Deutsche Post AG
Annual Report 2018

Plain-text annual report

A I 2018 Annual Report C T N G G I A L E A B C D GROUP MANAGEMENT REPORT 11 — 72 CORPORATE GOVERNANCE 73 — 86 CONSOLIDATED FINANCIAL STATEMENTS 87 — 170 FURTHER INFORMATION 171 — 178 Selected key figures 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 non-controlling interests. 3 Calculation 4 Basic earnings per share. 5 Proposal. 6 Headcount at the end of the year, including trainees. Group Management Report, page 49. Cross-references Websites €m €m % €m €m €m €m % € € 2017 60,444 3,741 6.2 2,175 2,713 1,432 1,938 27.5 2.24 1.15 2018 61,550 3,162 5.1 716 2,075 1,059 12,303 19.3 1.69 1.15 5 519,544 547,459  01 +/– % 5.1 – 4.0 – –36.1 –2.9 34.1 – – +/– % Q 4 2017 Q 4 2018 16,109 1,181 7.3 796 837 975 – – 16,926 1,134 6.7 509 813 1,307 – – 1.8 –15.5 – – 67.1 –23.5 –26.0 >100 – –24.6 – 5.4 0.69 0.66 – 4.3 – – – – – – 1 WHAT’S NEXT, FRANK APPEL? Kapitel — HEADLINE — Subheadline 2 Deutsche Post DHL Group — 2018 Annual Report Martin Ziegenbalg, Head of Investor Relations, talks to CEO Frank Appel about 2018 and the prospects for Deutsche Post DHL Group. Martin Ziegenbalg: Mr Appel, when I look back on recent months, there was one main issue that dominated our dia­ logue with investors and analysts. Frank Appel: Developments in our Post - eCommerce - Parcel division certainly affected the overall impression of 2018 and I don’t want to gloss over what happened. These devel- opments definitely dominated in a year in which we had to cut our earnings forecasts, in which many things were called into question. However, 2018 wasn’t just a year of challenges. No, it also had its positive aspects for the Group. Our DHL divisions were and are very well positioned, and they delivered outstanding results. Express did very well, as it has in recent years. It’s very clear that we’ve taken the right steps at Global Forwarding, Freight and margins there are improving again, and business is growing at Supply Chain, although that’s over- shadowed by a variety of one-time effects. What were the reasons for these developments? How do you intend to get the German mail and parcel business back on track? The revenue shift within the division, with the mail busi- We reorganised the company at the beginning of 2019, ness in retreat but strong growth driven by e-commerce in the Parcel business unit, demands a delicate balance between cost and earnings growth, which was no longer the case in 2018. We’ve been gaining market share in the parcel business for years, with growth topping the agenda but that affected the bottom line. In the future, we’ll be focussing more upon productivity gains and earnings management, even if that means we only grow as fast as the market. At the same time, the decline in mail volume calls for constant cost management, especially with rising materials expenses. So here too, we need a nuanced approach to price increases and productivity measures. dividing the business previously combined in the PeP division into Post & Paket Deutschland and DHL eCommerce Solutions. Now we can concentrate upon our strengths in the individual markets and exploit the potential in our domestic and inter- national businesses. We’re also aiming to make lasting improve- ments in productivity and cost structures. That can’t be done overnight and it can’t be done without painful cuts. At the same time, our pricing has to ensure that the high quality of our work and the increased materials expenses are rewarded adequately by our customers. So far we’ve been making good progress with these measures. I’ve temporarily taken over responsibility for the Post & Paket Deutschland division myself. Ken Allen, To our shareholders 3 “Our DHL divisions were and are very well positioned, and they delivered outstanding results.” who previously led the Express division very successfully, now heads DHL eCommerce Solutions, and with John Pearson, a proven expert has taken the helm at Express. This allows us to set clear priorities and invest effectively. Then it’s not only cost­cutting? Not at all; we’re also making major investments in our growth. We plan to invest around €3.7 billion in 2019  alone. That will go mainly into expanding and further optimising our global infrastructure, for example aircraft for our intercontinental fleet, and we’re still building up our workforce in production, although at a slower rate. The Group added nearly 30,000 employees last year and we’re also training the existing workforce. As the CEO, what is your view on the performance of the company’s shares? Of course I’m not happy at all about our share price perform- ance in 2018. To some extent, I can understand the scepticism it reflects. The fact is, we had to make some adjustments during the year. On the other hand, the overall market – and in particular our most important competitors in the mail and logistics sector – also saw very volatile price swings. Besides the chal- lenges in our traditional core business, there were also external 4 Deutsche Post DHL Group — 2018 Annual Report developments that impacted the share price. We can’t influence factors such as global economic trends, interest rate policy, exchange rates, trade conflicts or Brexit. Instead we need to adapt to them as effectively as possible. Once the measures that have been introduced take effect, especially on the cost side, there should be movement to the upside again. In your estimation, what can we expect from 2019? Deutsche Post DHL Group as a whole is still in very good It will be challenging but we can overcome the challenges shape. We’re very diversified, which in times of growing uncer- tainty proves to be a clear competitive advantage. Our funda- mental growth drivers remain intact. I’m certain that the market will acknowledge our efforts when we deliver again. There’s another perspective: a lot of bad news is already priced into the shares after their severe decline in 2018. and the measures we’ve introduced are beginning to pay off. I’m  convinced that we’ll see further improvements in the coming months. At the company I meet employees at all levels many times every day. Without exception, not only do they accept that we’re facing challenges but above all there’s a tremendous desire to tackle these challenges and get our mail and parcel business back on a successful track. To our shareholders 5 “Deutsche Post DHL Group as a whole is still in very good shape. We’re very diversified, which in times of growing uncertainty proves to be a clear com- petitive advantage.” I’ve been on the board at Deutsche Post DHL Group for more than sixteen years now and have been CEO since 2008. A lot has happened in that time. If we move on together, we’ll master the challenges this time as well. What will it take to do that? Flexibility, dedication, guts and a willingness to change ourselves again and again, and that’s the case not only for the company as a whole but for every single employee. Artificial intelligence and automation have already changed working life and will continue to do so. Nobody has a guarantee that the job they have now will still be exactly the same ten or fifteen years from now. People need to be flexible, keep up their training and never stop learning. In the past, we at Deutsche Post DHL Group have shown one thing: when we’re confronted with challenges, we tackle them with determination and focus upon results. Take digital- isation as an example. As a dedicated mail company, we would have viewed it as a major threat but as a diverse group, we see it as an opportunity that we’re already leveraging and that will certainly generate healthy business for us in the future. You could say that it’s part of our corporate DNA to react flexibly and quickly to changes in our environment and to be agile. That enables us to perform even better in the future and make lasting improvements in our competitiveness. These are the foundations that make me confident we’ll always make the right strategic choices for achieving our ambitious goals. 6 FLEXIBLE. RESULTS-ORIENTATED. CUSTOMER-CENTRIC. Working life is changing more and more quickly. Organisations, along with their people, structures and processes, face new challenges increasingly often. As a global business, how can Deutsche Post DHL Group stay fit for the future in such an environment? We need to be flexible in adapting to new challenges. That means identifying and assessing oppor tunities and risks at an early stage and dealing with them in a results-orientated manner, and we must be willing to review our decisions again and again and revise them when conditions call for it. There is no other way to ensure that we can continue to provide top-quality services and solid profits in the future, and in all we do, our focus is upon customers. 7 WE ALWAYS CONCENTR ATE UPON OUR STRENGTHS, upon our core compe- tencies. If you know what you’re already good at, you can get even better. 8 WE ARE ALWAYS OPEN TO NEW IDEA S AND VISIONS so that we can exploit opportunities. Together, we do all we can to accept, approach and implement something new. 9 OUR FOCUS IS UPON CUSTOMERS. When we put their needs at the centre of our thoughts and actions, we improve constantly – and in a results-orientated manner. 10 90 90 70 70 50 50 30 30 GOOD IS STILL NOT GOOD ENOUGH. We work every day at getting even better by optimising our products, services and processes. That means always striving to exceed our limits. GROUP MANAGEMENT REPORT 11 — 72 A 12 GENERAL INFORMATION 12 Business model 14 Business units 19 Strategy 21 Management 23 Disclosures required by takeover law 24 Research and development 25 Remuneration Report 36 Annual Corporate Governance Statement and non-financial report 37 REPORT ON ECONOMIC POSITION 37 Overall assessment of the Group’s economic position 37 Forecast / actual comparison 38 Economic parameters 40 Significant events 40 Results of operations 43 Financial position 48 Net assets 50 Business performance in the divisions 56 DEUTSCHE POST SHARES 57 NON-FINANCIAL KEY PERFORMANCE INDICATORS 57 Employees 58 Safety and health 58 Corporate responsibility 60 Quality 62 Brands 63 EXPECTED DEVELOPMENTS 63 Overall assessment of the Group’s future economic  position Forecast period Future economic parameters 63 63 64 Earnings forecast 65 Expected financial position 65 Performance of further indicators relevant for internal management 66 OPPORTUNITIES AND RISKS 66 Overall assessment of the opportunity and risk situation 66 Opportunity and risk management 69 Categories of opportunities and risks 12 Deutsche Post DHL Group — 2018 Annual Report GENERAL INFORMATION Business model An international service portfolio Deutsche Post AG is a listed corporation domiciled in Bonn, Ger- many. Under its Deutsche Post and DHL brands, the Group pro- vides an international service portfolio consisting of letter and parcel dispatch, express delivery, freight transport, supply chain management and e-commerce solutions. At 31 December 2018, the Group was organised into the four operating divisions of Post - eCommerce  - Parcel, Express, Supply Chain and Global For- warding, Freight, whose services are described in Business units, page 14 ff. Each of the divisions is managed by its own divisional head quarters and subdivided into functions, business units and regions for reporting purposes. The internal services that support the entire Group are con- solidated in our Global Business Services unit. Group manage- ment functions are centralised in Corporate Functions. Organisational structure as at 31 December 2018  A.01 Corporate Functions Divisions Finance Board member ‚‚ Melanie Kreis Functions ‚‚ Corporate Accoun- ting & Controlling ‚‚ Investor Relations ‚‚ Corporate Finance ‚‚ Corporate Audit &  Security ‚‚ Taxes ‚‚ Divisional Finance Organisations ‚‚ Legal Services Human Resources, Corporate Incubations Board member ‚‚ Thomas Ogilvie Functions ‚‚ Corporate HR Germany &  Employee Relations International ‚‚ Corporate HR Standards &  Processes ‚‚ HR for Global Functions ‚‚ Divisional HR Organisations Business unit ‚‚ Corporate Incubations Post - eCommerce ­ Parcel Board member ‚‚ Frank Appel Business units ‚‚ Post ‚‚ eCommerce - Parcel Express Board member ‚‚ Ken Allen Regions ‚‚ Europe ‚‚ Americas ‚‚ Asia Pacific ‚‚ MEA (Middle East and Africa) Function ‚‚ Customer Solutions &  Innovation 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 CEO, Global Business Services Board member ‚‚ Frank Appel Functions ‚‚ Board Services ‚‚ Corporate Legal ‚‚ Corporate Office ‚‚ Corporate Development &  First Choice ‚‚ Corporate Executives ‚‚ Corporate Communications &  Responsibility ‚‚ Corporate Public Policy & Regulation Management ‚‚ Global Business Services (Corporate Procurement, Corporate Real Estate, IT Services, Insurance & Risk Management etc.) Organisational changes As at 1 February 2018, responsibility on the Board of Manage- ment for Customer Solutions & Innovation (CSI) was transferred to Ken Allen. Moreover, a new Corporate Incubations board department was created in April 2018. Thomas Ogilvie heads the new depart- ment in addition to his duties as Board Member for Human Resources and Labour Director. Since 4 April 2018, CEO Frank Appel has taken over respon- sibility for the Post - eCommerce - Parcel division in addition to his role as Chief Executive Officer. Jürgen Gerdes resigned from his position on the Board of Management on 12 June 2018. Group Management Report — GENERAL INFORMATION — Business model 13 In September 2018, Ken Allen’s Board of Management office and contract were renewed until July 2022. In addition, the Super- visory Board approved the following changes effective as of 1 January 2019: the Post - eCommerce - Parcel division was sep- arated into a German and an international division, each led by a separate member of the Board of Management. The German business was renamed Post & Paket Deutschland and will remain under the interim leadership of the Group’s CEO. A new DHL eCommerce Solutions division is also being created in order to optimally align the Group with the global e-commerce market. Ken Allen has assumed responsibility for the new division in ad- dition to his role as head of CSI. John Pearson has led the Express division since 1 January 2019. A presence that spans the globe 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 section below. Market volumes 1 Global (2017) 55 M TEUs Ocean freight3 215.9 € BN Contract logistics4 Germany (2018) 24 M TONNES Air freight2 24 € BN International express market (2016)5 4.3 € BN Mail communication6 (2017) Air freight (m tonnes) 2 Ocean freight (m TEU s) 3 Contract logistics (€ bn) 4 International express market (€ bn) 5 Road transport (€ bn) 8 Middle East /Africa 1.4 5.5 8.0 – – Americas 5.1 8.8 64.4 8.2 (2016) – Europe 6.3 8.4 70.9 7.1 (2016) 197 1 Regional volumes do not add up to global volumes due to rounding. 2 Data based solely upon export freight tonnes. Source: Seabury Consulting. 3 Twenty-foot equivalent units; estimated part of overall market controlled by forwarders. Data based solely upon export freight tonnes. Source: company estimates, Seabury Consulting. 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 estimates. 8 Market volume covers 25 European countries, excluding bulk and specialties transport. Source: DHL Market Intelligence Study 2018, based upon company calculations and content supplied by IHS Markit Group, copyright © IHS Global Inc., 2018. All rights reserved.  A.02 11.6 € BN Parcel6 27.3 € BN Advertising market7 Asia Pacific 11.0 32.8 72.6 8.0 (2016) – 14 Deutsche Post DHL Group — 2018 Annual Report Business units POST - ECOMMERCE - PARCEL DIVISION Nationwide transport and delivery network in Germany, 2018 Around 11,000 Paketshops Around 110,000 post boxes Around 13,000 retail outlets  Around 57million letters per  working day Around 3,700 Packstations Around 111,500 letter and parcel deliverers 35 parcel centres Around 2,500 sales points 82 mail centres  A.03 Around 5million parcels per working day Around 700 Paketboxes The postal service for Germany We deliver around 57 million letters every working day in Ger- many, making us Europe’s largest postal company. The products and services are targeted towards both private and business cus- tomers and range from physical, hybrid and electronic letters to special products for merchandise delivery, and include additional services such as cash on delivery, registered mail and insured items. In the year under review, the German market for business communications was around €4.3 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 consolidators providing partial services. Our market share increased to 63.4 % compared with the prior year (61.7 %). German mail communication market, business customers, 2018 Market volume: €4.3 billion Deutsche Post Competition Source: company estimates.  A.04 63.4 % 36.6 % Cross­channel customer dialogue On request, our dialogue marketing unit offers end-to-end solu- tions 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 con- tent reach recipients according to a co-ordinated timetable and without any coverage waste. Group Management Report — GENERAL INFORMATION — Business units 15 The advertising market in Germany gained 0.6 % in 2018 to reach a volume of €27.3 billion. Our share of this highly frag- mented market declined to 7.6 % (previous year: 8.2 %). German advertising market 1, 2018 Market volume: €27.3 billion Competition Deutsche Post  A.05 92.4 % 7.6 % 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 lightweight merchandise shipments across borders and provide international dialogue marketing services. For business customers in key European mail markets, we offer international shipping services. For the growing e-commerce sector, we develop solutions for international shipments to con- sumers (B2C). Our portfolio also comprises consulting and ser- vices 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 €7.9 billion in 2018 (previous year: around €7.5 billion). Our market share was 12.3 % (previous year: 12.8 %). Market size and share have changed compared with the previous year’s presentation as data from external sources have been adjusted. International mail market (outbound), 2018 Market volume: €7.9 billion Competition Deutsche Post DHL Source: company estimates.  A.06 87.7 % 12.3 % Worldwide portfolio of parcel and e­commerce services We maintain a dense network of parcel acceptance and drop-off points in Germany. Our portfolio allows recipients to choose whether they wish to receive their parcels during a specific deliv- ery window, on the same day or as quickly as possible. They can also decide at short notice whether their parcels should be deliv- ered to an alternative address, a specific retail outlet or a Paket- shop. We offer support to business customers to grow their on- line 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 €11.6 bil- lion in 2018 (previous year: around €10.8 billion). We were able to maintain our 45.5 % market share in a highly competitive mar- ket (previous year: 45.4 %). German parcel market, 2018 Market volume: €11.6 billion Competition DHL Source: company estimates.  A.07 54.5 % 45.5 % We expanded our cross-border portfolio of e-commerce services during the year under review. In Europe, the B2C network amounts to a total of 27 countries, including Germany. There are more than 65,000 acceptance and drop-off points available to our customers in Europe. In the United States, we offer especially fast delivery in five metropolitan areas. In India, our Blue Dart subsidiary delivers to almost all available postcodes and has opened an additional 970 points of sale. Our network in south- east Asia includes more than 2,000 locations where online mer- chants can post parcels. As described in the chapter Business model, page 12 f., the German and international businesses will, in future, be managed in independent divisions and Board departments. 16 Deutsche Post DHL Group — 2018 Annual Report 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 2.6 million customers. Time­definite international shipments as our core business With the main product, Time Definite International (TDI), we pro- vide services with a pre-defined delivery time. We also provide industry-specific services to complement this product. For ex- ample, our Medical Express transport solution, which is tailored specifically to customers in the Life Sciences & Healthcare sector, offers various types of thermal packaging for temperature-con- trolled, chilled and frozen content. Collect and Return is used predominantly by customers in high-tech industries: technical products are collected from the user, taken in for repairs and then returned. Our virtual airline Our global network consists of several airlines, some of which we own 100 %. The combination of our own and purchased capaci- ties, which includes 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 Block Space Agreement – guaranteed air cargo product. Express TDI core product – capacity based upon average utilisation, adjusted on a daily basis. Air Capacity Sales, total spare capacity – average capacity not utilised by Block Space or TDI Core on a planned basis. BSA CORE ACS In the year under review, we contracted with Boeing to purchase 14 new 777F aircraft as part of the rejuvenation of our intercon- tinental fleet. These cargo aircraft have a range of 9,070km with a 102t load, are considerably more reliable and bring significant cost and efficiency advantages. The first four aircraft are sched- uled for delivery in 2019. Trade boosts international express business The international express business is benefiting from cross- border e-commerce and the growing importance of small and medium-sized enterprises in this segment. Expanding and modernising the network in the Europe region In the Europe region, we are reinforcing our network by steadily expanding our infrastructure and modernising our fleet. We offi- cially opened our Brussels hub in February 2018, for instance. With four times its previous capacity, the hub is now one of our five largest worldwide. We also opened a new hub in Madrid, and expect construction of the new hub buildings in Cologne and Barcelona to be completed in 2019. Expanding service in the Americas region Given the strong rise in demand, especially from the retail sector, we opened around 1,500 of our own or partner-operated service points in 2018 in the Americas region and added two logistics hubs to our infrastructure in Mexico. Further investing in Asia In the Asia Pacific region, we put one of a total of four new Airbus A330-300s undergoing passenger-to-freighter conversion into operation in the year under review, which increases our previous loading capacity by around 33 %. This will enable us to supply markets in Malaysia, Vietnam and Hong Kong, in particular. We also established a gateway in Zhuhai at the new Macao Bridge to  make optimum use of the shorter transfer times between China and Hong Kong. An additional flight on the Shenzhen –  Moscow – Leipzig route was also established to support busi- ness in south China. Reliable partner in the MEA region In the MEA (Middle East and Africa) region, the Middle East con- tinued to suffer in 2018 from the sometimes unstable political situation. We were nonetheless able to maintain our operations whilst adhering to legal requirements and ensuring the safety of our employees. Group Management Report — GENERAL INFORMATION — Business units GLOBAL FORWARDING, FREIGHT DIVISION Ocean freight market, 2017: top 4 The air, ocean and overland freight forwarder Our air, ocean and overland freight forwarding services include standardised transport as well as multimodal and sector-specific solutions, together with individualised industrial projects. Our business model is based upon brokering transport services be- tween customers and freight carriers. Our network’s global pres- ence allows us to offer efficient routing and multimodal transport. Compared with other divisions, our operating business model is asset-light. Thousands of TEUs 1 Kuehne + Nagel DHL DB Schenker Panalpina 17  A.10 4,355 3,259 2,169 1,521 1 Twenty-foot equivalent units. Source: annual reports, publications and company estimates. European overland freight market with solid growth The road freight market showed solid growth in 2018, driven by volume increases and an unchanged high price level despite moderate economic growth in most European countries. In a fragmented and competitive en vironment, DHL Freight remained the second-largest provider in 2017, with a market share of 2.2 %. European road transport market, 2017: top 5 Market volume: €197 billion 1 DB Schenker DHL DSV Dachser Kuehne + Nagel  A.11 3.4 % 2.2 % 1.9 % 1.7 % 1.4 % 1 Total market for 25 European countries, excluding bulk goods and specialties transports. Source: DHL Market Intelligence Study 2018, based upon the company’s calculations and content supplied by IHS Markit Group, copyright © IHS Global Inc, 2018. All rights reserved. Air freight market, 2017: top 4 Thousands of tonnes 1 DHL Kuehne + Nagel DB Schenker Panalpina  A.09 2,248 1,570 1,300 996 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 during the year under review grew by 3.5%. As global demand for transport capacity exceeded available supply, freight capacity remained at a low level – especially on routes out of Asia and Europe. With around 2.2 million transported export freight tonnes, we remained the air freight market leader in 2017, as shown in table A.09. Consolidation continues in the ocean freight market The ocean freight market continued to grow in 2018, with con- solidation on the carrier side continuing. There was again over- capacity in the market for container ships and this trend is ex- pected to continue in the coming years. With around 3.3 million transported twenty-foot equivalent units, we remained the sec- ond-largest provider of ocean freight services in 2017, as shown in the following table. 18 Deutsche Post DHL Group — 2018 Annual Report SUPPLY CHAIN DIVISION Customer­centric contract logistics solutions As the world leader in contract logistics, we offer standardised warehousing, transport and value-added services that can be combined to form customised supply chain solutions. Our contract logistics services include planning, sourcing and production activities as well as packaging, repairs and re- turns. These services are rounded out by real estate solutions as well as management and fulfilment services for e-commerce. Continuing to automate the supply chain In our customers’ interests, we ensure that our standard tools are well embedded in all operations. As a next step on the efficiency scale, more complex solutions, e. g., wearable devices and collab- orative robotics, will be introduced. Overall, the aim is always to increase efficiency along the entire supply chain through stand- ardisation and the use of new technologies. Whilst these efforts generally show benefits across all sectors, we see the largest demand in Retail and Consumer, which generate approximately half of the divisional revenue. Automation and digitalisation of the supply chain  A.12 Yard management Autonomous trucks Wearables: smart watches and smart glasses Inventory management Automated picking robots Collaborative stationary robots Surveillance with drones Track & Trace Leading position in a fragmented market DHL remains the global leader in the fragmented contract logis- tics market, with a market share of 6.0 % (2017) and operations in more than 50 countries. The contract logistics market is esti- mated at around €216 billion, with the top ten players only ac- counting 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 rapidly growing markets throughout the Asia Pacific region and Latin America. In Latin America, we have strength- ened our presence with the acquisition of the Colombian Suppla Group, note 2 to the consolidated financial statements. Its integra- tion is well on track and delivering the expected results. Contract logistics market, 2017: top 10 Market volume: €215.9 billion DHL XPO Logistics Kuehne + Nagel Hitachi Transport System CEVA SNCF Geodis DB Schenker UPS SCS Ryder DSV  A.13 6.0 % 2.3 % 2.1 % 1.8 % 1.5 % 1.3 % 1.2 % 1.2 % 0.8 % 0.7 % Source: company estimates; Transport Intelligence. Revenue figures are estimates based upon gross revenue from external customers; exchange rates as at 2017. Group Management Report — GENERAL INFORMATION — Business units — Strategy Strategy CORPORATE STRATEGY The Group strategy's bottom lines 19  A.14 Provider of Choice Benchmark for responsible business conduct Investment of Choice Employer of Choice Focus upon three bottom lines Increasing digitalisation, the continuing boom in e-commerce and the dynamism of emerging markets offer us considerable growth opportunities. As described in the Business unit chapter, page 14 ff., we are also amongst the leading suppliers thanks to our global presence in the markets in which we operate. More- over, according to Gartner 2018’s Magic Quadrant Method, we are the most advanced logistics specialist for 3PL vendors Glos- sary, page 176, in terms of vision and execution. We measure the degree of implementation of our strategy against the three bot- tom lines shown in chart A.14. Provider of Choice: Customers are at the heart of everything we do. We strive to create a positive experience for customers every time we communicate with them. This customer orienta- tion is also reflected in the value of our Brands, page 62. Our principle of continuous improvement is integrated firmly into our day-to-day operations. Our First Choice methodology based upon Six Sigma, Change Management and Lean techniques is commu- nicated by nearly 36,000 employees trained as first-choice spe- cialists. Regular customer satisfaction surveys allow us to meas- ure our performance against our quality aspiration and to identify areas for improvement, Quality, page 60 f. Employer of Choice: Since we consider committed and skilled employees as the key to providing excellent service qual- ity and achieving profitable growth, we conduct numerous ini- tiatives designed to develop and motivate our employees, in- cluding the Group-wide “Certified” initiative. We foster internal Man- dialogue through our annual Employee Opinion Survey, agement, page 23. These measures contributed, amongst other things, to our Express division being named the sixth best employer in the world by Great Place to Work® and FORTUNE in 2018. Investment of Choice: We aim to deliver profitable growth by taking a selective and focused approach, which includes grow- ing the profitable core in each of our business areas. We closely monitor operational and financial KPIs and focus upon disciplined yield management across all divisions. We also leverage oper- ational efficiencies and keep strict cost discipline. Apart from these three bottom lines, we have integrated sus- tainability and corporate responsibility firmly into our strategy, Corporate Responsibility Report, dpdhl.com/ as described in our cr­report2018. 20 Deutsche Post DHL Group — 2018 Annual Report Our emphasis is upon customer orientation and industry-leading end-to-end quality. We are constantly adding new modules to our Certified Inter- national Forwarder training programme. In the Global Forwarding business unit, we want to improve the EBIT-to-gross profit margin (conversion rate) and, in the medium term, raise it to the level of our leading competitors. To this end, we are increasing the profitability of contracts and align- ing costs with business development. In the Freight business unit, the FREIGHT 2020 strategy con- tinues to support our goals of growing profitably, becoming more productive, working better together and increasing data trans- parency, whilst remaining customer centric and committed to high quality standards. The further expansion of the European network is supporting our growth targets. The Freight business unit responded to the systemic driver shortage in Europe by starting a campaign to hire drivers whom we can also use in our terminals. Our digital transport management systems will be further standardised step by step. Supply Chain division We are increasing our efficiency and quality by standardising processes worldwide and reducing complexity, thus facilitating innovative and customer-centric solutions. The Certified agenda has evolved into an overarching frame- work of training content. We leverage talent analytics for tar- geted succession planning and to support a purpose-built train- ing agenda. Our focus is upon those market segments that offer higher margins and growth rates. One example of this is the service logistics business, in which we provide sophisticated solutions for our customers supported by a standard global operating model, a central IT platform and value added services across 150 countries. STRATEGIES OF THE DIVISIONS Post ­ eCommerce ­ Parcel division The German postal and parcel business is in the midst of a pro- cess of change, in which we are currently working primarily upon improving quality, earnings, productivity and costs. In addition, we are extending our offering in the Post busi- ness unit based upon market demand, continuously expanding our range of services in the German parcel business and de- veloping digital service offerings. As part of our Group-wide “Certified” initiative, we aim to certify the majority of our employees by 2020. We are adapting our networks to the dynamic market condi- tions and shipment structures. We also cut costs wherever pos- sible and sensible, whilst investing in technologies, automation, innovation and growth areas. Express division We concentrate upon shipments whose size and weight make them an optimal match for our network, and in terms of our pric- ing 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 in- creasing exports. Our Certified International Specialist training programme ensures that our employees have the requisite knowledge of the international express business at their disposal, develop mutual understanding and remain permanently motivated. Our return on sales improves when growing volumes lead to economies of scale in our network, innovation and automation enhance productivity, and costs are strictly managed. We are gradually streamlining the IT systems architecture and are ensur- ing adherence to global standards, especially as regards facilities and operating resources. The majority of our costs are attribut- able 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 com- panies, thus improving our network utilisation and reducing costs. On the ground, processes are automated and standardised. Global Forwarding, Freight division Our emphasis is upon customer orientation and industry-leading end-to-end quality. IT systems are being improved or replaced in the Global Forwarding business unit, thus integrating industry- proven solutions. We are focussing upon improved shipment visibility, electronic document management and a new transport management system. Group Management Report — GENERAL INFORMATION — Strategy — Management 21 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 performance metrics portrayed here are also particularly relevant for calculating management re- muneration. The Group’s financial performance indicators are intended to preserve a balance between profitability, an efficient use of resources and sufficient liquidity. The performance of these indicators in the year under review is described in the Report on economic position, page 37 ff. Profit from operating activities measures earnings power The profitability of the Group’s operating divisions is measured as profit from operating activities (EBIT). EBIT is calculated by deducting materials expense and staff costs, depreciation, amort- isation and impairment losses, as well as other operating ex- penses from revenue and other operating 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 financial 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 subtracting the cost of capital component, or asset charge, from EBIT. Making the as- set charge a part of business decisions encourages the efficient use of resources and ensures that the operating business is geared towards increasing value sustainably 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 liabilities 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 projects and investments within the Group. The WACC is generally reviewed once annually on the basis of the current situation on the financial markets. To ensure better comparability of asset charge with pre- vious figures, in 2018 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 ac- count during the year. Table A.15 shows the composition of the net asset base. Free cash flow facilitates liquidity management Along with EBIT and EAC, cash flow is another key performance metric used by Group management. This is targeted at maintain- ing sufficient liquidity to cover all of the Group’s financial obliga- tions from debt repayment and dividends, 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 calculated by adjust- ing EBIT for changes in non-current assets (depreciation, amort- isation and (reversals of) impairment losses, net income/loss from disposals), other non-cash income and expense, dividends received, taxes paid, changes in provisions and other non-current assets and liabilities. Another key parameter of OCF is net work- ing capital. Effective management 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 performance indicator is calculated on the basis of OCF by adding/subtracting the cash flows from capital expenditure, leasing, 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. 22 Calculations Deutsche Post DHL Group — 2018 Annual Report  A.15 Revenue EBIT EBIT Other operating income Asset charge Changes in inventories and work performed and capitalised 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 non-current operating assets 2 Operating liabilities • Operating provisions (not  including provisions for pensions and similar obligations) • Trade payables ( included in net  working capital)  1 • Other non-current operating liabilities 2 Net asset base Depreciation, amortisation and  impairment losses Net income / loss from disposal of non-current assets Non-cash income and expense Change in provisions Change in other non-current 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 Cash outflow arising from repay- ments and interest on lease liabilities Net interest paid FCF Free cash flow 1 Includes EBIT-related current assets and liabilities. Not included are assets and liabilities related to taxes, financing and cash and cash equivalents, for example. 2 Includes EBIT-related other non-current assets and liabilities. Not included are assets and liabilities related to taxes or bonds, for example. Group Management Report — GENERAL INFORMATION — Management — Disclosures required by takeover law 23 NON-FINANCIAL PERFORMANCE INDICATORS Disclosures required by takeover law 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 employ- ees. We place particular significance on the survey’s indication of Employee Engagement and of how employees rate the leader- ship 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 2018 can be found in the Employees section, page 57. Reducing dependency upon fossil fuels We aim to reduce our dependency on fossil fuels, improve our CO2 efficiency and lower costs. The corresponding 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 in- tensity 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 equivalents (CO2e). This indicates the ratio of the respective emissions to a matching per- formance indicator in the Group. CEX is a management indicator of non- financial performance. The figures obtained for the year under review are provided in the section on Corporate responsi- bility, page 59. CEX (carbon efficiency index) A management indicator of non­financial performance Disclosures required under sections 289a (1) and 315a (1) of the Handelsgesetzbuch (HGB – German Commercial Code) and explanatory report Composition of issued capital, voting rights and transfer of shares As at 31 December 2018, the company’s share capital totalled €1,236,506,759 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 company’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 grant- ing 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 largest shareholder, holding 20.53 % 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 provisions (cf. sections 84 and 85 of the Aktiengesetz (AktG – German Stock Corporation Act) and section 31 of the Mitbestimmungsgesetz (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 accordance with art- icle 21 (2) of the Articles of Association in conjunction with sec- tions 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 represented 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. 24 Deutsche Post DHL Group — 2018 Annual Report Board of Management authorisation, particularly regarding issue and buy­back of shares The Board of Management is authorised, subject to the consent 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 Art- icles of Association may be viewed on the company’s website, dpdhl.com/en/investors, and 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 authorised by resolution of the AGMs of 27 May 2014 (agenda item 8), 28 April 2017 (agenda item 7) and 24 April 2018 (agenda items 6 and 7) to issue pre-emptive rights / Performance Share Units (PSUs). The authorisation resolutions are included in the notarised minutes of the AGM that can be viewed in the commercial regis- ter of the Bonn Local Court. In order to service both current pre-emptive rights / PSUs and those yet to be issued, the AGM approved conditional capital increases. Details may be found in article 5 of the Articles of Association. As at 31 December 2018, the pre-emptive rights / PSUs already issued conferred rights to up to 31,284,326 Deutsche Post AG shares, assuming the pre- requisites are met. Under the authorisations granted, up to 41,680,692 additional pre-emptive rights / PSUs 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, including the possibilities of using the treasury shares acquired on the basis of this or a preceding authorisation, 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 upon that authorisation resolution, the company had repurchased 1,284,619 shares in the financial year. As at 31 December 2018, the company held 3,628,651 treas- ury shares. 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 condi- tions to cancel its share of the credit line as well as its share of outstanding loans and to request repayment. The terms and con- ditions of the bonds issued under the Debt Issuance Programme established in March 2012 and of the convertible bond issued in December 2017 also contain change-in-control clauses. In the event of a change in control within the meaning of the terms and conditions, creditors are, under certain 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 Management contract (right to early termination). If the right to early termination is exercised or a Board of Management contract is terminated by mutual consent within nine months of the change in control, the Board of Man- agement member is entitled to payment to compensate the re- maining 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 re- gard to the Annual Bonus Plan with Share Matching for execu- tives, the holding period for the shares will become invalid with immediate effect in the event of a change in control of the com- pany. 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  disadvantages 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 therefore has no significant expenses to report in this connection. Group Management Report — GENERAL INFORMATION — Disclosures required by takeover law — Research and development — Remuneration Report 25 Remuneration Report The remuneration report describes the principles of the remuner- ation systems for the members of the Board of Management and the Supervisory Board and provides information about the remu- neration granted to, and paid to, the members of the Board of Management and the Supervisory Board in financial year 2018. It has been prepared in accordance with the recommendations of the German Corporate Governance Code (the Code) and the requirements of the Handelsgesetzbuch (HGB – German Com- mercial Code), the German Accounting Standards and the Inter- national Financial Reporting Standards (IFRS s). BOARD OF MANAGEMENT REMUNERATION Remuneration structure of the Group Board of Management in financial year 2018 The remuneration system for the Board of Management is aligned with the company’s strategy and is geared towards performance- based and sustainable corporate governance. It creates an incen- tive for the members of the Board of Management to work for and on behalf of the company over the long term. The Supervisory Board regularly examines the appropriate- ness of this remuneration. The criteria for evaluating the appro- priateness of remuneration are the tasks performed by each in- dividual Board of Management member, his or her personal performance and experience, the company’s economic situation, success and future prospects, and the customary level of remu- neration, taking into consideration the peer group and the overall remuneration structure in the company. In this process, the Super visory Board takes into consideration the relation of the Board of Manage ment remuneration to the remuneration of the senior management level and the workforce overall, including its development over time. In evaluating the appropriateness of re- muneration, the Supervisory Board is assisted by an independent external remuneration expert. The current remuneration system was approved at the 2018 Annual General Meeting with 88.56 % of the votes cast. Remuneration components The Board of Management’s remuneration comprises the follow- ing components, as shown in table A.17 below. 1. Base salary The base salary is a fixed remuneration component and is paid in twelve equal monthly instalments retroactively at the end of each month. 2. Variable remuneration The variable remuneration is almost entirely multi-annual, in other words based upon medium- and long-term performance. More than half of the variable target remuneration for 2018 consists of a long-term component with a four-year calculation period; the rest is made up of an annual bonus, with 50 % of the annual bonus flowing into a medium-term component with a three-year calculation period (deferral). All of the variable remu- neration components are forward-looking. Less than a quarter of the variable remuneration component is granted on the basis of a one-year calculation. ANNUAL BONUS The members of the Board of Management receive an annual bonus whose individual amount reflects the extent to which their predefined targets are achieved, missed or exceeded. The annual bonus granted generally consists of financial targets (75 %) and non-financial targets (25 %). Terms of variable remuneration in target remuneration  A.16 Grant year Year 2 Year 3 Year 4 Year 5 Year 6 Annual bonus Deferral Long­Term Incentive Plan (LTIP) LTIP exercise period 26 Deutsche Post DHL Group — 2018 Annual Report Remuneration components  A.17 1. Base salary ‚‚ Annual amount: 1 €715,000 in the first contract year €860,000 from the third contract year €930,000 from the fourth contract year ‚‚ Subsequent review: after three more years or upon contract extension ‚‚ Payout: in equal instalments 2. Variable remuneration a. Annual bonus (including medium­term component) ‚‚ Annual target amount: 80 % of respective base salary ‚‚ Maximum amount (cap): 100 % of respective base salary ‚‚ Calculation: according to targets agreed ‚‚ Payout: 50 % after determination of target achievement in subsequent year 50 % after another two years (sustainability phase) and only if the EAC 2 sustainability indicator is met b. Long­term component Granting of stock appreciation rights ‚‚ Annual grant amount depends on achievement of strategic targets during the year prior to granting (granting corridor: 50 – 150 % of respective base salary) ‚‚ Maximum amount (cap): 400 % 3 of the grant amount ‚‚ Exercisability: according to degree of achievement of six share-price-based sub-targets ‚‚ Payout: in the fifth or sixth year after granting, depending on the respective exercise date 3. Fringe benefits ‚‚ Annual amount corresponds to the value of all non-cash benefits granted 4. Pension commitments Contribution-based pension commitment 4 ‚‚ Annual amount of 35 % of the base salary ‚‚ Annual pension expense corresponds to the carrying amount of the pension entitlements acquired in the respective financial year 5. Maximum amount (cap) Total remuneration ‚‚ Maximum remuneration granted (cap on remuneration granted): €5 million 5 ‚‚ Starting in 2022: maximum remuneration paid (cap on remuneration paid): €5 million 6 1 Amounts for ordinary members of the Board of Management. The chairman of the Board of Management receives a base salary of €2,060,684. 2 EBIT after asset charge (EAC) of the Group, including the asset charge on goodwill before goodwill impairment. 3 The cap for the chairman of the Board of Management amounts to 250 % of the grant amount. 4 There is still a final-salary-based pension commitment for the chairman of the Board of Management. 5 The cap on remuneration granted amounts to €8 million for the chairman of the Board of Management. 6 The cap on remuneration paid amounts to €8 million for the chairman of the Board of Management. The performance criteria used to calculate the amount of the annual bonus and their weighting were the same as in the previ- ous year. For each target, the maximum amount that may be earned is equal to the weighting applied to one base salary (for example, for the free cash flow performance criterion, the maximum pay- out is 10 % of one base salary). This means the total annual bonus is limited to one base salary. Performance criteria for the annual bonus  A.18 Weighting Performance criterion 55 % 1 10 % 2 10 % 12.5 % 12.5 % EBIT after asset charge (EAC) of the Group, including the asset charge on goodwill before goodwill impairment EAC of the respective Board of Management member’s division Free cash flow (FCF) of the Group Positive rating of Employee Engagement KPI in the Group- wide Employee Opinion Survey Individual targets that reflect the focus of the Board of Management member’s work in accordance with the Group strategy 1 For Frank Appel, Melanie Kreis and Thomas Ogilvie, the weighting is 65 %. 2 Only for the Board of Management members responsible for the Post - eCommerce - Parcel, Express, Global Forwarding, Freight and Supply Chain divisions. Group Management Report — GENERAL INFORMATION — Remuneration Report 27 In measuring the degree of achievement of each of the per- formance criteria, three thresholds are agreed with each Board of Management member that are used to calculate the amount of their individual annual bonus: There is no payout until the low- est threshold is reached; when the lowest threshold is reached, 50 % of the maximum amount for this target is paid. When the performance target is achieved, 80 % is paid, and when the upper threshold is reached, 100 % is paid. The targets for the Group EAC and Group free cash flow finan cial goals correspond to the budgeted figures for the finan- cial year. The degree to which the targets have been achieved is announced at the end of the financial year. In financial year 2018, target achievement was 0% for Group EAC and 50.47% for FCF. For divisional EAC, target achievement was between 0% and 100%. The degree to which the employee target was reached was 90%. For the individual targets, the average degree of target achievement was 59.29%. Based upon these target achievement percentages, the average annual bonus (including deferral) was 26.57% of one base salary. MEDIUM-TERM COMPONENT (DEFERRAL) Even if the agreed targets are reached, the annual bonus is not paid out in full. Instead, 50 % of the annual bonus flows into a medium-term component with a three-year calculation period – 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 additionally 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 without compensation. This demerit system puts greater emphasis on sustainable com- pany development in determining Board of Management re- muneration and provides long-term incentives. LONG-TERM COMPONENT Since financial year 2006, the company has granted members of the Board of Management cash remuneration linked to the com- pany’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 Manage- ment members to make a personal investment of 10 % of their annual base salary by the grant date of the respective tranche, primarily in shares. SAR ALLOCATION The Supervisory Board agrees strategic goals with the members of the Board of Management for a period of twelve months prior to the grant date for the purpose of determining the value of the SAR s to be granted. The relevant target categories for the grant- ing of SAR s in 2018 were the performance of the share price compared with that of the company’s competitors, strategic in- dividual targets and a digital transformation target for each member. The target categories each carry a weighting of 1/3. For the share price performance compared with the com- pany’s competitors, a peer group of two to three companies is selected for each of the four operating divisions of the Group. The digital transformation targets required defining divisional digital transformation strategies based upon the Group strategy, begin- ning their implementation and anchoring them in the corporate culture. The focus of the other individual targets set for Board of Man- agement members was on customers and employees, in particu- lar. Based upon the target achievement determined, Board of Management members were granted SAR s that on average amounted to 87.5 % of their base salary on the grant date. SAR target achievement Share price performance compared with the company’s competitors Strategic individual targets Digital transformation targets  A.19 SAR allocation 2018 tranche Target achieve- ment % Weighting 1/3 1/3 1/3 0 0 120 – 130 581,224 100 – 150 610,616 1,191,840 We comply with the requirement regarding the ability to retain or reclaim (clawback) variable remuneration in justified cases by making the granting of LTIP components (SAR s) dependent upon the attainment of previously stipulated goals. Extraordinary de- velopments can therefore already lead to a decrease in the num- ber of SAR s at the time they are granted. Moreover, SAR s are granted on the condition that the Supervisory Board may limit the payment amount in the event of extraordinary developments. The value of the SAR s granted to each Board of Management member in financial year 2018 is presented in the "Remuneration granted in accordance with the German Corporate Governance Code" table. See the following table for the number of SAR s granted. 