNUAL REPORT INTERIM REPORT AS AT 31 MARCH 2019 2019 ANNUAL GENERAL MEETING DIVIDEND PAYMENT INTERIM REPORT AS AT 30 JUNE 2019 7 MARCH 2019 9 MAY 2019 15 MAY 2019 20 MAY 2019 6 AUGUST 2019 INTERIM REPORT AS AT 30 SEPTEMBER 2019 12 NOVEMBER 2019 Further dates, updates as well as information on live webcasts: dpdhl.com/en/investors 2 0 1 7 A n n u a l R e p o r t Deutsche Post AG Headquarters Investor Relations 53250 Bonn Germany dpdhl.com 

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