28 Deutsche Post DHL Group — 2018 Annual Report The performance is determined by comparing the average price of Deutsche Post shares or the average index value during a ref- erence and a performance period. The reference 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 absolute or relative performance tar- gets are not met by the end of the waiting period, the SARs attrib- utable to them will expire without replacement or compensation. After expiration of the waiting period, the SAR s must be ex- ercised within a period of two years (exercise period); any SAR s not exercised expire. Each SAR exercised entitles the exercising Board of Manage- ment member to receive a cash settlement equal to the differ- ence between the average closing price of Deutsche Post shares for the five trading days preceding the exercise date and the ex- ercise price of the SAR. The proceeds from stock appreciation rights are limited to a maximum amount. Table A.24 shows the individual maximum amounts for the 2018 tranche. Furthermore, the remuneration from stock appreciation rights may be limited by the Supervisory Board in the event of extraordinary circum- stances. 3. Fringe benefits Fringe benefits granted to Board of Management members pri- marily include the use of a company car, subsidies for health and long-term care insurance in accordance with the provisions of the German Social Security Code, and special allowances and benefits for assignments outside the members’ home countries. 4. Pension commitments (retirement and surviving dependants’ benefits) The members of the Board of Management have been granted contribution-based pension commitments. There is still a leg- acy pension commitment for the chairman of the Board of Man- agement. Under the contribution-based pension plan, the company credits an annual amount of 35 % of the base salary to a virtual pension account for each Board of Management member. The maximum contribution period is 15 years. Long­Term Incentive Plan: number of SAR s granted  A.20 Number Frank Appel, Chairman Ken Allen Jürgen Gerdes (until 12 June 2018) John Gilbert Melanie Kreis SAR s 2017 tranche SAR s 2018 tranche 1 546,678 329,538 280,170 196,596 280,170 – 259,056 216,384 239,556 185,070 Thomas Ogilvie (since 1 September 2017) 199,170 127,044 Tim Scharwath (since 1 June 2017) 199,170 137,208 1 Grant date 1 September 2018: the average price of Deutsche Post shares during the reference period was €31.08 and the average index value 385.02 points; grant date 1 November 2018 (John Gilbert): the average price of Deusche Post shares during the reference period was €28.69 and the average index value was 362.23 points. EXERCISE OF SAR s At the earliest, SAR s granted can be exercised, in whole or in part, after a four-year waiting period, provided the absolute or relative targets have been achieved at the end of that period. How many, if any, of the SAR s granted can be exercised is determined in accordance with four (absolute) performance tar- gets based upon the share price and two (relative) performance targets based upon 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 outperforms the index by more than 10 %. Mechanism of 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 Group Management Report — GENERAL INFORMATION — Remuneration Report 29 5. Remuneration caps The remuneration as a whole as well as its variable components have been capped. The remuneration system also provides for overall caps be- yond the individual caps for the variable remuneration compo- nents that further limit payout: for remuneration granted in a finan cial year, overall caps have been in place since 2017 totalling €8 million for the chairman of the Board of Management and €5 million for the ordinary members (excluding fringe benefits in each case). This is the overall cap on remuneration granted. A second overall cap to apply beginning in 2022 will ensure that remuneration paid in a single financial 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 include fringe benefits. The maximum amounts applicable to the individual variable remuneration components and the maximum amount paid from remuneration granted in 2018 are broken down in table A.24. Example illustration of the included remuneration components  A.23 Overall cap on remuneration granted Example: 2018 Overall cap on remuneration paid Example: 2022 Remuneration components included ‚‚ 2018 base salary ‚‚ Proportion of 2018 annual bonus for immediate payout ‚‚ Deferral from 2018 annual bonus ‚‚ Long-Term Incentive Plan 2018 tranche ‚‚ 2018 pension expense (service cost) Remuneration components included ‚‚ 2022 base salary ‚‚ Proportion of 2022 annual bonus for immediate payout ‚‚ Deferral from 2020 annual bonus ‚‚ Long-Term Incentive Plan 2016 / 2017 / 2018 tranches 1 ‚‚ 2022 pension expense (service cost) 1 The time the tranches are paid depends on when they are exercised within the two- year period. 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 beneficiary may opt to receive an annuity payment in lieu of a lump-sum pay- ment. If this option is exercised, the capital is converted to an annuity payment, taking into account the average “iBoxx Cor- porates 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 contribution­based pension plan  A.22 Capital components Pension account 1 2 3 4 5 Term (years) When he was first appointed, the chairman of the Board of Man- agement was granted a final-salary-based direct pension com- mitment then customary in the company, which provides for benefits in the case of permanent invalidity, death or retirement. His pension commitment provides for retirement benefits to be granted at the earliest from the age of 55. He has not availed himself of this provision. His pension is geared towards annuity payments. He also has the option 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 in- come consists of the base salary computed on the basis of the average salary over the last twelve calendar months of employ- ment. The chairman of the Board of Management attained the maximum pension level (50 %) after ten years of service. Subse- quent retirement benefits increase or decrease to reflect changes in the consumer price index in Germany. 30 Deutsche Post DHL Group — 2018 Annual Report Provisions to cap severance payments pursuant to the Corporate Governance Code recommendation, change­ of­ control provisions and post­contractual non­compete clauses In accordance with the recommendation of the Code, Board of Management contracts contain a provision stipulating that in the event of premature termination of a Board of Management mem- ber’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 in- cluding fringe benefits (severance payment cap). The severance payment cap is calculated exclusive of any special remuneration or the value of rights allocated, or exercised, from LTIPs. 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 Management contract (right to early termination). 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 Übernahme- gesetz (WpÜG – German Securities Acquisition and Takeover Act) via possession of at least 30 % of the voting rights, including the voting rights attributable to such shareholder by virtue of acting in concert with other shareholders as set forth in section 30 of the WpÜG or if a control agreement has been concluded with the company as a dependent entity in accordance with section 291 of the Aktiengesetz (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 en- tity, as determined by the agreed conversion rate, is less than 50 % of the value of the company. In the event that the right to early termination is exercised or a Board of Management contract is terminated by mutual con- sent within nine months of the change in control, the Board of Manage ment member is entitled to payment to compensate the remaining term of their Board of Management contract. Such payment is limited to 150 % of the severance payment cap (see above for the calculation) pursuant to the Code recommendation. The amount of the payment is reduced by 25 % if the Board of Manage ment member has not reached the age of 60 upon leav- ing the company. If the remaining term of the Board of Manage- ment contract is less than two years and the Board of Manage- ment member has not reached the age of 62 upon leaving the company, the payment will correspond 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 of 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 Manage ment members receive 100 % of their last contractually stipulated 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 is deducted from any severance pay- ments or pension payments. Prior to, or concurrent with, cessa- tion 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 obligation to pay compensation due to a restraint on competition six months after receipt of such declaration. Other Jürgen Gerdes stepped down from his position as a member of the company’s Board of Management as at 12 June 2018 and left the company as at 30 June 2018. Remuneration of the Group Board of Management in  financial year 2018 The remuneration paid to members of the Board of Management in financial year 2018 totalled €11.37 million (previous year: €11.57 million) in accordance with the applicable accounting standards. Non- performance-related components accounted for €8.12 million (previous year: €7.57 million) and €3.25 million was attributable to the annual bonus paid as a performance-related component (previous year: €4.00 million); the performance cri- teria for the annual bonus are presented on page 26. An addi- tional €0.58 million of the annual bonus was transferred to the medium-term component (deferral) and will be paid out in 2021 subject to the condition that the required EAC, an indicator of sustainability, be reached. In financial year 2018, the Board of Management members were granted a total of 1,191,840 SAR s, which at the issue date were valued at €5.43 million (previous year: €7.19 million). The total remuneration paid to Board of Management mem- bers is presented in the tables below. In addition to the applicable accounting principles, the Code recommendations were also taken into account. Group Management Report — GENERAL INFORMATION — Remuneration Report Remuneration granted in accordance with the German Corporate Governance Code 31  A.24 € Base salary Fringe benefits Total Frank Appel Chairman 1 Ken Allen Express 2017 2018 Min. 2018 Max. 2018 2017 2018 Min. 2018 Max. 2018 1,978,911 2,060,684 2,060,684 2,060,684 1,000,913 1,005,795 1,005,795 1,005,795 35,294 52,889 52,889 52,889 98,197 102,716 102,716 102,716 2,014,205 2,113,573 2,113,573 2,113,573 1,099,110 1,108,511 1,108,511 1,108,511 Annual bonus: one-year share 791,564 824,274 Multi-year variable remuneration 2,754,138 2,369,807 LTIP with four-year waiting period 1,962,574 1,545,533 Annual bonus: deferral with three-year waiting period 791,564 824,274 0 0 0 0 1,030,342 400,365 402,318 4,894,125 1,406,175 1,324,353 3,863,783 1,005,810 922,035 1,030,342 400,365 402,318 0 0 0 0 502,898 4,190,947 3,688,049 502,898 Total 5,559,907 5,307,654 2,113,573 8,038,040 2,905,650 2,835,182 1,108,511 5,802,356 Pension expense (service cost) 1,041,772 1,121,934 1,121,934 1,121,934 332,801 345,640 345,640 345,640 Total remuneration 6,601,679 6,429,588 3,235,507 9,159,974 3,238,451 3,180,822 1,454,151 6,147,996 Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2018 8,000,000 5,000,000 Jürgen Gerdes Corporate Incubations (until 12 June 2018) John Gilbert Supply Chain Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration LTIP with four-year waiting period Annual bonus: deferral with three-year waiting period Total Pension expense (service cost) 2017 2018 Min. 2018 Max. 2018 2017 2018 Min. 2018 Max. 2018 1,005,795 452,608 452,608 452,608 912,500 930,000 930,000 930,000 36,289 18,053 2 18,053 18,053 173,167 264,539 264,539 264,539 1,042,084 402,318 1,408,128 1,005,810 470,661 181,043 181,043 – 402,318 181,043 2,852,530 344,288 832,747 373,407 470,661 470,661 1,085,667 1,194,539 1,194,539 1,194,539 0 0 – 0 226,304 365,000 372,000 226,304 1,295,011 1,224,553 – 930,011 852,553 226,304 365,000 372,000 0 0 0 0 465,000 3,875,124 3,410,124 465,000 470,661 923,269 2,745,678 2,791,092 1,194,539 5,534,663 373,407 373,407 273,132 310,989 310,989 310,989 Total remuneration 3,196,818 1,206,154 844,068 1,296,676 3,018,810 3,102,081 1,505,528 5,845,652 Cap on the maximum payment amount (excluding fringe benefits) from remunera- tion granted in 2018 n. a. 5,000,000 32 Deutsche Post DHL Group — 2018 Annual Report Melanie Kreis Finance Thomas Ogilvie Human Resources and Corporate Incubations (since 1 September 2017) 3 2017 2018 Min. 2018 Max. 2018 2017 2018 Min. 2018 Max. 2018 871,667 930,000 930,000 930,000 238,333 715,000 715,000 715,000 17,029 17,003 17,003 17,003 3,159 14,896 14,896 14,896 Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration 1,208,673 1,239,978 LTIP with four-year waiting period 860,006 867,978 Annual bonus: deferral with three-year waiting period 348,667 372,000 888,696 348,667 947,003 372,000 947,003 947,003 241,492 465,000 95,333 3,936,876 810,353 3,471,876 715,020 0 0 0 0 465,000 95,333 286,000 729,896 286,000 881,836 595,836 729,896 729,896 0 0 0 0 357,500 2,740,738 2,383,238 357,500 Total 2,446,036 2,558,981 947,003 5,348,879 1,147,178 1,897,732 729,896 3,828,134 Pension expense (service cost) 276,923 317,375 317,375 317,375 – 247,753 247,753 247,753 Total remuneration 2,722,959 2,876,356 1,264,378 5,666,254 1,147,178 2,145,485 977,649 4,075,887 Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2018 Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration LTIP with four-year waiting period Annual bonus: deferral with three-year waiting period Total Pension expense (service cost) Total remuneration Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2018 5,000,000 n. a. Tim Scharwath Global Forwarding, Freight (since 1 June 2017) 2017 417,083 29,812 446,895 166,833 881,853 715,020 166,833 1,495,581 – 1,495,581 2018 715,000 53,390 768,390 286,000 929,506 643,506 286,000 1,983,896 247,556 2,231,452 Min. 2018 715,000 53,390 768,390 0 0 0 0 768,390 247,556 1,015,946 Max. 2018 715,000 53,390 768,390 357,500 2,931,500 2,574,000 357,500 4,057,390 247,556 4,304,946 n. a. 1 Also responsible for Post - eCommerce - Parcel since 4 April 2018. 2 Mr Gerdes also received a payment of €4,288,805 as compensation for his rights under his employment contract. 3 Responsible for Corporate Incubations since 13 June 2018. Group Management Report — GENERAL INFORMATION — Remuneration Report 33 Remuneration paid in accordance with the German Corporate Governance Code € Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration Annual bonus: deferral from 2015 Annual bonus: deferral from 2016 2011 LTIP tranche 2012 LTIP tranche 2013 LTIP tranche Other Total Pension expense (service cost) Total Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration Annual bonus: deferral from 2015 Annual bonus: deferral from 2016 2011 LTIP tranche 2012 LTIP tranche 2013 LTIP tranche Other Total Pension expense (service cost) Total  A.25 Jürgen Gerdes Corporate Incubations (until 12 June 2018) Frank Appel Chairman 1 Ken Allen Express 2017 2018 2017 2018 2017 2018 1,978,911 2,060,684 1,000,913 1,005,795 1,005,795 452,608 35,294 52,889 98,197 102,716 36,289 18,053 3 2,014,205 2,113,573 1,099,110 1,108,511 1,042,084 470,661 952,351 0 2 487,945 195,124 464,074 36,888 5,844,840 4,958,262 4,492,254 482,147 4,958,436 478,406 288,300 – 203,680 – 167,256 – – 950,662 838,025 – – – 4,718,515 4,007,600 1,808,056 – – – – 2,480,518 – 482,147 – – – – – – 2,422,380 2,368,800 – 478,406 – – – – 8,811,396 7,071,835 6,079,309 1,785,782 6,464,594 985,955 1,041,772 1,121,934 332,801 345,640 344,288 373,407 9,853,168 8,193,769 6,412,110 2,131,422 6,808,882 1,359,362 John Gilbert Supply Chain Melanie Kreis Finance Thomas Ogilvie Human Resources and Corporate Incubations (since 1 September 2017) 5 2017 2018 2017 2018 2017 2018 912,500 930,000 871,667 930,000 238,333 715,000 173,167 264,539 17,029 17,003 3,159 14,896 1,085,667 1,194,539 888,696 947,003 241,492 729,896 434,806 122,295 405,892 0 4 116,188 96,275 156,406 389,263 120,656 364,964 156,406 – 120,656 – – – – – – 389,263 – – – – – – – – – 364,964 – – – – – – – – – – – – – – – – – – 1,676,879 1,706,097 1,415,244 1,311,967 357,680 826,171 273,132 310,989 276,923 317,375 – 247,753 1,950,011 2,017,086 1,692,167 1,629,342 357,680 1,073,924 34 Deutsche Post DHL Group — 2018 Annual Report Base salary Fringe benefits 6 Total Annual bonus: one-year share Multi-year variable remuneration Annual bonus: deferral from 2015 Annual bonus: deferral from 2016 2011 LTIP tranche 2012 LTIP tranche 2013 LTIP tranche Other Total Pension expense (service cost) Total Tim Scharwath Global Forwarding, Freight (since 1 June 2017) 2017 417,083 29,812 446,895 196,780 – – – – – – – 643,675 – 643,675 2018 715,000 53,390 768,390 129,773 – – – – – – – 898,163 247,556 1,145,719 1 Also responsible for Post - eCommerce - Parcel since 4 April 2018. 2 With the approval of the Supervisory Board, Frank Appel waived an annual bonus (including deferral) resulting from the determination of target achievement for financial year 2018. 3 Mr Gerdes also received a payment of €4,288,805 as compensation for his rights under his employment contract. 4 With the approval of the Supervisory Board, Melanie Kreis waived an annual bonus (including deferral) resulting from the determination of target achievement for financial year 2018. 5 Responsible for Corporate Incubations since 13 June 2018. 6 Mr Scharwath also received a payment of €750,664 in 2017 and a payment of €783,460 in 2018 as compensation for the lapsing of long-term remuneration rights granted by his previous employer. Remuneration in accordance with the HGB (DRS 17) € Base salary Fringe benefits Annual bonus: one-year share Annual bonus: deferral from 2015 Annual bonus: deferral from 2016 2017 LTIP tranche 2018 LTIP tranche Total Base salary Fringe benefits Annual bonus: one-year share Annual bonus: deferral from 2015 Annual bonus: deferral from 2016 2017 LTIP tranche 2018 LTIP tranche Total Frank Appel Chairman 1 Ken Allen Express  A.26 Jürgen Gerdes Corporate Incubations (until 12 June 2018) 2017 2018 2017 2018 2017 2018 1,978,911 2,060,684 1,000,913 1,005,795 1,005,795 452,608 35,294 52,889 98,197 102,716 36,289 952,351 288,300 0 2 – 487,945 195,124 464,074 203,680 – 167,256 18,053 3 36,888 – – 950,662 – 482,147 – 478,406 1,962,574 – 1,005,810 – 1,005,810 – 1,545,533 – 922,035 – – – 5,217,430 4,609,768 2,796,545 2,707,817 2,679,224 5,274,760 John Gilbert Supply Chain Melanie Kreis Finance Thomas Ogilvie Human Resources and Corporate Incubations (since 1 September 2017) 5 2017 2018 2017 2018 2017 2018 912,500 930,000 871,667 930,000 238,333 715,000 173,167 264,539 17,029 17,003 3,159 434,806 122,295 405,892 156,406 – 120,656 0 4 – – 389,263 – 364,964 116,188 – – 930,011 – 860,006 – 715,020 14,896 96,275 – – – – 852,553 – 867,978 – 595,836 2,606,890 2,558,650 2,275,250 2,179,945 1,072,700 1,422,007 Group Management Report — GENERAL INFORMATION — Remuneration Report 35 Base salary Fringe benefits 6 Annual bonus: one-year share Annual bonus: deferral from 2015 Annual bonus: deferral from 2016 2017 LTIP tranche 2018 LTIP tranche Total Tim Scharwath Global Forwarding, Freight (since 1 June 2017) 2017 417,083 29,812 196,780 – – 715,020 – 2,109,359 2018 715,000 53,390 129,773 – – – 643,506 2,325,129 1 Also responsible for Post - eCommerce - Parcel since 4 April 2018. 2 With the approval of the Supervisory Board, Frank Appel waived an annual bonus (including deferral) resulting from the determination of target achievement for financial year 2018. 3 Mr Gerdes also received a payment of €4,288,805 as compensation for his rights under his employment contract. 4 With the approval of the Supervisory Board, Melanie Kreis waived an annual bonus (including deferral) resulting from the determination of target achievement for financial year 2018. 5 Responsible for Corporate Incubations since 13 June 2018. 6 Mr Scharwath also received a payment of €750,664 in 2017 and a payment of €783,460 in 2018 as compensation for the lapsing of long-term remuneration rights granted by his previous employer. Contribution­based pension commitments: individual breakdown  A.27 € Ken Allen John Gilbert Melanie Kreis Thomas Ogilvie (since 1 September 2017) Tim Scharwath (since 1 June 2017) Total Total contribution for 2017 Total contribution for 2018 Present value (DBO) as at 31 Dec. 2017 Present value (DBO) as at 31 Dec. 2018 341,775 301,000 301,000 83,417 145,979 352,028 325,500 325,500 250,250 250,250 2,903,991 1,020,273 1,359,361 136,411 146,294 3,364,734 1,330,176 1,719,088 392,850 404,952 1,173,171 1,503,528 5,566,330 7,211,800 Final­salary­based legacy pension commitments: individual breakdown Pension commitments Pension level on 31 Dec. 2017 % Pension level on 31 Dec. 2018 % Maximum pension level % 50 50 50 50 50 50 Frank Appel, Chairman Jürgen Gerdes (until 12 June 2018) Total  A.28 Present value (DBO) as at 31 Dec. 2018 € 21,563,074 11,895,398 1 33,458,472 Present value (DBO) as at 31 Dec. 2017 € 20,171,783 8,973,098 29,144,881 1 The increase in the present value (DBO) in the case of Mr Gerdes is largely due to the reduction in the financing period for his pension commitments as he left the company. Benefits for former Board of Management members Benefits paid to former members of the Board of Management or their surviving dependants amounted to €9.6 million in finan- cial year 2018 (previous year: €7.0 million). The defined benefit obligation (DBO) for current pensions calculated under IFRS s was €94 million (previous year: €95 million). REMUNERATION OF THE SUPERVISORY BOARD Remuneration for the members of the Supervisory Board is gov- erned 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). 36 Deutsche Post DHL Group — 2018 Annual Report The Supervisory Board chairman and the Supervisory Board committee chairs receive an additional 100 % of the remunera- tion, 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 committees, or act as chair or deputy chair, for part of the financial 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 Remuneration paid to Supervisory Board members 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 2018 totalled €2,733,167 (previous year: €2,641,000). Table A.29 shows both totals, broken down as the remuneration paid to each Supervisory Board member. € Board members Prof. Dr Wulf von Schimmelmann (Chair) (until 24 April 2018) Dr Nikolaus von Bomhard (Chair since 24 April 2018) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Dr Günther Bräunig (since 17 March 2018) Dr Mario Daberkow (since 24 April 2018) Ingrid Deltenre Jörg von Dosky Werner Gatzer Gabriele Gülzau (since 24 April 2018) Thomas Held (since 24 April 2018) Mario Jacubasch (since 24 April 2018) Prof. Dr Henning Kagermann Thomas Koczelnik Anke Kufalt (until 24 April 2018) Ulrike Lennartz-Pipenbacher Simone Menne Roland Oetker Andreas Schädler (until 24 April 2018) Sabine Schielmann (until 24 April 2018) Dr Ulrich Schröder (until 6 February 2018) Dr Stefan Schulte Stephan Teuscher  1 Helga Thiel (until 30 June 2017) Stefanie Weckesser Prof. Dr-Ing. Katja Windt 2017 2018 Fixed component Attendance allowance Fixed component Attendance allowance Total 315,000 72,917 245,000 140,000 – – 70,000 70,000 21,000 336,000 7,000 21,000 17,000 – – 6,000 6,000 79,917 266,000 157,000 – – 76,000 76,000 91,875 253,750 245,000 140,000 55,417 49,583 94,792 70,000 140,000 16,000 156,000 140,000 – – – 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 – – – 10,000 21,000 6,000 4,000 11,000 15,000 6,000 6,000 0 13,000 13,000 6,000 – – – 115,000 196,000 76,000 39,000 116,000 155,000 76,000 76,000 102,083 153,000 118,000 58,500 49,583 74,375 49,583 105,000 175,000 20,417 70,000 105,000 140,000 20,417 20,417 8,750 140,000 105,000 – 15,000 137,500 115,208 6,000 76,000 70,000 7,000 26,000 26,000 22,000 5,000 7,000 15,000 10,000 19,000 8,000 12,000 8,000 15,000 27,000 2,000 10,000 17,000 19,000 1,000 2,000 0 18,000 18,000 – 20,000 10,000  A.29 Total 98,875 279,750 271,000 162,000 60,417 56,583 109,792 80,000 159,000 57,583 86,375 57,583 120,000 202,000 22,417 80,000 122,000 159,000 21,417 22,417 8,750 158,000 123,000 – 135,208 80,000 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 non-financial report The Annual Corporate Governance Statement can be found at Corporate Governance Report, dpdhl.com/en/investors and in the page 83 ff. The summarised, separate non-financial report for Deutsche Post AG and the Group with the disclosures in accord- ance with sections 289b ff. and 315b f. of the HGB can be found in the Corporate Responsibility Report, dpdhl.com/cr­report2018. Group Management Report — GENERAL INFORMATION — Remuneration Report — Annual Corporate Governance Statement and non-financial report — REPORT ON ECONOMIC POSITION — Overall assessment of the Group’s economic position — Forecast / actual comparison 37 REPORT ON ECONOMIC POSITION Overall assessment of the Group’s economic position Deutsche Post DHL Group was able to increase consolidated rev- enue in financial year 2018, although strong currency effects had a significant negative impact. After we had adjusted our earnings forecast for the full year in June 2018 for the PeP division from around €1.50 billion to around €0.6 billion and for the Group from around €4.15 billion to around €3.2 billion, EBIT was in line with our adjusted expectations. In the Post - eCommerce - Parcel division, restructuring expenses, in particular, had a significant negative impact on earnings. Express continued to grow strongly and Global Forwarding, Freight made visible progress in its op- erational business. Supply Chain earnings were impacted by neg- ative one-off effects. Capital expenditure was again higher than in the previous year, whilst free cash flow fell below the prior-year figure, as expected since June. All in all, the Board of Manage- ment views the Group’s financial position as being sound. Forecast / actual comparison Forecast / actual comparison Targets 2018 EBIT • Group: around €3.2 billion 1. • PeP division: around €0.6 billion 1. • DHL divisions: around €3.0 billion. • Corporate Functions: around €–0.42 billion; of which Corporate Center/ Other: around €–0.35 billion. Results 2018 EBIT • Group: €3.2 billion. • PeP division: €0.7 billion. • DHL divisions: €2.9 billion. • Corporate Functions: €–0.41 billion.  A.30 Targets 2019 EBIT • Group: €3.9 billion to €4.3 billion • Post & Paket Deutschland: €1.0 billion to €1.3 billion • DHL divisions: €3.4 billion to €3.5 billion • Corporate Functions: around €–0.5 billion EAC EAC EAC • Will decrease due to initial application • Decreased due to initial application • Will develop in line with EBIT and of IFRS 16. Cash flow of IFRS 16. Cash flow increase. Cash flow • Free cash flow of at least €1.0 bil lion (excluding the debt-financed renewal of the Express intercontinental fleet) 1. • Free cash flow of €1.2 billion (excluding the debt-financed renewal of the Express intercontinental fleet). • Free cash flow to exceed €0.5 billion (including the debt-financed renewal of the Express intercontinental fleet). Capital expenditure (capex) Capital expenditure (capex) Capital expenditure (capex) • Increase investments (excluding leases) to around €2.5 billion plus around €0.2 billion for the debt- financed renewal of the Express intercontinental fleet. 2 • Invested (excluding leases): around €2.5 billion plus around €0.2 billion for the debt-financed renewal of the Express intercontinental fleet. • Invest (excluding leases) around €3.7 billion (including the debt-financed renewal of the Express intercontinental fleet). Dividend distribution Dividend distribution Dividend distribution • Pay out 40 % to 60 % of net profit • Proposal: pay out 55% of adjusted net • Pay out 40 % to 60 % of net profit as dividend. profit 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 76 %. • 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 one index point to 33. • CEX will increase by another index point. 1 Forecast lowered during the year. 2 Forecast raised during the year. 38 Deutsche Post DHL Group — 2018 Annual Report Economic parameters Global economy continues to record solid growth The world economy posted solid growth in 2018 with economic momentum peaking at mid-year. In the industrial countries, average GDP growth declined to 2.3 %. Growth in the emerging markets slowed slightly to 4.6 %. Total global economic output was up by 3.7 %, somewhat less than in the previous year. Global trade again experienced substantial growth in terms of the value of goods and services, although the increase was not as strong as in 2017 (IMF: 4.0 %; OECD 3.9 %). Global economy: growth indicators, 2018  A.31 % China Japan USA Euro zone Germany Gross domestic product (GDP) 6.6 0.7 2.9 1.8 1.5 Export Domestic demand 9.9 3.1 4.3 2.8 2.4 n. a. 0.7 3.1 1.7 1.8 Data estimated, as at 1 February 2019. Source: Postbank, national statistics. The Asian economies again provided the strongest economic momentum. At 6.5 %, GDP growth was at the same level as in the previous year. However, growth in China slowed to 6.6 % (previous year: 6.9 %). Whilst Chinese exports expanded considerably, in- dustrial production lost ground. In Japan, the upwards economic trend lessened significantly. Private consumption and gross fixed capital formation rose only moderately, and foreign trade sup- plied no notable momentum despite solid growth figures in ex- ports. All in all, GDP growth fell to 0.7 % (previous year: 1.9 %). In the USA, the economy sped up rapidly. Businesses signifi- cantly expanded investment activity, although private consump- tion remained the main growth driver. Foreign trade put a slight damper on growth, despite the fact that export activity increased. Overall GDP growth accelerated to 2.9 % (previous year: 2.2 %), whilst the unemployment rate dropped again significantly from its already very low level. In the euro zone, the economic upswing weakened in the year under review. Domestic demand continued to provide strong momentum, however. In particular, gross fixed capital for- mation increased significantly. Growth in private consumption slowed somewhat but maintained a solid level. Government spending increased moderately. Foreign trade continued to con- tribute to economic growth, albeit to a much lesser extent than in the previous year. The decrease in foreign trade growth was ultimately responsible for the decline in GDP growth to 1.8 % (pre- vious year: 2.4 %). The average unemployment rate dropped sig- nificantly to 8.2 % in line with the continuing upturn. The German economy slowed in the second half of 2018. Al- though significant momentum continued to come from gross fixed capital formation, growth in private consumption lessened notably despite another strong increase in income levels. In add- ition, the rise in government spending lagged behind the figures for 2017. However, it was exports that took the biggest hit against the backdrop of an increasingly difficult international climate. All in all, foreign trade was a drag on economic growth after having made a positive contribution in the previous year. This situation led to an overall decline in GDP growth to 1.5 % (previous year: 2.2 %). The unemployment rate nonetheless fell to 5.2 % on an annual average (previous year: 5.7 %), with the average number of employed persons rising to 44.8 million (previous year: 44.3 million). Crude oil price rises on annual average By the end of 2018, the price for one barrel of Brent Crude had dropped to US$50.56 (previous year: US$66.73). However, the average price of oil for the year was around 31 % higher than in the previous year at around US$71 per barrel. Over the course of the year, the price fluctuated between US$50 and US$86. After peaking in October, increasing concerns about the global econ- omy pushed crude oil prices down substantially during the rest of the year. Euro weakens slightly due to declining euro zone momentum The European Central Bank (ECB) adhered to the cautious change of direction in its monetary policy initiated in 2018. The Bank reduced its monthly bond-buying volumes from €30 billion at the start of the year to €15 billion starting in October before phasing out the quantitative easing programme entirely at the end of the year. Euro zone monetary policy nonetheless remained quite expansionary. The ECB left its key refinancing rate at 0.00 % and the deposit rate for the year as a whole was –0.40 %. By contrast, the US Federal Reserve tightened its monetary policy. Against the backdrop of strong economic growth and falling unemployment rates, the Fed raised its key interest rate in four steps of 0.25 percentage points each to a range of 2.25 % to 2.50 % at year-end. The euro weakened slightly against the US dollar in 2018 in light of the increasing divergence in key interest rates and lower economic momentum in the euro zone. At the end of the year, the euro was trading at just under US$1.15, a year-on-year decline of 4.7 %. The pound-to-euro exchange rate fluctuated only min- imally in 2018 despite the fraught negotiations on the United Kingdom’s exit from the EU and uncertainty as to whether the deal would pass the UK parliament. Overall, the euro gained 1.1 % on the pound sterling in 2018. Group Management Report — REPORT ON ECONOMIC POSITION — Economic parameters 39 Significant rise in risk premiums for corporate bonds The euro zone bond markets were negatively impacted by polit- ical uncertainty and changing economic expectations during 2018. Capital market interest rates initially rose at the start of the year. However, increasing risk at an international level led to a subsequent decrease in investor risk affinity. This effect was ex- acerbated as the economy weakened toward the end of the year, leading to a significant decrease in capital market interest rates. By year-end 2018, yields on ten-year German government bonds had fallen to 0.24 % (previous year: 0.43 %). By contrast, yields on ten-year US government bonds were up by 0.28 percentage points year-on-year to 2.68 % at the end of the year. Risk premi- ums for investment grade corporate bonds were well above the year-end 2017 level at the end of 2018. Stock market prices saw noticeable losses during the course of 2018. European dividend levels declined due to a variety of political risks, particularly from mid-year onward. The downward trend sped up in the autumn due to economic concerns. In add- ition, corporate profit forecasts saw successive downward cor- rections. The DAX ended the year at 10,559 points, a year-on- year loss of 18.3 %. The EURO STOXX 50 registered a decline of 14.3 %. In the US, the broad-market S & P 500 did not come under any significant pressure until near the end of the year and thus fell by only 6.2 % year-on-year. The DAX ended 2018 with a year­on­year loss of 18.3% International trade continues to grow 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 4.8 % in the year under review (previous year: 5.1 %). Air and ocean freight volumes grew at roughly the same pace. Imports to Latin America and Asia evidenced the highest growth rates. Trade volumes: compound annual growth rate, 2017 to 2018  A.32 % Export Asia Pacific Europe Latin America MEA (Middle East and Africa) North America Import Asia Pacific Europe Latin America MEA (Middle East and Africa) North America 5.3 1.5 10.3 11.0 6.8 3.8 5.3 1.9 10.9 7.8 8.6 6.8 0.0 11.5 8.0 0.0 3.1 – 5.3 5.6 6.2 4.2 3.3 2.3 7.0 24.2 Source: Seabury Consulting, as at 28 November 2018; 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 Post- gesetz (PostG – German Postal Act). Further information regard- ing this issue and legal risks is contained in note 46 to the con­ solidated financial statements. 40 Deutsche Post DHL Group — 2018 Annual Report Significant events In order to counteract the clear negative earnings trend in the Post - eCommerce - Parcel (PeP) division, in early June, the Board of Management decided upon measures to secure sustainable earnings growth in the PeP division. The measures decided upon are designed to further improve productivity, indirect costs and yield management in the Post and Parcel business. €400 million was already spent during the year under review on an early re- tirement programme for civil servants in overhead areas. In ad- dition, as announced in June, around €100 million was invested in further restructuring measures. In June, we also adjusted our forecasts for EBIT, EAC and free cash flow for the current financial year to reflect the above. How these key figures are calculated is described in Management, page 21 ff. At the end of October, we decided to sell our supply chain business in China, Hong Kong and Macao as part of a strategic partnership with the logistics service provider S. F. Holding, China. In return, we shall receive a non-recurring payment of around €700 million and an annual amount linked to revenue over the next ten years. All of the company’s assets and liabilities were reclassified as held for sale. Leases are presented more extensively as a result of the ini- tial application of IFRS 16, note 4 to the consolidated financial state- ments. This has a significant impact upon the presentation of the Group’s net assets, financial position and results of operations. 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 non-controlling interests. 3 Basic earnings per share. 4 Proposal.  A.33 2017 60,444 3,741 6.2 2,175 2,713 2.24 1.15 2018 Q 4 2017 Q 4 2018 61,550 3,162 5.1 716 2,075 1.69 1.15 4 16,109 1,181 16,926 1,134 7.3 796 837 0.69 – 6.7 509 813 0.66 – € m € m % € m € m € € Portfolio and reporting changed To reflect the importance of state-of-the-art mobility solutions such as our StreetScooter electric vehicles and other techno- logical innovations, we have transferred these activities out of the Post - eCommerce - Parcel division and combined them in the new Corporate Incubations board department. The new board department acts as an incubator for mobility solutions, digital platforms and automation. The results of Corporate Incubations and Corporate Center/Other are now presented together in Corporate Functions. The prior-period amounts were adjusted accordingly. In the second quarter, we acquired the Colombian Suppla Group, a specialist in transport, warehousing and packaging ser- vices. The acquisition is intended to strengthen DHL Supply note 2 to the consolidated finan­ Chain’s presence in Latin America, cial statements. In the third quarter, we sold 50 % of our UK start-up Flexible Lifestyle Employment Company. The company provides digital solutions for staff recruitment in the logistics sector. In the fourth quarter, we sold our 40 % interest in Air Hong Kong to the majority shareholder Cathay Pacific and, at the same time, agreed a 15-year partnership. In the Post - eCommerce - Parcel division, we sold our online supermarket business, Allyouneed Fresh, to Delticom AG, Hanover. Group Management Report — REPORT ON ECONOMIC POSITION — Significant events — Results of operations 41 Currency effects weigh on revenue growth Consolidated revenue rose by €1,106 million to €61,550 million in financial year 2018, although currency effects had a consider- able negative impact of €1,466 million. The proportion of rev- enue generated abroad fell slightly from 69.6 % to 69.5 %. Rev- enue for the fourth quarter of 2018 was up by €817 million to €16,926 million. It was also reduced by currency effects of €63 million. Revenue, 2018 €m 61,550 2017 60,444 Change + 1.8 % Other operating income dropped from €1,971 million to €1,914 million in the year under review. Amongst other things, this was due to higher income from the disposal of non-current assets included in this item in the previous year. Significant increase in depreciation, amortisation and impairment losses Materials expense decreased by €1,102 million to €31,673 mil- lion. The decline is attributable mainly to currency effects of €799 million and the elimination of lease expenses as a result of the initial application of IFRS 16. Transport and fuel costs, on the other hand, showed an increase. At €20,825 million, staff costs exceeded the prior-year figure (€20,072 million), largely on ac- count of new hires and provisions recognised for the early retire- ment programme in the Post - eCommerce - Parcel division. Cur- rency effects reduced the staff cost figure by €335 million. The application of IFRS 16, in particular, caused depreciation, amort- isation and impairment losses to rise sharply, by €1,821 million to €3,292 million. Other operating expenses rose from €4,526 mil- lion to €4,597 million, amongst other things because of negative effects from customer contracts amounting to €49 million. Changes in revenue, other operating income and operating expenses, 2018  A.34 € m + / – % Revenue Other operating income Materials expense 61,550 1,914 31,673 1.8 • Currency effects reduce figure by €1,466 million –2.9 • Prior-year figure included higher income from the disposal of non-current assets –3.4 • Currency effects reduce figure by €799 million • Reduction due to initial application of IFRS 16 • Higher transport and fuel costs Staff costs 20,825 3.8 • Rise in headcount • Expense of €400 million for early retirement programme in the PeP division • Currency effects reduce figure by €335 million Depreciation, amortisation and impairment losses 3,292 > 100 • Increase due to initial application of IFRS 16 Other operating expenses 4,597 1.6 • Figure includes negative effect from customer contracts amounting to €49 million Consolidated EBIT down by 15.5 % In the year under review, consolidated EBIT stood at €3,162 mil- lion, 15.5 % below the previous year’s level (€3,741 million). EBIT in the fourth quarter was down €47 million to €1,134 million. Net finance costs widened from €–411 million to €–576 million in full- year 2018, due primarily to interest expenses on lease liabil- ities.  Profit before income taxes declined by €744 million to €2,586 million. Income taxes also fell, dropping by €115 million to €362 million. EBIT 2018 €m 3,162 2017 3,741 Change – 15.5 % 42 Deutsche Post DHL Group — 2018 Annual Report Consolidated net profit below prior­year figure Consolidated net profit for the period fell from €2,853 million to €2,224 million in financial year 2018. Of this amount, €2,075 mil- lion was attributable to Deutsche Post AG shareholders and €149 million to non-controlling interest shareholders. Basic earn- ings per share declined from €2.24 to €1.69 and diluted earnings per share from €2.15 to €1.66. Dividend of €1.15 per share proposed Our finance strategy calls for a payout of 40 % to 60 % of net prof- its as dividends as a general rule. The Board of Management and the Supervisory Board will therefore propose a dividend of €1.15 per share for financial year 2018 to shareholders at the Annual General Meeting on 15 May 2019 (previous year: €1.15). The pay- out ratio in relation to consolidated net profit attributable to the shareholders of Deutsche Post AG amounts to 68.4%. Adjusted for one-off effects, the payout ratio is 55.4 %. The dividend yield based upon the year-end closing price for our shares is 4.8%. The dividend will be distributed on 20 May 2019 and is tax-free for shareholders resident in Germany. It does not entitle recipients to a tax refund or a tax credit. Total dividend and dividend per no­par value share  A.35 EBIT after asset charge (EAC) declines significantly EAC declined from €2,175 million to €716 million in 2018. In addition to the steep decrease in EBIT, the imputed asset charge rose sharply due to the lease assets recognised additionally in accordance with IFRS 16, as a result of which EAC fell at a greater rate than EBIT. EBIT after asset charge (EAC) € m EBIT   Asset charge   EAC 2017 3,741 –1,566 2,175 2018 3,162 –2,446 716  A.36 + / – % –15.5 – 56.2 – 67.1 The net asset base on the reporting date rose by around €11.2 bil- lion to €28,594 million, due mainly to the additional lease assets recognised as property, plant and equipment. This item was in- creased further by investments in IT systems, the purchase of freight aircraft, and replacement and expansion investments in warehouses, sorting systems and the vehicle fleet. Net working capital rose year-on-year. Operating provisions declined year-on-year, whereas other non-current assets and liabilities rose. €m 846 0.70 968 0.80 1,030 1,027 0.85 0.85 1,409 1,419 Net asset base (consolidated) 1 1.15 1.15 € m 1,270 1.05 Intangible assets and property, plant and equipment   Net working capital   Operating provisions (excluding provisions for pensions and similar obligations)   Other non-current assets and liabilities   Net asset base 31 Dec.  2017 31 Dec.  2018  A.37 + / – % 20,594 –1,095 31,254 – 919 51.8 16.1 –2,089 –1,865 10.7 31 124 17,441 28,594 > 100 63.9 1 Assets and liabilities as described in the segment reporting, note 10 to the consolidated financial statements. 12 13 14 15 16 17 18 1  Dividend per no-par value share (€) 1 Proposal. Group Management Report — REPORT ON ECONOMIC POSITION — Results of operations — Financial position 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 43  A.38 2017 3,135 119 3,297 –2,091 –1,087 2018 3,017 –20 5,796 –2,777 –3,039 Q 4 2017 Q 4 2018 3,135 1,596 1,527 –1,042 1,111 3,017 809 2,652 –1,481 –362 Financial management is a centralised function in the Group The Group’s financial management activities include managing 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 headquarters in Bonn, which is supported by three Regional Treasury Centres in Bonn (Germany), Weston (Florida, USA) and Singapore. The regional centres act as inter- faces between Group headquarters and the operating companies, advise the companies on financial management issues and en- sure 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 finan- cial stability and flexibility over the long term. In order to main- tain its unrestricted access to the capital markets, the Group continues to aim for a credit rating appropriate to the sector. 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 share- holders, the strategy also takes creditor requirements into ac- count. 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. A key component of this strategy is having a target rating of “BBB+”, which is managed via a dynamic performance metric known as funds from operations to debt (FFO to debt). Our strat- egy additionally includes a long-term dividend policy and clear priorities regarding excess liquidity, which is to be used to distrib- ute special dividends or to buy back shares. Finance strategy  A.39 Credit rating 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 • Pay out special dividends or implement share buyback programme. Debt portfolio • Syndicated credit facility taken out as liquidity reserve. • Debt Issuance Programme established for issuing bonds. • Bonds issued to cover long-term capital requirements. Group • Preserve financial and strategic flexibility. • Assure low cost of capital. 44 Deutsche Post DHL Group — 2018 Annual Report 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)  A.40 2017 2018 3,418 6,079 52 160 1,641 567 5,518 52 526 0 309 5,914 Reported financial liabilities 6,050 16,462   Financial liabilities at fair value through profit or loss   Adjustment for operating leases   Adjustment for pensions   Surplus cash and near-cash investments 1   Debt FFO to debt (%) 44 9,406 4,323 2,503 38 0 4,110 2,683 17,232 17,851 32.0 33.1 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 cal- culation 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 pension liabilities funded by provisions. Although the debt level rose, the FFO to debt performance metric saw a year-on-year increase in the year under review be- cause funds from operations increased at a faster pace than debt. Funds from operations rose by €396 million to €5,914 mil- lion. Operating cash flow before changes in working capital in- creased significantly due to the further funding of pension obli- gations in the previous year. In addition, the application of IFRS 16 increased operating cash flow and, at the same time, reduced the adjustment for operating leases. The amount of interest paid went up because it now includes interest paid on leases. The ad- justment for pensions declined year-on-year as a result of lower funding of pension obligations in the year under review. Debt rose by €619 million to €17,851 million compared with the previous year. Reported financial liabilities increased due to a bond issue in December in the amount of €0.75 billion and the issuance in September of promissory note loans in the amount of €0.5 billion. However, they were reduced by the repayment of a €0.5 billion bond in October and the conversion or repayment of shares in the 2012 convertible bond in the amount of €0.1 bil- lion. In addition, reported financial liabilities increased as they include lease liabilities under IFRS 16 in the year under review, which also explains the discontinuation in the adjustment for op- erating leases, note 41 to the consolidated financial statements. Cash and liquidity managed centrally The cash and liquidity of our globally operating subsidiaries is managed centrally by Corporate Treasury. A total of 80 % of the Group’s external revenue is consolidated in cash pools and used to balance internal liquidity needs. In countries where this prac- tice is ruled out for legal reasons, internal and external borrowing and investment are managed centrally by Corporate Treasury. In this context, we observe a balanced banking policy in order to remain independent of individual 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 pro- cesses and IT systems. Many Group companies pool their exter- nal payment transactions in the intra-group Payment Factory, which executes payments on behalf of the companies via Deutsche Post AG’s central bank accounts. Limiting market risk The Group uses both primary and derivative financial instruments to limit market risk. Interest rate risk is managed exclusively via swaps. Currency risk is additionally hedged using forward trans- actions, cross-currency swaps and options. We pass on most of the risk arising from commodity fluctuations to our customers and, to some extent, use commodity swaps to manage the re- maining risk. The parameters, responsibilities and controls gov- erning the use of derivatives 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 stability and also provides adequate flexibility. Our most important source of funds is net cash from operating activities. We also have a syndicated credit facility in a total volume of €2 billion that guarantees us favourable market conditions and acts as a secure, long-term liquidity reserve. The facility was re- negotiated in the year under review and now runs until 2023. It includes two renewal options of one year each, and does not con- tain any covenants concerning the Group’s financial indicators. Thanks to our solid liquidity situation, the syndicated credit facil- ity 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 requirements through other in- dependent sources of financing, such as bonds, promissory note loans and leases. Most debt is taken out centrally in order to le v- erage economies of scale and specialisation benefits and hence minimise borrowing costs. Group Management Report — REPORT ON ECONOMIC POSITION — Financial position 45 In December 2018, we issued a bond in a volume of €0.75 bil- lion as part of the up to €8 billion Debt Issuance Programme es- tablished in 2012. In September, the Group also issued promis- sory note loans for the first time in a total volume of €0.5 billion. The cash proceeds were used to refinance existing financial li- abilities and to purchase aircraft. One bond in the amount of €0.5 billion was repaid in the year under review. The outstanding €0.1 billion of the convertible bond issued in 2012 was converted or repaid in full. Further note 41 to the consolidated information on bonds is contained in No change in the Group’s credit rating The ratings of “BBB+” issued by Fitch Ratings (Fitch) and “A3” is- sued by Moody’s Investors Service (Moody’s) remain 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 fol- lowing table shows the ratings as at the reporting date and the under lying factors. The complete and current analyses by the  rating agencies and the rating categories can be found at dpdhl.com/en/investors. financial statements. Sureties, letters of comfort and guarantees Deutsche Post AG provides security for the loan agreements, leases and supplier contracts entered into by Group companies, associates and joint ventures by issuing sureties, letters of comfort or guaran- tees as needed. This practice allows better conditions to be nego- tiated locally. The sureties are provided and monitored centrally. Agency ratings Fitch Ratings Long-term: BBB+ Short-term: F2 Outlook: stable  Rating factors No change in the Group’s credit ratings of BBB+ and A3  A.41 Moody’s Investors Service Long-term: A3 Short-term: P–2 Outlook: stable  Rating factors • Balanced business risk profile. • Growth in internet-led parcel volumes. • Strong position in global time-definite express services with continued growth and margin improvement. • Solid financial metrics and good liquidity.  Rating factors • Scale and global presence as the world’s largest logistics company. • Large and robust mail business in Germany. • Solid financial metrics, conservative financial policy and excellent liquidity profile.  Rating factors • Structural mail volume decline in the Post - eCommerce - Parcel division and challenges in managing the cost structure in the division. • Exposure to global market volatility and competitiveness through the DHL divisions. • Challenges in the Post - eCommerce - Parcel division. • Exposure to highly competitive mature markets and volatile market conditions in the logistics business. • Structural decline of traditional postal services. • Restructuring costs and higher capital spending. Liquidity and sources of funds As at the reporting date, the Group had cash and cash equivalents of €3.0 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 de- posited in existing bank accounts. These central, short-term financial investments had a volume of €1.5 billion as at the report- ing date (previous year: €1.7 billion). In addition, €0.8 billion was invested in a money market fund (previous year: €0.5 billion). The following table gives a break- down of the financial liabilities reported in the balance sheet. note 41 to the consolidated Additional information is provided in financial statements. 46 Deutsche Post DHL Group — 2018 Annual Report Financial liabilities € m Lease liabilities Bonds Promissory note loans Amounts due to banks Financial liabilities measured at fair value through profit or loss Other financial liabilities  A.42 2018 9,859 5,472 499 264 38 330 2017 181 5,350 0 156 44 319 6,050 16,462 Higher capital expenditure for assets acquired Investments in property, plant and equipment and intangible assets (excluding goodwill) for assets acquired amounted to €2,648 million in the year under review (previous year: €2,268 mil- lion). Please refer to notes 10, 22 and 23 to the consolidated financial statements for a breakdown of capital expenditure (capex) into asset classes and regions. Capex and depreciation, amortisation and impairment losses, full year PeP adjusted 1 Express Global Forwarding, Freight Supply Chain Corporate Functions adjusted 1 Consolidation 1, 2  A.43 Group 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 Capex (€ m) relating to assets acquired Capex (€ m) relating to leased assets Total (€ m) Depreciation, amortisation and impairment losses (€ m) Ratio of total capex to depreciation, amortisation and impairment losses 618 786 1,047 1,190 4 622 176 962 2 739 1,049 1,929 353 454 525 1,152 69 1 70 70 110 277 282 241 290 158 268 0 805 2 277 1,087 243 518 808 238 319 826 203 623 1.76 2.12 2.00 1.67 1.00 1.13 0.87 1.32 1.20 1.30 16 0 16 1 – –10 2,268 2,648 1 9 2,397 – 9 2,277 5,045 –1 1,471 3,292 – 1.55 1.53 1 Reclassification of Corporate Incubations to Corporate Functions. 2 Including rounding. Capex and depreciation, amortisation and impairment losses, Q 4 PeP adjusted 1 Express Global Forwarding, Freight Supply Chain Corporate Functions adjusted 1 Consolidation 1, 2  A.44 Group 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 Capex (€ m) relating to assets acquired Capex (€ m) relating to leased assets Total (€ m) Depreciation, amortisation and impairment losses (€ m) Ratio of total capex to depreciation, amortisation and impairment losses 298 245 605 511 1 299 81 326 0 605 102 613 88 121 132 312 18 0 18 19 35 37 72 65 83 0 83 99 82 142 111 216 298 2 144 143 254 217 52 164 3.40 2.69 4.58 1.96 0.95 1.11 0.84 1.37 2.77 1.55 0 0 0 0 – –39 1,146 945 2 3 581 –37 1,149 1,526 –1 390 878 – 2.95 1.74 1 Reclassification of Corporate Incubations to Corporate Functions. 2 Including rounding. Group Management Report — REPORT ON ECONOMIC POSITION — Financial position 47 In the Post - eCommerce - Parcel division, the largest share of capex was attributable to the expansion of the infrastructure for the Post and Parcel business in Germany. In the Express division, we invested in the expansion of our network infrastructure, particularly in Madrid, Hong Kong, Cin- cinnati and Leipzig. Capital spending also focussed upon con- tinuous maintenance and renewal of our aircraft fleet, including advance payments for the planned renewal of the Express inter- continental aircraft fleet. In the Global Forwarding, Freight division, we invested 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. At Corporate Functions, investments rose and were made increasingly in the vehicle fleet and in the expanded production of StreetScooter electric vehicles. Higher operating cash flow Net cash from operating activities increased by €2,499 million to €5,796 million in financial year 2018. All non-cash income and expenses were eliminated based upon EBIT, which at €3,162 mil- lion was down substantially on the prior-year figure (€3,741 mil- lion). Depreciation, amortisation and impairment losses rose from €1,471 million to €3,292 million due to the initial recogni- tion of lease assets. Provisions changed from €–940 million to €282 million due to factors including the provisions recognised for the early retirement programme in the Post - eCommerce - Parcel division. In the prior year, €495 million was used to finance pension obligations in the United Kingdom. Net cash from operating activities before changes in working capital increased sharply, by €2,661 million to €6,079 million. The cash outflow from changes in working capital rose by €162 million, due primarily to a reduction in liabilities and other items. At €2,777 million, net cash used in investing activities consid- erably exceeded the level of the previous year (€2,091 million), a period affected primarily by the sale of the Williams Lea Tag Group, which generated proceeds from the disposal of subsid- iaries and other business units totalling €316 million. The cash outflow to acquire property, plant and equipment and intangible assets was €446 million higher than in the previous year (€2,203 million). 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 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 inflow/outflow from acquisitions/divestitures Proceeds from lease receivables Repayment of lease liabilities Interest on lease liabilities Cash outflow from leases Interest received Interest paid Net interest paid Free cash flow 2017 3,297 236 –2,203 –1,967 316 3 – 54 – 55 210 – – – – 52 –160 –108 2018 5,796 151 –2,649 –2,498 14 23 – 58 –39 – 60 17 –1,722 –376 –2,081 52 –150 – 98 1,432 1,059  A.45 Q 4 2017 Q 4 2018 1,527 2,652 135 – 914 –779 316 0 0 –32 284 – – – – 12 – 69 – 57 975 105 – 851 –746 9 23 0 – 6 26 4 – 465 – 99 – 560 13 –78 – 65 1,307 48 Deutsche Post DHL Group — 2018 Annual Report In order to ensure the comparability of free cash flow figures after the initial application of IFRS 16, the cash outflows from inter est payments and the repayment of lease liabilities have been in- cluded in addition to the depreciation of, and impairment losses on, lease assets. Free cash flow deteriorated from €1,432 million to €1,059 million for reasons including a €531 million increase in the cash outflow from the change in property, plant and equip- ment and intangible assets compared with the prior-year figure (€1,967 million) and an increase in the cash outflow from changes in working capital. At €3,039 million, net cash used in financing activities was €1,952 million higher than in the prior-year period (€1,087 mil- lion). The reasons for this include lease payments in the year under review. Shareholders were also paid dividends of €1,409 million and we repaid a €500 million bond. By contrast, we issued promissory note loans totalling €500 million and a bond in the amount of €750 million. In the previous year, the pur- chase of treasury shares led to a cash outflow of €148 million and in June 2017 we repaid a bond. Cash and cash equivalents declined from €3,135 million as at 31 December 2017 to €3,017 million. Net assets Selected indicators for net assets Equity ratio Net debt Net interest cover Net gearing 31 Dec. 2017 33.4 1,938 34.6 13.1 % € m %  A.46 31 Dec. 2018 27.5 12,303 6.7 47.0 Consolidated total assets up sharply The Group’s total assets amounted to €50,470 million as at 31 De- cember 2018, €11,798 million higher than at 31 December 2017 (€38,672 million). Non-current assets increased substantially due to the appli- cation of IFRS 16. The initial recognition of right-of-use assets from leases increased property, plant and equipment by €9.1 bil- lion. Other non-current assets rose by €122 million to €353 mil- lion on account of the increase in pension assets. We invested surplus funds in the capital markets, increasing current financial assets from €652 million to €943 million. As a result of the appli- cation of IFRS 15, other current assets were also up €185 million note 4 to the consolidated financial statements. to €2,369 million, Assets held for sale climbed sharply by €422 million to €426 mil- lion, mainly as the result of reclassification of all of the assets of our supply chain business in China. On the equity and liabilities side of the balance sheet, equity attributable to Deutsche Post AG shareholders stood at €13,590 million, well above the level as at 31 December 2017 (€12,637 million): the consolidated net profit for the period, ac- tuarial gains from pension obligations and a capital increase in connection with the convertible bond increased this figure, whilst the dividend payment decreased it. Financial liabilities were up considerably, from €6,050 million to €16,462 million, due in par- ticular to the initial recognition of lease liabilities of €9.2 billion. In addition, we issued a bond in the amount of €750 million. Trade payables increased from €7,343 million to €7,422 million. At €7,130 million, provisions were slightly above the figure as Group Management Report — REPORT ON ECONOMIC POSITION — Financial position — Net assets 49 Net debt € m Non-current financial liabilities   Current financial liabilities   Financial liabilities 1   Cash and cash equivalents   Current financial assets   Positive fair value of non-current financial derivatives  2   Financial assets Net debt  A.47 31 Dec. 2017 31 Dec. 2018 5,101 794 5,895 3,135 652 170 3,957 1,938 13,838 2,425 16,263 3,017 943 0 3,960 12,303 1 Less operating financial liabilities. 2 Recognised in non-current financial assets in the balance sheet. at 31 December 2017 (€7,078 million). Whilst the provisions for pensions declined, there was an increase in provisions for the early retirement programme in the PeP division. The planned sale of the supply chain business in China caused liabilities associated with assets held for sale to rise to €228 million. Net debt increases to €12,303 million Our net debt rose from €1,938 million as at 31 December 2017 to €12,303 million as at 31 December 2018, mainly on account of the initial recognition of lease liabilities in accordance with IFRS 16. At 27.5 %, the equity ratio was well below the figure as at 31 December 2017 (33.4 %), primarily because the application of IFRS 16 caused total assets to rise. The net interest cover ratio indicates the extent to which net interest obligations are covered by EBIT. This figure declined from 34.6 to 6.7 due to interest pay- ments on lease liabilities incurred as a result of IFRS 16. Net gear- ing was 47.0 % as at 31 December 2018. Balance sheet structure of the Group as at 31 December € m ASSETS 38,672 30 % 23 % 21 % 26 % 50,470 23 % 38 % 16 % 23 % Equity Non-current provisions and liabilities Current provisions and liabilities Intangible assets Property, plant and equipment Trade receivables Other assets  A.48 EQUITY AND LIABILITIES 50,470 27 % 40 % 33 % 38,672 33 % 30 % 37 % 2017 2018 2017 2018 50 Deutsche Post DHL Group — 2018 Annual Report Business performance in the divisions POST - ECOMMERCE - PARCEL DIVISION Key figures of the Post ­ eCommerce ­ Parcel division €m Revenue of which Post eCommerce - Parcel Other/Consolidation PeP Profit from operating activities (EBIT) of which Germany International Parcel and eCommerce Return on sales (%) 2 Operating cash flow  A.49 2017 adjusted 1 2018 +/– % Q 4 2017 adjusted 1 Q 4 2018 +/– % 18,161 18,476 9,956 8,482 –277 1,503 1,495 8 8.3 9,709 9,073 –306 656 658 –2 3.6 1.7 –2.5 7.0 –10.5 – 56.4 – 56.0 < –100 – 1,559 1,263 –19.0 5,047 2,688 2,432 –73 511 505 6 10.1 836 5,125 2,611 2,604 – 90 366 364 2 7.1 648 1.5 –2.9 7.1 –23.3 –28.4 –27.9 – 66.7 – –22.5 1 Conversion of reporting to the business unit consolidated view and reclassification of business areas. 2 EBIT/revenue. Revenue exceeds previous year’s level In the year under review, revenue in the division was €18,476 mil- lion, 1.7 % above the prior-year figure of €18,161 million, although there were 0.7 fewer working days in Germany. Most of the growth originated in the eCommerce  - Parcel business unit. Negative currency effects of €93 million reduced revenue in 2018. Excluding these effects, the increase in revenue was 2.2 %. Divisional revenue for the fourth quarter was up 1.5 % compared with the prior-year period. Post: revenue €m Mail Communication Dialogue Marketing Other/Consolidation Post Total Revenue declines in the Post business unit In the Post business unit, revenue was €9,709 million in the year  under review and thus 2.5 % below the prior-year level of €9,956 million. Volumes declined by 4.2 %. Fourth-quarter rev- enue decreased by 2.9 % to €2,611 million (previous year: €2,688 million). Progressive electronic substitution and fewer special events than in the previous year, such as elections, caused volumes in Mail Communication to decline as expected. In Dialogue Market- ing, the absence of special events also led to declining revenues and volumes. Revenue in the cross-border mail business rose significantly.  A.50 2017 adjusted 1 6,401 2,333 1,222 9,956 2018 +/– % Q 4 2017 adjusted 1 Q 4 2018 +/– % 6,303 2,205 1,201 9,709 –1.5 – 5.5 –1.7 –2.5 1,720 1,696 656 312 602 313 2,688 2,611 –1.4 – 8.2 0.3 –2.9 1 Conversion of reporting to the business unit consolidated view and reclassification of business areas. Group Management Report — REPORT ON ECONOMIC POSITION — Business performance in the divisions 51 Post: volumes Mail items (millions) Total of which Mail Communication of which Dialogue Marketing 2017 adjusted 1 2018 +/– % 18,590 17,818 7,964 8,874 7,707 8,417 – 4.2 –3.2 – 5.1 Q 4 2017 adjusted 1 4,935 2,079 2,393  A.51 Q 4 2018 +/– % 4,760 2,067 2,235 –3.5 – 0.6 – 6.6 1 Conversion of reporting to the business unit consolidated view and reclassification of business areas. eCommerce ­ Parcel business unit continues to grow Revenue in the eCommerce - Parcel business unit was €9,073 mil- lion in the year under review, exceeding the prior-year figure of €8,482 million by 7.0 %. In the fourth quarter of 2018, revenue grew by 7.1 %. The Parcel business in Germany continued to grow steadily due to the strong e-commerce trend. Revenue in the Parcel Ger- many business increased by 7.1 % to €5,556 million in 2018 (pre- vious year: €5,190 million). Volumes rose by 7.5 % to 1,479 million parcels. Our domestic and cross-border parcel business in Europe is also continuing to perform dynamically. In the Parcel Europe business, revenue in 2018 grew by 10.6 % to €2,216 million (pre- vious year: €2,004 million). Revenue in the DHL eCommerce business was up by 6.9 % to  €1,650 million in the year under review (previous year: €1,544 million) due to the US domestic business as well as busi- ness in Asia. Excluding currency effects, growth was 12.0 %. eCommerce ­ Parcel: revenue €m Parcel Germany Parcel Europe 2 Consolidation Parcel Parcel total DHL eCommerce 3 Total 1 Conversion of reporting to the business unit consolidated view and reclassification of business areas. 2 Excluding Germany. 3 Outside Europe. Parcel Germany: volumes Parcels (millions) Total 1 Conversion of reporting to the business unit consolidated view. 2017 adjusted 1 2018 +/– % Q 4 2017 adjusted 1 Q 4 2018 +/– %  A.52 5,190 2,004 –256 6,938 1,544 8,482 5,556 2,216 –349 7,423 1,650 9,073 7.1 10.6 –36.3 7.0 6.9 7.0 1,533 1,627 558 – 80 2,011 421 2,432 609 – 98 2,138 466 2,604 6.1 9.1 –22.5 6.3 10.7 7.1  A.53 2017 adjusted 1 2018 +/– % Q 4 2017 adjusted 1 Q 4 2018 +/– % 1,376 1,479 7.5 410 432 5.4 EBIT declines significantly due to restructuring expenses The division’s EBIT declined significantly due to the restructuring measures resolved in the middle of the year. In 2018, EBIT was €656 million (previous year: €1,503 million). The decrease was due mainly to higher costs for material and labour – including €400 million for the early retirement programme – as well as on-going investments in the parcel network. These were partly offset by non-recurring income from the remeasurement of pen- sion obligations in the amount of €108 million. Return on sales fell to 3.6 % (previous year: 8.3 %). Restructuring expenses and the effects of collective bargaining agreements, in particular, re- duced divisional EBIT in the fourth quarter from €511 million in the previous year to €366 million. Operating cash flow fell from €1,559 million to €1,263 million in the year under review. It was influenced significantly by the decline in EBIT. In addition, it was impacted by the conversion of bonus payments for employees covered by collective bargaining agreements into fixed salary under the current agreement. 52 Deutsche Post DHL Group — 2018 Annual Report 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 (%) 1 Operating cash flow 1 EBIT/revenue.  A.54 2017 15,049 6,696 3,010 5,556 1,110 2018 16,147 7,245 3,296 5,740 1,142 –1,323 –1,276 1,736 11.5 2,212 1,957 12.1 3,073 + / – % Q 4 2017 Q 4 2018 + / – % 7.3 8.2 9.5 3.3 2.9 3.6 12.7 – 38.9 4,059 1,841 813 1,454 283 –332 499 12.3 723 4,423 1,972 913 1,585 300 –347 570 12.9 905 9.0 7.1 12.3 9.0 6.0 – 4.5 14.2 – 25.2 International business continues to grow Revenue in the division improved by 7.3 % to €16,147 million in the year under review (previous year: €15,049 million). This in- cludes negative currency effects of €551 million. Excluding these effects, the increase in revenue was 11.0 %. 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 8.0 %. In the Time Definite International (TDI) product line, rev- enues per day increased by 9.6 % and per-day shipment volumes by 7.4 % in 2018. Revenues per day for the fourth quarter were up by 8.1 % and per-day shipment volumes by 6.7 %. In the Time Definite Domestic (TDD) product line, revenues per day increased by 7.0 % and per-day shipment volumes by 6.7 % in 2018. Growth in the fourth quarter amounted to 8.5 % for revenues per day and 6.6 % for per-day volumes. Express: revenue by product € m per day 1 Time Definite International (TDI) Time Definite Domestic (TDD) 2017 adjusted 1 45.9 4.3 2018 +/– % 50.3 4.6 9.6 7.0 Q 4 2017 adjusted 1 50.8 4.7  A.55 Q 4 2018 +/– % 54.9 5.1 8.1 8.5 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. Express: volumes by product Thousands of items per day Time Definite International (TDI) Time Definite Domestic (TDD) 2017 889 461 2018 955 492 + / – % Q 4 2017 Q 4 2018 + / – % 7.4 6.7 978 512 1,044 546 6.7 6.6  A.56 Momentum in the Europe region remains high Revenue in the Europe region increased by 8.2 % to €7,245 million in the year under review (previous year: €6,696 million). This in- cluded negative currency effects of €123 million, which related mainly to Turkey and Russia. Excluding these effects, revenue growth was 10.0 %. In the TDI product line, revenues per day rose by 11.4 %; per-day TDI shipment volumes improved by 9.0 % in 2018. International per-day shipment revenues for the fourth quarter were up by 8.6 % and per-day shipment volumes by 7.4 %. Group Management Report — REPORT ON ECONOMIC POSITION — Business performance in the divisions 53 Strong revenue growth in the Americas region Revenue in the Americas region increased by 9.5 % to €3,296 mil- lion in the year under review (previous year: €3,010 million). This included negative currency effects of €172 million, which related primarily to the United States. Excluding the currency effects, the revenue increase was 15.2 %. In the TDI product line, revenues per day were up 11.9 % in 2018. Per-day shipment volumes improved by 8.5 %. Revenues per day for the fourth quarter were up by 7.7 % and per-day shipment volumes by 7.3 %. Increase in revenues and volumes in Asia Pacific region Revenue in the Asia Pacific region increased by 3.3 % to €5,740 mil- lion in the year under review (previous year: €5,556 million). This included negative currency effects of €196 million, most of which related to India, Hong Kong and China. Excluding these effects, revenue in 2018 increased by 6.8 %. In the TDI product line, rev- enues per day improved by 6.9 % and per-day volumes by 4.7 %. Growth in the fourth quarter amounted to 7.9 % for revenues per day and 6.0 % for per-day volumes. Further improvement in international business in the MEA region Revenue in the MEA region (Middle East and Africa) improved by 2.9 % to €1,142 million in the year under review (previous year: €1,110 million). This included negative currency effects of €54 million, most of which related to the United Arab Emirates. Excluding these effects, revenue increased by 7.7 %. In the TDI product line, revenues per day were up by 8.6 % and per-day vol- umes by 10.6 %. Growth in the fourth quarter amounted to 6.7 % for revenues per day and 4.8 % for per-day volumes. EBIT and operating cash flow show significant improvement EBIT in the division rose by 12.7 % to €1,957 million in financial year 2018 (previous year: €1,736 million), driven by network im- provement and strong growth in international business. Return on sales increased from 11.5 % to 12.1 %. In the fourth quarter, EBIT improved by 14.2 % to €570 million and return on sales in- creased from 12.3 % to 12.9 %. Operating cash flow improved from €2,212 million to €3,073 million in 2018. 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.  A.57 2017 14,482 10,279 4,354 –151 297 2.1 131 2018 14,978 10,667 4,454 –143 442 3.0 523 + / – % Q 4 2017 Q 4 2018 + / – % 3.4 3.8 2.3 5.3 48.8 – >100 3,791 2,698 1,130 –37 123 3.2 119 4,002 2,883 1,156 –37 161 4.0 286 5.6 6.9 2.3 0.0 30.9 – >100 Revenue increases despite negative currency effects Revenue in the division increased by 3.4 % to €14,978 million in the year under review (previous year: €14,482 million). Excluding negative currency effects of €470 million, revenue was up by 6.7 % year-on-year. In the fourth quarter of 2018, revenue amounted to €4,002 million, exceeding the prior-year figure by 5.6 %. In the Global Forwarding business unit, revenue increased by 3.8 % to €10,667 million in 2018 (previous year: €10,279 mil- lion). Excluding negative currency effects of €389 million, the increase was 7.6 %. Gross profit is defined as revenue from trans- port or other services less directly attributable costs. These in- clude transport costs for air and ocean freight, road and rail trans- port, expenses for commissions, insurances, customs clearance and other revenue-related expenses. Gross profit improved by 4.1 % to €2,487 million (previous year: €2,390 million) despite negative currency effects. 54 Deutsche Post DHL Group — 2018 Annual Report Air and ocean freight with improved margins Air freight volumes dropped by 3.9 % in the year under review, due mainly to structural adjustments in the customer portfolio. Rev- enue increased by 6.9 % compared with the previous year thanks to rising freight rates worldwide. Gross profit from air freight improved by 9.2 %. Air freight revenue rose by 10.4 % in the fourth quarter of 2018, whilst gross profit improved by 14.6 %, despite a volume decline of 3.6 % versus the exceptionally strong prior- year fourth quarter for the air freight market. Ocean freight volumes in the year under review were 1.0 % below the level of the previous year. Here, too, we focussed in- creasingly upon high-margin volumes. Our revenue from ocean freight remained at the previous year’s level, whilst gross profit improved slightly by 0.9 %. Ocean freight revenue rose by 4.5 % and ocean freight volume by 0.5 % in the fourth quarter. The performance of our industrial project business (in the following table reported as part of Other in the Global Forward- ing business unit) improved significantly compared with the pre- vious year. The share of revenue related to industrial project busi- ness and reported under Other increased from 25.6 % in the prior year to 30.0 %. Gross profit improved by 9.4 %. Global Forwarding: revenue €m Air freight Ocean freight Other Total Global Forwarding: volumes Thousands Air freight of which exports Ocean freight 1 Twenty-foot equivalent units. 2017 4,608 3,512 2,159 2018 4,924 3,503 2,240 10,279 10,667 + / – % Q 4 2017 Q 4 2018 6.9 – 0.3 3.8 3.8 1,243 1,372 889 566 929 582 2,698 2,883 tonnes tonnes TEUs 1 2017 3,961 2,248 3,259 2018 3,806 2,150 3,225 + / – % Q 4 2017 Q 4 2018 –3.9 – 4.4 –1.0 1,037 1,000 600 820 571 824  A.58 + / – % 10.4 4.5 2.8 6.9  A.59 + / – % –3.6 – 4.8 0.5 Revenue increase in European overland transport business In the Freight business unit, revenue rose by 2.3 % to €4,454 mil- lion in the year under review (previous year: €4,354 million) de- spite negative currency effects of €84 million. The 6.5 % volume growth was driven mainly by e-commerce based business in Sweden and less-than-truckload business in Germany. The busi- ness unit’s gross profit rose by 3.4 % to €1,117 million (previous year: €1,080 million). EBIT up sharply Divisional EBIT increased significantly by 48.8 % in 2018, rising from €297 million to €442 million. The increase was due mainly to improved gross profit margins in air freight and cost measures. Return on sales rose from 2.1 % to 3.0 %. EBIT for the fourth quar- ter of 2018 improved from €123 million to €161 million and return on sales rose to 4.0 %. Operating cash flow amounted to €523 mil- lion in the year under review (previous year: €131 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. 2017 14,152 7,245 4,551 2,389 –33 555 3.9 239 2018 13,350 6,871 4,385 2,147 – 53 520 3.9 1,322 + / – % Q 4 2017 Q 4 2018 – 5.7 – 5.2 –3.6 –10.1 – 60.6 – 6.3 – >100 3,619 1,921 1,125 583 –10 184 5.1 28 3,743 1,824 1,352 578 –11 184 4.9 936 55  A.60 + / – % 3.4 – 5.0 20.2 – 0.9 –10.0 0.0 – >100 Sale of Williams Lea Tag and currency effects reduce revenue Revenue in the division fell by 5.7 % to €13,350 million in the year under review (previous year: €14,152 million). The decline was attributable mainly to the sale of the Williams Lea Tag Group in the fourth quarter of 2017. In addition, negative currency effects reduced revenue by €369 million in 2018. Excluding these effects, revenue growth was 4.3 %, due mainly to a positive business per- formance in the Americas and EMEA regions. In the fourth quar- ter, revenue was up by 3.4 % to €3,743 million (previous year: €3,619 million). In the EMEA and Americas regions, the Automotive sector recorded the highest growth rates. In the Asia Pacific region, rev- enues rose most strongly in the Retail and Engineering & Manu- facturing sectors. Supply Chain: revenue by sector and region, 2018  A.61 Total revenue: €13,350 million of which Retail Consumer Automotive Technology Life Sciences & Healthcare Others Engineering & Manufacturing of which Europe/Middle East/Africa/Consolidation Americas Asia Pacific 27 % 23 % 16 % 12 % 10 % 7 % 5 % 51 % 33 % 16 % New business worth €1,282 million secured In 2018, the division concluded additional contracts worth €1,282 million in annualised revenue with both new and existing customers. The Retail, Consumer and Automotive sectors ac- counted for the majority of the new business. The annualised contract renewal rate remained at a consistently high level. One­off effects inhibit EBIT growth EBIT in the division was €520 million in the year under review (previous year: €555 million). The figure was impacted by nega- tive one-off effects of €50 million from customer contracts and €42 million from pension obligations. Excluding these effects, the write-down of customer relationship assets in the previous year and despite adverse currency effects, EBIT improved by 4.3 % thanks to business growth and strategic initiatives. The return on sales of 3.9 % matched the previous year’s level. At €184 million, EBIT in the fourth quarter of 2018 reached the level of the prior- year quarter. Return on sales for the fourth quarter was 4.9 % (previous year: 5.1 %). Operating cash flow improved significantly, rising from €239 million to €1,322 million in 2018. In the previous year, it had been reduced by a one-time cash outflow of €459 mil- lion to further fund pension obligations. 56 Deutsche Post DHL Group — 2018 Annual Report DEUTSCHE POST SHARES Deutsche Post shares: seven­year overview Year-end closing price High Low € € € Number of shares as at 31 December Market capitalisation as at 31 December millions €m 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 2017 39.75 40.99 30.60 1,240.9 38,760 1,228.7 48,841  A.62 2018 23.91 40.96 23.72 1,236.5 29,411 Average trading volume per day 1 shares 4,052,323 4,114,460 4,019,689 4,351,223 3,497,213 2,613,290 3,770,866 Annual performance including dividends Annual performance excluding dividends Beta factor 2 Earnings per share 3 Cash flow per share 4 Price-to-earnings ratio 5 Price-to-cash flow ratio 4, 6 Dividend Payout ratio Dividend per share Dividend yield % % € € €m % € % 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 30.6 27.2 0.99 2.24 2.72 17.7 14.6 –36.9 –39.8 0.97 1.69 4.71 14.1 5.1 1,270 1,409 1,419 10 48.1 1.05 3.4 51.9 1.15 2.9 68.4 11 1.15 10 4.8 1 Volumes traded via the Xetra trading venue. 2 Three-year beta; source: Bloomberg. 3 Based upon consolidated net profit after deduction of non-controlling interests, note 20 to the consolidated financial statements. 4 Cash flow from operating activities. 5 Year-end closing price/earnings per share. 6 Year-end closing price/cash flow per share. 7 Adjusted to reflect the application of IAS 19R. 8 Reduction due to the share buyback. 9 Excluding one-off effects: 45.8 %. 10 Proposal. 11 Excluding one-off effects: 55.4%. Free float stable The investment share of our largest investor – KfW Banken- gruppe – is 20.5 % (previous year: 20.7 %) and the free float is 79.5 %. Based upon our share register’s figures, the share of out- standing stock held by private investors is 12.7 % (previous year: 11.1 %). In terms of the regional distribution of identified institutional investors, the highest percentage of shares (15.8 %) is held by US investors (previous year: 15.8 %), followed by the United Kingdom with a share of 12.2 % (previous year: 13.8 %). The share of insti- tutional investors in Germany decreased to 11.3 % (previous year: 12.0 %). Our 25 largest institutional investors held a total of 32.7 % of all issued shares (previous year: 38.9 %). Shareholder structure 1  A.63 Shareholder structure by region 1  A.64 b2 a b b1 c d b a a KfW Bankengruppe b Free float b 1 Institutional investors b 2 Private investors 1 At 31 December 2018. 20.5 % 79.5 % 66.8 % 12.7 % a Germany b Other c USA d UK 1 At 31 December 2018. 44.5 % 27.5 % 15.8 % 12.2 % Group Management Report — DEUTSCHE POST SHARES — NON-FINANCIAL KEY PERFORMANCE INDICATORS — Employees 57 NON-FINANCIAL KEY PERFORMANCE INDICATORS Employees Meeting changes in the professional world Digital transformation in the professional world is changing job descriptions as well as creating new fields of activity. We ensure that our employees are optimally prepared for new opportunities and changing requirements in their working environment and involve them in the process of change. This places particular de- mands on our managers, who follow defined leadership prin- ciples to give them the necessary foundation for creating a mo- tivating working environment that fosters open communication and in which employees feel valued. Selected results from the Employee Opinion Survey Our annual Group-wide Employee Opinion Survey comprises 41 questions categorised in ten key performance indicators and one index. In the year under review, the results achieved were the same or better than in the previous year in each survey category. The results also surpassed external benchmarks in nearly all cases. The stable response rate of 76 % again underscores the survey’s high acceptance level. Selected results from the Employee Opinion Survey  A.65 % Response rate Positive rating of Active Leadership KPI Positive rating of Employee Engagement KPI 2017 2018 76 75 75 76 76 76 Number of employees continues to rise As at 31 December 2018, we employed 499,018 full-time equiva- lents, or 5.7 % more than in the previous year. The headcount at the end of the year was 547,459. Female employees made up 34.8 % of our global workforce and hold 22.1 % of all upper and mid-level management positions (previous year: 21.5 %). As in the previous year, 18 % of all employees took advantage of the opportunity for part-time employment. Another 9.2 % of working-age employees left the Group outside any agreed plans (previous year: 8.5 %). In the Post - eCommerce - Parcel division, we hired new em- ployees in particular for the eCommerce - Parcel business unit’s rapidly growing operations in Germany, elsewhere in Europe, Asia and the Americas. The number of employees in the Express division increased compared with the previous year. Most of the new hires were in the area of operations due to the increase in shipment volumes. In the Global Forwarding, Freight division, the bulk of our new personnel was hired for positions in our shared service centres in Asia. In the Supply Chain division, the number of employees increased due to the acquisition of the Suppla Group as well as additional business with both new and existing clients. Employee levels were up in all regions. We reported the larg- est percentage increase in the Asia Pacific region, although we continue to employ most of our personnel in Germany. In Germany and some neighbouring countries, we offer an opportunity to enrol in dual-study apprenticeship programmes consisting of in-house training combined with programmes at state vocational schools. In 2018, we offered 2,670 positions in our apprenticeship and study programmes. Our current planning foresees another slight increase in the number of employees for financial year 2019. Number of employees  A.66 2017 2018 +/– % 5.7 4.8 5.4 4.3 7.1 8.3 3.7 3.8 9.4 9.8 3.0 4.4 5.4 4.1 Full­time equivalents At year-end 1 of which Post - eCommerce - Parcel 2 Express Global Forwarding, Freight Supply Chain 472,208 499,018 183,430 192,237 90,784 95,717 41,034 42,783 145,575 155,954 Corporate Functions 2 11,385 12,327 of which Germany 180,479 187,103 Europe (excluding Germany) Americas Asia Pacific Other regions 114,360 118,745 82,887 76,081 18,401 90,648 83,561 18,961 Average for the year 3 468,724 489,571 Headcount At year-end 3 Average for the year of which hourly workers and salaried employees Civil servants Trainees 519,544 547,459 513,338 534,370 477,251 499,943 30,468 5,619 28,718 5,709 4.8 – 5.7 1.6 1 Excluding trainees. 2 Transfers from the Post - eCommerce - Parcel division to Corporate Functions note 10 to the consolidated financial statements. 3 Including trainees. 58 Deutsche Post DHL Group — 2018 Annual Report Employees 2018 Headcount at year­end including trainees Safety and health 547,459 Occupational safety: always the top priority In the area of safety and health, our focus lies on systematic pre- vention. The applicable standards are described in our Occupa- tional Health & Safety Policy Statement. 2017 519,544 Change + 5.4 % Workplace accidents Performance­based and market­based pay At €20,825 million, staff costs exceeded the prior-year figure of note 15 to the consoli- €20,072 million. Details can be found in Accident rate (number of accidents per 200,000 hours worked) Working days lost per accident Number of fatalities due to workplace accidents of which as a result of traffic accidents  A.67 2017 2018 4.4 15.3 3 1 4.3 15.8 8 3 dated financial statements. We foster employee loyalty and motivation by offering per- formance-based pay in line with market standards, supplemented by, amongst other things, contributions to defined benefit and defined contribution pension plans. In April 2018, a collective agreement was reached for the approximately 130,000 employees of Deutsche Post AG subject to collective bargaining. For the first time, the agreement offered employees the opportunity to decide if they wish to benefit from additional time off or from a wage increase. The option was avail- able in October 2018 and will again be available in October 2019. The new collective agreement has a term of 28 months and runs until 31 May 2020. Further details on remuneration components can be found Corporate Responsibility Report, dpdhl.com/cr­report2018. in our Responding to demographic change We have concluded a Generations Pact with the trade unions in response to demographic change in Germany and for the purpose of ensuring an ageing-friendly workplace. A total of 25,464 of our non-civil servant employees maintain a working time account in line with this proven model and 4,115 are in partial retirement. The collective agreement concluded in 2018 included additional significant improvements in partial-retirement conditions. Since 2016, we have also been offering comparable arrangements for civil servants, 4,017 of whom have established a lifetime working account and 1,317 have entered partial retirement. A total of €400 million was spent in the year under review on an early retirement programme aimed at civil servants in over- head areas in the Post - eCommerce - Parcel division. The main condition for taking advantage of the Engaged Retirement pro- gramme is that the civil servant is working in an area with a sur- plus of personnel and cannot be employed elsewhere in the com- pany or administrative organisations. Moreover, there must be no operational or business-related objections to placement in the programme. The civil servant must also commit to social involve- ment within the first three years of commencing retirement. Most accidents occur in connection with pick-up and delivery. The Group’s accident rate fell slightly in 2018. We report on oc- cupational safety measures and targets and describe the changes in the accident data for the divisions and regions in more detail in our Corporate Responsibility Report, dpdhl.com/cr­report2018. Bolstering health We foster our employees’ awareness of a healthy lifestyle through health-related projects and local initiatives. In 2018, stress management and dealing with mental health issues were again topics of focus. Our Group-wide employee benefits pro- gramme also enables employees outside of Germany to enjoy primary or supplementary health insurance benefits. The world- wide illness rate was 5.3 % in 2018 (previous year: 5.2 %). Corporate responsibility Commitment to shared values We conduct our business in accordance with applicable laws, eth- ical and ecological standards, and international guidelines. Through ongoing 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 sys- tematically with these interests. Group Management Report — NON-FINANCIAL KEY PERFORMANCE INDICATORS — Employees — Safety and health — Corporate responsibility 59 We use our expertise as a mail and logistics services group for the benefit of society and the environment, for example by providing logistical support following natural disasters, prepar- ing airports for appropriate scenarios, helping to improve career opportunities for socially disadvantaged young people and sup- porting our employees’ local projects. With measures to increase CO2 efficiency and an environ- mentally friendly product range, we uphold our responsibility to the environment and strengthen our own market position at the same time. One area we focussed upon in the year under review was further increasing the proportion of electric vehicles in our fleet. CO2e emissions, 2018 Total: 29.48 million tonnes 1 13% Ocean transport 64%Air transport 21% Ground transport  A.68 2% Buildings 1 Scope 1 to Scope 3. Efficiency target met We use a carbon efficiency index (CEX) to measure and manage our greenhouse gas efficiency, Management, page 23. In 2018, our direct (Scope 1) and indirect (Scope 2) greenhouse gas emis- sions amounted to 6.57 million tonnes of CO2e (previous year: 6.34 million tonnes of CO2e). The indirect greenhouse gas emis- sions (Scope 3) of our transport subcontractors amounted to 22.91 million tonnes of CO2e (previous year, adjusted: 22.52 mil- lion tonnes of CO2e). Amongst other things, we set ourselves the environmental target of improving our CEX by 50 % by 2025 compared with the base year of 2007. We already achieved an improvement of 33 % versus 2007 in 2018, thus reaching our goal of improving the CEX by one index point compared with the prior year. Efficiency im- provements in road transport and the increased use of renewable energy sources as well as a more efficient ocean freight business, which this year for the first time includes a detour surcharge in accordance with the recommendation of the Clean Cargo Work- ing Group (CCWG), contributed to this result. Additional information on our environmental activities and Corporate Responsibility Report, dpdhl. targets is included in our com/cr­report2018. Fuel and energy consumption in company fleet and buildings  A.69 Consumption by fleet Air transport (jet fuel) Road transport (petrol, biodiesel, diesel, bio-ethanol, LPG) Road transport (biogas, CNG, LNG) Energy for buildings and facilities (including electric vehicles) million kilograms million litres million kilograms million kilowatt hours 2017 2018 1,406.3 1,518.1 451.1 464.7 3.6 4.2 3,194 3,194 Deutsche Post DHL Group — 2018 Annual Report 94.3 % satisfied customers according to Kundenmonitor Deutschland Another key quality indicator for us is environmental protection, which we describe in our Corporate Responsibility Report, dpdhl. com/cr­report2018. In the area of electric mobility, which is stra- tegically important to us, we put around 4,000 vehicles into oper- ation in the year under review. As a result, we expanded emission- free delivery, particularly in Aachen, Bonn, Essen, Hamburg, Cologne and Stuttgart. The electric StreetScooter Work XL vehicle has also been used for parcel delivery since 2018 and the first electric lorries are now being used for delivery to major customers. Around 4,000 electric vehicles put into operation in 2018 Service quality and insanely customer centric culture in the express business As a global network operator working with standardised pro- cesses, we are constantly optimising our services to enable us to keep our commitments to customers. We therefore keep an eye on our customers’ ever-changing requirements, for example through the Insanely Customer Centric Culture programme and as part of our Net Promoter Approach. Our managers speak per- sonally to customers in order to continuously translate customer criticism into improvements. Via the MyDHL portal and the Small Business Solutions sec- tion on our website, small and medium-sized business customers in particular can ship their goods with ease and obtain compre- hensive shipping information. 60 Quality Sending mail and parcels quickly and reliably According to surveys conducted by Quotas, a quality research institute, around 93 % of the domestic letters posted in Germany during our daily opening hours or before final collection were delivered to their recipients the next day in 2018. Around 99 % reached 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. Transit times for international letters are determined by the Inter- national Post Corporation. Here, we rank amongst the top postal companies. Around 93 % D + 1 Domestic letters posted in Germany are delivered the next day In the parcel business, around 82 % of items reached their recipi- ents the next working day in the year under review. This figure is based upon parcels collected from business customers that were delivered the next day. Our internal system for measuring parcel transit times has been certified by TÜV since 2008. In our mail business, the level of sorting automation exceeds 90 %. In our parcel network, we have increased our sorting cap- acity by more than 50 % since 2012, by raising productivity in our existing facilities and expanding our infrastructure nationwide. In the year under review, we converted the warehouse in the Bre- men freight transport centre into a further parcel centre with a sorting capacity of 40,000 items per hour. With now 35 parcel centres, we process around 5 million items per working day. More than 80 mechanised delivery bases support our operations. Our approximately 27,000 sales points were open for an average of 54 hours per week (previous year: 54 hours). The annual sur- vey conducted by Kundenmonitor Deutschland, the largest con- sumer survey in Germany, showed a high acceptance of our ex- clusively partner-operated retail outlets: 94.3 % of customers were satisfied with our quality and service (previous year: 93.9 %). In addition, impartial mystery shoppers from TNS Infratest tested the postal outlets in retail stores around 28,000 times over the year. The result showed that 93.5 % of customers were served within three minutes (previous year: 94.3 %). Group Management Report — NON-FINANCIAL KEY PERFORMANCE INDICATORS — Quality 61 In Europe, our European Key Account Support service pro- vides our global customers with a central point of contact. Upon request, 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 pre- mium products 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 45 lan- guages. We also expanded our Paketbox network to around 7,000 Service Point Lockers worldwide. We conduct regular reviews of operational safety, compli- ance with standards and the quality of service at our facilities in co-operation with government authorities. Approximately 300 locations, more than 100 of which are in Asia, have been certified by the security organisation Transported Asset Protection Asso- ciation (TAPA). This makes us the leader in this area. Since 2010, we have been certified globally to ISO 9001:2008; in the year under review, we were even certified according to the newest ISO 9001:2015 standard. In addition, we remain certified in cer- tain regions and countries in the areas of environmental protec- tion and energy management. We describe this in detail in our Corporate Responsibility Report, dpdhl.com/cr­report2018. tions. A defined terminal classification framework structure fos- ters the implementation of common operational performance standards. Quality leader in contract logistics We aim to build upon our position as quality leader in contract logistics. By applying standardised operations and solutions sup- ported by supply chain champions at all of our sites, we ensure that we meet or exceed our customers’ quality expectations. As part of our operations excellence programme, a uniform Service Quality KPI routinely measures whether our locations are meet- ing defined operating standards. Our survey methodology for continuously measuring and increasing customer loyalty and satisfaction is based upon the Net Promoter Score©. The programme is being rolled out glo b- ally and covers a significant part of our business. In the year under review, the measured values developed positively, espe- cially amongst customers surveyed repeatedly over time. In fact, the follow-up, which is conducted with each individual customer, has proven to have a huge impact on satisfaction and loyalty. In addition, we offer our customers integrated environmen- tal solutions that help them meet their sustainability targets. One example of this is the use of electric light commercial vehicles. We aim to build upon our position as quality leader in contract logistics. Approximately 300 locations certified by the Transported Asset Protection Association (TAPA) Systematic customer feedback in the forwarding business Our performance in the Global Forwarding business unit is con- tinuously being improved based upon customer feedback. We record these systematically with the help of the Net Promoter Approach. Almost 200 Customer Improvement Projects were initiated on the topics of quality, reporting and loss events in 2018. Operating performance is also constantly monitored and adjusted where necessary through regular initiatives such as per- formance dialogues. In the Freight business unit, we expanded our customer sat- isfaction survey to over 30 countries in 2018 and based upon this feedback, we have implemented over 200 initiatives to continu- ously improve our products and services. With Eurapid, we are successfully meeting the customer demand for premium solu- 62 Brands Deutsche Post DHL Group — 2018 Annual Report Brand architecture as at 31 December 2018  A.70 Value of Group brands continues to rise According to independent studies, the value of the Deutsche Post and DHL brands increased again in 2018. Partnerships and events give our brands a boost Emotional associations with our brands are strengthened by their presence at high-profile sporting events. The DHL brand was valued at US$20.6 billion by the market research institute Kantar Millward Brown (previous year: US$15.8 billion). This moves DHL up eight places to 62nd on the institute’s 2018 BrandZ rankings of the 100 Most Valuable Global Brands. The study looks at financial figures as well as market and consumer research data. In the annual Interbrand rankings, DHL came in at 79th place (previous year: 76th) based upon an increase in brand value to US$5.9 billion (previous year: US$5.7 billion). For the Deutsche Post brand, the consulting company Brand Finance calculated a value of €3.6 billion in 2018 (previous year: €2.9 billion). The Deutsche Post brand thus moved up to 21st place in Brand Finance’s Germany 50 report of the strongest Ger- man brands. Kantar Millward Brown compiled a BrandZ Top 50 Most Valuable German Brands ranking for the first time in 2018. The market research institute ranked Deutsche Post in 18th place with a brand value of US$3.7 billion. In the year under review, the Deutsche Post brand continued to partner with the Deutscher Fußball-Bund (DFB – German foot- ball federation), 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), amongst other associations. To support our DHL brand, we continue to rely upon our trad- itional logistics partnerships with Formula 1© and the ABB FIA Formula E Championship in international motor sports. In May 2018, DHL additionally began handling event logistics for e-sport tournaments on various continents as a shipping and logistics partner to the ESL One series. Marketing expenditures, 2018 Volume: around €374 million Product development and communication Other Public & customer relations Corporate wear  A.71 45.3 % 33.6 % 15.5 % 5.6 % Group Management Report — NON-FINANCIAL KEY PERFORMANCE INDICATORS — Brands — EXPECTED DEVELOPMENTS — Overall assessment of the Group’s future economic position — Forecast period — Future economic parameters 63 EXPECTED DEVELOPMENTS Overall assessment of the Group’s future economic position For financial year 2019, we expect consolidated EBIT to range between €3.9 billion and €4.3 billion after special factors from the sale of the supply chain business in China and other effects in the Supply Chain and eCommerce Solutions divisions. The Post & Paket Deutschland division is expected to contribute between €1.0 billion and €1.3 billion to Group EBIT. For the DHL divisions, which include the new eCommerce Solutions division, we expect EBIT to reach a total of between €3.4 billion and €3.5 billion. This includes the special factors mentioned above. Corporate Func- tions is anticipated to contribute around €–0.5 billion to earnings. In line with the projected growth in EBIT, we expect that EAC will also increase in 2019. Free cash flow is expected to exceed €0.5 billion. Forecast period The information contained in the report on expected develop- ments generally refers to financial year 2019. Future economic parameters Uncertain outlook for the global economy The global economy is expected to grow more slowly in 2019 than in the year under review. Economic growth will be sup- ported by continuing expansionary monetary policies and fiscal stimuli, although their effects will tend to diminish. Against this backdrop, growth in the industrial countries is projected to soften slightly. Momentum in the emerging markets is expected to re- main almost stable. At the same time, risk levels are unusually high at present, with international trade conflicts constituting the greatest uncertainty. Europe could be negatively affected by the consequences of a UK exit from the EU without an exit deal. A deterioration in international financing conditions – for instance due to a sharp increase in key interest rates in the US – would have a negative impact on the emerging markets in particular. Should any of these risks materialise on a large scale, the global economy could experience much weaker growth than currently projected, which would have a disproportionate effect on inter- national trade. Global economy: growth forecast % World trade 1 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 Sub-Saharan Africa  A.72 2019 4.0 3.5 2.0 4.5 0.7 2.2 6.3 2.4 2.0 3.5 2018 4.0 3.7 2.3 4.6 3.8 2.4 6.5 2.4 1.1 2.9 1 In terms of the value of goods and services. Source: International Monetary Fund (IMF), World Economic Outlook, October 2018. Growth rates calculated on the basis of purchasing power parities. The Chinese economy is likely to weaken further, with GDP growth expected to record another decline (IMF: 6.2 %; OECD: 6.3 %). Economic output in Japan is projected to grow only slightly more than in 2018 (IMF: 1.1 %; OECD: 1.0 %). In the United States, GDP is not likely to see another increase as significant as in 2018 (IMF: 2.5 %; OECD: 2.7 %). The euro zone economy is expected to continue recovering, albeit at a slower pace. GDP growth is likely to remain somewhat below the prior-year level (IMF: 1.6 %; ECB: 1.7 %). Leading indicators suggest that the upswing in Germany will continue at a slower pace. Growth for 2019 as a whole is expected to decline (IMF: 1.3 %; Sachverständigenrat: 1.5 %). Crude oil prices are likely to see a slight increase from their present levels. The ECB could raise its key interest rate slightly towards the end of 2019 for the first time in the current cycle, although this will depend heavily on the figures for inflation and economic growth. The US Federal Reserve may raise its key interest rate again during the course of the year, although not as significantly as in 2018. Any such increase could result in a moderate increase in capital market interest rates. World trade grows solidly After two strong years in succession, we expect growth in the global trade flows relevant to us (air and ocean freight shipped in containers (tonnes), excluding liquids and bulk goods) to slow somewhat in 2019. All in all, we anticipate an increase of 3.6 %. 64 Deutsche Post DHL Group — 2018 Annual Report German parcel market expected to see sustained growth The German market for paper-based mail communication will continue to decline, primarily because people are communicating digitally to an increasing extent. For 2019, we are aiming for a Glossary, postage increase in the regulated ex-ante area, page 176. The volume of the German advertising market is likely to re- main roughly the same in 2019. Advertising budgets will continue to shift towards online media. The trend towards automated dialogue marketing campaigns is set to remain unchanged. The international mail business is likely to see slight growth overall, particularly due to increasing merchandise shipping. The German parcel market will continue to grow. E­commerce encourages further growth in international express market Experience shows that growth in the international express mar- ket is highly dependent upon the economic situation. We believe that the steadily growing cross-border e-commerce sector will continue to drive growth in the international express market in 2019. Market trends in freight forwarding business likely to  continue On the air freight market, we expect demand to rise on the whole in 2019. Freight rates are likely to increase on the main trade lanes. With regard to ocean freight, we anticipate solid market growth to continue, although overcapacity is likely to remain in the market. For the European road transport market, we expect slightly lower growth levels for volume in 2019 due to slower economic growth in most European markets. However, market prices are likely to rise again robustly. The main reason for this remains the systemic shortage of available transport capacities. Contract logistics market continues to grow The trend towards outsourcing warehousing and distribution as well as demand for value-added logistics services are set to con- tinue. The growing demand for e-fulfilment solutions is expected to persist, with our customers being confronted with high order volatility throughout the year. Projections indicate that the market for contract logistics will continue to experience stable growth of around 5 %. In turn, the demand for supply chain services in the Asian market, especially in China, is likely to rise sharply. In anticipation of this, we have entered into a strategic partnership with local company S. F. Hold- ing, note 3 to the consolidated financial statements. Growth prospects for international parcel market The parcel market will also continue to grow in the rest of Europe and the world, as will cross-border services. Earnings forecast Our expectations regarding the Group’s business trend in 2019 are based upon continued expansion of the world economy, even though the pace of growth will slow compared with previous years. However, above-average growth rates are likely to persist in those areas driven by structural growth in e-commerce in par- ticular. We expect the Group’s earnings performance to be impacted by a number of special factors. We are forecasting a non-recur- ring increase in EBIT by around €400 million in the first quarter of 2019, upon completing the sale of our Chinese supply chain business to S. F. Holding in China. To compensate for the loss of earnings contributed by the divested unit in the 2020 forecast, approximately €150 million of the proceeds will be invested in projects to improve earnings in the Supply Chain division in 2019, meaning that the net positive effect of the transaction will amount to around €250 million. Approximately €60 million will be invested in DHL eCom- merce Solutions during its first year as an independent Group division, with the objective of increasing the division’s future earnings power. Group Management Report — EXPECTED DEVELOPMENTS — Future economic parameters — Earnings forecast — Expected financial position — Performance of further indicators relevant for internal management 65 For financial year 2019, we expect consolidated EBIT to range between €3.9 billion and €4.3 billion after the aforemen- tioned special factors, which total around €200 million. We do not envision the price cap review currently being con- ducted to determine the extent to which prices can be increased with respect to the Post & Paket Deutschland revenue volumes that are subject to ex-ante regulation being completed prior to the second quarter of 2019. The outcome of this review will influence future earnings performance. In view of the uncertain outcome and any measures that may also be required, we except earnings of between €1.0 billion and €1.3 billion at the Post & Paket Deutschland division. For the DHL divisions including the new eCommerce Solu- tions division we expect total earnings of between €3.4 billion and €3.5 billion. This figure includes the above-mentioned spe- cial factors in the amount of €200 million. The Corporate Func- tions result is expected to be around €–0.5 billion. Our finance strategy continues to call for a payout of 40 % to 60 % of net profits as dividends as a general rule. As part of that strategy, we have the option of adjusting reported net income for non-recurring items in the interests of dividend continuity. We have made the corresponding adjustment for financial year 2018 and intend to propose a dividend payout of €1.15 per share (pre- vious year: €1.15 per share) to the shareholders at the Annual General Meeting on 15 May 2019. The payout ratio in relation to adjusted net profit is thus 55%. Expected financial position payment for financial year 2018 in May 2019. In addition, the pay- ments not covered by borrowed funds to renew the aircraft fleet in the Express division will reduce liquidity. By contrast, the pro- ceeds from the sale of the supply chain business in China will increase liquidity in the first half of the year. Our operating liquid- ity situation will improve again towards the end of the year due to the upturn in business that is normal in the second half. Capital expenditure of around €3.7 billion expected In 2019, we plan to increase capital expenditure (excluding leases) to around €3.7 billion in support of our strategic object- ives and further growth. The focus of capital expenditure will be similar to that of previous years. The total figure includes around €1.1 billion for the largely debt-financed renewal of the Express inter continental fleet. Performance of further indicators relevant for internal management EAC and free cash flow increase In line with the projected growth in EBIT, we expect that EAC will also increase in 2019. Divisional EAC will be affected by the same factors as detailed in the EBIT outlook. However, reflecting our on-going investing activities, the rise in EBIT after asset charge may fall slightly short of the EBIT growth. Free cash flow is expected to exceed €0.5 billion. This already accounts for a pay- ment of around €1.1 billion for the largely debt-financed renewal of the Express intercontinental fleet. No change in the Group’s credit rating In light of the earnings forecast for 2019, 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. Employee Opinion Survey results again positive We intend to keep up the positive results that our Employee Opin- ion Survey achieved in the year under review. For 2019, we expect to see an increase to 77 % in the approval rating for the Active Leadership key performance indicator. Liquidity to remain solid We anticipate a reduction in our liquidity in the first half of 2019 as a result of the annual pension-related prepayment due to the Bundesanstalt für Post und Telekommunikation (German federal post and telecommunications agency) as well as the dividend Further improve greenhouse gas efficiency We expect the Group to further improve its carbon efficiency. Our CEX score is projected to increase by one index point during finan cial year 2019. 66 Deutsche Post DHL Group — 2018 Annual Report OPPORTUNITIES AND RISKS Overall assessment of the opportunity and risk situation Identifying and swiftly capitalising upon opportunities and coun- teracting risks are important objectives for our Group. We already account for the anticipated impact of potential events and devel- opments in our business plan. Opportunities and risks are defined as potential deviations from projected 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 report. 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 sys- tem and in the estimation of its Board of Management, there were no identifiable risks for the Group in the current forecast 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 reflected in the Group’s credit ratings, as found on page 45. The simulation is a stochastic model that takes the probabil- ity of occurrence of the underlying risks and opportunities 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 functions for each individual opportunity 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.73 – aa € m + bb € m + zz € m Deviation from planned EBIT  Planned EBIT    Most common value in one million simulation steps (“mode”)  “Worse than expected”    “Better than expected” Opportunity and risk management Opportunity and risk management process  A.74 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 resulting oppor- tunities and risks at an early stage and take the necessary meas- ures 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 pres- ent planned measures as well as those already taken. Queries are made and approvals given on a hierarchical basis to ensure that different managerial levels are involved in the process. Oppor- tunities and risks can also be reported at any time on an ad- hoc  basis. Our early identification process links the Group’s opportunity and risk management with uniform reporting standards. We con- tinuously improve the IT application used for this purpose. Fur- thermore, we use a Monte Carlo simulation for the purpose of aggregating opportunities and risks in standard evaluations. 1 Identify and assess Assess Define measures Analyse Identify 5 Control Review results Review measures Monitor early warning indicators Internal auditors review processes 2 Aggregate and report Review Supplement and change Aggregate Report 3 Overall strategy /  risk management /  compliance Determine Manage 4 Operating measures Plan Implement  Divisions    Opportunity and risk-controlling processes    Board of Management    Internal auditors The most important steps in our opportunity and risk  management process are: Group Management Report — OPPORTUNITIES AND RISKS — Overall assessment of the opportunity and risk situation — Opportunity and risk management 67 1 Identify and assess: Managers in all divisions and regions evaluate the opportunity and risk situation on a quarterly basis and document the action taken. They use scenarios to assess best, expected and worst cases. Each identified risk is assigned to one or more managers who assess and moni- tor the risk, specify possible procedures for going forwards and then file a report. The same applies to opportunities. The results are compiled in a database. 2 Aggregate and report: The controlling units collect the re- sults, evaluate them and review them for plausibility. If in- dividual financial effects overlap, this is noted in our data- base and taken into account in the compilation process. 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 significant opportunities and risks as well as on the potential overall impact each division might experience. For this purpose, opportunities and risks are ag- gregated for the 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 respec- tive scenarios. The totals for “worst case” and “best case” indicate the total spectrum of results for the respective divi- sion. Within these extremes, the total for “expected cases” shows current expectations. The second method makes use of a Monte Carlo simulation, the divisional-level results of which are regularly included in the opportunity and risk reports to the Board of Management. 3 Overall strategy: The Group Board of Management decides on the methodology that will be used to analyse and report on opportunities and risks. The reports created by Corporate Controlling provide the Board of Management with an add- itional, regular source of information for the overall steering of the Group. 4 Operating measures: The measures to be used to take ad- vantage of opportunities and manage risks are determined within the individual organisational units. They use cost- benefit analyses to assess whether risks can be avoided, miti- gated or transferred to third parties. 5 Control: For key opportunities and risks, early-warning indi- cators have been defined that are monitored constantly 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 oppor- tunity and risk management operation. 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. Accounting­related internal control and risk management system (Disclosures required under section 315(4) of the Handelsgesetz- buch (HGB – German Commercial Code) and explanatory report) Deutsche Post DHL Group has implemented an accounting- related internal control system (ICS) as part of its risk manage- ment system. The ICS aims to ensure the compliance of (Group) accounting and financial reporting with generally accepted prin- ciples. Specifically, it is intended to ensure that all transactions are recorded promptly, accurately and in a uniform manner on the basis of the applicable norms, accounting standards and in- ternal Group regulations. Accounting errors are to be avoided in principle and significant measurement errors detected promptly. The ICS was designed to follow the internationally recog- nised COSO framework for internal control systems (COSO: Com- mittee of Sponsoring Organizations of the Treadway Commis- sion). It is continuously updated and is a mandatory and integral part of the accounting and financial reporting process of the companies included in the Group. The approach of the accounting-related ICS in summary: • The internal control system takes a risk-based approach that is defined in a Group guideline and takes both quantitative and qualitative aspects into account. • Risks that could lead to material misstatements in the financial reports are identified and minimum requirements are formu- lated on the basis of such risks. • Both preventive and detective control mechanisms are used to ensure that the minimum requirements are met along with all division-specific and local requirements. • The ICS is subjected to ongoing reviews using a self-assess- ment approach, in order to maintain the system’s effectiveness and implement continuous improvements. • The Supervisory Board is provided with regular reports on the results of the review of ICS effectiveness. In addition to the ICS components already described, additional organisational and technical procedures have been implemented for all companies in the Group. Centrally standardised accounting guidelines govern the reconciliation of the single-entity financial statements and ensure that international financial reporting standards (EU IFRS s) are applied in a uniform manner through- out the Group. A standard chart of accounts is required to be ap- plied by all Group companies. We immediately assess new devel- opments in international accounting for relevance and announce their implementation in a timely manner, for example in monthly newsletters. 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. 68 Deutsche Post DHL Group — 2018 Annual Report Other quality assurance components include automatic plausi- bility reviews and system validations of the accounting data. In addition, regular, manual checks are carried out centrally at the Corporate Center by Corporate Accounting & Controlling, Taxes and Corporate Finance. If necessary, we call in outside experts. Finally, the Group’s standardised process for preparing financial statements of using a centrally administered financial state- ments calendar guarantees a structured and efficient accounting process. Over and above the ICS and risk management, Corporate Internal Audit is an essential component of the Group’s control and monitoring system. Using risk-based auditing procedures, Corporate Internal Audit regularly examines the processes related to financial reporting and reports its results to the Board of Management. It should always be taken into consideration that no ICS, regardless of how well designed, can offer absolute certainty that all material accounting misstatements will be avoided or detected. Reporting and assessing opportunities and risks In the following, we have reported mainly on those risks and op- portunities which, from a current standpoint, could have a signifi- cant impact upon the Group during the forecast period beyond the impact already accounted for in the business plan. The risks and opportunities have been assessed in terms of their probabil- ity 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.75. The following assessment scale is used: Classification of risks and opportunities Probability of occurrence (%) Planned Group EBIT Risks Opportunities  A.75 > 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 The opportunities and risks described here are not necessarily the only ones the Group faces or is exposed to. Our business 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 decen- trally at Deutsche Post DHL Group. Reporting on possible devi- ations from projections, including latent opportunities and risks, occurs primarily at the country or regional level. In view of the degree of detail provided in the internal reports, we have com- bined the decentrally reported opportunities and risks into the categories shown below for the purposes of this report. It should be noted that the figures provided in the underlying individual reports exhibit a significant correlation with the performance of the world economy and global economic output. Unless other- wise specified, a low relevance is attached to the individual op- portunities and risks within the respective categories and in the forecast period under observation (2019). The opportunities and risks generally apply to all divisions, unless indicated otherwise. Group Management Report — OPPORTUNITIES AND RISKS — Opportunity and risk management — Categories of opportunities and risks 69 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 – since 1 January 2019, Post & Paket Deutschland) are subject to sector- specific regulation by the Bundesnetzagentur (German federal Glossary, page 176, pursuant to the Postgesetz network agency) (PostG – German Postal Act), Glossary, page 176. The Bundesnetz- agentur approves or reviews prices, formulates the terms of downstream access and has special supervisory powers to com- bat market abuse. Risks may also arise from the price-cap procedure, Glos- sary, page 176. In 2015, the Bundesnetzagentur stipulated the con- ditions applicable to the approval of postage rates for letters of up to 1,000 grams under the price cap procedure. These condi- tions are referred to as parameters and will be revised by the Bundesnetzagentur in 2019. 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 Federal Republic of Germany. We described this in detail in the 2016 Annual Report in note 48 to the consolidated financial statements, dpdhl.com/en/investors. The EGC’s judgment is le- gally effective. 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 deci- sion” (Ausweitungsbeschluss) is still pending. That action is based upon procedural matters involving the validity of the Eu- ropean Commission’s 2011 decision to extend the state aid pro- ceedings. In the pending action, the European Commission ad- vanced the legal argument that the state aid proceedings initiated in 1999 remain open on some counts and that it could therefore issue a new final decision bringing the proceedings to a close. The European Commission gave no particulars regarding the possible substance of the decision. 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 con- firmed that opinion in its ruling of 24 October 2013. The Euro- pean Commission’s state aid decision of 25 January 2012 thus remains null and void with final effect. We describe other significant legal proceedings in note 46 to the consolidated financial statements. However, we do not see these proceedings as posing a risk of significant deviations from the projections for the 2019 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 regulations 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 aggressively by the competent authorities, with stricter penalties imposed. In response to this risk, we have implemented a Group-wide compliance programme. In addition to undertaking the legally prescribed check of senders, receivers, suppliers and employees against current embargo lists, the programme en- sures, for example, that the legally required review of shipments is carried out for the purpose of enforcing applicable export restrictions as well as country sanctions and embargos. Deutsche Post DHL Group co-operates with the authorities re- sponsible, both in working to prevent violations as well as in assisting in the investigation of violations to avoid and limit potential sanctions. Macroeconomic and industry­specific opportunities and risks Macroeconomic and sector-specific conditions are a key factor in determining the success of our business. We therefore pay close attention to economic trends within the regions 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 pos- ition and results of operations owing to potential changes in ex- change rates, the economy, air 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 possible for the ef- fects of Brexit. Despite the volatile economic climate, demand for logistics services rose overall in 2018, as did the related revenues. A variety of external factors offer us numerous opportunities; indeed we believe that markets will grow all over the world. Ad- vancing globalisation and further world economic growth mean that the logistics industry will continue to expand. This is espe- cially true of Asia, where trade flows to other regions and in par- ticular within the continent will continue to increase. As the mar- ket leader, the expansion will benefit us with our DHL divisions to an above-average extent. This also applies to other countries in regions with strong economic growth such as South America and 70 Deutsche Post DHL Group — 2018 Annual Report 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 in- ternational, but are also more prone to disruption. Customers 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. The booming online marketplace represents another opportunity for us as it is creating demand for transporting documents and Glossary, page 176, is experiencing goods. The B2C market, strong growth, particularly due to the continued upward trend in digital retail trade. This has created high growth potential for the domestic and international 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 de- crease 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 transport services in order to lower costs. Cyclical risks can affect our divisions differently de- pending on their magnitude and point in time, which could miti- gate the total effect. Overall, 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 changes in market demand. Deutsche Post and DHL are in competition with other pro- viders. 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 factors for success are quality, customer confidence and competitive 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 oppor- tunities 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 re- duce the volatility of our financial performance 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 trans- actions are quantified as a net position over a rolling 24-month period. Highly correlated currencies 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 Korean won. The Czech koruna is the only currency with a consid- erable net deficit. As of the reporting date, there were no signifi- cant currency hedges for planned foreign currency transactions. A potential general devaluation of the euro presents an op- portunity for the Group’s earnings position. Based upon current macroeconomic estimates, we consider this opportunity 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 considering 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 marine diesel). In the DHL divisions, most of these risks are passed on to custom- ers via operating measures (fuel surcharges). The key control parameters for liquidity management are the centrally available liquidity reserves. Deutsche Post DHL Group had central liquidity reserves of €4.3 billion as at the reporting date, consisting of central financial investments amounting to €2.3 billion plus a syndicated credit line of €2 billion. The Group’s liquidity is therefore sound in the short and medium terms. More- over, the Group enjoys open access to the capital markets on ac- count of its good ratings within the industry, and is well pos- itioned to secure long-term capital requirements. The Group’s net debt amounted to €12.3 billion at the end of 2018. The share of financial liabilities with short-term interest rate lock-ins in the total financial liabilities of €16.5 billion was approximately 17 %. Further information on the Group’s financial position and finance strategy as well as on the management of financial risks can be found in the report on the economic position and in note 44 to the consolidated financial statements. Detailed informa- tion on risks and risk mitigation in relation to the Group’s defined benefit retirement plans can be found in note 39 to the consoli- dated financial statements. Group Management Report — OPPORTUNITIES AND RISKS — Categories of opportunities and risks 71 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 working to create efficient structures in all areas to enable us to flexibly adapt capacities and costs to demand – a prerequisite for lasting, prof- itable business success. With respect to strategic orientation, we are focussing upon our core competencies in the mail and logis- tics businesses with an eye towards growing organically and simplifying our processes for the benefit of our customers. Digit- alisation plays a key role in this. Our digital transformation in- volves the integration of new technologies into a corporate cul- ture that uses the changing environment to its advantage. Opportunities arise, for example, from new infrastructure net- working possibilities as well as digital business models. Our earn- ings projections regularly take account of development oppor- tunities arising from our strategic orientation. In the observation period shown, risks arising from the cur- rent corporate strategy, which extends over a long-term period, are considered to be of low relevance for the Group. The divisions face the following special situations, however: In the German mail and parcel business, we are responding to the challenges posed by the structural shift from a physical to a digital business. We are counteracting 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 expand- ing our parcel network. We are also expanding our range of elec- tronic 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 mar- ket very closely and take these into account in our earnings pro- jections. For the specified forecast period, we do not see these developments as having significant potential to impact our busi- ness negatively. In the Express division, our future success depends above all upon general factors such as trends in the competitive environ- ment, costs and quantities transported. We plan to keep growing our international business, and expect a further increase in ship- ment 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 strategic opportunities or risks for the Express division that go significantly beyond those reported in the section on “Opportunities and risks arising from macroeconomic and in- dustry-specific conditions”. giving us an opportunity to generate 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 our oppor- tunities and risks essentially depends on trends in the supply, demand and pricing of transport services as well as the duration of our contracts. Comprehensive knowledge in the area of bro- kering transport services helps us to capitalise on opportunities and minimise risk. In the Supply Chain division, our success is highly dependent on our customers’ business success. Since we offer customers a widely diversified range of products in different sectors all over the world, we are able to diversify our risk portfolio and thus counteract the incumbent risks. Our future success moreover depends on our ability to continuously improve our existing busi- ness, seamlessly integrate new business and grow in our most important markets and customer segments. We do not see any strategic opportunities or risks for the Supply Chain division that extend significantly beyond those reported in the section entitled “Opportunities and risks arising from macroeconomic and indus- try-specific conditions”. In financial year 2019, we plan to redesign our cross-border portfolio of e-commerce services and international parcel ship- ping. We established a new eCommerce Solutions division for this purpose effective as of 1 January 2019. Its productivity and profitability are expected to increase over the medium term. We counteract the fundamental risk of rising cost pressure by im- proving workflow standardisation, network efficiency and cost flexibility. For the new DHL division, we also do not see any stra- tegic opportunities or risks that extend significantly beyond those reported in the section entitled “Opportunities and risks arising from macroeconomic and industry-specific conditions”. We currently do not see any specific corporate strategy opportunities or risks of material significance. Opportunities and risks arising from internal processes A number of internal processes must be aligned so that we can render our services. These include – in addition to the fundamen- tal operating processes – supporting functions such as sales and purchasing as well as the corresponding management processes. The extent to which we succeed in aligning our internal processes to meet customer needs whilst simultaneously lowering costs correlates with potential positive deviations from the current pro- jections. We are steadily improving internal processes with the help of our First Choice initiatives. This improves customer satis- faction whilst reducing our costs. Our earnings projection already incorporates expected cost savings. In the Global Forwarding, Freight division, we purchase transport services from airlines, shipping companies and freight carriers rather than providing them ourselves. As a rule, out- sourcing transport services should be more cost-effective for us, Logistics services are generally provided in bulk and require a complex operational infrastructure with high quality standards. To consistently guarantee reliability and punctual delivery, pro- cesses must be organised so as to proceed smoothly with no 72 Deutsche Post DHL Group — 2018 Annual Report We are focussing upon our core competencies. technical or personnel-related glitches. Any weaknesses with regard to the tendering, sorting, transport, warehousing or de- livery of shipments could seriously compromise our competitive position. To enable us to identify possible disruptions in our work- flows and take the necessary countermeasures at an early stage, we have introduced a global security management system and developed a global IT platform known as Resilience 360 that depicts and integrates our global supply chains and locations. Near real-time information on incidents relevant to security flows into the system, which in cases of disruption also serves as a central communications platform. This offers a competitive advantage 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 important 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 stand- ard for information security 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 continuously available. We ensure this by designing our systems to protect against complete system failures. In addition to out- sourced 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 employees 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 procedure 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. The European Union’s General Data Protection Regulation (GDPR) prescribes a series of measures for the protection of per- sonal data as well as immediate and extensive reactions and re- porting obligations of data losses (unauthorised access by third parties). We have prepared ourselves for this and established implementation programmes for all divisions. Possible violations could be punished with fines by the data protection supervisory authorities. Opportunities and risks arising from human resources It is essential for us to have qualified and motivated employees in order to achieve long-term success. However, demographic change could lead to a decrease in the pool of available 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 struc- tures. The experience gained is used to continuously improve strategic resource management as an analysis and planning in- page 58, agreed upon with strument. The Generations Pact, trade unions in Germany, also helps us to take advantage of the career experience of employees for as long as possible whilst, at the same time, offering young people long-term career per- spectives. 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 websites referred to in the Group Management Report do not form part of the report. B CORPORATE GOVERNANCE 73 — 86 74 REPORT OF THE SUPERVISORY BOARD 77 SUPERVISORY BOARD 77 Members of the Supervisory Board 78 Committees of the Supervisory Board 79 Mandates held by the Supervisory Board 80 BOARD OF MANAGEMENT 82 Members of the Board of Management 82 Mandates held by the Board of Management 83 CORPORATE GOVERNANCE REPORT 74 Deutsche Post DHL Group — 2018 Annual Report REPORT OF THE SUPERVISORY BOARD Dear Shareholders, We faced considerable challenges in the 2018 financial year but also set the stage for the lasting business success of the Group in the future. The Supervisory Board advised and oversaw the Board of Management in the management of the company, made deci- sions regarding Board of Management membership, consulted with the members of the Board of Management on the strategic direction of the company and shaping corporate policy, as well as participating in decisions that were material for the company. The Board of Management informed us on an ongoing basis about the course of business and material transactions. Funda- mental issues concerning business planning, profitability, main- taining competitiveness and business performance were thor- oughly deliberated after the committees had laid the groundwork for these discussions. Between meetings, I had discussions with the Chairman of the Board of Management (CEO), Frank Appel, regarding Board of Management issues and current developments. Stefan Schulte, Audit Committee Chair, also held regular conversations outside of scheduled meetings with Melanie Kreis, Board Member for Finance. Only a few members were unable to attend all meetings. In cases where their absence was unavoidable, they generally par- ticipated in decisions by submitting their votes in writing. The overall attendance rate was around 95 %. An overview of the meeting attendance records of individual members is provided on page 84. Ten plenary Supervisory Board meetings and 26 committee meetings were held in the year under review. The members of the Board of Management participated in plenary meetings – unless decisions on Board of Management membership were taken – and reported on the business performance in the div- isions for which they are responsible. The chairman, and the members of the Board of Management responsible for their rel- evant divisions, attended the committee meetings. Executives from the tier immediately below the Board of Management and representatives of the auditors were also invited to attend for individual agenda items. Key topics addressed in plenary meetings In our March 2018 meeting, we discussed the annual and consoli- dated financial statements, including the management reports and the separate combined non-financial report. Following the report by the auditor regarding the findings of the audit, we ap- proved the financial statements at the recommendation of the Finance and Audit Committee. We concurred with the Board of Management’s proposed resolution on the appropriation of the net retained profit. Based upon the results of the audit, no objec- tions were raised regarding the non-financial report. We determined the annual bonus for active Board of Man- agement members based upon the degree of target achievement and corresponding recommendations by the Strategy and Ex- ecutive Committees. The proposed resolutions for the 2018 Annual General Meet- ing, including the dividend proposal, were also approved at this meeting. Additionally, we addressed the results of the efficiency re- view of our activities. In early April, the main issue discussed was the division of responsibilities of the Board of Management. We agreed that in- novations such as the development of Street Scooters should be combined in the new Corporate Incubations board department. The new department was initially assigned to Jürgen Gerdes, whilst Frank Appel assumed interim leadership of Post - eCom- merce - Parcel. After preparatory work was completed by the Finance and Audit Committee, we agreed to the purchase of 14 Boeing 777 cargo planes in early May to further renew the Express inter- continental fleet. In June, we dealt with Jürgen Gerdes’ departure from the Board of Management and transferred responsibility for the Corporate Incubations board department to Thomas Ogilvie, who is Board Member for Human Resources and Labour Director for the Group. The focus of September’s meeting was the attainment of the strategic goals assigned to Board of Management members as the basis for granting the long-term incentive component for 2018 and setting new ones for awarding the 2019 tranche. In the closed meeting that followed, we discussed the pro- gress made in implementing our Strategy 2020 as well as future strategic challenges, particularly digitalisation, together with the Board of Management, with the support of invited outside pre- senters. Subsequently, the Supervisory Board held a meeting without the members of the Board of Management. In October, we approved the sale of the supply chain business in China, Hong Kong and Macao to S. F. Holding in the course of a strategic partnership. At the last Supervisory Board meeting of the year in Decem- ber, we approved the Group’s business plan for 2019 and the targets for variable remuneration of the Board of Management for 2019, and agreed to again issue an unqualified Declaration of Conformity. Corporate Governance — REPORT OF THE SUPERVISORY BOARD NIKOLAUS VON BOMHARD Chairman Key topics addressed in committee meetings The primary duty of the six committees of the Supervisory Board is to prepare the decisions to be taken in the plenary meetings. They have also been tasked with taking the final decisions regard- ing a few matters, including approval for property transactions and secondary activities of Board of Management members. The committee chairs report extensively in the plenary meetings on the work of the committees. Details on the composition of the committees are provided on page 78. The Executive Committee met six times and dealt mainly with Board of Management issues and preparatory work for Super visory Board meetings. The Personnel Committee held four meetings. Items dis- cussed included human resources development, promoting women to executive positions, further developing the Group- wide initiatives and the results of the annual employee opinion survey. The Finance and Audit Committee met eight times. It exam- ined the financial statements and the management reports for the company and the Group. It discussed the quarterly financial reports and the half-yearly financial report, which were reviewed by the auditors, before their publication with the Board of Manage ment and the auditors. In addition, it issued the audit en- gagement for the auditors elected by the Annual General Meeting and specified the key audit priorities. The committee also addressed the non-audit services provided by the auditors, the accounting process and risk management, discussed the find- ings of internal audits. It obtained detailed reports from the Chief Compliance Officer on compliance and on updates to the compli- ance organisation and compliance management. The Strategy Committee met six times, primarily addressing the business units’ strategic positioning in their respective mar- ket segments and the implementation of our Strategy 2020. Par- ticular areas of focus were the progress made in the digital trans- formation of the company and regular status updates by the divisions. The Nomination Committee met twice. In March, it recom- mended that the Supervisory Board propose Günther Bräunig and Mario Daberkow to the Annual General Meeting as candi- dates to the Supervisory Board. In December, a resolution was passed to propose Heinrich Hiesinger to the 2019 Annual General Meeting as a Supervisory Board candidate. The Mediation Committee did not meet in the year under review. Changes to the Supervisory Board Shareholder representatives Wulf von Schimmelmann and Ulrich Schröder stepped down from the Supervisory Board. Wulf von Schimmelmann, who was Chairman of the Supervisory Board for many years, did not make himself available for re-election after serving more than two full terms of office. Ulrich Schröder stepped down due to a serious illness. The 2018 Annual General 76 Deutsche Post DHL Group — 2018 Annual Report Meeting elected Günther Bräunig and Mario Daberkow as new members of the Supervisory Board, both for a term of office of five years. Following the Annual General Meeting, the Supervisory Board elected me as chair and Andrea Kocsis as deputy chair. Since the term of office of the employee representatives was close to expiring, in March 2018 the assembly of delegates (re-) elected the employee representatives to a five-year term begin- ning at the end of the 2018 Annual General Meeting. An overview of current Supervisory Board members is provided on page 77. Changes to the Board of Management Jürgen Gerdes, who laid down the leadership of Post - eCom- merce  - Parcel and assumed initial responsibility for the new Corporate Incubations board department in April, resigned from the Board of Management on 12 June 2018 due to differences of opinion regarding the company’s strategic priorities. He left the company on 30 June 2018. After Frank Appel had assumed in- terim leadership of the Post - eCommerce - Parcel division in April, we transferred responsibility for Corporate Incubations to Thomas Ogilvie. As at 1 January 2019, responsibility for the newly created eCommerce Solutions division was assigned to Ken Allen. His contract was extended to July 2022. John Pearson was ap- pointed to the Board of Management as successor for the Express board department as at 1 January 2019, initially for three years. In today’s meeting we appointed Tobias Meyer as member of the Board of Management effective from 1 April 2019 for an initial period of three years and entrusted him with the management of the Post & Paket Deutschland division. Managing conflicts of interest Supervisory Board members do not hold positions on the govern- ing 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 year under review. Compliance with all recommendations of the German Corporate Governance Code In December, the Board of Management and the Supervisory Board issued an unqualified Declaration of Conformity pursuant to section 161 of the Aktiengesetz (AktG – German Stock Cor- poration Act), which was also published on the company’s web- site. The declarations from previous years are also available there. The company also continued to comply with all recommenda- tions of the Government Commission on the German Corporate Governance Code in the version dated 7 February 2017, which was published in the Federal Gazette on 24 April/19 May, follow- ing submission of the Declaration of Conformity in December 2017, and decided to continue to do so in the future. We have also implemented all the suggestions made by the Government Commission, with the exception of broadcasting the full AGM on the inter net. Further information regarding corporate govern- ance within the company can be found in the Corporate Govern- ance Report (page 83 ff.). 2018 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 2018, including the respective management reports, and issued unqualified audit opinions. PwC also reviewed the quarterly finan- cial reports and the half-yearly financial report and audited the non-financial report on behalf of the Finance and Audit Commit- tee without issuing any objections. Upon recommendation by the Finance and Audit Committee, the Supervisory Board in its meeting today focussed upon the annual and consolidated financial statements, including the Board of Management’s proposal on the appropriation of the net retained profit, the management reports and the combined (con- solidated) non-financial report for financial year 2018, and dis- cussed these in depth with the Board of Management. The audi- tors reported on the results of their audit before the Finance and Audit Committee and plenary meeting and were available to an- swer questions and provide information. The Supervisory Board concurred with the results of the audit and approved the annual and consolidated financial statements for financial year 2018, as recommended by the Finance and Audit Committee. No objec- tions were raised on the basis of the final outcome of the exam- ination by the Supervisory Board and the Finance and Audit Com- mittee of the annual and consolidated financial statements, the management reports and the proposal for the appropriation of the net retained profit. Similarly, no objections were raised with regard to the examination of the combined 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 Manage- ment and the employees of the company for their hard work in this challenging financial year. Bonn, 6 March 2019 The Supervisory Board Nikolaus von Bomhard Chairman Corporate Governance — REPORT OF THE SUPERVISORY BOARD — SUPERVISORY BOARD — Members of the Supervisory Board SUPERVISORY BOARD Members of the Supervisory Board Shareholder representatives Employee representatives 77  B.01 Prof. Dr Wulf von Schimmelmann (Chair) (until 24 April 2018) Former CEO of Deutsche Postbank AG Dr Nikolaus von Bomhard (Chair since 24 April 2018) Former Chair of the Board of Management, Münchener Rückversicherungs-Gesellschaft AG (Munich Re) Dr Günther Bräunig (since 17 March 2018) CEO of KfW Bankengruppe Dr Mario Daberkow (since 24 April 2018) Member of the Managing Board of Volkswagen Financial Services AG Ingrid Deltenre Former Director General of the European Broadcasting Union Werner Gatzer State Secretary, Federal Ministry of Finance (since 3 April 2018) CEO of Deutsche Bahn Station & Service AG (from 1 January to 2 April 2018) Prof. Dr Henning Kagermann Former CEO of SAP AG Simone Menne Former member of the Board of Managing Directors, Boehringer Ingelheim GmbH Roland Oetker Managing Partner, ROI Verwaltungsgesellschaft mbH Dr Ulrich Schröder (until 6 February 2018) Former CEO of KfW Bankengruppe Dr Stefan Schulte Chair of the Executive Board of Fraport AG Prof. Dr­Ing. Katja Windt President/member of the Executive Board of Jacobs University Bremen gGmbH (until 14 January 2018) SMS group GmbH (since 15 January 2018) Member of the Managing Board of SMS group GmbH (since 1 April 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, Co-determination 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 Gabriele Gülzau (since 24 April 2018) Chair of the Works Council, Deutsche Post AG, Mail Branch, Hamburg Thomas Held (since 24 April 2018) Chair of the Central Works Council, Deutsche Post AG (since 27 June 2018) Deputy Chair of the Central Works Council, Deutsche Post AG Mario Jacubasch (since 24 April 2018) Deputy Chair of the Group Works Council, Deutsche Post AG Thomas Koczelnik Chair of the Group Works Council, Deutsche Post AG Anke Kufalt (until 24 April 2018) Chair of the Works Council, DHL Global Forwarding GmbH, Hamburg Ulrike Lennartz­Pipenbacher Deputy Chair of the Central Works Council, Deutsche Post AG Andreas Schädler (until 24 April 2018) Business Division Sales Post, Deutsche Post AG Sabine Schielmann (until 24 April 2018) 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 Stefanie Weckesser Deputy Chair of the Works Council, Deutsche Post AG, Mail Branch, Augsburg 78 Deutsche Post DHL Group — 2018 Annual Report Committees of the Supervisory Board  B.02 Executive Committee Finance and Audit Committee Nomination Committee Prof. Dr Wulf von Schimmelmann (Chair) (until 24 April 2018) Dr Nikolaus von Bomhard (Chair since 24 April 2018) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Ingrid Deltenre (since 24 April 2018) Werner Gatzer Thomas Held (since 24 April 2018) Stefanie Weckesser (until 24 April 2018) Personnel Committee Andrea Kocsis (Chair) Prof. Dr Wulf von Schimmelmann (Deputy Chair) (until 24 April 2018) Dr Nikolaus von Bomhard (Deputy Chair) (since 24 April 2018) Thomas Koczelnik Roland Oetker Dr Stefan Schulte (Chair) Stephan Teuscher (Deputy Chair) Werner Gatzer Thomas Koczelnik Simone Menne Stefanie Weckesser Strategy Committee Prof. Dr Wulf von Schimmelmann (Chair) (until 24 April 2018) Dr Nikolaus von Bomhard (Chair) (since 24 April 2018) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Prof. Dr Henning Kagermann Thomas Koczelnik Roland Oetker Prof. Dr Wulf von Schimmelmann (Chair) (until 24 April 2018) Dr Nikolaus von Bomhard (Chair since 24 April 2018) Ingrid Deltenre (since 24 April 2018) Werner Gatzer Mediation Committee (pursuant to section 27(3) of the German Co­determination Act) Prof. Dr Wulf von Schimmelmann (Chair) (until 24 April 2018) Dr Nikolaus von Bomhard (Chair) (since 24 April 2018) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Roland Oetker 79  B.03 Corporate Governance — SUPERVISORY BOARD — Committees of the Supervisory Board — Mandates held by the Supervisory Board Mandates held by the Supervisory Board Shareholder representatives Membership of supervisory boards required by law Prof. Dr Wulf von Schimmelmann (Chair) ( until 24 April 2018) Allianz Deutschland AG ( until 2 March 2018) Maxingvest AG Dr Günther Bräunig (since 17 March 2018) Deutsche Pfandbriefbank AG (Chair) Deutsche Telekom AG (since 21 March 2018) Membership of comparable bodies Prof. Dr Wulf von Schimmelmann (Chair) (until 24 April 2018) Thomson Reuters Corp., Canada (Board of Directors) Dr Nikolaus von Bomhard (Chair since 24 April 2018) Athora Holding Ltd., Bermuda (Board of Directors, Chair) Werner Gatzer DB Netz AG (from 1 January to 2 April 2018) Flughafen Berlin Brandenburg GmbH Dr Mario Daberkow (since 24 April 2018) Softbridge-Projectos Tecnológicos S. A., Portugal 1 (Administrative Board) (since 18 April 2018) PD-Berater der öffentlichen Hand GmbH (Chair) Volkswagen Participações Ltda., Brazil (Supervisory Board) 1 Prof. Dr Henning Kagermann Deutsche Bank AG (until 24 May 2018) Münchener Rückversicherungs- Gesellschaft AG (Munich Re) KUKA AG Simone Menne BMW AG Springer Nature KGaA (since 13 April 2018) Dr Ulrich Schröder (until 6 February 2018) Deutsche Telekom AG (until 6 February 2018) Prof. Dr­Ing. Katja Windt Fraport AG Volkswagen Holding Financière S. A., France (Supervisory Board) 1 Volkswagen Finance Luxemburg II S. A., Luxembourg (Supervisory Board, Chair) 1 (renamed Volkswagen Payments S.A. on 10 October 2018) Volkswagen S. A., Institución de Banca Múltiple, Mexico (Supervisory Board) 1 (since 1 October 2018) VW Credit, Inc., USA (Board of Directors) 1 (since  1 October 2018) Ingrid Deltenre Givaudan SA, Switzerland (Board of Directors) Banque Cantonale Vaudoise SA, Switzerland (Board of Directors) Agence France Presse, France (Board of Directors) Sunrise Communications AG, Switzerland (Board of Directors) (since 11 April 2018) Roland Oetker Rheinisch-Bergische Verlagsgesellschaft mbH (Supervisory Board) Simone Menne Johnson Controls International plc, Ireland (Board of Directors) (since 7 March 2018) Russel Reynolds Associates Inc., USA (Board of Directors) (since 30 January 2019) Dr Ulrich Schröder “Marguerite 2020”: European Fund for Energy, Climate Change and Infrastructure, Luxem- bourg (Supervisory Board) (until 6 Febru- ary 2018) Dr Stefan Schulte Fraport Ausbau Süd GmbH (Supervisory Board, Chair) 2 Fraport Regional Airports of Greece A S. A., Greece (Board of Directors, Chair) 2 Fraport Regional Airports of Greece B S. A., Greece (Board of Directors, Chair) 2 Fraport Regional Airports of Greece Manage- ment Company S. A., Greece (Board of Directors, Chair) 2 Fraport Brasil S. A. Aeroporto de Porto Alegre, Brazil (Supervisory Board, Chair) 2 Fraport Brasil S. A. Aeroporto de Fortaleza, Brazil (Supervisory Board, Chair) 2 Employee representatives Membership of supervisory boards required by law Jörg von Dosky PSD Bank München eG Andreas Schädler (until 24 April 2018) PSD Bank Köln eG (Chair) Stephan Teuscher DHL Hub Leipzig GmbH (Deputy Chair) 1 Group mandates, Volkswagen AG. 2 Group mandates, Fraport AG. 80 1 BOARD OF MANAGEMENT 1 FRANK APPEL 2 THOMAS OGILVIE 3 MELANIE KREIS 4 TIM SCHARWATH 5 6 JOHN PEARSON JOHN GILBERT 7 KEN ALLEN 4 5 2 6 3 7 82 Deutsche Post DHL Group — 2018 Annual Report Members of the Board of Management  B.04 Dr Frank Appel Chief Executive Officer Global Business Services Also responsible for Post - eCommerce - Parcel (since 4 April 2018) Born in 1961 Member since November 2002 CEO since February 2008 Appointed until October 2022 Ken Allen Express (until 31 December 2018) eCommerce Solutions (since 1 January 2019) Born in 1955 Member since February 2009 Appointed until July 2022 John Gilbert Supply Chain Born in 1963 Member since March 2014 Appointed until March 2022 Melanie Kreis Finance Born in 1971 Member since October 2014 Appointed until June 2022 Dr Thomas Ogilvie Human Resources Corporate Incubations (since 12 June 2018) Born in 1976 Member since September 2017 Appointed until August 2020 John Pearson Express (since 1 January 2019) Born in 1963 Member since January 2019 Appointed until December 2021 Tim Scharwath Global Forwarding, Freight Born in 1965 Member since June 2017 Appointed until May 2020 Left the company during the year under review Dr h. c. Jürgen Gerdes Post - eCommerce - Parcel (until 3 April 2018) Corporate Incubations (from 4 April 2018 to 12 June 2018) Born in 1964 Member from July 2007 to June 2018 Mandates held by the Board of Management  B.05 Membership of supervisory boards required by law Membership of comparable bodies Dr Frank Appel adidas AG 1 Group mandate. Ken Allen DHL-Sinotrans International Air Courier Ltd, China (Board of Directors) 1 Corporate Governance — BOARD OF MANAGEMENT — Members of the Board of Management — Mandates held by the Board of Management — CORPORATE GOVERNANCE REPORT 83 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 The Board of Management and the Supervisory Board follow the current initiatives and deliberations regarding the German Cor- porate Governance Code and in December 2018 once again issued an unqualified Declaration of Conformity pursuant to section  161 of the Aktiengesetz (AktG – German Stock Corporation Act): “The Board of Management and the Supervisory Board of Deutsche Post AG declare that all recommendations of the Gov- ernment Commission German Corporate Governance Code in the version dated 7 February 2017 and published in the Federal Gazette on 24 April/19 May 2017 have been complied with after issuance of the Declaration of Conformity in December 2017 and that all recommendations of the Code in the version dated 7 Feb- ruary 2017 and published in the Federal Gazette on 24 April /  19 May 2017 shall also be complied with in the future.” We also implement the suggestions made in the Code; how- ever, 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 and shared values Our business relationships and activities are based upon respon- sible business practice that complies with applicable laws, eth- ical standards and international guidelines, and this also forms part of the Group’s strategy. Equally, we require our suppliers to act in this way. We encourage and facilitate long-term rela- tionships  with our stakeholders, whose decisions to select Deutsche Post DHL Group as a supplier, employer or investment of choice are increasingly also based upon 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 upon the principles set out in the Univer- sal 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 agree- ments. The Code of Conduct also defines what we mean by diversity. Diversity and mutual respect are some of the core values that contribute to good co-operation within the Group and thus to economic success. The key criteria for the recruitment and pro- fessional development of our employees are their skills and qual- ifications. Our Diversity Council discusses the strategic aspects of diversity management and divisional requirements. Its mem- bers 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 Supervisory Board support the Group’s diversity strategy, with a particular focus upon the goal of increasing the number of women in the Group. Doing business responsibly includes using 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. Ensuring our interactions with business partners, sharehold- ers and the public are conducted with integrity and within the bounds of the law is vital to maintaining our reputation. It is also the foundation of Deutsche Post DHL Group’s lasting business success. The goal of the compliance management system (CMS) is to ensure observance of the statutory provisions and internal policies applicable to the Group. Its effectiveness is reviewed on an on-going basis in order to adapt it if necessary to relevant de- velopments and new legal requirements. The CMS’s individual components, the Code of Conduct, and information on diversity management and CSR issues are outlined in detail in the Corporate Responsibility Report, dpdhl.com/cr­report2018. Co­operation between the Board of Management and the Super visory 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. The Board of Management’s rules of procedure set out the principles governing its internal organisation, management and representation, as well as co-operation between its individual members. Within this framework, Board members manage their departments independently and inform the rest of the Board about key developments at regular intervals. The Board of Manage- ment as a whole decides on matters of particular significance for the company or the Group, including all decisions that have to be presented to the Supervisory Board for approval, and all tasks that cannot be delegated to individual members of the Board. The Board of Management as a whole also decides on matters presented to it by individual members of the Board of Manage- ment 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 Super visory Board must be informed of any conflicts of inter- 84 Deutsche Post DHL Group — 2018 Annual Report est without delay. No member of the Board of Management is a member of more than two supervisory boards of non-Group listed companies or of other supervisory bodies with comparable re- quirements. 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 procedure for itself containing the principles for its internal organisation, a catalogue of Board of Management transactions requiring its approval and the rules governing the work of the Supervisory Board committees. The chairman elected by the members from their ranks co-ordinates the work of the Supervisory Board and also represents the Supervisory Board publicly. The Supervisory Board meets at least four times a year. Extra ordinary Supervisory Board meetings are held whenever particular developments or measures need to be discussed or approved at short notice. In financial year 2018, Supervisory Board members held ten plenary meetings, 26 committee meet- ings and one closed meeting, as described in the Report of the Supervisory Board, page 74 ff. At 95 %, the attendance rate re- mained very high in the year under review, as the following breakdown shows. Attendance at plenary and committee meetings % Board members Dr Nikolaus von Bomhard (Chair since 24 April 2018) Prof. Dr Wulf von Schimmelmann (Chair until 24 April 2018) Andrea Kocsis (Deputy Chair) Rolf Bauermeister Dr Günther Bräunig (since 17 March 2018) Dr Mario Daberkow (since 24 April 2018) Ingrid Deltenre Jörg von Dosky Werner Gatzer Gabriele Gülzau (since 24 April 2018) Thomas Held (since 24 April 2018) Mario Jacubasch (since 24 April 2018) Prof. Dr Henning Kagermann Thomas Koczelnik Anke Kufalt (until 24 April 2018) Ulrike Lennartz-Pipenbacher Simone Menne Roland Oetker Andreas Schädler (until 24 April 2018) Sabine Schielmann (until 24 April 2018) Dr Ulrich Schröder (until 6 February 2018) Dr Stefan Schulte Stephan Teuscher Stefanie Weckesser Prof. Dr-Ing. Katja Windt  B.06 Attendance 100 100 100 100 56 88 100 100 73 100 100 100 94 96 100 100 94 95 50 100 100 100 100 100 100 Report of the Supervisory Board, page 74 ff., can also be viewed The at dpdhl.com/en/investors. The Board of Management and the Supervisory Board regu- larly discuss the Group’s strategy, the divisions’ objectives and strategies, the financial position and performance of the com- pany and the Group, key business transactions, the progress of acquisitions and investments, compliance and compliance man- agement, risk exposure and risk management, and all material business planning and related implementation issues. The Board of Management informs the Supervisory Board promptly and in full about all issues of significance. The Chairman of the Super- visory Board and the CEO maintain close contact about cur- rent  issues. The Supervisory Board carries out an annual efficiency re- view of its work. In the year under review it again concluded that it had performed its monitoring and advisory 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 sep- arate meetings of the shareholder representatives and the em- ployee 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 framework and on issues relating to the future); the company supports them in this by arranging presentations by internal and external speak- ers, among other things. No Supervisory Board members hold positions on the gov- erning 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 recom- mendation on the independence of non-executive or supervisory directors and the wide-ranging protection against summary dismissal and ban on discrimination contained in the Betriebs- verfassungsgesetz (BetrVG – German Works Constitution Act) and the Mitbestimmungsgesetz (MitbestG – German Co-deter- mination Act), being an employee of the company is not incon- sistent with the requirement for independence as defined by the Code. The largest shareholder in the company, KfW Banken- gruppe, currently holds approximately 21 % of the shares in Deutsche Post AG and therefore does not exercise control. Ac- cordingly, Werner Gatzer and Günther Bräunig are also independ- ent within the meaning of the Code. Corporate Governance — CORPORATE GOVERNANCE REPORT 85 No former members of the Board of Management are mem- bers of the Supervisory Board. No Supervisory Board members exceed the maximum ser- vice period of three terms of office or the age limit of 72. Board of Management and Supervisory Board committees The structure of the Board of Management committees applica- ble in the financial year included divisional executive committees that held meetings to prepare decisions to be taken by the full Board of Management and to take decisions on the matters del- egated to them. Executives from the first and second tiers imme- diately below the Board of Management attended executive com- mittee meetings that covered topics relevant to their fields. Since January 2019, the executive committes have been eliminated and the matters previously delegated to them are now being handled by the Board of Management. Business review meetings continue to take place once a quarter. These meetings are part of the strategic performance dialogue between the divisions, the CEO, the Board Member for Finance or also the full Board of Management. The business review meetings discuss strategic initiatives, operational matters and the budgetary situation in the divisions. The members of the Board of Management and the mandates held by them are listed on page 82. The primary duty of the members of the Supervisory Board committees is to prepare the resolutions to be taken in the plenary meetings. The Executive Committee does the preparatory work for ap- pointing members of the Board of Management, drawing up their contracts of service and determining their remuneration. The Finance and Audit Committee oversees the company’s accounts, its accounting process, the effectiveness of the internal control system, risk management and internal auditing, and the financial statement audit, and in particular the selection of the auditors and their independence. In addition, the committee is responsible for preparing the voluntary external audit of the sep- arate non-financial report, including selecting and engaging the external auditor. It also approves the Board of Manage ment’s engagement of the auditor to perform non-audit services. The committee examines corporate compliance issues and discusses the half-yearly and quarterly financial reports with the Board of Management before publication. Based upon its own assessment, the committee submits proposals for the approval of the annual and consolidated financial statements by the Super visory Board. The Chairman of the Finance and Audit Committee, Stefan Schulte, is an independent financial expert as defined in sections  100 (5) and 107 (4) of the AktG. He has no relationship with the company, its governing bodies or its shareholders that could cast doubt on his independence. 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 during 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 with- out delay of all material findings and incidents occurring in the course of the audit. Furthermore, the auditors must inform the Supervisory Board if, whilst conducting the financial statement 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 prin- ciples for the Group. The Mediation Committee carries out the duties assigned to it pursuant to the MitbestG: it makes proposals to the Supervisory Board on the appointment of members of the Board of Manage- ment in those cases in which the required 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 repre- sentatives of the Supervisory Board with recommendations for shareholder candidates for election to the Supervisory 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 div isions. It addition, it does preparatory work on corporate acqui sitions and divestitures that require the Supervisory Board’s approval. Further information about the work of the Supervisory Board and its committees in financial year 2018 is contained in the Report of the Supervisory Board, page 74 ff. Details on the members of the Supervisory Board and the composition of the Supervisory Supervisory Board committees can be found in the section on the Board, page 77 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 Supervisory Board is guided purely by the best interests of the company. Subject to this requirement, the Supervisory Board aims to ensure that independent Supervisory Board members as defined in number 5.4.2 of the German Corporate Govern- ance Code account for at least 75 % of the Supervisory Board, and that at least 30 % of the Supervisory Board members are women. 86 Deutsche Post DHL Group — 2018 Annual Report 2 The company’s international activities are already adequately reflected in the current composition of the Supervisory Board. The Supervisory Board aims to maintain this and its future proposals to the Annual General Meeting will there- fore consider candidates whose origins, education or profes- sional experience equip them with particular international knowledge and experience. 3 The Supervisory Board should be in a position to collectively provide competent advice to the Board of Management on fundamental future issues; in its opinion this includes, in par- ticular, the digital transformation. 4 The Supervisory Board should collectively have sufficient expertise in the areas of accounting or financial statement audits. This includes knowledge of international develop- ments in the field of accounting. Additionally, the Super- visory Board believes that the independence of its members helps guarantee the integrity of the accounting process and ensure the independence of the auditors. 6 5 Conflicts of interest affecting Supervisory Board members are an obstacle to providing independent and efficient advice to, and supervision of, the Board of Management. The Super- visory 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. In accordance with the age limit adopted by the Supervisory Board and laid down in the rules of procedure for the Super- visory Board, proposals for the election of Supervisory 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 Supervisory Board member reaches the age of 72. As a general 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 important for the Supervisory Board, including when it comes to appointing members of the Board of Management. The company’s success depends to a considerable extent upon the diversity of qualifications, personalities, skills and experience of the members of the Board of Management. All Board of Manage- ment members possess international expertise and experience. Long-term succession planning in all divisions aims to guarantee that there will be an adequate pipeline of quali fied successors for appointments to the Board of Management in the future. Particu- lar attention is given to ensuring that women can advance within the company. They are supported when they join the company and candidates with potential are given opportunities for devel- opment. The current target for the proportion of women on the Board of Management is 2: 8, to be achieved by the date of Annual Gen- eral Meeting in 2021. The previous target of 1:7, which was met, applied until the Annual General Meeting in 2018. 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 exec- utive tiers are defined on the basis of their reporting lines: tier 1 comprises executives assigned to the N-1 reporting line, whilst tier 2 consists of executives from the N-2 reporting line. The diversity criteria important to the Supervisory Board, including when considering its own composition, are outlined in the list of its goals. With seven women (35 %), the Supervisory Board exceeds the statutory share of women 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 with the resolutions for the General Meeting and additional in- formation 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 possible 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 prox- ies, submit postal votes and grant proxies to banks and share- holder associations attending the General Meeting via the com- pany’s online service. Remuneration of the Board of Management and the  Super visory Board The 2018 Annual General Meeting approved the current system of Board of Management remuneration with around 89 % of the votes cast. An explanation of the remuneration system and infor- mation on the remuneration of the individual members of the Board of Management and Supervisory Board are provided in the Remuneration Report, page 25 ff. CONSOLIDATED FINANCIAL STATEMENTS 87 — 170 C 88 INCOME STATEMENT 89 STATEMENT OF COMPREHENSIVE INCOME 90 BALANCE SHEET 91 CASH FLOW STATEMENT 92 STATEMENT OF CHANGES IN EQUITY 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 93 Basis of preparation 93 1 – Basis of accounting 93 2 – Consolidated group 96 3 – Significant transactions 96 4 – Adjustment of opening balances 99 5 – New developments in international accounting under IFRS s 101 6 – Currency translation 101 7 – Accounting policies 109 8 – Exercise of judgement in applying the accounting policies 110 9 – Consolidation methods 111 Segment reporting 111 10 – Segment reporting 114 Income statement disclosures 114 11 – Revenue by business unit 115 12 – Other operating income 115 13 – Changes in inventories and work performed and  capitalised 115 14 – Materials expense 116 15 – Staff costs / employees 116 16 – Depreciation, amortisation and impairment losses 117 17 – Other operating expenses 118 18 – Net finance costs 118 19 – Income taxes 119 20 – Earnings per share 119 21 – Dividend per share 120 Balance sheet disclosures 120 22 – Intangible assets 122 23 – Property, plant and equipment 123 24 – Investment property 124 25 – Investments accounted for using the equity method 124 26 – Financial assets 125 27 – Other assets 125 28 – Deferred taxes 126 29 – Inventories 126 30 – Trade receivables 126 31 – Cash and cash equivalents 126 32 – Assets held for sale and liabilities associated with assets held for sale 127 33 – Issued capital and purchase of treasury shares 129 34 – Capital reserves 129 35 – Other reserves 129 36 – Retained earnings 130 37 – Equity attributable to Deutsche Post AG shareholders 130 38 – Non-controlling interests 132 39 – Provisions for pensions and similar obligations 137 40 – Other provisions 138 41 – Financial liabilities 140 42 – Other liabilities 141 Cash flow disclosures 141 43 – Cash flow disclosures 143 Other disclosures 143 44 – Risks and financial instruments of the Group 157 45 – Contingent liabilities and other financial obligations 157 46 – Litigation 158 47 – Share-based payment 161 48 – Related party disclosures 163 49 – Auditor’s fees 163 50 – Exemptions under the HGB and local foreign legislation 165 51 – Declaration of Conformity with the German Corporate Governance Code 165 52 – Significant events after the reporting date and other disclosures 165 RESPONSIBILITY STATEMENT 166 INDEPENDENT AUDITOR’S REPORT 88 Deutsche Post DHL Group — 2018 Annual Report INCOME STATEMENT 1 January to 31 December € m Revenue Other operating income Changes in inventories and work performed and capitalised 1 Materials expense Staff costs Depreciation, amortisation and impairment losses Other 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 non-controlling interests Basic earnings per share (€) Diluted earnings per share (€) 1 For reasons of transparency, changes in inventories and work performed and capitalised were transferred out of other operating income and presented separately.  C.01 2018 61,550 1,914 87 –31,673 –20,825 –3,292 – 4,597 2017 60,444 1,971 168 –32,775 –20,072 –1,471 – 4,526 2 –2 3,741 3,162 89 – 482 –18 – 411 3,330 – 477 2,853 2,713 140 2.24 2.15 201 –750 –27 – 576 2,586 –362 2,224 2,075 149 1.69 1.66 Note 11 12 13 14 15 16 17 25 18 19 20 20 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 Reserve for equity instruments without recycling 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 Note 39 19 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 19 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 non-controlling interests 89  C.02 2018 2,224 191 – 4 0 –71 0 116 – – – 9 –31 74 0 13 2 49 165 2,389 2,243 146 2017 2,853 378 – 0 –28 0 350 1 –1 37 –14 –736 –7 – 8 – 8 –736 –386 2,467 2,344 123 90 Deutsche Post DHL Group — 2018 Annual Report BALANCE SHEET € m ASSETS Intangible assets Property, plant and equipment Investment property Investments accounted for using the equity method Non-current financial assets Other non-current assets Deferred tax assets Non­current 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 Non-controlling interests Equity Provisions for pensions and similar obligations Deferred tax liabilities Other non-current provisions Non-current provisions Non-current financial liabilities Other non-current liabilities Non-current liabilities Non­current 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. 2017 31 Dec. 2018 22 23 24 25 26 27 28 29 26 30 27 31 32 33 34 35 36 37 38 39 28 40 41 42 40 41 42 32 11,792 8,782 21 85 733 231 11,850 19,202 18 119 730 353 2,272 2,532 23,916 34,804 327 652 8,218 2,184 236 3,135 4 454 943 8,247 2,369 210 3,017 426 14,756 15,666 38,672 50,470 1,224 3,327 – 998 9,084 12,637 266 1,233 3,469 – 947 9,835 13,590 283 12,903 13,873 4,450 76 1,421 5,947 5,151 272 5,423 4,348 54 1,655 6,057 13,869 205 14,074 11,370 20,131 1,131 899 7,343 4,402 624 0 1,073 2,593 7,422 4,432 718 228 13,268 15,393 14,399 16,466 38,672 50,470 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 non-controlling interests Income taxes Net finance costs Profit from operating activities (EBIT) Depreciation, amortisation and impairment losses Net income from disposal of non-current assets Non-cash income and expense Change in provisions Change in other non-current 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 non-current financial assets Proceeds from disposal of non-current assets Subsidiaries and other business units Property, plant and equipment and intangible assets Investments accounted for using the equity method and other investments Other non-current financial assets Cash paid to acquire non-current assets Interest received Current financial assets Net cash used in investing activities Proceeds from issuance of non-current financial liabilities Repayments of non-current financial liabilities Change in current financial liabilities Other financing activities Cash paid for transactions with non-controlling interests Dividend paid to Deutsche Post AG shareholders Dividend paid to non-controlling interest shareholders 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 91  C.04 2018 2,075 149 362 576 3,162 3,292 –18 13 282 –75 2 – 579 6,079 –116 – 559 392 5,796 14 151 23 46 234 – 58 –2,649 –39 –10 –2,756 52 –307 Note 43 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 43 –2,091 –2,777 1,464 – 821 11 – 51 – 45 1,314 –2,284 –1 38 –3 –1,270 –1,409 –120 –148 53 –160 43 –1,087 119 – 91 0 0 3,107 3,135 31 –124 – 44 0 – 526 –3,039 –20 – 65 –33 0 3,135 3,017 92 Deutsche Post DHL Group — 2018 Annual Report STATEMENT OF CHANGES IN EQUITY 1 January to 31 December € m Note Issued capital Capital reserves 33 34 Other reserves Reserve for equity in- struments without recycling IAS 39 hedging reserve IAS 39 revalu- ation reserve Currency translation reserve Retained earnings Equity attributable to Deutsche Post AG share- holders 35 – 36 37 –298 7,228 11,087  C.05 Non-con- trolling interests 38 263 Total equity 11,350 Balance at 1 January 2017 1,211 2,932 11 Capital transactions with owner Dividend Transactions with non-controlling interests 0 0 – 4 15 2 80 5 277 92 – 59 Changes in non-controlling 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 (share-based payment schemes) Convertible bonds Share-based payment schemes (issuance) Share-based 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 Balance at 31 December 2017 1,224 3,327 Balance at 1 January 2018 1,224 3,327 Adjustments as a result of new IFRSs Balance at 1 January 2018, adjusted 1,224 3,327 –1 10 10 –10 0 3 0 16 19 19 19 Capital transactions with owner Dividend Transactions with non-controlling interests Changes in non-controlling 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 (share-based payment schemes) Convertible bonds Share-based payment schemes (issuance) Share-based 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 3 –1 5 2 26 7 102 99 – 92 –1,270 –1,270 –120 –1,390 0 – 8 –27 51 – 5 57 2,713 345 0 –729 – – 11 11 –1,027 9,084 –1,027 –1 –1,028 9,084 – 50 9,034 – 8 0 53 47 0 292 92 0 –3 –11 3 0 3 53 47 0 292 92 0 –794 –120 – 914 2,713 –729 345 15 2,344 12,637 12,637 – 50 12,587 140 –22 5 0 123 266 266 –2 264 2,853 –751 350 15 2,467 12,903 12,903 – 52 12,851 –1,409 –1,409 –125 –1,534 0 0 0 80 –26 –3 4 0 – 45 –7 66 2,075 117 0 4 0 29 – 46 0 107 99 –24 – 4 2 0 0 2 29 – 46 0 107 99 –24 –1,240 –127 –1,367 2,075 80 117 –29 2,243 13,590 149 – 4 1 0 2,224 76 118 –29 146 283 2,389 13,873 Balance at 31 December 2018 1,233 3,469 – –7 8 – 948 9,835 Consolidated Financial Statements — STATEMENT OF CHANGES IN EQUITY — NOTES — Basis of preparation 93 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 vari- able 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 arrangements in the Network Agreement, Deutsche Post DHL Group 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 2017 2018 129 600 1 0 0 14 127 616 1 0 1 18 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 logis- tics (DHL) and communication (Deutsche Post) services. The financial year of Deutsche Post AG and its consolidated subsidiaries is the calen- dar 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 finan- cial statements in accordance with section 315e of the Handelsgesetz- buch (HGB – German Commercial Code) (“consolidated financial state- ments in accordance with International Financial Reporting Standards”) in compliance with International Financial Reporting Standards (IFRS s) and related Interpretations of the International Accounting Standards Board (IASB) as adopted in the European Union in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards. 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, various 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 financial year 2018 are fundamentally based on the same accounting policies used in the 2017 consolidated financial statements. Exceptions to this note 4 due to the initial application of are the changes described in IFRS s 9, 15 and 16 and the changes in international financial reporting under IFRS s described in  note 5 that have been required to be applied by the Group since 1 January 2018. The accounting policies are ex- plained in  note 7. These consolidated financial statements were authorised for issue by a resolution of the Board of Management of Deutsche Post AG dated 15 February 2019. The consolidated financial statements are prepared in euros (€). Unless otherwise stated, all amounts are given in millions of euros (€ million, € m). 94 Deutsche Post DHL Group — 2018 Annual Report 2.1 Acquisitions in 2018 In the reporting period, a total of €75 million was paid for companies acquired in 2018. €5 million was paid for companies acquired in previ- ous years. The purchase price for the companies acquired was paid by transferring cash funds. Acquisitions, 2018 Name Country Segment Suppla Cargo S.A.S. Colombia Supply Chain Share of capital % 99.99 Serviceuticos Ltda. Colombia Supply Chain 99.99 Agencia de Aduanas Suppla S.A.S. Colombia Supply Chain 100 Suppla S.A. Colombia Supply Chain 99.99 Acquisition date 20 April 2018 20 April 2018 20 April 2018 20 April 2018 Suppla Group € m 20 April 2018 Non-current assets Customer relationship Brand name Current assets Cash and cash equivalents ASSETS Non-current provisions and liabilities Deferred taxes Current provisions and liabilities EQUITY AND LIABILITIES Net assets Purchase price Goodwill Carrying amount Adjustment Fair value 34 – – 31 17 82 20 – 29 49 9 8 1 – – 9 3 3 – 3 43 8 1 31 17 91 23 3 29 52 39 62 23 Insignificant acquisitions Delivered on Time (DOT) United Kingdom Transportes Alfonso Zamorano S.L.U. Transportes Martí Serra, S.L.U. Spain Spain Guinet Transit Service SARL France Global Forwarding, Freight PeP PeP Global Forwarding, Freight 100 6 March 2018 100 3 May 2018 100 3 May 2018 100 1 August 2018 In the second quarter of 2018, Deutsche Post DHL Group acquired Colombian companies Suppla Cargo S.A.S., Serviceuticos Ltda., Agencia de Aduanas Suppla S.A.S. and Suppla S.A. (referred to in the following as the Suppla Group). The companies provide transport, warehousing and packaging services. The acquisition enables DHL Supply Chain to expand its business in Latin America. Of the total purchase price of €62 million, €12 million is variable  note 2.2. A pay- and contingent upon the companies’ future earnings; ment of €48 million was made in April 2018. The contingent consider- ation was adjusted in the fourth quarter of 2018. The final purchase price allocation resulted in non-tax-deductible goodwill of €23 million. The figure is attributable to the synergies and network effects expected from the Latin America transport business, in particular. Customer relationships are amortised over a period of ten years. The brand name has a useful life of three years. Current assets include trade receivables of €26 million. There were no differences between the gross amount and the carrying amount. Since their consolidation, the companies have contributed €58 million to consolidated revenue and €4 million to consolidated EBIT. If the companies had already been consolidated as at 1 Janu- ary 2018, they would have provided an additional €27 million in con- solidated revenue and an additional €2 million in consolidated EBIT. Transaction costs were €1 million and are reported in other operating expenses. Insignificant acquisitions Entities were acquired by 31 December 2018 which neither individually nor in the aggregate had a material effect on the net assets, financial position and results of operations. The UK company Delivered on Time Limited (DOT) provides motor sports logistics solutions. Existing Formula 1 and Formula E services will benefit from synergy effects generated by the acquisition. The two Spanish transport companies acquired by DHL Parcel Iberia will play an important role in the development of the Spanish B2C market. Guinet Transit Service SARL, a company acquired in the third quar- ter of 2018, specialises in charter and transport services. Consolidated Financial Statements — NOTES — Basis of preparation 95 Since their consolidation, the companies have contributed €6 million to consolidated revenue and €1 million to consolidated EBIT. If the com- panies had already been consolidated as at 1 January 2018, they would have provided an additional €5 million in consolidated revenue and an additional €1 million in consolidated EBIT. Insignificant acquisitions, 2018 € m 1 January to 31 December Non-current assets Current assets Cash and cash equivalents ASSETS Non-current provisions and liabilities Current provisions and liabilities EQUITY AND LIABILITIES Net assets Purchase price Goodwill 1 Corresponds to the carrying amount. Fair value 1 8 8 2 18 6 7 13 5 24 19 2.2 Contingent consideration Variable purchase prices were agreed for certain acquisitions: Contingent consideration Company Mitsafetrans S.r.l. Suppla Group Basis EBITDA EBITDA 1 Adjusted during the year due to reassessments. Period for financial years from / to Results range from / to Fair value of total obligation at the acquisition date Remaining payment obligation at 31 Dec. 2017 Remaining payment obligation at 31 Dec. 2018 2016 to 2018 €0 to 19 million 2018 to 2019 €0 to 10 million 1 €15 million €12 million €10 million – €5 million €10 million Supply Chain In September, 50 % of the interest in UK-based Flexible Lifestyle Employment Company Limited (Flexible Lifestyle) was sold. The com- pany is a start-up specialising in digital solutions for staff recruitment in the logistics sector and is now being operated together with the buyer as a joint venture. Corporate Functions At the end of October 2018, 48 % of the interest in the start-up company DHL Resilience360 GmbH was sold to Columbia Capital, USA. DHL Resilience360 GmbH specialises in cloud-based risk management solu- tions for supply chains. Due to contractual arrangements, the remaining interest is now included in the consolidated financial statements of Deutsche Post DHL Group as an investment accounted for using the equity method. 2.3 Disposal and deconsolidation effects in 2018 Gains are shown in other operating income; losses are reported in other operating expenses. PeP In the fourth quarter of 2018, Deutsche Post DHL Group sold the online supermarket business All you need GmbH to Delticom AG, Hanover. This will enable the Group to consistently continue to focus its activities upon the German Post and Parcel business. The assets and liabilities had previously been reclassified as assets held for sale and liabilities associated with assets held for sale. The most recent measurement of assets and liabilities led to an impairment loss of €10 million. Express In December 2018, the 40 % interest in AHK Air Hong Kong Limited, China, (AHK) was sold to Cathay Pacific; AHK is now a wholly owned subsidiary of Cathay Pacific. The investment was previously reported under assets held for sale. The most recent remeasurement prior to reclassification did not result in an impairment loss. Furthermore, DHL Express continued to cooperate with AHK and signed a 15-year block space agreement. The new agreement, under which Air Hong Kong provides DHL Express with a specified volume of transport capacity in return for compensation, entered into force on 1 January 2019. 96 Deutsche Post DHL Group — 2018 Annual Report Disposal and deconsolidation effects € m 1 January to 31 December 2018 Non-current assets of which goodwill Current assets Cash and cash equivalents ASSETS Non-current provisions and liabilities Current provisions and liabilities EQUITY AND LIABILITIES Net assets Cash consideration received Fair value of the interest retained Deconsolidation gain Total 13 2 7 3 23 12 8 20 3 12 18 27 2.4 Joint operations Joint operations are consolidated in accordance with IFRS 11, based on the interest held. Aerologic GmbH (Aerologic), Germany, a cargo airline domiciled in Leipzig, is the only joint operation in this regard. It was jointly estab- lished by Lufthansa Cargo AG and Deutsche Post Beteiligungen Holding GmbH, which each hold 50 % of its capital and voting rights. Aerologic has been assigned to the Express segment. Aerologic’s shareholders are simultaneously its customers, giving them access to its freight air- craft 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 capital 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 acquisition of Colombia-based Suppla Group de- scribed in  note 2, the following significant transactions were carried out in financial year 2018: In the first quarter of 2018, Deutsche Post AG modified its occu- pational retirement arrangement in Germany. The added payment option of receiving one lump sum instead of lifelong monthly benefit payments has now also been granted to certain groups of hourly work- ers and salaried employees (e.g., former hourly workers and salaried employees with fully vested entitlements), for whom it had previously not been available. Past service gains of €108 million were recognised as a result. In early June, the Board of Management decided upon measures to secure sustainable earnings growth in the Post - eCommerce - Parcel division. The measures decided upon are designed to further improve productivity, indirect costs and yield management in the Post and Par- cel business. By 31 December 2018, an expense of €400 million had been recognised for an early retirement programme launched in this context. The related provisions and liabilities amounted to €352 million and €36 million, respectively, as at the reporting date. A total of €12 million has been paid to date. In September 2018, Deutsche Post AG issued promissory note loans in six tranches for a total nominal amount of €500 million,  note 41. At the end of October 2018, Deutsche Post DHL Group entered into an agreement with logistics provider S.F. Holding, China, to sell its Supply Chain business in China, Hong Kong and Macao to S.F. Holding,  note 32. On 5 December 2018, Deutsche Post AG issued a ten-year bond with an annual coupon of 1.625 % in the amount of €750 million,  note 41. Adjustment of opening balances 4 The adjustments to the opening balances resulted from the initial ap- plication of IFRS 9 and IFRS 15, and of IFRS 16 which the Group decided to apply early as at 1 January 2018. The prior-period amounts were not adjusted. The effects of the transition were recognised directly in equity as retained earnings. Consolidated Financial Statements — NOTES — Basis of preparation Adjusted opening balance at 1 Jan. 2018 € m ASSETS Property, plant and equipment Non-current financial assets Deferred tax assets Other non-current assets Current financial assets Trade receivables Other current assets EQUITY AND LIABILITIES Retained earnings Non-controlling interests Deferred tax liabilities Other non-current provisions Non-current financial liabilities Other non-current liabilities Current provisions Trade payables Other current liabilities 97 1 Jan. 2018 17,875 784 2,278 259 656 8,176 2,165 9,034 264 78 1,398 14,380 259 966 7,352 4,536 Adjustment as a result of 31 Dec. 2017 IFRS 9 IFRS 15 IFRS 16 Total 8,782 733 2,272 231 652 8,218 2,184 9,084 266 76 1,421 5,151 272 1,131 7,343 4,402 –14 2 10 0 – 42 – 42 –2 –12 4 18 9,093 77 4 39 – 58 –13 –173 12 223 5 2 –23 9,229 –13 8 –3 – 89 9,093 51 6 28 4 – 42 –19 – 50 –2 2 –23 9,229 –13 –165 9 134 Effects of IFRS 9, Financial Instruments The reclassification of financial instruments from the IAS 39 to the IFRS 9 categories depending on the applicable business model and the associated contractual cash flows did not materially affect the balance sheet. As at 1 January 2018, impairment losses on receivables were rec- ognised early in other comprehensive income in accordance with the expected loss model. IFRS 9 classification and impact on equity € m ASSETS Non-current financial assets Available-for-sale financial assets Loans and receivables Assets at fair value through profit or loss Lease receivables Assets at fair value through other comprehensive income Financial assets measured at cost Other non-current assets Current financial assets Available-for-sale financial assets Loans and receivables Assets at fair value through profit or loss Lease receivables Financial assets measured at cost Trade receivables Adjusted total ASSETS EQUITY AND LIABILITIES Retained earnings Non-controlling interests Adjusted total EQUITY AND LIABILITIES 31 Dec. 2017 Reclassi- fication Adjustment / impairment losses 1. Jan. 2018 59 466 170 38 – – 231 – 59 – 464 28 –38 47 476 10 500 – 500 69 76 7 – 8,218 9,834 9,084 266 9,350 – 69 500 –7 76 0 0 0 0 0 –2 – 42 – 44 – 42 –2 – 44 – – 198 – 47 476 241 – – 576 – 76 8,176 9,790 9,042 264 9,306 98 Deutsche Post DHL Group — 2018 Annual Report The prior-year figures were not adjusted. Deutsche Post DHL Group continues to exercise the option under IFRS 9 to apply the require- ments of IAS 39 governing hedge accounting. Reconciliation € m Effects of IFRS 15, Revenue from Contracts with Customers The timing of revenue and cost recognition has changed to an insignifi- cant extent for certain types of contracts in the PeP, Express and Global Forwarding, Freight segments due to IFRS 15, because this revenue is now recognised over time rather than at a point in time. The Group in- troduced IFRS 15 based upon the modified retrospective method. The prior-year figures were not adjusted. Contract assets of €45 million, liabilities for outstanding supplier invoices of €12 million and contract liabilities of €50 million were recognised for the first time as at 1 Jan- uary 2018. The effects of the transition as at 1 January 2018 in the amount of €–13 million were recognised in retained earnings, taking deferred taxes into account. Assuming a steady business volume, the effects of the change in recognition of revenue and expenses at the beginning and at the end of a financial year will almost fully offset each other. In addition, the change in determining whether an entity acts as a principal (gross revenue) or an agent (net revenue) reduced revenue on the one hand and, in the main, the materials expense by around €0.2 billion on the other. Effects of IFRS 16, Leases In the context of the transition to IFRS 16, right-of-use assets of €9.1 bil- lion and lease liabilities of €9.2 billion were recognised as at 1 Janu- ary 2018. Of these lease liabilities, €1.6 billion was due within one year. The Group transitioned to IFRS 16 in accordance with the modified retrospective approach. The prior-year figures were not adjusted. As part of the initial application of IFRS 16, the Group chooses to apply the relief option, which allows it to adjust the right-of-use asset by the amount of any provision for onerous leases recognised in the balance sheet immediately before the date of initial application. In addition, the Group has decided not to apply the new guidance to leases whose term will end within twelve months of the date of initial application. In such cases, the leases are accounted for as short-term leases and the lease payments associated with them are recognised as an expense from short-term leases. The following reconciliation to the opening balance for the lease liabilities as at 1 January 2018 is based upon the operating lease obligations as at 31 December 2017: Operating lease obligations at 31 December 2017 Minimum lease payments (notional amount) on finance lease liabilities at 31 December 2017 Relief option for short-term leases Relief option for low value asset leases Lease-type obligations (service components) Other Gross lease liabilities at 1 January 2018 Discounting Lease liabilities at 1 January 2018 Present value of finance lease liabilities at 31 December 2017 Additional lease liabilities as a result of the initial application of IFRS 16 as at 1 January 2018 1 Jan. 2018 11,298 237 –225 –27 2 50 11,335 –1,919 9,416 –181 9,235 The lease liabilities were discounted at the incremental borrowing rate as at 1 January 2018. The weighted average discount rate was 3.8 %. In order to calculate the incremental borrowing rate, reference interest rates were derived – for a period of up to 15 years – from the yields of corporate bonds in major countries and / or currencies, provided there was a deep market for corporate bonds. By contrast, government bond yields were used for countries without a deep market for corporate bonds. The reference interest rates were supplemented by a leasing risk premium. Leases are presented as follows in the income statement: Leases in the income statement € m Revenue/other operating income Operating lease income Sublease income Income from sale and leaseback transactions Materials expense Expenses from short-term leases Expenses from low-value asset leases Expenses from variable lease payments Other lease expenses (incidental expenses) Depreciation and impairment losses Depreciation of and impairment losses on right-of-use assets Impairment losses on right-of-use assets Net finance costs Interest expenses on lease liabilities Currency translation gains on lease liabilities Currency translation losses on lease liabilities 2018 49 37 46 664 46 33 56 1,862 10 376 27 56 Consolidated Financial Statements — NOTES — Basis of preparation 99 Disclosures regarding right-of-use assets and lease liabilities and other disclosures can be found under the relevant balance sheet items,  notes 23, 41, 43 and 44.  Note 7 contains a detailed presentation of the changes in account- ing policies due to IFRS s 9, 15 and 16. 5 New developments in international accounting under IFRS s New accounting standards required to be applied in  financial year 2018  note 4, the follow- In addition to the newly applied Standards listed in ing additional Standards, changes to Standards and Interpretations must be applied from 1 January 2018: Standard Subject matter and significance Amendments to IFRS 4, Insurance Contracts – Applying IFRS 9, Financial Instruments, with IFRS 4, Insurance Contracts Annual Improvements to IFRS s (2014 – 2016 Cycle) Amendments to IFRS 2, Share-based Payment – Clarifications of Classi fication and Measurement of Share-based Payment Transactions IFRIC 22, Foreign Currency Transactions and Advance Consideration Amendments to IAS 40, Investment Property – Change in Use 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). The amendments had no effect on the consolidated financial statements. The improvements relate to IFRS 1 and IAS 28. The amendments had no effect on the consolidated financial statements. The amendments clarify the accounting for cash-settled share-based payment transactions that include a performance condition. The measurement rules follow the same approach as when accounting for equity-settled awards. An exception was also included for the classification of share-based payment transactions with net settlement features for withholding tax obligations. Such commitments are required to be classified in their entirety as equity-settled share-based payment transactions if they would have been classified in this way in the absence of the net settlement feature. The amendments further include clarifications regarding modifications of the terms and conditions of share-based payment arrangements that change their classification from cash-settled to equity-settled. The amendments had no effect on the consolidated financial statements. 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. The interpretation had no effect on the consolidated financial statements. The Standard was amended to clarify transfers to and from investment property. Property may only be transferred when there is evidence of a change in use of the property. The consolidated financial statements were not be affected. 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 re- quired to be applied in future periods. 100 Deutsche Post DHL Group — 2018 Annual Report Effective for financial years beginning on or after Subject matter and significance 1 January 2019 The amendment clarifies how certain financial instruments with prepayment features are classified according to IFRS 9. It is not expected to have significant effects on the Group. 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. The amendment will not have a material influence on the consolidated financial statements. 1 January 2019 The amendments to IAS 28 clarify that IFRS 9 must be applied to long-term interests that, in substance, form part of the net investment in an associate or joint venture to which the equity method is applied. The amendments are not expected to have an effect on the Group. Standard (issue date) Amendments to IFRS 9, Financial Instruments: Prepayment Features with Negative Compensation (12 October 2017) IFRIC 23, Uncertainty over Income Tax Treatments (7 June 2017) Amendments to IAS 28, Investments in Associates and Joint Ventures: Long-term Interests in Associates and Joint Ventures (12 October 2017) 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 2018 and in previous years whose application is not yet mandatory for financial year 2018. The application of these IFRS s is dependent on their adoption by the EU. Standard (issue date) Effective for financial years beginning on or after Subject matter and significance IFRS 17, Insurance Contracts (18 May 2017) 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. Annual Improvements to IFRS s (2015 – 2017 Cycle) (12 December 2017) Amendments to IAS 19 Employee Benefits – Plan Amendment, Curtailment or Settlement (7 Febru- ary 2018) Amendments to IFRS 3, Business Combinations – Definition of a Business (22 October 2018) Amendments to References to the Conceptual Framework in IFRS Standards (29 March 2018) Amendments to IAS 1 and IAS 8 – Definition of Material (31 October 2018) 1 January 2019 The amendments relate to IFRS 3, Business Combinations, and IFRS 11, Joint Arrangements, as well as IAS 12, Income Taxes, and IAS 23, Borrowing Costs. They are not expected to have significant effects on the Group. 1 January 2019 The amendments specify the basis for determining the current service cost and the net interest expense (or income) for the period between a defined benefit retirement plan amendment, curtailment or settlement, and the end of the reporting period. The effects on the Group depend on future business transactions and assumptions. 1 January 2020 1 January 2020 The amendments relate to the definition of a business and include clearer guidelines for distinguishing between a business and a group of assets when applying IFRS 3. According to the amendments, the future definition of a business includes having both economic resources and at least a substantial process which together are capable of generating output. Output is deemed to be only the provision of goods and services and the generation of capital and other income. Alternatively, there is an option to apply a concentration test to assess whether an acquired set of activities and assets is not a business. The effects on the Group are currently being assessed. The IASB has published a revised Conceptual Framework for Financial Reporting that will be used to develop new Standards and Interpretations in the future. In particular, the definitions of assets and liabilities as well as the guidance on measurement and derecognition, presentation and disclosures were amended. This has not resulted in any technical amendments to current Standards to date. The amendments merely update the references to the Conceptual Framework in existing Standards. The Conceptual Framework itself is not the subject of the endorsement procedure. 1 January 2020 The amendments to IAS 1 and IAS 8 clarify the definition of “material”. Besides additional explanations, the definition of “material” in the Conceptual Framework as well as all Standards was aligned with the central definition now anchored in IAS 1. Consolidated Financial Statements — NOTES — Basis of preparation 101 Currency translation 6 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 currency of foreign companies is determined by the primary economic environment in which they mainly generate and use cash. Within the Group, the func- tional currency is predominantly the local currency. 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 trans- lation differences are recognised in other comprehensive income. In financial year 2018, currency translation differences amounting to €76 million (previous year: €–751 million) were recognised in other comprehensive income,  Statement of comprehensive income. Goodwill arising from business combinations after 1 January 2005 is treated as an asset of the acquired company and therefore carried in the functional currency of the acquired company. The exchange rates for the currencies that are significant for the Group were as follows: Currency Country AUD CNY GBP HKD INR JPY SEK USD Australia China United Kingdom Hong Kong India Japan Sweden USA Closing rates Average rates 2017 EUR 1 = 2018 EUR 1 = 2017 EUR 1 = 2018 EUR 1 = 1.5352 7.8161 0.8880 9.3752 1.6224 7.8741 0.8947 8.9680 1.4791 7.6501 0.8763 8.8649 1.5834 7.8133 0.8860 9.2413 76.6308 79.8994 73.7957 80.6204 135.0382 125.8064 127.3132 129.9766 9.8332 10.2418 9.6447 10.2955 1.1997 1.1451 1.1372 1.1790 The carrying amounts of non-monetary assets recognised at significant 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 prepared 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 2018, income of €213 million (previous year: €174 million) and expenses of €207 million (previous year: €181 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. Accounting policies 7 Uniform accounting policies are applied to the annual financial state- ments of the entities that have been included in the consolidated finan- cial 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 comprising letter and parcel dispatch, express delivery, freight transport, supply chain management and e-commerce solutions. All income relating to normal business oper- ations is recognised as revenue in the income statement. All other income is reported as other operating income. Until 31 December 2017, revenue and other operating income were generally recognised when services were rendered, the amount of rev- enue and income could be reliably measured and, in all probability, the economic benefits from the transactions would flow to the Group. Since 1 January 2018, revenue has been recognised when control over the goods or services transfers to the customer, i. e., when the customer has the ability to control the use of the transferred goods or services provided and generally derive their remaining benefits. The requirement is that a contract with enforceable rights and obligations exists and, amongst other things, the receipt of consideration is likely, taking into account the customer’s credit quality. The revenue cor- responds to the transaction price to which the Group is expected to be entitled. Variable consideration is included in the transaction price when it is highly probable that a significant reversal in the amount of revenue recognised will not occur and as soon as the uncertainty asso- ciated with the variable consideration no longer exists. The Group does not expect to have contracts where the period between the transfer of the promised goods and / or services to the customer and payment by the customer exceeds one year. Accordingly, the promised consider- ation is not adjusted for the time value of money. For each performance obligation, revenue is either recognised at a certain time or over a certain period of time. Revenue from the provision of transport services is generally recognised according to the straight-line method over a specified period. The revenue generated by providing other logistics services is recognised in the reporting period in which the service was rendered. Operating expenses are recognised in income when the service is utilised or when the expenses are incurred. 102 Deutsche Post DHL Group — 2018 Annual Report Useful lives Buildings Technical equipment and machinery Aircraft IT equipment 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, prop- erty, plant and equipment and investment property are reviewed for indications of impairment. If there are any such indications, an impair- ment 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 identifiable group of assets to which the asset in question can be allocated 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 im- pairment 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 recognised in the income statement. Impairment losses recognised in respect of goodwill may not be reversed. 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 eco- nomic benefits and the costs can be reliably measured. In the Group, this concerns internally developed software. If the criteria for capital- isation are not met, the expenses are recognised immediately in income in the year in which they are incurred. In addition to direct costs, the production cost of internally developed software includes an appropri- ate share of allocable production overhead costs. Any borrowing costs incurred for qualifying assets are included in the production cost. Value added tax arising in conjunction with the acquisition or production of intangible assets is included in the cost if it cannot be deducted as input tax. Capitalised software is amortised over its useful life. Intangible assets (excluding goodwill) are amortised using the straight-line method over their useful lives. Impairment losses are rec- ognised in accordance with the principles described in the section headed Impairment. The useful lives of significant intangible assets are as follows: 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. Intangible assets that are not affected by legal, economic, contractual 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 indications of impairment. They generally include brand names from business combinations and goodwill, for example. Impairment 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 accumu- lated depreciation and valuation allowances. In addition to direct 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 equip- ment are capitalised. Value added tax arising in conjunction 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 presented in the table below: Consolidated Financial Statements — NOTES — Basis of preparation 103 Since January 2005, goodwill has been accounted for using the impairment-only approach in accordance with IFRS 3. This stipulates that goodwill must be subsequently measured at cost, less any cumu- lative adjustments from impairment losses. Purchased goodwill is therefore no longer amortised and instead is tested for impairment annually in accordance with IAS 36, regardless of whether any indica- tion of possible impairment exists, as in the case of intangible assets with an indefinite useful life. In addition, the obligation remains to con- duct an impairment test if there is any indication of impairment. Goodwill resulting from company acquisitions is allocated 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 goodwill is monitored for internal manage- ment 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. Leases A lease is a contract in which the right to use an asset (the leased asset) is granted for an agreed-upon period in return for compensation. Until 31 December 2017, a lease was defined as 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 ownership of leased assets was attributed to the lessee if the lessee substantially bore all risks and rewards incidental to ownership of the leased asset. To the extent that beneficial ownership was attributable to the Group as the lessee, the asset was capitalised at the date on which use started, either at fair value or at the present value of the minimum lease payments if this was less than the fair value. A lease liability in the same amount was rec- ognised under non-current liabilities. The lease was subsequently measured at amortised cost using the effective interest method. The depreciation methods and estimated useful lives corresponded to those of comparable purchased assets. Since 1 January 2018, the Group as lessee has recognised at present value assets for the right of use received and liabilities for the payment obligations entered into for all leases in the balance sheet. Lease liabilities include the following lease payments: • fixed payments, less lease incentives offered by the lessor; • variable payments linked to an index or interest rate; • expected residual payments from residual value guarantees; • the exercise price of call options when exercise is estimated to be sufficiently likely and • contractual penalties for the termination of a lease if the lease term reflects the exercise of a termination option. Lease payments are discounted at the implicit interest rate underlying the lease to the extent that this can be determined. Otherwise, discount- ing is at the incremental borrowing rate. Right-of-use assets are measured at cost, which comprises the following: • lease liability; • lease payments made at or prior to delivery, less lease incentives received; • initial direct costs and • restoration obligations. Right-of-use assets are subsequently measured at amortised cost. They are depreciated over the term of the lease using the straight- line method. The Group will make use of the relief options provided for leases of low-value assets and short-term leases (shorter than twelve months) and expense the payments in the income statement according to the straight-line method. Furthermore, the new rules are not applied to leases on intangible assets. The Group also exercises the option avail- able for contracts comprising lease components as well as non-lease components not to split these components, except in the case of real estate and aircraft leases. In addition, intra-group leases – in line with internal management – generally are and will continue to be presented according to IFRS 8 in segment reporting as operating leases in accord- ance with IAS 17. Extension and termination options exist for a number of leases, particularly for real estate. Such contract terms offer the Group the greatest possible flexibility in doing business. In determining lease terms, all facts and circumstances offering economic incentives for exercising extension options or not exercising termination options are taken into account. Changes due to the exercise or non-exercise of such options are considered in determining the lease term only if they are sufficiently probable. For operating leases, the Group reports the leased asset at amort- ised 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 lessor in a finance lease, it recognises the assets as lease receivables in the amount of the net investment in the balance sheet. 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 Ventures. Based on the cost of acquisition at the time of purchase of the invest- ments, the carrying amount of the investment is increased or reduced annually to reflect the share of earnings, dividends distributed and other changes in the equity of the associates and joint ventures attrib- utable to the investments of Deutsche Post AG or its consolidated sub- sidiaries. An impairment loss is recognised on investments accounted 104 Deutsche Post DHL Group — 2018 Annual Report for using the equity method, including the goodwill in the carrying amount of the investment, if the recoverable 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. Financial instruments 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. Financial liabilities include contractual obligations to deliver cash or another financial asset to another entity. These mainly comprise trade payables, liabilities to banks, liabilities arising from bonds and leases, and derivative financial liabilities. Measurement Until 31 December 2017, the fair value option according to IAS 39 allowed financial assets or financial liabilities to be measured irrevocably at fair value through profit or loss on initial recognition if this eliminated or significantly reduced a measurement or recognition inconsistency (accounting mismatch). The Group made use of the option in order to avoid accounting mismatches. As of 1 January 2018, the Group measures financial assets at fair value plus the transaction costs directly attributable to the acquisition of these assets on initial recognition if they are not subsequently meas- ured at fair value through profit or loss. The transaction costs of assets measured at fair value through profit or loss are recognised as ex- penses. For financial liabilities measured according to the fair value option, the part of the change in fair value resulting from changes in the Group’s own credit risk is recognised in other comprehensive in- come rather than in the income statement. Classification Until 31 December 2017, financial assets were accounted for in accord- ance with the provisions of IAS 39, which distinguished between four categories of financial instruments: AVAILABLE-FOR-SALE FINANCIAL ASSETS These financial instruments were non-derivative financial assets and were carried at their fair value, where this could be measured reliably. If a fair value could not be determined, they were carried at cost. Changes in fair value between reporting dates were generally recog- nised in other comprehensive income (revaluation reserve). The reserve was reversed to income either upon disposal or if the fair value fell below cost more than temporarily, i.e., the drop was significant or prolonged. If, at a subsequent reporting date, the fair value of a debt instrument had increased objectively as a result of events occurring after the impairment loss was recognised, the impairment loss was reversed in the appropriate amount. Impairment losses recognised on equity instruments were not permitted to be reversed to income. If equity instruments were recognised at fair value, any reversals were required to be recognised in other comprehensive income. No reversals were permitted in the case of equity instruments that were recognised at cost. Available-for-sale financial instruments were allocated to non-current assets unless the intention was to dispose of them within twelve months of the reporting date. In particular, investments in unconsolidated subsidiaries, marketable securities and other equity investments were reported in this category. HELD-TO-MATURITY FINANCIAL ASSETS Financial instruments were assigned to this category if there was an intention to hold the instrument to maturity and the economic condi- tions for doing so were met. These financial instruments related to non- derivative financial assets that were measured at amortised cost using the effective interest method. LOANS AND RECEIVABLES These were non-derivative financial assets with fixed or determinable payments that were not quoted on an active market. Unless held for trading, they were recognised at cost or amortised cost at the reporting date. The carrying amounts of money market receivables corresponded approximately to their fair values due to their short maturity. Loans and receivables were considered current assets if they matured not more than twelve months after the reporting date; otherwise, they were recognised as non-current assets. If the recoverability of receivables was in doubt, they were recognised at amortised cost, less appropriate specific or aggregate specific valuation allowances. An impairment loss was recognised on trade receivables when there were objective indi- cations that the amount of the outstanding receivable could not be collected in full. The impairment loss was recognised in the income statement via a valuation account. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS All financial instruments held for trading and derivatives that did not satisfy the criteria for hedge accounting were assigned to this category. They were generally measured at fair value. All changes in fair value were recognised in income. All financial instruments in this category were accounted for at the trade date. Assets in this category were recognised as current assets if they were either held for trading or were likely to be realised within twelve months of the reporting date. Consolidated Financial Statements — NOTES — Basis of preparation 105 Since 1 January 2018, financial assets have been classified in the fol- lowing measurement categories: • debt instruments at amortised cost; • debt instruments at fair value through other comprehensive As at 1 January 2018, the Group began making a forward-looking assessment of the expected credit losses associated with its debt instruments. The applicable impairment method depends on whether there is a significant increase in credit risk. income (FVOCI), with cumulative gains and losses on derecognition of the financial asset reclassified to profit or loss; • debt instruments, derivatives and equity instruments at fair value The Group applies the simplified impairment model to report the credit losses expected over the term of trade receivables and contract assets. Further details are presented in  note 44. Derivatives and hedges 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. 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 instru- ment are recognised directly in income. The gains and losses generated by the hedging transactions are initially recognised 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 recognised 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 44. through profit or loss (FVTPL); • equity instruments classified as FVOCI, with gains and losses on the sale of the financial assets reclassified from other comprehensive income to retained earnings (no recycling). The classification of debt instruments depends on the business model of the Group for managing the financial assets and on the contractual cash flows. As a rule, debt instruments are recognised by the Group at amort- ised cost. Interest income from these financial assets is reported in financial income according to the effective interest method. In the case of equity instruments, the Group decides irrevocably at initial recogni- tion, whether they will be measured at fair value through other com- prehensive income or at fair value through profit or loss. Most of the equity instruments that the Group invests in for strategic reasons are assigned to the FVOCI measurement category. The effects of a change in the fair value of these equity instruments must be recognised in other comprehensive income. On derecognition, these effects are not reclassified to profit or loss. Dividends from such instruments continue to be reported in other income in the income statement. Impairment Until 31 December 2017, the carrying amounts of financial assets not carried at fair value through profit or loss were tested for impairment at each reporting date and whenever there were indications of impair- ment. The amount of any impairment loss was determined by comparing the carrying amount and the fair value. If there were objective indications of impairment, an impairment loss was recognised in other operating expenses or net financial income / net finance costs in the income state- ment. Impairment losses were reversed if there were objective reasons arising after the reporting date indicating that the reasons for impair- ment no longer existed. The increased carrying amount resulting from the reversal of the impairment loss was not permitted to exceed the carrying amount that would have been determined (net of amortisation or depreciation) if the impairment loss had not been recognised. Impairment losses were recognised within the Group if the debtor was experiencing significant financial difficulties; it was highly probable that the debtor would be the subject of bankruptcy proceedings; there were material changes in the issuer’s technological, economic, legal or market environment; or the fair value of a financial instrument fell below its amortised cost for a prolonged period. 106 Deutsche Post DHL Group — 2018 Annual Report Recognition and derecognition Regular way purchases and sales of financial assets are recognised at the settlement date, with the exception of derivatives in particular. A financial asset is derecognised when the rights to receive the cash flows from the asset have expired or have been transferred, and the  Group has transferred essentially all risks and opportunities of ownership. 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. Assets held for sale and liabilities associated with assets held for sale Assets held for sale are assets available for sale in their present condi- tion 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 (discontinued op- erations). 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 operations. This also applies to the profit or loss from operations and the gain or loss on disposal of these components of an entity. 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 pro- duction process or in the rendering of services. They are measured at the lower of cost or net realisable value. Valuation allowances are charged for obsolete inventories and slow-moving goods. 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. 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 statement 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 statement over the useful lives of the assets. Non­controlling 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 shareholders 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 shareholder / other shareholders and the purchase price is recognised in other comprehensive income. If non-controlling interests are increased by the proportionate net assets, no goodwill is allocated to the proportionate net assets. Consolidated Financial Statements — NOTES — Basis of preparation 107 Share­based 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 recognised in staff costs over the vesting period. The fair value of equity-settled share- based payment transactions is determined using internationally recognised valuation techniques. Stock appreciation rights are measured on the basis of an option pricing model in accordance with IFRS 2. The stock appreciation rights are measured on each reporting date and on the settlement 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 recognised for the same amount. Changes in value due to share price movements occurring after the grant date are recognised as other finance costs in net finance costs. Retirement plans There are arrangements (plans) in many countries under which the Group grants post-employment benefits to its hourly workers and sal- aried 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 ben- efits, 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 actu- arial assumptions. Most of the defined benefit retirement plans are at least partly funded via external plan assets. The remaining net liabil- ities are funded by provisions for pensions and similar obligations; net assets are presented separately as pension assets. Where necessary, an asset ceiling must be applied when recognising pension 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 remeasurements outside profit and loss in other comprehensive income. Any rights to reimbursement are reported separately in finan- cial assets. DEFINED CONTRIBUTION RETIREMENT PLANS FOR CIVIL SERVANT EMPLOYEES IN GERMANY In accordance with statutory provisions, Deutsche Post AG pays contri- butions for civil servant employees in Germany to retirement plans which are defined contribution retirement plans for the company. These contributions are recognised in staff costs. Under the provisions of the Gesetz zum Personalrecht der Beschäftigten der früheren Deutschen Bundespost (PostPersRG – For- mer Deutsche Bundespost Employees Act), Deutsche Post AG provides retirement benefits and assistance benefits through the Postbeamten- versorgungskasse (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 benefits 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 no- tional 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 assumed 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 provide the par- ticipating companies with sufficient information to use defined benefit accounting. The plans are therefore accounted for as if they were defined contribution plans. 108 Deutsche Post DHL Group — 2018 Annual Report Regarding these multi-employer plans in the USA, contributions 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 bargained contribution rates except in the event of a withdrawal meeting specified 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 2019 are €50 million (actual employer contributions in the reporting period: €47 million, in the previous year: €41 million). Some of the plans in which Deutsche Post DHL Group participates are underfunded according to information provided by the funds. No infor- mation is available to the Group 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. For a 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 contribution rates are the same for all participating employers and employees. There is no liability for the employer towards the fund beyond the contributions set, even in the case of withdrawal or obliga- tions not met by other entities. Any subsequent underfunding ulti- mately results in the rights of members being cut and / or no indexation of their rights. The expected employer contributions to the fund for 2019 are €23 million (actual employer contributions in the reporting period: €22 million, in the previous year: €21 million). As at 31 Decem- ber 2018, the coverage degree of plan funding was above 100%, but below a required minimum of approximately 105%, according to infor- mation provided by the fund. Deutsche Post DHL Group does not rep- resent a significant portion of the fund in terms of contributions. Other provisions Other provisions are recognised for all legal or constructive obligations 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 eco- nomic benefits and whose amount can be measured reliably. They represent uncertain obligations that are carried at the best estimate of the expenditure required to settle the obligation. Provisions 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 between 0.0 % and 11.50 % (previ- ous year: 0.0 % and 9.50 %). The effects arising from changes in interest rates are recognised in net financial income / net finance cost. Provisions for restructurings are only established in accordance with the aforementioned criteria for recognition if a detailed, formal re- structuring plan has been drawn up and communicated to those affected. The technical reserves (insurance) consist mainly of outstanding loss reserves and IBNR (incurred but not reported claims) reserves. 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 reserves 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 outstanding loss reserves. The company carries out its own assessment of ultimate loss liabilities using actuarial methods and also commissions an independent actu- arial 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 subse- quent periods the financial liabilities are measured at amortised cost. Any differences between the amount received and the amount repay- able are recognised in income over the term of the loan using the effective interest method. Disclosures on financial liabilities under leases can be found in the section headed Leases. 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 specified 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 residual value that results from deducting the amount calculated separately for the debt component from the fair value of the instrument as a whole. The transaction costs are deducted on a proportionate 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. Consolidated Financial Statements — NOTES — Basis of preparation 109 Deferred taxes In accordance with IAS 12, deferred taxes are recognised for temporary differences between the carrying amounts in the IFRS financial state- ments and the tax accounts of the individual entities. Deferred 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 reduction claims is assessed on the basis of each entity’s earnings projections, 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 recognised 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 on tax loss carryforwards can be found in  note 28. 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 was increased by 0.3 % to 30.5 % on the basis of a better estimate with regard to trade tax in the reporting period. It comprises the corporation tax rate plus the solidarity surcharge, as well as a municipal trade tax rate that is calculated as the average of the different municipal trade tax rates. Foreign Group companies use their individual income tax rates to calculate deferred tax items. The income tax rates applied for foreign companies amount to up to 39 % (previous year: 40 %). Income taxes Income tax assets and liabilities are measured at the amounts for which repayments from, or payments to, the tax authorities are expected 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 obligations that will probably not lead to an outflow of resources embodying 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 45. 8 Exercise of judgement in applying the accounting policies The preparation of IFRS-compliant consolidated financial statements requires the exercise of judgement by management. All estimates 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 that is the case, the assets and associated liabilities must be measured and recognised as assets held for sale or liabilities associated with assets held for sale. Estimates and assessments made by management The preparation of the consolidated financial statements in accordance with IFRS s requires management to make certain assumptions and estimates that may affect the amounts of the assets and liabilities in- cluded in the balance sheet, the amounts of income and expenses, and the disclosures relating to contingent liabilities. Examples 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 impair- ment 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 39. The Group has operating activities around the globe and is subject to local tax laws. Management can exercise judgement when calculat- ing the amounts of current and deferred taxes in the relevant countries. Although management believes that it has made a reasonable estimate relating to tax matters that are inherently uncertain, there can be no guarantee that the actual outcome of these uncertain tax matters will correspond exactly to the original estimate made. Any difference be- tween 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 recognised for deferred tax assets could be re- duced 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 important estimates this requires is the determination of the fair values of these assets and liabilities at the date of acquisition. Land, buildings and office equip- ment 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 opinion of an independent external expert valuer, depending on the type of intangible asset and 110 Deutsche Post DHL Group — 2018 Annual Report the complexity involved in determining its fair value. The independent expert determines the fair value using appropriate valuation tech- niques, normally based on expected future cash flows. In addition to the assumptions about the development 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 recover- able 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 forecast future cash flows and the discount rate applied. Although man- agement believes that the assumptions made for the purpose of calcu- lating 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 capital 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 dis closed 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 information currently available about these proceedings and recognises provisions for probable obligations including estimated legal costs. Internal and external legal advisers participate in making this assessment. In decid- ing on the necessity for a provision, management 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 neces- sarily 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. Brexit could affect the Group’s net assets, financial position and results of operations, for example,  Group Management Report, Opportunities and risks, page 69 f. In the event of developments in this general environ ment that diverge from the assumptions made, the actual 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 assump- tions 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 2019 to the carrying amounts of the assets and liabilities recognised in the financial statements. Consolidation methods 9 The consolidated financial statements are based on the IFRS financial statements of Deutsche Post AG and the subsidiaries, joint operations 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 December 2018. 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 statements in pro- portion to the interest held in these operations, in accordance 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 purchase 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 acquisition 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 eliminated. Inter- company profits or losses from intra-group deliveries and services not realised by sale to third parties are eliminated. Unrealised gains and losses from business transactions with investments accounted for using the equity method are eliminated on a proportionate basis. Consolidated Financial Statements — NOTES — Basis of preparation — Segment reporting 111 Segment reporting 10 Segment reporting Segments by division € m PeP 1 Express Global Forwarding, Freight Supply Chain 1 Jan. to 31 Dec. 2017 2018 2017 2018 2017 2018 2017 2018 2017 External revenue 18,009 18,344 14,693 15,775 13,689 14,063 13,958 13,201 Internal revenue 152 132 356 372 793 915 194 149 Total revenue 18,161 18,476 15,049 16,147 14,482 14,978 14,152 13,350 95 1,292 1,387 Corporate Functions 1 2018 167 Consolidation 1, 2 Group 2017 2018 2017 2018 0 0 60,444 61,550 1,457 –2,787 –3,025 0 0 1,624 –2,787 –3,025 60,444 61,550 1,503 656 1,736 1,957 297 442 555 520 –350 – 414 0 1 3,741 3,162 Profit / loss from operating activities (EBIT) of which net income / loss from investments accounted for using the equity method Net segment assets / liabilities 3 Capex (assets acquired) Capex (right-of- use assets) 3, 4 Total capex 3 Depreciation and amortisa- tion 3 Impairment losses Total depreciation, amortisation and impairment losses 3 Other non-cash income (–) and expenses (+) 1 –3 –1 –1 0 1 2 1 0 0 Segment assets 3 6,571 7,326 10,203 13,766 7,664 8,728 5,564 8,248 1,732 4,935 of which investments accounted for using the equity method 27 30 33 33 22 24 3 12 0 21 Segment liabilities 3,034 2,899 3,604 3,635 3,046 3,105 3,037 3,229 1,556 1,520 0 –73 0 2 –2 – 95 31,661 42,908 0 – 57 –1 –74 85 119 14,220 14,314 3,537 4,427 6,599 10,131 4,618 5,623 2,527 5,019 176 3,415 –16 –21 17,441 28,594 618 786 1,047 1,190 4 622 176 962 2 739 1,049 1,929 353 444 507 1,151 0 10 18 1 69 1 70 68 2 110 277 282 241 290 158 268 0 805 277 1,087 2 243 518 808 238 311 821 203 623 0 8 5 0 0 353 454 525 1,152 70 238 319 826 203 623 317 556 304 273 54 66 178 204 71 74 16 0 16 1 0 1 1 0 –10 2,268 2,648 1 – 9 9 2,277 2,397 5,045 –1 1,443 3,276 0 28 16 –1 1,471 3,292 –7 925 1,166 0 468,724 489,571 Employees 5 179,345 188,525 86,313 93,550 42,646 43,347 149,042 151,877 11,378 12,272 1 Prior-period amounts adjusted. 2 Including rounding. 3 Not comparable with prior year due to initial application of IFRS 16 in financial year 2018. 4 Prior-year figure includes investments in finance lease assets. 5 Average FTEs. 112 Deutsche Post DHL Group — 2018 Annual Report Adjustment of prior­period amounts In the second quarter of 2018, StreetScooter GmbH was transferred from the PeP segment to the new Corporate Incubations board depart- ment within Corporate Functions. The prior-period amounts were adjusted accordingly. Information about geographical regions € m Germany Europe (excluding Germany) Americas Asia Pacific Other regions Group 1 Jan. to 31 Dec. External revenue Non-current assets 1 Capex 1 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 18,405 18,759 18,139 18,464 10,768 11,163 10,766 10,766 2,366 2,398 60,444 61,550 5,610 964 9,229 1,658 7,328 10,065 4,076 614 1,333 487 6,740 1,333 3,303 4,563 165 594 356 47 524 127 20,673 31,121 2,277 5,045 1 Not comparable with prior year due to the initial application of IFRS 16 in financial year 2018. 10.1 Segment reporting disclosures Deutsche Post DHL Group reports four operating segments for finan- cial year 2018; these are managed independently by the responsible segment management bodies in line with the products and services offered and the brands, distribution channels and customer profiles involved. Components of the entity are defined as a segment on the basis of the existence of segment managers with bottom-line respon- sibility who report directly to Deutsche Post DHL Group’s top manage- ment. 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 services or products offered internally within the Group, these market prices or market-oriented prices are used as transfer prices (arm’s length prin- ciple). The transfer prices for services for which no external market exists are generally based on incremental costs. The expenses for 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 obligation (nation- wide 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 fluc- tuations 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, including right-of-use assets, are reported in the capex figure. Depreciation, amortisation and impairment losses relate to the segment assets allocated to the individual divisions. Other non- cash income and expenses relate primarily to expenses from the rec- ognition 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 distin- guishes between the following divisions: Post ­ eCommerce ­ Parcel The Post - eCommerce - Parcel (PeP) division handles both domestic and international mail and is a specialist in dialogue marketing, nation- wide press distribution services and all the electronic services associ- ated with mail delivery. The division offers parcel and e-commerce services not only in Germany, but worldwide. It is divided into two business units: Post, and eCommerce - Parcel. Express The Express division offers time-definite courier and express services 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. Consolidated Financial Statements — NOTES — Segment reporting 113 Supply Chain The Supply Chain division delivers customised supply chain solutions to its customers based on globally standardised modular components including warehousing, transport and value-added services. was created in financial year 2018 and functions as an incubator for mobility solutions, digital platforms, automation and other techno- logical innovations. In addition to the reportable segments given above, segment reporting comprises the following categories: Corporate Functions Corporate Functions comprises Corporate Center / Other and Corporate Incubations. Corporate Center / Other includes Global Business Services (GBS), the Corporate Center, non-operating activities and other busi- ness activities. The profit / loss generated by GBS is allocated to the operating segments, whilst its assets and liabilities remain with GBS (asymmetrical allocation). The Corporate Incubations board department 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 individual regions on the basis of the domicile of the reporting entity. Non-current assets primarily com- prise intangible assets, property, plant and equipment and other non- current assets. 10.4 Reconciliation of segment amounts Reconciliation of segment amounts to consolidated amounts Reconciliation to the income statement € m Total for reportable segments 1 Corporate Functions 1 Reconciliation to Group / Consolidation 1, 2 Consolidated amount External revenue Internal revenue Total revenue Other operating income Changes in inventories and work performed and capitalised 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 Non-controlling interests 1 Prior-period amounts adjusted. 2 Including rounding. 2017 60,349 1,495 61,844 1,731 –31 –34,102 –19,158 –1,267 – 4,928 2 4,091 2018 61,383 1,568 62,951 1,941 –175 –33,455 –19,849 –2,670 – 5,166 –2 3,575 2017 95 1,292 1,387 1,554 2018 167 1,457 1,624 1,553 70 70 –1,582 –1,336 – 928 –203 – 648 0 –350 – 986 – 623 –716 0 – 414 2017 0 –2,787 –2,787 –1,314 129 2,909 14 –1 2018 0 –3,025 –3,025 –1,580 192 3,118 10 1 1,050 1,285 0 0 0 1 2017 60,444 0 60,444 1,971 168 –32,775 –20,072 –1,471 – 4,526 2 3,741 – 411 3,330 – 477 2,853 2,713 140 2018 61,550 0 61,550 1,914 87 –31,673 –20,825 –3,292 – 4,597 –2 3,162 – 576 2,586 –362 2,224 2,075 149 114 Deutsche Post DHL Group — 2018 Annual Report 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. Income statement disclosures 11 Revenue by business unit Reconciliation to segment assets € m Total equity and liabilities Investment property Non-current financial assets Other non-current assets Deferred tax assets Income tax assets Receivables and other current assets Current financial assets Cash and cash equivalents Segment assets of which Corporate Functions 1 Total for reportable segments 1 Consolidation 1, 2 1 Prior-period amounts adjusted. 2 Including rounding. 2017 38,672 –21 – 543 –153 2018 50,470 –18 – 582 –260 € m PeP 1 Post eCommerce - Parcel Other Express –2,272 –2,532 Global Forwarding, Freight –236 –14 – 637 –3,135 31,661 1,732 30,002 –73 –210 –13 – 930 –3,017 42,908 4,935 38,068 – 95 Global Forwarding Freight Supply Chain Corporate Functions 1 Total revenue 1 Prior-period amounts adjusted. 2017 18,009 9,587 8,336 86 14,693 13,689 10,080 3,609 13,958 95 2018 18,344 9,318 8,937 89 15,775 14,063 10,430 3,633 13,201 167 60,444 61,550 Revenue includes performance obligations in the amount of €13 million settled in prior periods. The contract liabilities included in the opening balance as at 1 January 2018 resulted in revenue for 2018. The change in revenue was due to the following factors: Factors affecting revenue increase, 2018 € m Organic growth Changes in portfolio 1 Currency translation effects Total 1  Note 2. 3,613 –1,041 –1,466 1,106 As in the prior-year period, there was no revenue in financial year 2018 that was generated on the basis of barter transactions. The allocation of revenue to geographical regions is presented in the segment reporting. 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 deferred taxes are deducted. Reconciliation to segment liabilities € m Total equity and liabilities Equity Consolidated liabilities Non-current provisions Non-current liabilities Current provisions Current liabilities Segment liabilities of which Corporate Functions 1 Total for reportable segments 1 Consolidation 1, 2 1 Prior-period amounts adjusted. 2 Including rounding. 2017 38,672 2018 50,470 –12,903 –13,873 25,769 – 4,836 – 5,177 –75 –1,461 14,220 1,556 12,721 – 57 36,597 – 5,017 –13,892 –193 –3,181 14,314 1,520 12,868 –74 Consolidated Financial Statements — NOTES — Segment reporting — Income statement disclosures 115 The changes in inventories relate primarily to property develop- ment projects. The increase in work performed and capitalised is largely attributable to the expanded production of electric vehicles by StreetScooter GmbH for Group companies. 2017 2018 12 Other operating income € m Insurance income Income from currency translation Income from the reversal of provisions Income from the remeasurement of liabilities Income from fees and reimbursements Reversals of impairment losses on receivables and other assets Income from the disposal of assets Commission income Income from derivatives Income from prior-period billings Operating lease income Sublease income Income from loss compensation Recoveries on receivables previously written off Subsidies Income from the derecognition of liabilities Miscellaneous Total 208 174 214 120 134 94 193 126 80 60 67 31 23 11 15 19 219 213 200 134 127 125 101 99 62 54 49 37 27 17 16 15 402 1,971 419 1,914 14 Materials expense € m Cost of raw materials, consumables and supplies, and of goods purchased and held for resale Aircraft fuel Fuel Packaging material Goods purchased and held for resale Spare parts and repair materials Office supplies Other expenses Cost of purchased services Transport costs Cost of temporary staff and services Maintenance costs Lease expenses Non-cancellable leases Cancellable leases Rental agreements (incidental expenses) Short-term leases Leases (incidental expenses) Low-value asset leases Variable lease payments Other IT services Commissions paid 2017 2018 1,102 1,478 740 427 435 117 66 252 797 435 241 113 71 379 3,139 3,514 20,381 21,462 2,556 1,207 2,226 487 347 – – – – – 579 574 1,279 29,636 32,775 2,347 1,277 – – – 664 56 46 33 0 604 590 1,080 28,159 31,673 For reasons of transparency, changes in inventories and work per- formed and capitalised were transferred out of other operating income, where they had previously been recognised and presented in a sepa-  note 13. rate income statement item, Other operating income declined year-on-year, in particular, due to lower gains on the disposal of assets. Subsidies relate to grants for the purchase or production of assets. The grants are reported as de- ferred income and recognised in the income statement over the useful lives of the assets. Miscellaneous other operating income includes a large number Other purchased services of smaller individual items. Materials expense 13 Changes in inventories and work performed and capitalised € m Changes in inventories – income (+) / expense (-) Work performed and capitalised Total 2017 – 65 233 168 2018 –222 309 87 For reasons of transparency, changes in inventories and work per- formed and capitalised were transferred out of other operating income where they had previously been recognised and presented in a sepa-  note 12. rate income statement item, The reduction in materials expense was a result, on the one hand, of positive exchange rate effects, and on the other hand, of the initial application of IFRS 16. The former operating lease payments, to the extent that they did not relate to payments under short-term or low- value asset leases or variable lease payments and incidental expenses, were replaced by depreciation and impairment losses as well as inter- est expenses. In contrast, transport costs increased for reasons includ- ing higher crude oil prices. €257 million of the other expenses included in the cost of raw materials, consumables and supplies, and of goods purchased and held for resale, relates to the production of electric vehicles by Street- Scooter GmbH. The other expenses item includes a large number of individual items. 116 Deutsche Post DHL Group — 2018 Annual Report 15 Staff costs / employees € m Wages, salaries and compensation Social security contributions Retirement benefit expenses Expenses for other employee benefits Staff costs The employees of companies acquired or disposed of during the finan- cial year were included rateably. The number of full-time equivalents at joint operations included in the consolidated financial statements as at 31 December 2018 amounted to 276 on a proportionate basis (pre- vious year: 254.) 16 Depreciation, amortisation and impairment losses 2017 16,192 2,419 891 570 2018 16,840 2,522 846 617 20,072 20,825 € m Staff costs relate mainly to wages, salaries and compensation, as well as all other benefits paid to employees of the Group for their services in the financial year. The rise was largely due to salary increases and new hires as well as expenses for the early retirement programme in the Post - eCommerce - Parcel division. 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 con- tributions to defined contribution retirement plans for civil servant employees in Germany in the amount of €449 million (previous year: €461 million), as well as for the Group’s hourly workers and salaried employees, totalling €307 million (previous year: €300 million),  note 39  note 7. For the changes in retirement benefit expenses, see in particular. The average number of Group employees in the reporting period, broken down by employee group, was as follows: Employees Headcount Headcount (annual average) Hourly workers and salaried employees Civil servants Trainees Total Full­time equivalents As at 31 December 1 Average for the year 2 1 Excluding trainees. 2 Including trainees. 2017 2018 477,251 499,943 30,468 5,619 28,718 5,709 513,338 534,370 472,208 468,724 499,018 489,571 Amortisation of and impairment losses on intangible assets, excluding impairment of goodwill Depreciation of and impairment losses on property, plant and equipment acquired Land and buildings Technical equipment and machinery Transport equipment Aircraft IT equipment Operating and office equipment Advance payments and assets under development Depreciation of and impairment losses on right-of-use assets 1 Land and buildings Technical equipment and machinery Transport equipment Aircraft IT equipment Operating and office equipment Advance payments and assets under development Depreciation of and impairment losses on investment property Impairment of goodwill Depreciation, amortisation and impairment  losses 2017 2018 287 195 168 314 207 247 138 85 182 319 234 266 138 86 0 1,159 1 1,226 14 1,325 0 1 0 8 0 0 23 2 0 45 195 304 1 0 0 1,870 1 0 1,471 3,292 1 Recognised as depreciation of and impairment losses on finance lease assets in the previous year. The overall increase in depreciation, amortisation and impairment losses was mainly the result of the initial application of IFRS 16. The decrease in amortisation of and impairment losses on intangible assets is attributable to the reduction in the previous year of the useful lives of customer relationships in the Supply Chain segment and the disposal of the Williams Lea Tag Group. Consolidated Financial Statements — NOTES — Income statement disclosures 117 The depreciation, amortisation and impairment losses item includes impairment losses totalling €16 million as follows at seg- ment level: 17 Other operating expenses € m Impairment € m Post ­ eCommerce ­ Parcel Intangible assets Property, plant and equipment acquired Right-of-use assets Express Property, plant and equipment acquired Global Forwarding, Freight Investment property Supply Chain Intangible assets Property, plant and equipment acquired Right-of-use assets Impairment losses Cost of purchased cleaning and security services Expenses for advertising and public relations 2017 2018 Travel and training costs Warranty expenses, refunds and compensation payments 0 0 0 18 2 1 7 0 2 2 6 1 0 0 1 4 Insurance costs Other business taxes Write-downs of current assets Telecommunication costs Currency translation expenses Entertainment and corporate hospitality expenses Office supplies Services provided by the Bundesanstalt für Post und Telekommunikation (German federal post and telecommunications agency) Customs clearance-related charges Consulting costs (including tax advice) 28 16 Contributions and fees Of the impairment losses, €10 million is attributable to the most recent measurement of the assets and liabilities of All you need GmbH before their reclassification as assets held for sale and liabilities associated with assets held for sale. In the previous year, the majority of the impairment losses (€18 million) related to aircraft for sale in the Express segment, for which a final impairment loss was recognised, writing the aircraft off in full, prior to their reclassification as assets held for sale. Voluntary social benefits Losses on disposal of assets Legal costs Monetary transaction costs Commissions paid Audit costs Expenses from prior-period billings Expenses from derivatives Donations Miscellaneous Other operating expenses 2017 2018 378 437 341 305 328 279 211 228 181 182 180 145 163 144 106 91 64 58 57 65 37 19 62 22 411 374 348 346 326 263 239 213 207 185 183 182 134 132 106 103 72 67 62 56 34 30 29 22 443 4,526 473 4,597 Other operating expenses include €49 million attributable to negative effects from customer contracts in the Supply Chain division. Taxes other than income taxes are either recognised in the related expense item or, if no specific allocation is possible, in other operating expenses. Miscellaneous other operating expenses include a large number of smaller individual items. 118 Deutsche Post DHL Group — 2018 Annual Report 18 Net finance costs € m Financial income Interest income Gains on changes in fair value of financial assets Income from other equity investments and financial assets Reversals of impairment losses on financial instruments Other financial income Finance costs Interest expense from the unwinding of discounts on provisions Interest expense on leases Other interest expenses Losses on changes in fair value of financial assets Impairment losses on financial instruments Other finance costs Foreign currency losses Net finance costs 2017 2018 55 – 1 29 4 89 –130 – –152 – –113 – 87 – 482 –18 – 411 64 29 – 34 74 201 – 98 –376 –155 –39 – 50 –32 –750 –27 – 576 The deterioration in net finance costs is due mainly to interest expense on leases, an item recognised for the first time in financial year 2018 due to the initial application of IFRS 16. By contrast, financial income improved due to the changes in value of stock appreciation rights (SARs) as a result of fluctuations in the share price. The expense from the unwinding of discounts on bonds resulting from the application of the effective interest method amounted to €12 million. 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 provi- sions can be found in  note 39. 19 Income taxes € m Current income tax expense Current recoverable income tax Deferred tax income (previous year: expense) from temporary differences Deferred tax income from tax loss carryforwards Income taxes 2017 –727 36 – 691 –231 445 214 – 477 2018 – 697 14 – 683 127 194 321 –362 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 Tax-exempt income and non-deductible expenses Differences in tax rates at foreign companies Income taxes 2017 3,330 –1,006 2018 2,586 –789 3 12 700 337 5 –33 –224 78 – 477 171 –34 –149 90 –362 The difference from deferred tax assets not recognised for initial dif- ferences 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 differ- ences, which related mainly to property, plant and equipment as well as to provisions for pensions and similar obligations. The remaining temporary differences between the original IFRS carrying amounts, net of accumulated depreciation or amortisation, and the tax base amounted to €245 million as at 31 December 2018 (previous year: €285 million). The effects from deferred tax assets of German Group companies 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. Effects from deferred tax assets not recognised for tax loss car- ryforwards and temporary differences in the amount of €4 million (previous year: €10 million) relate 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 previously not been recognised. In addition, the recognition of deferred tax assets previously not recognised for tax loss carryforwards and of deductible temporary differences from a prior period (and resulting mainly from Germany) reduced the deferred tax expense by €526 million (previous year: €857 million). Effects from unrecognised deferred tax assets amounting to €13 million (previous year: €3 million) were due to a valuation allowance recognised for a deferred tax asset. Other effects from unrecognised deferred tax assets relate primarily to tax loss carry forwards for which no deferred taxes were recognised. Consolidated Financial Statements — NOTES — Income statement disclosures 119 A deferred tax asset in the amount of €32 million was recognised in the balance sheet for companies that reported a loss in the previous year or in the current period as, based on tax planning, realisation of the tax asset is probable. In financial year 2018, a tax rate change had no material effect at German Group companies. Tax rate changes in some tax jurisdictions abroad also had no material effects. The effective income tax expense includes prior-period tax expenses from German and foreign com- panies in the amount of €34 million (tax expense) (previous year: expense of €33 million). The following table presents the tax effects on the components of other comprehensive income: Other comprehensive income € m Before taxes Income taxes After taxes 2018 Change due to remeasurements of net pension provisions IAS 39 hedging reserve Reserve for equity instruments without recycling Currency translation reserve Other changes in retained earnings Share of other comprehensive income of investments accounted for using the equity method Other comprehensive income 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 191 – 40 – 4 74 0 2 223 378 0 23 –743 0 – 8 –350 –73 14 1 0 0 0 – 58 –28 –1 –7 0 0 0 –36 118 –26 –3 74 0 2 165 350 –1 16 –743 0 – 8 –386 Basic earnings per share Consolidated net profit for the period attributable to Deutsche Post AG shareholders Weighted average number of shares outstanding 2017 2018 € m 2,713 2,075 number 1,210,097,823 1,230,118,545 Basic earnings per share € 2.24 1.69 To compute diluted earnings per share, the weighted average number of shares outstanding is adjusted for the number of all potentially dilu- tive 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 2018: 3,810,357 shares; previous year: 13,532,321 shares) and the maximum number of ordinary shares that can be issued on exercise of the conversion rights under the convertible bond issued in December 2017. Consolidated net profit for the period attributable to Deutsche Post AG shareholders was in- creased by the amounts spent on the convertible bonds. Diluted earnings per share in the reporting period were €1.66 (previous year: €2.15). 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 2017 2018 € m € m € m 2,713 2,075 2 0 8 1 € m 2,715 2,082 number 1,210,097,823 1,230,118,545 Potentially dilutive shares number 50,736,444 21,791,635 Weighted average number of shares for diluted earnings number 1,260,834,267 1,251,910,180 Diluted earnings per share € 2.15 1.66 20 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 2018 were €1.69 (previous year: €2.24). 21 Dividend per share A dividend per share of €1.15 is being proposed for financial year 2018 (previous year: €1.15). Further details on the dividend distribution can be found in  note 37. 120 Deutsche Post DHL Group — 2018 Annual Report Balance sheet disclosures 22 Intangible assets 22.1 Overview € m Cost Balance at 1 January 2017 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2017/1 January 2018 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2018 Amortisation and impairment losses Balance at 1 January 2017 Additions from business combinations Amortisation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2017/1 January 2018 Additions from business combinations Amortisation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2018 Carrying amount at 31 December 2018 Carrying amount at 31 December 2017 Internally generated intangible assets Purchased brand names Purchased customer lists Other purchased intangible assets Goodwill Advance payments and intangible assets under development 1,311 506 1,006 1,686 12,791 0 40 38 – 82 – 4 1,303 0 50 20 –37 –1 1,335 1,125 0 76 0 –2 0 – 66 –2 1,131 0 64 0 0 0 –31 0 1,164 171 172 1 0 0 –32 –20 455 1 0 0 0 –3 453 436 0 3 0 0 0 0 –14 425 0 1 0 0 0 0 – 4 422 31 30 8 0 0 – 914 – 57 43 8 0 0 – 6 –1 44 794 0 72 0 0 0 – 806 – 46 14 0 6 0 0 0 –2 0 18 26 29 0 68 76 –151 –26 1,653 3 69 54 – 83 3 35 0 0 – 97 – 490 12,239 45 0 0 –127 79 1,699 12,236 1,349 0 136 0 2 0 –139 –21 1,327 2 122 2 –1 0 –74 3 1,133 0 0 0 0 0 –25 –38 1,070 0 0 0 0 0 –32 –1 1,381 1,037 318 326 11,199 11,169 105 66 91 0 76 –76 –24 –1 66 0 98 – 54 – 5 0 105 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total 17,391 44 184 38 –1,300 – 598 15,759 57 217 20 –258 77 15,872 4,837 0 287 0 0 0 –1,036 –121 3,967 2 193 2 –1 0 –139 –2 4,022 11,850 11,792 The additions to goodwill relate mainly to the acquisitions of the Colombian Suppla Group (€23 million) and the transport companies in Spain (€17 million). Goodwill disposals of €92 million are mainly attrib- utable to the planned sale of the supply chain business in China to S. F. Holding,  notes 2 and 32. Purchased software, concessions, industrial rights, licences and similar rights and assets are reported under purchased intangible as- sets. Internally generated intangible assets relate to development costs for internally developed software. Consolidated Financial Statements — NOTES — Balance sheet disclosures 121 22.2 Allocation of goodwill to CGU s € m Post ­ eCommerce ­ Parcel 1 Express Global Forwarding, Freight DHL Global Forwarding DHL Freight Supply Chain Corporate Incubations 1 Total goodwill 2017 1,087 3,911 3,891 275 1,991 14 2018 1,107 3,910 3,950 279 1,939 14 11,169 11,199 1 Prior-period amounts adjusted to reflect the creation of the new Corporate Incubations board department. 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 or its fair value less costs to sell. This calculation is based on projections of free cash flows that are initially discounted at a rate corresponding to the post-tax cost of capital. Pre-tax discount rates are 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 2019 to 2021. By contrast, an extended planning phase of up to ten years is specified for the CGU Corporate Incubations. Planning is supplemented by a perpetual annu- ity representing the value added from 2022 onwards or the value added after the extended planning phase. This is calculated using a long-term growth rate, which is determined for each CGU separately and the amount of which – for CGU s whose carrying amounts are sig- nificant in comparison with the total carrying amount of goodwill – is shown in the table below. The growth rates applied are based on long- term real growth figures for the relevant economies, growth expect- ations 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 sub-markets 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 planning assumption for the im- pairment 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 material CGUs and the growth rates assumed in each case for the perpetual annuity are shown in the following table: % Post ­ eCommerce ­ Parcel Express Global Forwarding, Freight DHL Global Forwarding DHL Freight Supply Chain 1 In accordance with IFRS 16. Discount rates Growth rates 2017 2018 1 2017 2018 8.0 8.3 8.4 8.6 8.4 8.0 8.8 7.0 7.2 7.0 0.5 2.0 2.5 2.0 2.5 0.5 2.0 2.5 2.0 2.5 On the basis of these assumptions and the impairment tests carried out for the individual CGU s to which goodwill was allocated, it was estab- lished that the recoverable amounts for all CGU s exceed their carrying amounts. No impairment losses were recognised on goodwill in any of the CGU s as at 31 December 2018. When performing the impairment test for the significant CGUs in accordance with IAS 36.134, Deutsche Post DHL Group conducted sen- sitivity analyses for the EBIT margin, the discount rate and the growth rate. These analyses – which included varying the essential valuation parameters within an appropriate range – did not reveal any risk of impairment to goodwill. 122 Deutsche Post DHL Group — 2018 Annual Report 23 Property, plant and equipment 23.1 Overview of property, plant and equipment, including right­of­use assets € m Cost Balance at 1 January 2017 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2017/1 January 2018 IFRS 16 adjustment Balance at 1 January 2018, adjusted Additions from business combinations 1 Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2018 Depreciation and impairment losses Balance at 1 January 2017 Additions from business combinations Depreciation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2017/1 January 2018 Additions from business combinations 1 Depreciation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2018 Carrying amount at 31 December 2018 Carrying amount at 31 December 2017 1 Also includes a proportion change from joint operations. Technical equipment and machinery IT systems, operating and office equipment Land and buildings Aircraft Transport equipment Advance payments and assets under development 4,836 5,390 2,670 2,082 2,407 8 157 157 – 495 –135 4,528 7,418 11,946 30 1,959 286 – 578 –12 13,631 2,319 3 182 0 9 0 –307 –77 2,129 2 1,495 12 6 –3 –178 14 3,477 10,154 2,399 1 141 372 –272 –148 5,484 128 5,612 9 210 374 –208 14 6,011 3,249 0 307 7 –12 0 –245 – 86 3,220 3 363 1 2 – 6 –165 9 3,427 2,584 2,264 1 187 72 –344 –79 2,507 2 2,509 2 174 91 –291 4 2,489 2,012 1 230 1 2 0 –322 – 58 1,866 1 225 0 – 8 0 –266 3 1,821 668 641 0 78 397 –281 – 58 2,218 1,000 3,218 50 562 357 – 68 104 4,223 879 0 229 18 0 0 –273 –16 837 8 570 0 0 0 – 42 14 1,387 2,836 1,381 11 225 125 –203 –34 2,531 543 3,074 0 462 208 –194 2 3,552 1,191 2 208 0 1 0 –172 –21 1,209 0 429 0 0 0 –144 – 4 1,490 2,062 1,322 654 0 1,305 –1,145 – 8 –31 775 2 777 0 1,461 –1,338 –13 11 898 0 0 0 0 0 0 0 0 0 0 0 1 0 0 –1 0 0 898 775 Total 18,039 21 2,093 –22 –1,603 – 485 18,043 9,093 27,136 91 4,828 –22 –1,352 123 30,804 9,650 6 1,156 26 0 0 –1,319 –258 9,261 14 3,082 14 0 – 9 –796 36 11,602 19,202 8,782 The increase in property, plant and equipment was chiefly the result of the initial application of IFRS 16. Further details on right-of-use assets  note 23.2. Disposals relate partly to the planned sale can be found in of the supply chain business in China and disposals of right-of-use assets as a result of amended lease terms and terminations. 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 develop- ment relate to items of property, plant and equipment in progress at the reporting date for whose production internal or third-party costs have already been incurred. Consolidated Financial Statements — NOTES — Balance sheet disclosures 123 23.2 Leases – right­of­use assets The right-of-use assets carried as non-current assets resulting from leases are presented separately in the following table: Right­of­use assets € m 31 December 2018 Cost of which additions Depreciation and impairment losses Carrying amount 31 December 2017 1 Cost of which additions Depreciation and impairment losses Carrying amount 1 Recognised as finance lease assets in the previous year. Technical equipment and machinery IT systems, operating and office equipment Land and buildings Aircraft Transport equipment Advance payments and assets under development 9,003 1,801 1,311 7,692 209 2 56 153 186 52 54 132 15 0 14 1 9 1 7 2 39 6 27 12 1,476 341 334 1,142 17 0 17 0 731 201 198 533 8 0 5 3 2 1 0 2 0 0 0 0 Total 11,407 2,397 1,904 9,503 288 8 119 169 In the real estate area, the Group primarily leases warehouses, office buildings and mail and parcel centres. The leased aircraft are predom- inantly deployed in the air network of the Express segment. Leased transport equipment also includes the leased vehicle fleet. The real estate leases in particular are long-term leases. The Group had around 65 real estate leases with remaining lease terms of more than twenty years as at 31 December 2018. Aircraft leases have remaining lease terms of up to eleven years. Leases may include extension and ter-  note 7. The leases are negotiated individually and mination options, include a wide range of different conditions. Information on the corresponding lease liabilities can be found under financial liabilities,  note 41.2. Investment property 24 The investment property largely comprises leased property encumbered by heritable building rights, and developed and undeveloped land. € m Cost Balance at 1 January Additions Reclassifications Disposals Currency translation differences Balance at 31 December Depreciation and impairment losses Balance at 1 January Additions Impairment losses Disposals Reclassifications Currency translation differences Balance at 31 December Carrying amount at 31 December 2017 2018 34 2 0 –1 –1 34 11 0 2 0 0 0 13 21 34 8 – 5 – 8 0 29 13 1 1 –3 –1 0 11 18 Rental income for investment property amounted to €3 million (previous year: €2 million), whilst the related expenses were €1 million (previous year: €1 million). The fair value amounted to €48 million (previous year: €54 million). 124 Deutsche Post DHL Group — 2018 Annual Report Investments accounted for using the equity method 25 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 2017 2018 2017 2018 2017 95 22 –26 0 1 –2 – 8 82 82 36 – 9 0 –3 –2 2 106 2 0 0 0 1 0 0 3 3 9 0 0 1 0 0 13 97 22 –26 0 2 –2 – 8 85 Total 2018 85 45 – 9 0 –2 –2 2 119 In 2018, interests were acquired mainly in Robotic Wares Private Limited, India, and Dunho WeiHeng (Zhuhai) Supply Chain Management Co., Ltd., China. The interest in Relais Colis SAS, France, which is accounted for using the equity method, was increased by a further 8.4 %. Further additions are the result of the change in the method of consolidation  note 2. In the previous for Resilience360 GmbH and Flexible Lifestyle, year, additions related to the interest in Israel-based Global-E Online Ltd, whilst disposals related exclusively to the reclassification of AHK Air Hong Kong Limited, China, as assets held for sale and liabilities associated with assets held for sale,  note 32. 25.1 Aggregate financial data The following table gives an aggregated overview of the carrying amount in the consolidated financial statements and selected financial 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 after income taxes Other comprehensive income Total comprehensive income 1 Based on the interest held. 26 Financial assets € m Assets measured at cost Assets at fair value through other comprehensive income Assets at fair value through profit or loss Available-for-sale financial assets Loans and receivables Lease receivables Financial assets Associates Joint ventures 2017 82 1 – 8 –7 2017 – – 170 59 466 38 733 2018 106 –3 2 –1 Non-current 2018 499 43 188 – – – 730 2017 3 1 0 1 2017 – – 76 500 69 7 652 2018 13 1 0 1 Current 2018 100 0 843 – – – 2017 85 2 – 8 – 6 2017 – – 246 559 535 45 Total 2018 119 –2 2 0 Total 2018 599 43 1,031 – – – 943 1,385 1,673 Consolidated Financial Statements — NOTES — Balance sheet disclosures Net impairment losses amounted to €–93 million (previous year: €–83 million). Compared with the market rates of interest prevailing at 31 De- cember 2018 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 million (previous year: €3 million). The principal amount of these loans totals €3 million (previous year: €3 million). Details on restraints on disposal are contained in  note 44.2. 27 Other assets € m Prepaid expenses Current tax receivables Pension assets, non-current only Income from cost absorption Receivables from private postal agencies Other assets from insurance contracts 1 Contract assets 1 Creditors with debit balances Receivables from insurance business Recoverable start-up costs, non-current only 1 Receivables from employees Receivables from loss compensation (recourse claims) Receivables from cash on delivery Receivables from asset disposals Other assets, of which non-current: 59 (previous year: 78) Other assets of which current non-current 2017 2018 604 466 153 113 116 – – 44 37 – 30 32 7 16 646 474 260 125 124 83 59 49 40 34 31 30 8 3 797 2,415 2,184 231 756 2,722 2,369 353 1 The items were presented separately as a result of the initial application of the new IFRSs,  note 4. The increase in other assets is attributable mainly to actuarial gains on pension assets,  note 39. No valuation allowances were recognised on contract assets. Of the tax receivables, €368 million (previous year: €356 million) relates to VAT, €70 million (previous year: €67 million) to customs and duties, and €36 million (previous year: €43 million) to other tax receivables. Miscellaneous other assets include a large number of individual items. 125 2018 Deferred tax liabilities 96 1,723 89 1 62 20 17 26 2,034 510 1,524 28 Deferred taxes Breakdown by balance sheet item and maturity € m 2017 Deferred tax liabilities Deferred tax assets Deferred tax assets Intangible assets Property, plant and equipment Non-current financial assets Other non-current assets Other current assets Provisions Financial liabilities Other liabilities Tax loss carryforwards Gross amount of which current non-current Netting Carrying amount 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 15 54 14 15 28 620 1,708 101 1,957 4,512 1,114 3,398 –216 –1,980 –1,980 76 2,532 54 Deferred taxes on tax loss carryforwards in the amount of €1,551 mil- lion (previous year: €1,486 million) relate to tax loss carryforwards in Germany and €406 million (previous year: €269 million) to foreign tax loss carryforwards. No deferred tax assets were recognised for tax loss carryfor- wards of around €5.0 billion (previous year: €6.4 billion) and for tem- porary differences of around €2.2 billion (previous year: €2.6 billion), as it can be assumed that the Group will probably not be able to use these tax loss carryforwards and temporary differences 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 indefinite period of time. In the case of the foreign companies, the significant tax loss carryforwards will not lapse before 2026. Deferred tax assets on financial liabilities and deferred tax liabil- ities on property, plant and equipment rose significantly due to the initial application of IFRS 16. Deferred taxes have not been recognised for temporary differ- ences of €510 million (previous year: €505 million) relating to earnings of German and foreign subsidiaries, because these temporary differ- ences will probably not reverse in the foreseeable future. 126 29 Inventories € m Deutsche Post DHL Group — 2018 Annual Report For information on impairment losses, default risk and maturity struc- tures, see  note 44. Raw materials, consumables and supplies Finished goods and goods purchased and held for resale Work in progress Advance payments Inventories 2017 179 100 45 3 327 2018 233 150 69 2 454 Adequate valuation allowances were recognised. 31 Cash and cash equivalents € m Cash equivalents Bank balances / cash in transit Cash Other cash and cash equivalents Cash and cash equivalents 2017 1,342 1,717 18 58 2018 1,116 1,801 16 84 3,135 3,017 30 Trade receivables € m Trade receivables Deferred revenue Trade receivables 2017 7,558 660 8,218 2018 7,581 666 8,247 Of the €3,017 million in cash and cash equivalents, €977 million was not available for general use by the Group as at the reporting date (pre- vious year: €973 million). Of this amount, €905 million (previous year: €895 million) was attributable to countries where exchange controls or other legal restrictions apply (mostly China, India and Thailand) and €72 million (previous year: €78 million) primarily to companies with non-controlling interest shareholders. 32 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 Sale of the supply chain business in China, Macao and Hong Kong (Supply Chain segment) DHL Freight GmbH, Germany – property sale (Global Forwarding, Freight segment) Exel Logistics Property Limited, UK – property sale (Supply Chain segment) AHK Air Hong Kong Limited, China – equity interest (Express segment) Other Assets held for sale and liabilities associated with assets held for sale 2017 0 0 0 4 0 4 Assets 2018 414 9 3 0 0 426 Liabilities 2018 228 0 0 0 0 228 2017 0 0 0 0 0 0 On 26 October 2018, Deutsche Post DHL Group entered into an agree- ment with S.F. Holding, China, to sell its supply chain business in China, Hong Kong and Macao to S.F. Holding in a strategic partnership, with a view to growing local supply chain operations in China. Under the agreement, Deutsche Post DHL Group will receive a purchase price of RMB 5.5 billion (around €700 million) from S.F. Holding as a non- recurring payment. In addition, Deutsche Post DHL Group will receive an annual amount linked to revenue over the next ten years. The trans- action is expected to be completed within the first quarter of 2019 following all the required regulatory approvals. The corresponding assets and liabilities of the twelve consoli- dated companies reclassified as assets held for sale and liabilities associated with assets held for sale are presented in the table below. In addition, three associates which are accounted for using the equity method and recognised in the amount of €9 million are included in these amounts. The most recent remeasurement did not result in an impairment loss. An expense of €37 million is included in the currency translation reserve in equity. Consolidated Financial Statements — NOTES — Balance sheet disclosures 127 Supply Chain business in China Changes in issued capital and treasury shares € m Non-current assets of which goodwill Current assets Cash and cash equivalents ASSETS Non-current provisions and liabilities Current provisions and liabilities EQUITY AND LIABILITIES € 31 Dec. 2018 200 92 181 33 414 43 185 228 The two Chinese companies acquired as part of a property develop- ment project with the aim of resale and disclosed during the year were sold in December 2018, with income of €3 million reported in gains on the disposal of assets. Furthermore, the 40 % interest in AHK Air Hong Kong Limited, China, disclosed in the previous year was sold in December 2018,  note 2. Planned property sales were reported at €12 million. The “other” item relates to legacy aircraft held for sale from the previous year. The aircraft with a carrying amount of €1.00 each were reclassified to this balance sheet item. The most recent measurement prior to reclassification led to an impairment loss of €18 million in the Express division in the previous year. Issued capital and purchase of treasury shares 33 As at 31 December 2018, KfW Bankengruppe (KfW) held a 20.5 % (pre- vious year: 20.7 %) interest in the share capital of Deutsche Post AG. The remaining 79.5 % (previous year: 79.3 %) of the shares were in free float. KfW holds the shares in trust for the Federal Republic of Germany. 33.1 Changes in issued capital The issued capital amounts to €1,237 million. It is composed of 1,236,506,759 no-par value registered shares (ordinary shares) with a notional interest in the share capital of €1 per share and is fully paid up. Issued capital Balance at 1 January Addition due to contingent capital increase (convertible bond) Addition due to contingent capital increase (Performance Share Plan) Capital reduction through retirement of treasury shares Balance at 31 December Treasury shares Balance at 1 January Purchase of treasury shares Issue / sale of treasury shares Capital reduction through retirement of treasury shares Balance at 31 December 2017 2018 1,240,915,883 1,228,707,545 15,091,662 5,379,106 0 2,420,108 –27,300,000 0 1,228,707,545 1,236,506,759 –29,587,229 – 4,513,582 – 4,660,410 –1,284,619 2,434,057 2,169,550 27,300,000 0 – 4,513,582 –3,628,651 Total at 31 December 1,224,193,963 1,232,878,108 33.2 Authorised and contingent capital Authorised / contingent capital at 31 December 2018 Amount € m Purpose Authorised Capital 2017 160 Increase in share capital against cash / non-cash contributions (until 27 April 2022) Contingent Capital 2011 – Issue of options / conversion rights Contingent Capital 2014 (until 24 May 2016) 38 Issue of Performance Share Units to executives (until 26 May 2019) Contingent Capital 2017 75 Issue of options / conversion rights Contingent Capital 2018/1 (until 27 April 2022) 12 Issue of Performance Share Units to executives (until 23 April 2021) Contingent Capital 2018/2 33 Issue of options / conversion rights (until 23 April 2021) 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 pre-emptive rights. However, subject to the approval of the Supervisory Board, the Board of Management may disapply the shareholders’ pre-emptive rights to the shares covered by the authorisation. No use was made of the authorisation in the reporting period. 128 Deutsche Post DHL Group — 2018 Annual Report Contingent Capital 2011 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 bil- lion, on one or more occasions until 24 May 2016, thereby granting options or conversion rights for up to 75 million shares with a propor- tionate 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 increased on a contingent basis by up to €75 million. From 2015 to 2018, 48.6 million subscription rights were issued. The outstanding bonds with a notional volume of €0.7 million were redeemed on 27 March 2018. 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 million new no-par value registered shares. The contingent capital increase serves to grant Performance Share Units (PSUs) to selected Group executives. The contingent capital increase will only be implemented to the extent that shares are issued based on the PSUs granted and the company does not settle the PSUs by cash payment or delivery of treas- ury shares. The new shares participate in profit from the beginning of the financial year in which they are issued. The share capital was in- creased on a contingent basis by up to €40 million. Use was made of this authorisation in the third quarter of 2018 when the rights under the 2014 tranche of the Performance Share Plan were settled. The con- tingent capital increase resulted in 2.4 million new shares that were issued to executives in September 2018. Contingent Capital 2014 amounts to €37.6 million. 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 bil- lion, on one or more occasions until 27 April 2022, thereby granting options or conversion rights for up to 75 million shares with a propor- tionate 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 the convertible bond 2017/2025 in an ag- gregate principal amount of €1 billion. The share capital was increased on a contingent basis by up to €75 million. Contingent Capital 2018/1 In its resolution dated 24 April 2018, the Annual General Meeting con- tingently increased the share capital by up to €12 million through the issue of up to 12 million no-par value registered shares. The contingent capital increase serves to grant PSUs to selected Group executives. The shares will be issued to beneficiaries based on the aforementioned au- thorisation resolution. The new shares participate in profit from the beginning of the financial year in which they are issued. No use was made of the authorisation in the reporting period. Contingent Capital 2018/2 The share capital was contingently increased by up to €33 million through the issue of up to 33 million no-par value registered shares. The contingent capital increase serves to grant options or conversion rights or to settle conversion obligations and to grant shares in lieu of cash payments to the holders of bonds issued by the company or its Group companies in accordance with the authorisation resolution by the Annual General Meeting dated 24 April 2018. The new shares par- ticipate in profit from the beginning of the financial year in which they are issued. No use was made of the authorisation in the reporting period. 33.3 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 existing 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’ pre-emptive rights disapplied, may continue to be used for the purposes of listing on a stock exchange outside Germany. In addition, the Board of Management remains authorised to acquire treasury shares using derivatives. Share buy­back programme 2016/2017 The share buy-back programme beginning in April 2016 and ending in March 2017 resulted in the acquisition of a total of 32.9 million treasury shares at a cost of €911 million and, based on the Board of Management resolution of 21 March 2017, the retirement by way of a capital reduc- tion of 27.3 million treasury shares held. Consolidated Financial Statements — NOTES — Balance sheet disclosures Purchase and issuance of treasury shares In March 2018, 1,284,619 shares were acquired for a total amount of €46 million (average price of €36.20 per share) in order to settle the 2017 tranche of the Share Matching Scheme. The shares were issued to the executives concerned in April 2018. The rights to matching shares under the 2013 tranche were also settled in April, with a further 870,551 shares issued to executives. As at 31 December 2018, Deutsche Post AG held 3,628,651 treasury shares (previous year: 4,513,582 treasury shares). 33.4 Disclosures on corporate capital In financial year 2018, the equity ratio was 27.5 % (previous year: 33.4 %). The company’s capital is monitored using net gearing, which is defined as net debt divided by the total of equity and net debt. 34 Capital reserves € m Balance at 1 January Share Matching Scheme Addition Exercise Total for Share Matching Scheme Performance Share Plan Addition Exercise Total for Performance Share Plan Retirement / issue of treasury shares Corporate capital € m Financial liabilities Operating financial liabilities 1 Cash and cash equivalents Current financial assets Non-current derivative financial instruments Net debt Plus total equity Total capital Net gearing (%) 1 Relates to, e.g., liabilities from overpayments. 2017 6,050 –155 –3,135 – 652 –170 1,938 12,903 14,841 13.1 2018 16,462 –199 –3,017 – 943 0 12,303 13,873 26,176 47.0 The change in the two indicators is due mainly to the recognition of lease liabilities in connection with the initial application of IFRS 16. 129 2018 3,327 73 – 64 9 26 –28 –2 26 7 102 0 0 3,469 2017 2,932 67 – 59 8 25 0 25 27 5 286 53 – 9 3,327 Differences between purchase and issue prices of treasury shares Capital increase through exercise of conversion rights under convertible bond 2012/2019 Conversion right under convertible bond 2017/2025 Deferred taxes on conversion right under convertible bond 2017/2025 Balance at 31 December The rights to matching shares under the 2013 tranche were settled, and the rights to deferred incentive and investment shares under the 2017 tranche were granted in April 2018. In addition, in the third quarter of 2018, the rights under the 2014 tranche of the Performance Share Plan were settled. 35 Other reserves Reserve for equity instruments without recycling The application of IFRS 9 resulted in the recognition of a reserve for equity instruments without recycling. This reserve includes changes in the fair value of equity instruments that were classified at fair value through other comprehensive income. 36 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 buy-back under tranches I to III obligation from share buy-back under tranche III purchase / sale of treasury shares Share Matching Scheme 2017 51 –103 195 – 41 2018 – 45 0 0 – 45 The main factors in the previous year were the obligations arising from the share buy-back programme in addition to the Share Matching Scheme. 130 Deutsche Post DHL Group — 2018 Annual Report The changes in transactions with non-controlling interests relate mainly to the step acquisition of additional interests of 10% in Brazil- based company Olimpo Holding S.A. 37 Equity attributable to Deutsche Post AG shareholders The equity attributable to Deutsche Post AG shareholders in financial year 2018 amounted to €13,590 million (previous year: €12,637 million). Dividends Dividends paid to the shareholders of Deutsche Post AG are based on the net retained profit of €5,653 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 €1,419 million. The amount of €4,234 million remaining after deduction of the planned total dividend will be carried 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 appro- priation of the net retained profit on the day the AGM convenes. 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 con- tributions from the capital contribution account and – in the opinion of the tax authorities – serves to reduce the cost of acquiring the shares. 38 Non­controlling interests This balance sheet item includes adjustments for the interests of non- Group shareholders in the consolidated equity from acquisition ac- counting, as well as their interests in profit or loss. The following table shows the companies to which the non-con- trolling interests relate: € m DHL Sinotrans International Air Courier Ltd., China Blue Dart Express Limited, India PT. Birotika Semesta, Indonesia Exel Saudia LLC, Saudi Arabia DHL Global Forwarding Abu Dhabi LLC, United Arab Emirates 2017 164 2018 173 17 15 9 10 51 18 16 14 8 54 266 283 Total dividend € m Dividend per share € Other companies Non­controlling interests Dividend distributed in financial year 2018 for the year 2017 Dividend distributed in financial year 2017 for the year 2016 1,409 1,270 1.15 1.05 As the dividend is paid in full from the tax-specific capital contribution account (steuerliches Einlagekonto as defined by section 27 of the Körperschaftssteuergesetz (KStG – German Corporation Tax Act)) (con- tributions not made to subscribed capital), payment will be made with- out the deduction of investment income tax or the solidarity surcharge. Material non-controlling interests exist in the following two companies: DHL Sinotrans International Air Courier Ltd., China, which is assigned to the Express segment, provides domestic and international express delivery and transport services. Deutsche Post DHL Group holds a 50 % interest in the company. Blue Dart Express Limited (Blue Dart), India, is assigned to the PeP segment. Deutsche Post AG holds a 75 % interest in Blue Dart, which is a courier service provider. The following table gives an overview of the aggregated financial data of significant companies with non-controlling interests: Consolidated Financial Statements — NOTES — Balance sheet disclosures 131 Sinotrans Blue Dart 2017 2018 2017 2018 97 447 544 8 207 215 329 164 131 485 616 31 240 271 345 173 72 91 163 14 63 77 86 17 1,461 1,534 371 316 80 236 –24 212 106 104 118 250 – 6 –207 37 214 –16 235 340 86 254 – 9 245 123 114 127 293 – 4 –239 50 235 – 8 277 30 12 18 – 4 14 3 1 4 23 6 –32 –3 22 –1 18 109 98 207 37 79 116 91 18 383 20 8 12 –3 9 2 1 3 29 –1 –21 7 18 0 25 Financial data for material non­controlling interests € m Balance Sheet ASSETS Non-current assets Current assets Total ASSETS EQUITY AND LIABILITIES Non-current provisions and liabilities Current provisions and liabilities Total EQUITY AND LIABILITIES Net assets Non-controlling interests Income statement Revenue Profit before income taxes Income taxes Profit after income taxes Other comprehensive income Total comprehensive income attributable to non-controlling interests Dividend distributed to non-controlling interests Consolidated net profit attributable to non-controlling 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 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 non-controlling interests Total comprehensive income Changes from unrealised gains and losses Changes from realised gains and losses Currency translation reserve at 31 December 2017 10 0 –22 0 –12 2018 –12 0 – 4 0 –16 132 Deutsche Post DHL Group — 2018 Annual Report 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, until 31 March 2019, to further service accrual and a limited number of existing employees who have not yet joined this arrangement. It will then also be closed to new entrants and future service accrual. The relevant decision was made in the reporting period and had no effect on pension obligations. In October 2018, a High Court ruling took place on equalisation of guar- anteed minimum pensions (GMP) requiring all affected plans to equal- ise GMP between male and female plan members. This has led to an increased allowance in pension obligations at 31 December 2018 through past service cost. The Group’s defined benefit pension arrangements in the UK have mainly been consolidated into a group plan with different sections 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 are currently making their own funding contributions in the case of the single open defined benefit arrangement. Other In the Netherlands, collective agreements require that those employ- ees 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. The plan provides for monthly benefit payments that are indexed in line with the agreed wage and salary increases, on the one hand, and the funds available for such indexation, on the other. In Switzerland, em- ployees receive an occupational pension in line with statutory require- ments, where pension payments depend 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 lifelong 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 enti- tlements have been frozen. The Group companies primarily fund their dedicated defined bene fit retirement plans in these three countries by using the respective joint funding institutions. In the Netherlands and in Switzerland, both employers and employees contribute to plan funding. In the USA no regular contributions are currently made in this regard. 39 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 retirement 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. 39.1 Plan features Germany In Germany, Deutsche Post AG has an occupational retirement arrange- ment based on a collective agreement, which is open to new hourly workers and salaried employees. 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 pre- vious year is included in every newly allocated component. When the statutory pension falls due, the hourly workers and salaried employees can choose whether to receive payment as a lump sum or in instal- ments, or lifelong monthly benefit payments that increase by 1 % each year. Hourly workers and salaried employees who were already employed as at 31 December 2015 were transferred to this system as a rule. Since the first quarter of 2018, the added payment option of receiving one lump sum instead of lifelong monthly benefit payments has also been granted to certain groups of hourly workers and salaried employees (e.g., former hourly workers and salaried employees with fully vested entitlements), for whom it had previously not been avail- able. The change resulted in past service gains. The large majority of Deutsche Post AG’s obligations relates to older vested entitlements of hourly workers and salaried employees, and to legacy pension commit- ments towards former hourly workers and salaried employees who have left or retired from the company. In addition, retirement arrange- ments 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 28 f. The prime source of external funding for Deutsche Post AG’s respective retirement benefit obligations is a contractual trust arrange- ment, which also includes a pension fund. 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 Bundes- post (VAP – Deutsche Bundespost institution for supplementary retire- ment pensions), a shared pension fund for successor companies to Deutsche Bundespost, is used for some of the legacy pension commit- ments. Individual subsidiaries in Germany have retirement plans that were acquired in the context of acquisitions and transfers of operations and that are closed to new entrants. Contractual trust arrangements are available for three subsidiaries with a view to external financing. Consolidated Financial Statements — NOTES — Balance sheet disclosures 133 39.2 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 Balance 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 Balance at 31 December Present value of defined benefit obligations Fair value of plan assets Net pension provisions 2017 17,723 187 – 8 – 60 – 119 414 – 414 533 – 95 338 35 – 278 – 32 –736 –139 0 –7 –303 17,381 2018 17,381 193 –113 –1 – 79 401 – 401 480 100 –261 –286 – – 447 – 33 –737 –10 0 0 – 4 16,696 2017 12,286 2018 13,084 – – – –11 –11 – 291 291 280 – – – 656 656 701 18 – 465 –139 0 1 –254 13,084 – – – –11 –11 – 303 303 292 – – – –256 –256 65 19 – 585 – 8 0 0 –3 12,608 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 2018 4,297 193 –113 –1 11 90 401 –303 98 188 100 –261 –286 256 –191 – 65 14 –152 –2 0 0 –1 4,088 1 Including other administration costs in accordance with IAS 19.130 which are expensed out of plan assets. As at 31 December 2018, the effects of asset ceilings amounted to €2 million; an expedient was applied to their recognition by deducting this amount from the fair value of plan assets (1 January 2018/31 De- cember 2017: €3 million; 1 January 2017: €2 million). In the reporting period, the past service gains were attributable mainly to plan amendments in Germany at Deutsche Post AG in con- nection with the lump-sum payment option amounting to €108 million. The past service gains were limited by opposite effects of €44 million resulting from the court ruling in the UK. Experience adjustments were made chiefly as a result of a new funding valuation in the UK. Employer contributions include the contribution of a property to the trust in Ger- many. The proportion of benefit payments paid out of plan assets in Germany increased. In the previous year, a lump-sum settlement pro- gramme was executed for retirees in Germany, which led to settlement payments and the discontinuation of pension obligations. In addition, employer contributions were impacted by two special measures. Total payments amounting to €273 million are expected with regard to net pension provisions in 2019. Of this amount, €233 million is attributable to the Group’s expected direct benefit payments and €40 million to expected employer contributions to pension funds. 134 Deutsche Post DHL Group — 2018 Annual Report The disaggregation of the present value of defined benefit obli- gations, fair value of plan assets and net pension provisions, as well as the determination of the balance sheet items, are as follows: € m 2018 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 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 In the Other area, the Netherlands, Switzerland and the USA account for a share in the corresponding present value of the defined benefit obligations of 43 %, 21 % and 12 %, respectively (previous year: 44 %, 20 % and 13 %). Additionally, rights to reimbursement from former Group com- panies existed in the Group in Germany in the amount of around €19 million (previous year: €19 million), which are reported separately. Corresponding benefit payments are being made directly by the former Group companies. 39.3 Additional information on the present value of defined benefit obligations The significant financial assumptions are as follows: % 31 December 2018 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase 31 December 2017 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase Germany UK Other Total 9,371 – 5,512 3,859 0 3,859 9,554 – 5,748 3,806 0 3,806 4,747 – 4,914 –167 167 0 5,240 – 5,112 128 46 174 2,578 –2,182 396 16,696 –12,608 4,088 93 489 260 4,348 2,587 –2,224 363 17,381 –13,084 4,297 107 470 153 4,450 Germany UK Other Total 2.30 2.50 2.00 2.25 2.50 2.00 2.70 3.25 2.85 2.50 3.25 2.85 2.35 2.30 1.27 2.23 2.05 1.26 2.42 2.47 2.17 2.32 2.43 2.18 Consolidated Financial Statements — NOTES — Balance sheet disclosures 135 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 composition as well as duration into account in each case. For other countries, the discount rate for defined benefit obligations was determined 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. As at 31 December 2018, discount rates were rounded to full 0.10 percentage points instead of the previous 0.25 percentage points. Absent of this change, the discount rate for defined benefit obligations as at 31 December 2018 would have been somewhat lower overall at 2.40 %. For the annual pension increase in Germany, fixed rates in particu- lar 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, these were based on the HEUBECK RICHTTAFELN 2018 G mortality tables as at 31 December 2018. Application of the Richttafeln 2018 G tables resulted in actuarial losses of €105 million. Life expectancy for the retirement plans in the UK as at 31 December 2018 was mainly based on the S2PMA / S2PFA tables of the Continuous Mortality Inves- tigation (CMI) of the Institute and Faculty of Actuaries adjusted to re- flect plan-specific mortality according to the new funding valuation. Current projections of future mortality improvements were taken into account by using the CMI core projection model. Country-specific cur- rent 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 2018 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase 31 December 2017 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase Change in assumption Percentage points Change in present value of defined benefit obligations % Germany UK Other Total 1.00 –1.00 0.50 – 0.50 0.50 – 0.50 1.00 –1.00 0.50 – 0.50 0.50 – 0.50 –12.37 15.70 0.18 – 0.17 0.43 – 0.39 –12.52 15.81 0.18 – 0.17 0.42 – 0.38 –14.20 18.29 0.08 – 0.08 5.44 – 5.36 –14.92 19.39 0.08 – 0.08 5.63 – 5.53 –14.01 18.25 0.95 – 0.88 6.23 – 4.52 –14.51 19.02 0.95 – 0.90 6.39 – 4.71 –13.14 16.82 0.27 – 0.25 2.74 –2.43 –13.53 17.36 0.26 – 0.25 2.87 –2.57 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. 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. A one-year increase in life expectancy for a 65-year-old benefi- ciary would increase the present value of the defined benefit obligations by 4.59 % in Germany (previous year: 4.55 %) and by 3.60 % in the UK (previous year: 4.25 %). The corresponding increase for other countries would be 2.80 % (previous year: 2.93 %) and the total increase 4.04 % (previous year: 4.22 %). When determining the sensitivity disclosures, the present values were calculated using the same methodology used to calculate the present values at the reporting date. The presentation does not take The weighted average duration of the Group’s defined benefit obligations at 31 December 2018 was 14.2 years in Germany (previous year: 14.3 years) and 16.4 years in the UK (previous year: 18.0 years). In the other countries it was 17.0 years (previous year: 17.6 years), and in total it was 15.3 years (previous year: 15.9 years). A total of 30.6 % (previous year: 30.0 %) of the present value of the defined benefit obligations was attributable to active beneficiaries, 18.4 % (previous year: 17.2 %) to terminated beneficiaries and 51.0 % (previous year: 52.8 %) to retirees. 136 Deutsche Post DHL Group — 2018 Annual Report 39.4 Additional information on the fair value of plan assets The fair value of the plan assets can be disaggregated as follows: € m 31 December 2018 Equities Fixed income securities Real estate Alternatives 1 Insurances Cash Other Fair value of plan assets 31 December 2017 Equities Fixed income securities Real estate Alternatives 1 Insurances Cash Other Fair value of plan assets 1 Primarily includes absolute return products. Germany UK Other Total 550 1,717 1,511 372 546 806 10 415 3,825 255 379 0 40 0 668 907 298 30 127 46 106 1,633 6,449 2,064 781 673 892 116 5,512 4,914 2,182 12,608 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 Quoted market prices in an active market exist for around 73 % (previ- ous year: 79 %) of the total fair values of plan assets. The remaining assets for which no such quoted market prices exist are mainly attrib- utable as follows: 14 % (previous year: 14 %) to real estate, 5 % (previous year: 5 %) to insurances, 6% (previous year: 1%) to fixed income secur- ities and 2% (previous year: 1%) to alternatives. The majority of the investments on the active markets are globally diversified, with certain country-specific focus areas. The real estate included in plan assets in Germany with a fair value of €1,424 million (previous year: €1,590 million) is occupied by Deutsche Post DHL Group. Hedging measures were taken due to developments on the cap- ital markets. In the fourth quarter, they resulted in a decrease in the equity holding, whilst the proportion of the cash holding increased. Asset-liability studies are performed at regular intervals in Germany, the UK and, amongst other places, the Netherlands, Switzerland and the USA to examine the match between assets and liabilities; the strategic allocation of plan assets is adjusted in line with this. 39.5 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 depending 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 final salary schemes or schemes involv ing increases during the pension payment phase – can be linked directly or indirectly to inflation. The risk of increasing 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 component-based retirement benefit system and, in the case of the UK, by largely closing the defined benefit arrangements. In addition, fixed rates of increase have been set or increases partially capped and / or lump-sum payments provided for. There is also a positive correlation with interest rates. Consolidated Financial Statements — NOTES — Balance sheet disclosures 137 INVESTMENT RISK The investment is in principle subject to a large number of risks; in par- ticular, 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. 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 mitigated 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, include an allowance for expected future increases in life expectancy. 40 Other provisions Other provisions break down into the following main types of provision: € m Other employee benefits Technical reserves (insurance) Aircraft maintenance Tax provisions Restructuring provisions Postage stamps 1 Miscellaneous provisions Other provisions Non-current Current 2017 2018 2017 2018 2017 521 411 155 – 54 – 280 1,421 789 415 160 – 25 – 266 1,655 141 231 35 163 49 173 339 1,131 205 237 58 130 48 – 395 1,073 662 642 190 163 103 173 619 2,552 1 Due to the initial application of IFRS 15, the provision for postage stamps was reclassified to other liabilities as at 1 January 2018. 40.1 Changes in other provisions € m Other employee benefits Restruc- turing provisions Technical reserves (insurance) Aircraft maintenance Postage stamps 1 Tax provisions Miscella n- eous provisions Balance at 1 January 2018 Adjustments as a result of new IFRSs 2 Balance at 1 January 2018, adjusted Changes in consolidated group Utilisation Currency translation differences Reversal Unwinding of discount / changes in discount rate Reclassification Addition Balance at 31 December 2018 662 – 662 0 –362 16 –22 –2 3 699 994 103 –34 69 0 –33 0 –3 0 0 40 73 642 – 642 0 –33 3 –34 0 0 74 652 190 22 212 0 –22 4 –36 0 0 60 218 173 –173 – – – – – – – – – 163 – 163 0 – 55 –1 –34 0 0 57 130 619 –3 616 – 5 –196 – 5 –71 4 0 318 661 1 Due to the initial application of IFRS 15, the provision for postage stamps was reclassified to other liabilities as at 1 January 2018. 2  Note 4. Total 2018 994 652 218 130 73 – 661 2,728 Total 2,552 –188 2,364 – 5 –701 17 –200 2 3 1,248 2,728 The provision for other employee benefits primarily covers workforce reduction expenses (severance payments, transitional benefits, partial retirement, etc.), stock appreciation rights (SARs) and jubilee payments. It increased largely as a result of the addition made in respect of the early retirement programme,  note 3. The restructuring provisions comprise mainly costs from the clos- ure of terminals and outstanding obligations to employees regarding post-employment benefits. Technical reserves (insurance) consist mainly of outstanding loss reserves and IBNR reserves; further details can be found in  note 7. 138 Deutsche Post DHL Group — 2018 Annual Report The provision for aircraft maintenance relates to obligations for major aircraft and engine maintenance by third-party companies. The provision for postage stamps was reported in other provi- sions until 31 December 2017. Due to the application of IFRS 15, the provision for postage stamps was reclassified to other liabilities as at 1 January 2018. Of the tax provisions, €53 million (previous year: €57 million) relates to VAT, €31 million (previous year: €62 million) to customs and duties, and €46 million (previous year: €44 million) to other tax provisions. 40.2 Miscellaneous provisions Miscellaneous provisions, which include a large number of individual items, break down as follows: € m Litigation costs, of which non-current: 54 (previous year: 71) Risks from business activities, of which non-current: 6 (previous year: 10) Miscellaneous other provisions, of which non-current: 206 (previous year: 199) Miscellaneous provisions 2017 2018 117 42 460 619 104 40 517 661 40.3 Maturity structure The maturity structure of the provisions recognised in financial year 2018 is as follows: € m 2018 Other employee benefits Technical reserves (insurance) Aircraft maintenance Tax provisions Restructuring provisions Miscellaneous provisions Total 41 Financial liabilities € m Bonds Amounts due to banks Lease liabilities Liabilities at fair value through profit or loss Other financial liabilities Financial liabilities 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 205 237 58 130 48 395 1,073 205 191 58 0 6 117 577 119 117 27 0 3 33 299 96 46 3 0 3 26 174 81 24 5 0 4 31 145 288 37 67 0 9 59 460 Non-current Current 2017 4,835 39 159 9 109 2018 5,463 84 7,756 1 565 5,151 13,869 2017 515 117 22 35 210 899 2018 9 180 2,103 37 264 2,593 2017 5,350 156 181 44 319 6,050 16,462 Total 994 652 218 130 73 661 2,728 Total 2018 5,472 264 9,859 38 829 The amounts due to banks mainly comprise current overdraft facilities due to various banks. The amounts reported under financial liabilities at fair value through profit or loss mainly relate to the negative fair values of de- rivative financial instruments. 41.1 Bonds The table below contains further details on the company’s most sig- nificant bonds. The bond issued by Deutsche Post Finance B. V. is fully guaranteed by Deutsche Post AG. Consolidated Financial Statements — NOTES — Balance sheet disclosures 139 Significant bonds Bond 2012/2022 Bond 2012/2020 Bond 2012/2024 Bond 2013/2018 Bond 2013/2023 Bond 2016/2021 Bond 2016/2026 Bond 2017/2027 Bond 2018/2028 Convertible bond 2012/2019 1 Convertible bond 2017/2025 2 Nominal coupon % Issue volume € m Issuer 2.950 500 Deutsche Post Finance 1.875 2.875 1.500 2.750 0.375 1.250 1.000 1.625 0.600 0.050 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 750 Deutsche Post AG 1,000 Deutsche Post AG 1,000 Deutsche Post AG 2017 2018 Carrying amount € m Fair value € m Carrying amount € m Fair value € m 498 299 698 503 497 746 497 494 – 108 946 561 317 806 507 566 757 517 494 – 112 940 498 299 698 – 497 747 497 495 741 – 953 546 311 784 – 553 755 506 483 757 – 938 1 Fair value of the debt component; the fair value of the convertible bond 2012/2019 amounted to €215 million in the previous year. 2 Fair value of the debt component; the fair value of the convertible bond 2017/2025 is €956 million (previous year: €1,057 million). The bond 2013/2018 was repaid in October. A traditional bond (2018/ 2028) was placed in December 2018. 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 allowing 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 com- ponent. In subsequent years, interest will be added to the carrying amount of the bonds, up to the issue amount, using the effective inter- est 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 in 2018 Conversions to date (number of new shares) 5 in 2015 in 2016 in 2017 in 2018 2012/2019 6 Dec. 2012 €1 billion – 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 €55.69 €20.69 €20.63 €20.60 €20.47 – 5 thousand 28 million 15 million 5 million – – – – €55.61 – – – – 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. 140 Deutsche Post DHL Group — 2018 Annual Report On 7 March 2018, Deutsche Post AG exercised its right to call the out- standing notional volume of the convertible bond 2012/2019 early. The bonds amounting to €0.7 million still outstanding after the relevant deadline were redeemed on 27 March 2018. 41.2 Lease liabilities Due to the initial application of IFRS 16 as at 1 January 2018, additional liabilities from leases were recognised. Only finance lease liabilities in accordance with IAS 17 were recognised in the previous year. €1,722 million in financial liabilities under leases was repaid and €376 million in interest on leases was paid in financial year 2018,  note 43. Future cash outflows amounted to €12 billion as at the re- porting date,  note 44.1. Possible future cash outflows amounting to €1.3 billion were not included in the lease liability because it is not sufficiently likely that the leases will be extended (or not terminated). Leases that the Group has entered into as a lessee but that have not yet begun will possibly result in future payment outflows totalling €0.4 billion. Lease assets with a carrying amount of €9,503 million (previous year: €169 million and reported as finance lease assets) are recognised in property, plant and equipment. 41.3 Other financial liabilities The largest item, in the amount of €499 million, relates to the promis- sory note loans issued by Deutsche Post AG in September 2018, divided into six tranches for a total nominal amount of €500 million. The fair value of all of the tranches amounted to €501 million as at 31 Decem- ber 2018. 42 Other liabilities € m Tax liabilities Incentive bonuses Wages, salaries, severance payments Compensated absences Payables to employees and members of executive bodies Contract liabilities, of which non-current: 4 Social security liabilities Debtors with credit balances Postage stamps (contract liabilities) Deferred income, of which non-current: 61 (previous year: 100) Overtime claims Liabilities from the sale of residential building loans, of which non-current: 67 (previous year: 86) COD liabilities Insurance liabilities Liabilities from cheques issued Other compensated absences Accrued rentals Liabilities from loss compensation Accrued insurance premiums for damages and similar liabilities Miscellaneous other liabilities, of which non- current: 73 (previous year: 86) Other liabilities of which current non-current 2017 1,123 2018 1,196 688 389 352 199 – 172 124 – 356 115 105 68 33 35 28 40 12 12 616 384 347 229 227 171 144 137 129 97 85 62 31 28 28 19 10 8 823 4,674 4,402 272 689 4,637 4,432 205 As a result of the initial application of IFRS 15, the postage stamp obligation formerly reported under provisions was reclassified to other liabilities, as this item is a contract liability for a service paid for but not yet provided. An amount of €162 million was reclassified from current deferred income to contract liabilities. Of the tax liabilities, €629 million (previous year: €590 million) relates to VAT, €399 million (previous year: €371 million) to customs and duties, and €168 million (previous year: €162 million) to other tax liabilities. The liabilities from the sale of residential building loans relate to obligations of Deutsche Post AG to pay interest subsidies to borrowers 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 individ- ual items. Consolidated Financial Statements — NOTES — Balance sheet disclosures — Cash flow disclosures 141 42.1 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 2017 4,402 122 45 32 22 51 2018 4,432 95 36 22 14 38 4,674 4,637 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 because most of these instruments bear floating rates of interest at market rates. Cash flow disclosures 43 Cash flow disclosures The following table shows the reconciliation of changes in liabilities aris- ing from financing activities in accordance with the IFRS requirements: Liabilities arising from financing activities € m Balance at 31 December 2016/1 January 2017 Cash changes Non-cash changes 1 Leases Currency translation Fair value adjustment Other changes Balance at 31 December 2017 Adjustment as a result of new IFRSs Adjusted at 1 January 2018 Cash changes Non-cash changes 1 Leases Currency translation Fair value adjustment Other changes Balance at 31 December 2018 Amounts due to banks Lease liabilities Other financial liabilities 2 158 49 0 –23 –27 –1 156 0 156 91 0 –2 0 19 209 –26 7 –2 0 –7 181 9,235 9,416 –1,722 2,078 89 0 –2 418 –37 0 – 8 – 8 –200 165 0 165 432 0 –1 1 33 Total 5,775 654 7 –38 –35 – 511 5,852 9,235 15,087 – 971 2,078 86 1 – 56 264 9,859 630 16,225 Bonds 4,990 668 0 – 5 0 –303 5,350 0 5,350 228 0 0 0 –106 5,472 1 Includes reclassifications of cash to other cash flow items 2 Differences from financial liabilities,  note 41, are due to cash-related factors presented in other cash flow items, e.g., changes in cash and cash equivalents resulting from earn-outs or derivatives. 142 Deutsche Post DHL Group — 2018 Annual Report 43.2 Net cash used in investing activities Net cash used in investing activities increased from €2,091 million to €2,777 million. Whereas proceeds from the disposal of subsidiaries grew in the previous year due to the sale of Williams Lea Tag Group in particular, cash paid to acquire property, plant and equipment and intangible assets rose sharply, by €446 million to €2,649 million, in the reporting period. Details on the Group’s acquisitions can be found in  note 2. 43.3 Net cash used in financing activities Net cash used in financing activities increased substantially year-on- year, rising by €1,952 million to €3,039 million. The placement of a bond and a convertible bond resulted in issu- ing proceeds of €1.5 billion in the previous year, whilst in the reporting period the issuance of promissory note loans and a bond produced issuing proceeds in the amount of €1.2 billion. Cash outflows from the repayment of financial liabilities increased by €1.5 billion, influenced principally by the initial recognition of lease liabilities. Further details on the cash flow statement and free cash flow can be found in  the Group Management Report, page 47 f. €–110 million of the other non-cash changes relate to the non-cash exercise of the convertible bond 2012/2019. 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 €38 million. In financial year 2018, as in the prior year, 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 mainly to a property that was contributed to Deutsche Post Pensions-Treuhand GmbH & Co. KG (previous year: 18 properties). Although income was recognised as a result of the contribution, no cash or cash equivalents were received. 43.1 Net cash from operating activities Net cash from operating activities improved, due mainly to the initial application of IFRS 16. The former operating lease payments are now shown in net cash used in financing activities, provided they do not relate to payments under short-term or low-value asset leases. Whilst the previous year was influenced by the funding of pension obligations in the UK amounting to €495 million, the 2018 financial year saw a year-on-year increase of €162 million in the cash outflow from changes in working capital. Non-cash income and expenses are as follows: Non­cash 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 equity-settled share-based payments Other Non­cash income (–) and expenses (+) 2017 102 –131 – 54 49 – 6 – 40 2018 96 –140 –2 57 2 13 Consolidated Financial Statements — NOTES — Balance sheet disclosures — Other disclosures 143 Other disclosures 44 Risks and financial instruments of the Group 44.1 Risk management As a result of its operating activities, the Group is exposed to financial 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 financial instruments. Derivatives are used exclusively to mitigate non-deriva- tive 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 actions, responsibilities and necessary controls regarding the use of derivatives. Financial transactions are recorded, assessed and processed 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 assigned 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 Maturity structure of financial liabilities € m and the hedging instruments deployed to mitigate them. Financial instruments are accounted for and measured in accordance with IFRS 9. The Group exercised the option to continue to apply hedge accounting 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 39.5. Liquidity management The ultimate objective of liquidity management is to secure the solvency of Deutsche Post DHL Group and all Group companies. Consequently, 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 committed credit lines, are the key control parameter. The target is to have at least €2 billion available in a central credit line. As at 31 December 2018, the Group had central liquidity reserves of €4.3 billion (previous year: €4.2 billion), consisting of central finan- cial investments amounting to €2.3 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: At 31 December 2018 Non-current financial liabilities 1 Non-current lease liabilities Other non-current financial liabilities Non­current financial liabilities Current financial liabilities Current lease liabilities Trade payables Other current financial liabilities Current financial liabilities At 31 December 2017 Non-current financial liabilities 1 Other non-current financial liabilities Non­current financial liabilities Current financial liabilities Trade payables Other current financial liabilities Current financial liabilities 1 All of the convertible bond 2017/2025 was shown in the “More than 5 years” range. 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 616 1,821 15 2,452 846 1,449 12 2,307 730 1,222 10 1,962 761 958 8 1,727 3,583 4,466 21 8,070 287 1 288 403 2 405 839 1 840 591 1 592 3,430 81 3,511 85 0 0 85 468 2,137 7,422 0 10,027 86 0 86 877 7,343 337 8,557 144 Deutsche Post DHL Group — 2018 Annual Report The maturity structure of the derivative financial instruments based on cash flows is as follows: Maturity structure of derivative financial instruments € m At 31 December 2018 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 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 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 –1,853 1,900 4 –1,231 1,211 –3 –1 1 0 –20 20 –1 –2,421 2,489 –312 325 13 2 – 922 898 – 87 84 –17 – 5 0 0 0 –11 11 0 0 0 0 0 0 0 0 0 0 –10 10 0 0 0 0 0 0 0 0 0 0 –7 7 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 obligations 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 obli- gations 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 transactions: 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 differences directly impact on profit or loss. In order to mitigate this impact as far as pos- sible, all significant accounting-related currency risks within the Group are centralised at Deutsche Post AG through the in-house bank func- tion. 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 portfolio 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 €2,293 million at the reporting date (previous year: €1,630 million); the fair value was €23 million (previous year: €10 million). For simplification purposes, fair value hedge accounting was not applied to the derivatives used, which are reported as trading derivatives instead. Currency risks arise from planned foreign currency transactions if the future foreign currency transactions are settled at exchange rates that differ from the rates originally planned or calculated. These cur- rency 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 con- tracts will only be hedged in selected cases in the future. The relevant hedging transactions are recognised using cash flow hedge accounting,  note 44.3. Consolidated Financial Statements — NOTES — Other disclosures 145 The following table shows the net open hedging positions at the reporting date in the currency pairs with the highest net positions and their weighted hedge rate. Notional volume of hedging instruments € m Total notional volume Remaining term 31 Dec. 2017 31 Dec. 2018 Up to 1 year 1 to 5 years Average hedge rate More than 5 years 31 Dec. 2018 Hedging of currency risk Currency forwards purchase EUR / CNY Currency forwards sale EUR / CZK Currency forwards purchase USD / TWD 4 –322 0 340 –177 105 340 –131 105 0 – 46 0 0 0 0 8.09 26.39 29.83 Currency risks also result from translating assets and liabilities of for- eign operations into the Group’s currency (translation risk). No hedges were in place for currency translation risks at the end of 2018. In total, currency forwards and currency swaps in a notional amount of €3,363 million (previous year: €4,321 million) were out- standing at the reporting date. The corresponding fair value was €23 million (previous year: €56 million). As at the reporting date, there were no currency options or cross-currency swaps. Of the unrealised gains or losses from currency derivatives recog- nised in equity as at 31 December 2018, €2 million (previous year: €36 million) is expected to be recognised in income in the course of 2019. 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 hypothetical 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 individual cases, Group companies are not permitted to participate in in-house banking for legal reasons, their currency risks from primary 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 currency value at risk of the foreign currency items concerned was €5 million at the reporting date (previous year: €5 million). In addition, 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 €11 million as at 31 December 2018 (previous year: €7 million). The total foreign currency value at risk was €12 million at the reporting date (previous year: €9 million). The total amount is lower than the sum of the individual amounts given above, owing to interdependencies. INTEREST RATE RISK AND INTEREST RATE MANAGEMENT No interest rate hedging instruments were recognised as at the report- ing date. The proportion of financial liabilities with short-term interest lock-ins,  note 41, amounts to 17 % (previous year: 14 %) of the total financial liabilities as at the reporting date. The effect of potential inter- est rate changes on the Group’s financial position remains 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 amortised cost are not subject to interest rate risk. If the market interest rate level as at 31 December 2018 had been 100 basis points higher, net finance costs would have increased by €2 million (previous year: €0 million). All interest rate derivatives had expired or been unwound at the reporting date. No interest rate risk with an impact on equity was determined. 146 Deutsche Post DHL Group — 2018 Annual Report 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 delayed by one to two months, so that earnings may be affected temporarily 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 principal amount of these commodity swaps totalled €14 million (previous year: €8 million); the fair value was €–3 million (previous year: €1 million). IFRS 7 requires the disclosure of a sensitivity analysis, presenting the effects of hypothetical commodity price changes on profit or loss and equity. Changes in commodity prices affect the fair values of the deriva- tives used to hedge highly probable forecast commodity purchases (cash flow hedges) and the hedging reserve in equity. No cash flow hedges for commodity prices were outstanding at the reporting date. For this reason, commodity price movements would have had no effect on the hedging reserve in equity, as in the previous year. In the interests of simplicity, the commodity price hedges are not recognised as cash flow hedges. For these derivatives, commodity price movements affect the fair values of the derivatives and, consequently, the income statement. As in the previous year, if the un- derlying commodity prices had been 10 % higher at the reporting date, this would have increased the fair values in question and, consequently, operating profit by €1 million. A corresponding decline in the commod- ity prices would have reduced the fair values of the derivatives and operating profit by €1 million. CREDIT RISK Credit risk is incurred by the Group from operating activities and from financial transactions. In an effort to minimise credit risk from operat- ing activities and financial transactions, each counterparty is assigned individual limits, the utilisation of which is regularly monitored. The Group only enters into transactions with prime-rated counterparties. A test is performed at the reporting dates to establish whether an im- pairment 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 2018. The Group’s heteroge- neous customer structure means that there is no risk concentration. The aggregate carrying amount of financial assets represents the max- imum default risk. As a rule, the expected credit loss associated with financial assets must be determined in accordance with the expected credit loss impairment model in IFRS 9. Expected credit loss (ECL) within the meaning of IFRS 9 is an estimate of credit loss over the expected life- time of a financial instrument, weighted for the probability of default. A credit loss is the difference between the contractual cash flows to which the Group is entitled and the cash flows expected by the Group. Since the expected credit loss takes into account the amount and timing of payments, a credit loss may also occur if the Group expects payment to be made in full, but later than the contractually agreed date. The Group distinguishes between two types of financial assets both of which are subject to the new expected credit loss model: trade receivables and contract assets, on the one hand, and debt instruments measured at amortised cost, on the other. Cash and cash equivalents are also subject to the IFRS 9 impairment rules. However, the impair- ment loss identified is not material. ECL is generally measured at the level of individual items; in exceptional cases, such as groups of receivables with the same credit risk characteristics, it is measured collectively at portfolio level. The Standard stipulates the three-stage “general approach” to determining credit loss for this process. This does not include trade receivables and contract assets, for which a simplified approach is applied. In accordance with the three-stage model, debt instruments measured at amortised cost are initially recognised in Stage 1. The expected loss is equal to the loss that may occur due to possible default events in the twelve months following the reporting date. Financial assets that have experienced a significant increase in credit risk of the counterparty since initial recognition are transferred from Stage 1 to Stage 2. A “significant increase” includes situations in which debtors are no longer able to meet their payment obligations at short notice or when it appears that the debtor has experienced an actual or expected deterioration in business performance. The credit risk can then be measured using the probability of default (PD) over the instrument’s lifetime (lifetime PD). The impairment loss is equivalent to the loss that may occur due to possible default events during the remaining term of the financial asset. Assets must be transferred from Stage 1 to Stage 2 when the contractual payments are more than 30 days past due. If there is objective evidence that a financial asset is impaired, it must be transferred to Stage 3. In cases where payments are more than 90 days past due, there is reason to believe that the debtor is experiencing sig- nificant financial difficulties. This constitutes objective evidence of a credit loss. The financial asset must therefore be transferred to Stage 3. Consolidated Financial Statements — NOTES — Other disclosures 147 All debt instruments measured at amortised cost are considered to be at low risk of default. The impairment loss recognised in the period was therefore limited to the twelve-month expected credit loss. Management considers listed bonds to meet the criteria for a low risk of default when they have been assigned an investment-grade rating by at least one major rating agency. Other instruments qualify for the low-default-risk category if the risk of non-performance is low and the debtor is at all times in a position to meet contractual payment obliga- tions at short notice. At the reporting date, trade receivables from customer relation- ships amounting to €8,247 million (previous year: €8,218 million) were due within one year. They are held primarily with the aim of collecting the principal amount of the receivables. These items are therefore assigned to the “held to collect contractual cash flows” business model and measured at amortised cost. Trade receivables changed as follows: Changes in receivables 2017 2018 8,133 232 8,365 –168 0 –168 21 –147 8,218 8,365 88 8,453 –147 – 42 –189 –17 –206 8,247 Gross receivables Balance at 1 January Changes Balance at 31 December Loss allowances Balance at 1 January Loss allowance Net carrying amount Adjustment as a result of IFRS 9 Adjusted balance at 1 January Changes Balance at 31 December Carrying amount at 31 December The impairment model is applicable to non-current and current debt instruments as well as lease receivables. Debt instruments com- prise mainly deposits, collateral provided and loans to third parties. € m The gross amounts of financial assets subject to the three-stage model are presented in the following table: Stage 1 – twelve­month ECL € m Balance at 1 January 2018 Newly originated financial assets Impairment loss Disposal Repayment Reversal of loss allowance Increase in loss allowance Currency translation differences Reclassifications Changes in consolidated group Balance at 31 December 2018 Gross carrying amount 987 667 –17 – 572 – – – 1 – 66 – 9 991 –27 – – – – 17 –16 – – – –26 960 667 –17 – 572 – 17 –16 1 – 66 – 9 965 In the financial year, no cash flows from debt instruments were mod- ified and no changes were made to the model for determining risk parameters. As a result, the input parameters were not remeasured. All debt instruments and lease receivables were recognised in Stage 1 at the reporting date; they were neither past due nor impaired. As at the reporting date, no indications pointed to poor performance of the debt instruments and lease receivables. There was no reclassifica- tion between the stages in the financial year. The Group applies the simplified approach provided for in IFRS 9 to determine the credit risk from the Group’s operating activities applic- able to trade receivables and contract assets. Trade receivables and contract assets are generally short-term in nature and contain no sig- nificant financing components. According to the simplified impairment approach, a loss allowance in an amount equal to the lifetime expected credit losses must be recognised for all instruments, regardless of their credit quality. The Group calculates the expected loss using impairment tables for the individual divisions. The loss estimate, documented by way of loss rates, encompasses all of the available information, including his- torical data, current economic conditions and reliable forecasts of future economic conditions (macroeconomic factors). 148 Deutsche Post DHL Group — 2018 Annual Report The following table provides an overview of loss rates by age band that were used in the Group for the financial year under review: Loss rates by age band % 1 to 60 days 61 to 120 days 121 to 180 days 181 to 360 days More than 360 days 2018 0.1 – 0.4 0.4 – 5.0 3.0 – 20.0 20.0 – 60.0 80.0 – 100.0 The following table shows the loss allowances calculated based on the loss rates as at 1 January 2018 or 31 December 2018: Loss allowances € m 1 to 60 days 61 to 120 days 121 to 180 days 181 to 360 days More than 360 days Total 1 January 2018 31 December 2018 Gross carrying amount Gross carrying amount Receivables 1 Contract assets Loss allowance Receivables 1 Contract assets Loss allowance 7,273 725 111 76 180 8,365 45 45 17 14 15 33 110 189 7,208 824 111 103 207 8,453 59 59 17 14 13 44 118 206 1 Receivables relate exclusively to trade receivables. Contract assets relate to goods and services not yet invoiced with essentially the same risk profile as trade receivables. Trade receivables and contract assets are derecognised when a reasonable assessment indicates they are no longer recoverable. The relevant indicators include a delay in payment of more than 360 days. The average maturity of receivables is 50 days. Impairment losses on trade receivables and contract assets are presented in other operating expenses. Gains on the reversal of impair- ment losses are recognised in other operating income. In financial year 2018, 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 €655 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 re- ceivables include credit risk and the risk of delayed payment (late payment risk). Credit risk represents primarily all the risks and rewards associ- ated 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. The receivables are there- fore derecognised in their entirety. In financial year 2018, the Group recognised programme fees (interest, allowances for doubtful ac- counts) of €2 million (previous year: €2 million) as an expense in the context of its continuing exposure. The notional volume of receivables factored as at 31 December 2018 amounted to €420 million. Consolidated Financial Statements — NOTES — Other disclosures 149 44.2 Collateral Collateral provided € m Non-current financial assets, of which for assets for the settlement of residential building loans for sureties paid Current financial assets, of which for US cross-border lease (QTE lease) transactions for sureties paid Cash flow hedging reserve € m Balance at 1 January Gains and losses on effective hedges Reclassification due to the recognition of hedged items Reclassification to the currency translation reserve Balance at 31 December 2017 11 36 –14 0 33 2018 33 –15 –30 6 – 6 The carrying amounts of the cash flow hedges and the changes in fair value relevant to the determination of ineffectiveness during the period are as follows: 2017 169 2018 187 87 76 39 7 14 74 84 43 7 12 The collateral provided mainly relates to other financial assets. Hedging currency risk 44.3 Derivative financial instruments FAIR VALUE HEDGES There were no fair value hedges as at 31 December 2018, as in the pre- vious year. At the reporting date, the unwinding of interest rate swaps resulted in carrying amount adjustments of €21 million (previous year: €32 million) which are included in non-current financial liabilities. The adjustments in the carrying amount will be amortised using the ef- fective interest method over the remaining term of the liabilities (until 2022) and will reduce the interest expense in future. 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. At the reporting date, the fair values of currency forwards and currency swaps amounted to €0 million (previous year: €46 mil- lion). The hedged items will have an impact on cash flow by 2023. As in the previous year, no cash flow hedges for interest and com- modity risks were outstanding at the reporting date. The gains and losses on open hedging instruments recognised in equity at the reporting date amounted to €0 million. No ineffective por- tions of hedges were recognised. In the financial year, realised gains of €61 million and realised losses of €26 million from cash flow hedges on currency risks were recognised in other comprehensive income, due to the recognition of the hedged item in profit or loss. In addition, €5 million in realised losses was recognised in materials expense. € m 31 December 2018 Currency forwards Derivative assets 1 Derivative liabilities 2 Change in fair value for determi n- ation of ineffective- ness Carrying amount Notional volume 14 –14 4 –14 525 546 1 Assets at fair value through profit or loss. 2 Liabilities at fair value through profit or loss. No ineffectiveness was identified, as the changes in value of the under- lying transactions (€10 million) and the hedging transactions (€–10 million) offset each other: Information on hedging transactions € m Change in value of the period of the hedging transaction for determi n - ation of ineffective- ness Level of the hedging reserve Active hedges Terminated hedges 10 0 – 6 31 December 2018 Hedging of currency risk (cash flow hedges) Designated components Non-designated components NET INVESTMENT HEDGES Currency risks resulting from the translation of foreign operations were no longer hedged as at the end of 2018. At the reporting date, there was still a positive amount of €25 million from terminated net invest- ment hedges in the currency translation reserve. 150 Deutsche Post DHL Group — 2018 Annual Report 44.4 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 instru- ments from the IAS 39 categories as at 31 December 2017 to the IFRS 9 categories in the opening balance at 1 January 2018, as well as in the closing balance at 31 December 2018, and their respective fair values as at the reporting date: Reconciliation of carrying amounts in accordance with IFRS 9 € m ASSETS At cost Loans and receivables Non-current financial assets Trade receivables Current financial assets Other current assets Less cash and cash equivalents Available-for-sale financial assets 2 Non-current financial assets Assets measured at cost Non-current financial assets Current financial assets Other current assets At fair value Available-for-sale financial assets 2 Non-current financial assets Current financial assets Assets at fair value through profit or loss Non-current financial assets Debt instruments Equity instruments Fair value option Derivatives designated as hedges Current financial assets Debt instruments Trading Derivatives designated as hedges Assets at fair value through other comprehensive income Not IFRS 7 Other current assets Other non-current assets TOTAL ASSETS 1 Relates to lease receivables or liabilities. 2 The fair value is assumed to be equal to the carrying amount. 31 December 2017 Reconciliation to IFRS 9 31 December 2018 Carrying amount IAS 39 carrying amount Other financial instruments outside IAS 39 1 IFRS 7 fair value Reclassification Carrying amount carrying amount IFRS 7 fair value Adjustment / impairment loss 1 January 2018 Carrying amount 12,317 12,303 504 8,218 76 370 3,135 14 14 791 545 45 500 246 170 156 14 76 0 16 60 2,045 1,814 231 15,153 45 45 38 7 12,272 12,258 466 8,218 69 370 3,135 14 14 791 545 45 500 246 170 156 14 76 0 16 60 518 504 504 n. a. n. a. n. a. n. a. 14 14 791 545 45 500 246 170 156 14 76 0 16 60 n. a. n. a. n. a. 13,063 45 – 44 13,255 107 3,135 3,017 3,017 – 40 – 950 – 504 –76 –370 –14 –14 924 478 76 370 30 – 545 – 45 – 500 528 28 183 1 –156 500 500 47 10 10 0 – 44 – 42 – 42 –2 –2 12,233 11,311 8,176 922 476 76 370 821 774 198 183 1 0 14 576 500 16 60 47 2,055 1,814 241 15,109 12,288 11,264 8,247 1,024 499 100 425 1,074 1,031 188 187 1 843 800 29 14 43 2,297 1,944 353 15,659 Other financial instruments outside IFRS 9 1 107 107 95 12 IFRS 9 12,181 11,264 8,247 917 404 88 425 1,074 1,031 188 187 1 843 800 29 14 43 n. a. n. a. 493 493 n. a. 1,074 1,031 188 187 1 843 800 29 14 43 n. a. n. a. n. a. Consolidated Financial Statements — NOTES — Other disclosures 151 Reconciliation of carrying amounts in accordance with IFRS 9 Reconciliation to IFRS 9 31 December 2018 Carrying amount carrying amount IFRS 7 fair value Reclassification Adjustment / impairment loss 1 January 2018 Carrying amount Carrying amount IFRS 9 carrying amount Other financial instruments outside IFRS 9 1 107 IFRS 7 fair value – 40 – 950 – 504 –76 –370 –14 –14 924 478 76 370 30 – 545 – 45 – 500 528 28 183 1 –156 500 500 47 10 10 0 – 44 – 42 – 42 –2 –2 – 44 12,233 11,311 8,176 12,288 11,264 8,247 12,181 11,264 8,247 3,135 3,017 3,017 922 476 76 370 821 774 198 183 1 0 14 576 500 16 60 47 2,055 1,814 241 15,109 1,024 499 100 425 1,074 1,031 188 187 1 843 800 29 14 43 2,297 1,944 353 15,659 107 95 12 917 404 88 425 1,074 1,031 188 187 1 843 800 29 14 43 13,255 107 n. a. n. a. 493 493 n. a. 1,074 1,031 188 187 1 843 800 29 14 43 n. a. n. a. n. a. € m ASSETS At cost Loans and receivables Non-current financial assets Trade receivables Current financial assets Other current assets Less cash and cash equivalents Available-for-sale financial assets 2 Non-current financial assets Assets measured at cost Non-current financial assets Current financial assets Other current assets At fair value Available-for-sale financial assets 2 Non-current financial assets Current financial assets Assets at fair value through profit or loss Non-current financial assets Debt instruments Equity instruments Fair value option Current financial assets Debt instruments Trading Derivatives designated as hedges Derivatives designated as hedges Assets at fair value through other comprehensive income Not IFRS 7 Other current assets Other non-current assets TOTAL ASSETS 1 Relates to lease receivables or liabilities. 2 The fair value is assumed to be equal to the carrying amount. 31 December 2017 IAS 39 Other financial instruments outside IAS 39 1 45 45 38 7 12,272 12,258 466 8,218 69 370 3,135 14 14 791 545 45 500 246 170 156 14 76 0 16 60 13,063 45 12,317 12,303 504 8,218 76 370 3,135 14 14 791 545 45 500 246 170 156 14 76 0 16 60 2,045 1,814 231 15,153 518 504 504 n. a. n. a. n. a. n. a. 14 14 791 545 45 500 246 170 156 14 76 0 16 60 n. a. n. a. n. a. 152 Deutsche Post DHL Group — 2018 Annual Report Reconciliation of carrying amounts in accordance with IFRS 9 € m 31 December 2017 Reconciliation to IFRS 9 31 December 2018 Carrying amount IAS 39 carrying amount Other financial instruments outside IAS 39 1 IFRS 7 fair value Reclassification Carrying amount carrying amount IFRS 7 fair value Adjustment / impairment loss 1 January 2018 Carrying amount EQUITY AND LIABILITIES At cost Other financial liabilities Non-current financial liabilities 2 Other non-current liabilities Current financial liabilities Trade payables Other current liabilities Liabilities at fair value Earn-out obligation Non-current financial liabilities 2 Current financial liabilities Trading Non-current financial liabilities Current financial liabilities Derivatives designated as hedges Non-current financial liabilities 2 Current financial liabilities Not IFRS 7 Other non-current liabilities Other current liabilities TOTAL EQUITY AND LIABILITIES 13,454 13,454 5,142 86 864 7,343 19 44 10 6 4 6 6 28 3 25 4,569 186 4,383 18,067 181 181 159 22 13,273 13,273 4,983 86 842 7,343 19 44 10 6 4 6 6 28 3 25 13,317 181 6,576 6,576 5,622 86 868 n. a. n. a. 44 10 6 4 6 6 28 3 25 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 non-current 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 there fore not recognised fully at either fair value or amortised cost. The convertible bond issued by Deutsche Post AG in December 2017 had a fair value of €956 million as at the reporting date. The fair value of the debt component at the reporting date was €938 million. If there is an active market for a financial instrument (e.g. a stock exchange), its 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 instruments using valuation parameters that are derived from the market conditions as at the re- porting date. Counterparty risk is analysed on the basis of the current credit default swaps signed by the counterparties. The fair values of other non-current receivables correspond to the present values of the payments 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 also have short remaining maturities; the recognised amounts approximately repre- sent their fair values. The available-for-sale financial assets measured at fair value up to 31 December 2017 related to equity and debt instruments. They were reclassified to the new IFRS 9 categories as at 1 January 2018: • Money market funds of €500 million that are available on a daily basis were assigned to the hold-to-collect-and-sell business model and thus to the category for debt instruments at fair value through profit or loss (FVTPL), as it is uncertain whether they meet the SPPI criterion. • Investments in equity instruments in the amount of €48 million were assigned to the categories for equity instruments at fair value through profit or loss (FVTPL) and equity instruments at fair value through other comprehensive income (FVOCI). No material equity instruments were sold during the financial year. Further details are presented in  note 7. Other financial instruments outside IFRS 9 1 9,859 9,859 7,756 2,103 IFRS 9 14,463 14,463 6,112 67 453 7,422 409 38 15 15 9 1 8 14 0 14 14,501 9,859 6,406 6,339 67 n. a. n. a. n. a. 38 15 15 9 1 8 14 0 14 n. a. n. a. n. a. – 24,322 24,322 13,868 67 2,556 7,422 409 38 15 15 9 1 8 14 0 14 4,161 138 4,023 28,521 EQUITY AND LIABILITIES At cost Other financial liabilities Non-current financial liabilities 2 Other non-current liabilities Current financial liabilities Trade payables Other current liabilities Liabilities at fair value Earn-out obligation Non-current financial liabilities 2 Current financial liabilities Trading Non-current financial liabilities Current financial liabilities Derivatives designated as hedges Non-current financial liabilities 2 Current financial liabilities Not IFRS 7 Other non-current liabilities Other current liabilities TOTAL EQUITY AND LIABILITIES Other financial instruments outside IAS 39 1 181 181 159 22 IAS 39 13,273 13,273 4,983 86 842 7,343 19 44 10 6 4 6 6 28 3 25 13,454 13,454 5,142 86 864 7,343 19 44 10 6 4 6 6 28 3 25 4,569 186 4,383 18,067 6,576 6,576 5,622 86 868 n. a. n. a. 44 10 6 4 6 6 28 3 25 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 non-current 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 there fore not recognised fully at either fair value or amortised cost. The convertible bond issued by Deutsche Post AG in December 2017 had a fair value of €956 million as at the reporting date. The fair value of the debt component at the reporting date was €938 million. 13,317 181 Consolidated Financial Statements — NOTES — Other disclosures 153 Reconciliation of carrying amounts in accordance with IFRS 9 € m 31 December 2017 Reconciliation to IFRS 9 31 December 2018 Carrying amount carrying amount IFRS 7 fair value Reclassification Adjustment / impairment loss 1 January 2018 Carrying amount Carrying amount IFRS 9 carrying amount Other financial instruments outside IFRS 9 1 IFRS 7 fair value 24,322 24,322 13,868 67 2,556 7,422 409 38 15 15 9 1 8 14 0 14 4,161 138 4,023 28,521 9,859 9,859 7,756 2,103 14,463 14,463 6,112 67 453 7,422 409 38 15 15 9 1 8 14 0 14 14,501 9,859 6,406 6,339 67 n. a. n. a. n. a. 38 15 15 9 1 8 14 0 14 n. a. n. a. n. a. – Up to 31 December 2017, financial assets measured at fair value through profit or loss included securities to which the fair value option was applied, in order to avoid accounting inconsistencies. An active market exists for the assets, and they were recognised at fair value. As at 1 January 2018, these instruments were assigned to the IFRS 9 category for debt instruments measured at fair value through profit or loss (FVTPL). The table below 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 payables and other liabilities with predominantly short maturities. Their carrying amounts as at the reporting date are approximately equivalent to their fair values. 154 Deutsche Post DHL Group — 2018 Annual Report Financial assets and liabilities € m Class 31 December 2018 Non-current financial assets Current financial assets Financial assets Non-current financial liabilities Current financial liabilities Financial liabilities 31 December 2017 Non-current financial assets Current financial assets Financial assets Non-current financial liabilities Current financial liabilities Financial liabilities Level 1 1 Level 2 2 Level 3 3 Total 231 800 1,031 5,687 9 5,696 201 500 701 5,315 519 5,834 398 43 441 652 21 673 480 76 556 151 31 182 0 0 0 0 15 15 0 0 0 6 4 10 629 843 1,472 6,339 45 6,384 681 576 1,257 5,472 554 6,026 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 upon observable market data. Level 1 comprises mainly equity and debt instruments measured at fair value and debt instruments measured at amortised cost whose fair values can be determined based on quoted market prices. options are used, they are measured using the Black-Scholes option pricing model. All significant inputs used to measure derivatives are observable on 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 commodity prices) are imported from standard market information platforms into the treas- ury management system. The price quotations reflect actual transac- tions involving similar instruments on an active market. If currency 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, taking plausible assumptions into account. 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 2018. The following table shows the effect on net gains and losses of the financial instruments categorised within level 3 as at the reporting date: Consolidated Financial Statements — NOTES — Other disclosures 155 Unobservable inputs (Level 3) € m 2017 2018 Assets Liabilities Assets Liabilities Equity instruments Debt instruments Derivatives, of which equity derivatives Equity instruments Debt instruments Derivatives, of which equity derivatives At 1 January Gains and losses (recognised in profit or loss) Gains and losses (recognised in OCI) Additions Disposals Currency translation effects At 31 December 0 0 0 0 0 0 0 15 0 0 0 – 5 0 10 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 0 0 12 –7 0 15 0 0 0 0 0 0 0 The net gains and losses on financial instruments classified in accord- ance with the individual IAS 39 measurement categories were as follows in 2017: From 2018, the net gains and losses on financial instruments are presented per IFRS 9 category: Net gains and losses by measurement category Net gains and losses by measurement category € m € m Loans and receivables Available-for-sale 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 2018 2017 –147 Net gains and losses on financial assets Debt instruments at amortised cost Net gains (+) / losses (–) recognised in profit or loss –138 Debt instruments at fair value through profit or loss (FVTPL) Net gains (+) / losses (–) recognised in profit or loss –11 Net gains / losses on financial liabilities Debt instruments at fair value through profit or loss (FVTPL) Net gains (+) / losses (–) recognised in profit or loss Debt instruments at amortised cost Net gains (+) / losses (–) recognised in profit or loss 0 9 2 1 –7 –1 0 – 5 156 Deutsche Post DHL Group — 2018 Annual Report 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 disclosures. The following tables show the impact of netting agreements based on master netting arrangements or similar agreements on finan- cial assets and financial liabilities as at the reporting date: Offsetting – assets € m At 31 December 2018 Derivative financial assets 1 Trade receivables Funds At 31 December 2017 Derivative financial assets 1 Trade receivables Funds 1 Excluding derivatives from M & A transactions. Offsetting – liabilities € m At 31 December 2018 Derivative financial liabilities 1 Trade payables Funds At 31 December 2017 Derivative financial liabilities 1 Trade payables Funds 1 Excluding derivatives from M & A transactions. Assets and liabilities not set off in the balance sheet Gross amount of assets Gross amount of liabilities set off Recognised net amount of assets set off Liabilities that do not meet offsetting criteria Collateral received 43 8,382 579 89 8,301 871 0 135 579 0 83 871 43 8,247 0 89 8,218 0 9 0 0 34 0 0 0 0 0 0 0 0 Assets and liabilities not set off in the balance sheet Gross amount of liabilities Gross amount of assets set off Recognised net amount of liabilities set off Assets that do not meet offsetting criteria Collateral received 23 7,557 588 34 7,426 877 0 135 579 0 83 871 23 7,422 9 34 7,343 6 9 0 0 34 0 0 0 0 0 0 0 0 Total 34 8,247 0 55 8,218 0 Total 14 7,422 9 0 7,343 6 Financial assets and liabilities are set off on the basis of netting agree- ments (master netting arrangements) only if an enforceable right of set-off exists and settlement on a net basis is intended as at the report- ing 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 mas- ter netting arrangement creates a conditional right of set-off that can only be enforced by taking legal action. Consolidated Financial Statements — NOTES — Other disclosures 157 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 standardised 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 transactions at the reporting date. The conditional right of set-off is presented in the table. Settlement processes arising from services related to postal deliveries are subject to the Universal Postal Convention and the Inter- connect Remuneration Agreement – Europe (IRA-E). These agreements, particularly the settlement conditions, are binding on all public postal operators for the specified contractual arrangements. 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 Convention 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. 45 Contingent liabilities and other financial obligations In addition to provisions and liabilities, the Group has contingent liabil- ities and other financial obligations. Operating lease obligations have been reported in accordance with the requirements of IFRS 16 since 1 January 2018,  note 4. The contingent liabilities are broken down as follows: Contingent liabilities € m Guarantee obligations Warranties Liabilities from litigation risks Other contingent liabilities Total 2017 2018 92 95 96 644 927 102 21 304 561 988 During the year, a tax-related obligation was reclassified from other contingent liabilities to liabilities from litigation risks. 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. Other financial obligations such as the purchase obligation for investments in non-current assets amounted to €1,366 million (previ- ous year: €254 million). 46 Litigation Many of the postal services rendered by Deutsche Post AG and its subsidiaries are subject to sector-specific regulation by the Bundesnetz- agentur (German federal network agency) pursuant to the Postgesetz (PostG – German Postal Act). As the regulatory authority, the Bundes- netzagentur 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 admin- istrative court appeals by an association against the price-cap param- eter decision handed down, and the price approval granted, by the Bundesnetzagentur under the price cap procedure for 2016 to 2018. The complaints were dismissed by the Cologne Administrative Court, the court of first instance, by way of rulings handed down on 4 Decem- ber 2018. The claimant has applied to the Federal Administrative Court for a “leapfrog appeal”, asserting that both of the decisions by the Bundes netzagentur 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 con- cluded that First Mail Düsseldorf GmbH, a subsidiary of Deutsche Post AG, and Deutsche Post AG had contravened the discounting and discrimina- tion prohibitions under the Postgesetz. The companies were instructed to remedy the breaches that had been identified. Both companies ap- pealed against the ruling. Furthermore, First Mail Düsseldorf GmbH filed an application to suspend the execution of the ruling until a deci- sion was reached in the principal proceedings. The Cologne Adminis- trative Court and the Münster Higher Administrative Court both dismissed this application. First Mail Düsseldorf GmbH discontinued its mail delivery operations at the end of 2011 and retracted its appeal on 19 December 2011. Deutsche Post AG continues to pursue its appeal against the Bundesnetzagentur ruling; oral proceedings are scheduled for 26 March 2019 at the Cologne Administrative Court. In its ruling of 30 April 2012, the Bundesnetzagentur determined that Deutsche Post AG had contravened the discrimination prohibition under the Postgesetz by charging different fees for the transport of identical invoices containing different amounts. Deutsche Post AG was requested to discontinue the discrimination de- termined immediately, but no later than 31 December 2012. The ruling was implemented on 1 January 2013. Deutsche Post AG does not share the legal opinion of the Bundesnetzagentur and appealed the ruling. invoices and In its ruling of 28 June 2016, the Bundesnetzagentur determined 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). According to the Bundesnetzagentur, the prices did not cover the cost of efficiently pro- viding the service and had anti-competitive effects. On 26 July 2016, the Bundesnetzagentur barred Deutsche Post from charging these prices and declared the prices invalid (prohibitive order), since at this time Deutsche Post AG had not yet complied 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. 158 Deutsche Post DHL Group — 2018 Annual Report 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 Federal Republic of Germany; further details can be found in the 2015 and 2016 Annual Reports in the notes under Litigation. The EGC’s judgement is legally effective. The state aid decision 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 pending action, the European Commission advanced the legal argu- ment that the state aid proceedings initiated in 1999 remain open on some counts and that it could therefore issue a new final decision, bringing the proceedings to a close. The European Commission gave no particulars regarding the possible substance of the decision. 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 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 individu- ally negotiated agreements or provided on special terms (discounts, etc.). Deutsche Post AG and the tax authorities hold different opinions on the VAT treatment of certain products. In the interest 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 45. On 30 June 2014, DHL Express France received a statement of objections from the French competition authority alleging anti- competitive conduct with regard to fuel surcharges and price fixing in the domestic express business, a business which had been divested in June 2010. The French competition authority made its decision on 15 December 2015. The decision to fine DHL was confirmed by the Paris Court of Appeals on 19 July 2018 and DHL Express France is appealing it before the Cour de Cassation (Supreme Court). 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 Share­based payment Assumptions regarding the price of Deutsche Post AG’s shares and as- sumptions 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 rec- ognised pro rata in profit or loss to reflect the services rendered as consideration during the vesting period (lock-up period). 47.1 Share­based payment for executives (Share Matching Scheme) Under the share-based payment system for executives (Share Match- ing Scheme), certain executives receive part of their variable remuner- ation 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 remuneration 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 conversion behaviour of executives with respect to their relevant bonus portion. Share-based payment arrange- ments 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 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 instruments 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. Of the expenses under the Share Matching Scheme, €34 million (previous year: €30 million) relates to equity-settled share-based payments and €31 million (previous year: €25 million) to the deferral of the associated matching shares. Additional information on granting and settlement of these rights can be found in  notes 33 and 34. Consolidated Financial Statements — NOTES — Other disclosures 159 Share Matching Scheme Grant date of incentive shares and associated matching shares 1 Jan. 2013 1 Jan. 2014 1 Dec. 2015 1 Dec. 2016 1 Dec. 2017 1 Dec. 2018 Grant date of matching shares awarded for investment shares 1 April 2014 1 April 2015 1 April 2016 1 April 2017 1 April 2018 1 April 2019 Term End of term months 63 63 52 52 52 52 March 2018 March 2019 March 2020 March 2021 March 2022 March 2023 2013 tranche 2014 tranche 2015 tranche 2016 tranche 2017 tranche 2018 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 1 Estimated provisional amount, will be determined on 1 April 2019. 2 Expected number. € € thousands thousands thousands thousands 17.02 27.18 337 n.  a. n.  a. 871 25.91 29.12 332 299 596 27.12 23.98 366 329 848 29.04 31.77 320 288 901 39.26 34.97 256 230 864 28.78 33.00 1 211 2 190 733 47.2 Long­Term Incentive Plan (2006 LTIP) for members of the Board of Management age closing price of Deutsche Post shares for the five trading days preceding the exercise date and the exercise price of the SAR. 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 appre- ciation 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 by the grant date of each tranche, 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 deter- mined 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 per- formance 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 outperforms 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 reference period comprises the last 20 con- secutive 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 compen- sation. Each SAR exercised entitles the Board of Management member to receive a cash settlement equal to the difference between the aver- 2006 LTIP 2013 tranche 2014 tranche 2015 tranche 2016 tranche 2017 tranche 2018 tranche Issue date 1 August 2013 1 September 2014 1 September 2015 1 September 2016 1 September 2017 1 September 2018 1 Issue price € 20.49 24.14 25.89 28.18 34.72 31.08 Waiting period expires 31 July 2017 31 August 2018 31 August 2019 31 August 2020 31 August 2021 31 August 2022 1 On the grant date of 1 November 2018 (John Gilbert), the issue price was €28.69; the waiting period ends on 31 October 2022. The Board of Management members received a total of 1,191,840 SAR s (previous year: 2,003,970 SAR s) with a total value, at the time of issue, of €5.43 million (previous year: €7.19 million). 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 difference 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 Management). 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 exercised them as early as 2017. Start- ing in 2014, SAR s were no longer issued to executives under the SAR Plan. The Performance Share Plan (PSP) for executives replaces the 160 Deutsche Post DHL Group — 2018 Annual Report SAR Plan. More details on the tranches still existing are shown in the following table: SAR Plan Issue date Issue price Waiting period expires Exercise period expires 2012 tranche 2013 tranche 1 July 2012 1 August 2013 €13.26 30 June 2016 30 June 2018 €20.49 31 July 2017 31 July 2019 The fair value of the SAR Plan and the 2006 LTIP was determined using a stochastic simulation model. As a result, income of €50 million (previ- ous year: expense of €73 million) and a provision of €8 million (previous year: €73 million) were recognised as at the reporting date. €6 million (previous year: €63 million) of the provision was attributable to the Board of Management. A portion of €5 million (previous year: €32 mil- lion) of the total provision relates to rights due to the Board of Manage- ment that are exercisable as 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 demanding per- formance targets. The performance targets under the PSP are iden- tical with the performance targets under the LTIP for members of the Board of Management. Performance Share Units (PSUs) were issued to selected execu- tives under the PSP for the first time on 1 September 2014. It is not planned that members of the Board of Management will participate 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 2018, a total of €26 million (previous year: €25 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). Performance Share Plan Grant date Exercise price Waiting period expires Risk-free 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 2018 Rights granted Rights lapsed Rights settled at the end of the waiting period Rights outstanding at 31 December 2018 2014 tranche 2015 tranche 2016 tranche 2017 tranche 2018 tranche 1 September 2014 1 September 2015 1 September 2016 1 September 2017 1 September 2018 €24.14 €25.89 €28.18 €34.72 €31.08 31 August 2018 31 August 2019 31 August 2020 31 August 2021 31 August 2022 0.11 % 3.52 % 23.46 % 10.81 % – 0.10 % 3.28 % 24.69 % 16.40 % – 0.62 % 3.73 % 23.94 % 16.83 % – 0.48 % 3.31 % 23.03 % 16.34 % – 0.39 % 3.70 % 22.39 % 16.29 % 1.74 % 2.94 % 2.93 % 2.78 % 2.66 % 3,779,940 3,802,410 3,619,692 3,053,046 0 1,335,404 2,444,536 0 196,638 – 0 177,384 – 0 117,372 – 0 3,344,166 24,858 – 0 3,605,772 3,442,308 2,935,674 3,319,308 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 PSUs as at 31 December 2018 was 25 months. Consolidated Financial Statements — NOTES — Other disclosures 161 48 Related party disclosures 48.1 Related party disclosures (companies and Federal Republic of Germany) All of the companies below that are controlled by the Group or over which the Group can exercise significant influence are recorded in the  dpdhl.com/en/ list of shareholdings, which can be accessed online at investors. Deutsche Post AG maintains a variety of relationships with the Federal Republic of Germany (Federal Republic) and other companies 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 business relationships with the individual public authorities and other govern- ment 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 companies 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 companies. 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 current interest in Deutsche Post AG’s share capital is 20.5 %. 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 supervision of the German Federal Ministry of Finance. The BAnst PT continues to manage the social facilities such as the postal civil servant health insur- ance fund, the recreation programme, the Postbeamtenversorgungs- kasse (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 2018, Deutsche Post AG was invoiced for €129 million (previous year: €114 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 39. 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. The agreement was amended in early 2018, with retroactive effect to 1 January 2017. As a result, monthly instalment payments are no longer made to the Federal Republic. Instead, a lump-sum payment is made to the Federal Republic each year after a review. The invoice for 2017 was under €100 thousand. 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 incurred by the Federal Republic by paying a flat fee. In 2018, this initiative resulted in 22 permanent transfers (previous year: 45) and 22 secondments with the aim of a permanent transfer in 2019 (previous year: 3). RELATIONSHIPS WITH THE GERMAN FEDERAL EMPLOYMENT AGENCY Deutsche Post AG and the German Federal Employment Agency en- tered into an agreement dated 12 October 2009 relating to the transfer of Deutsche Post AG civil servants to the Federal Employment Agency. In 2018, this initiative resulted in 35 permanent transfers (previous year: 22.) 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). At the end of 2017, a control relationship existed between Deutsche Telekom AG and the Federal Republic, because the Federal Republic, despite its non-con- trolling interest, had a secure majority at the Annual General Meeting due to its average presence there. This was no longer true in financial year 2018. As a result, Deutsche Telekom AG is no longer a related party of Deutsche Post AG that must be reported in accordance with IAS 24. 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. RELATIONSHIPS WITH PENSION FUNDS The real estate with a fair value of €1,424 million (which can be offset as plan assets) (previous year: €1,590 million), of which Deutsche Post Pensions-Treuhand GmbH & Co. KG, Deutsche Post Altersvorsorge Sicherung e.V. & Co. Objekt Gronau KG and Deutsche Post Grund- stücks-Vermietungsgesellschaft beta mbH Objekt Leipzig KG are the legal owners, is let to Deutsche Post Immobilien GmbH. Rental pay- ments for Deutsche Post Immobilien GmbH amounted to €94 million in 2018 (previous year: €101 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. Further disclosures on pension funds can be found in  notes 7 and 39. 162 Deutsche Post DHL Group — 2018 Annual Report RELATIONSHIPS WITH UNCONSOLIDATED COMPANIES, INVESTMENTS The active members of the Board of Management and the Super- 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, investments accounted for using the equity method and joint operations deemed to be related parties of the Group in the course of its ordinary business activities. As part of these activities, all transactions for the provision of goods and services entered into with unconsolidated companies were conducted on an arm’s length basis at standard market terms and conditions. Transactions were conducted in financial year 2018 with major related parties, resulting in the following items in the consolidated financial statements: € m Trade receivables Loans Receivables from in-house banking Financial liabilities Trade payables Income 1 Expenses 2 To / from investments accounted for using the equity method To / from unconsolidated companies 2017 2018 2017 2018 4 0 3 15 2 0 1 5 0 5 9 1 2 1 3 16 4 8 2 3 14 7 27 0 31 0 7 14 1 Relates to revenue and other operating income. 2 Relate to materials expense and staff costs. Deutsche Post AG issued letters of commitment in the amount of €8 million (previous year: €16 million) for these companies. Of this amount, €3 million (previous year: €11 million) was attributable to investments accounted for using the equity method, €1 million (previ- ous year: €1 million) to joint operations and €4 million (previous year: €4 million) to unconsolidated companies. 48.2 Related party disclosures (individuals) 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 report- able transactions or legal transactions involving these related parties in financial year 2018. In particular, the company extended no loans to these related parties. 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 Supervisory Board. visory Board were remunerated as follows: € m Short-term employee benefits (excluding share-based payment) Post-employment benefits Termination benefits Share-based payment 1 Total 2017 2018 14 2 0 30 46 14 3 4 –34 –13 1 Gain on the reversal of the SAR provision in financial year 2018, owing to the current share price performance. 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 €41 million as at the reporting date (previous year: €35 million). The share-based payment amount relates to the relevant expense recognised for financial years 2017 and 2018; further details can be found in  notes 47.2 and 48.3. The expense is itemised in the following table: Share­based payment Thousands of € Dr Frank Appel, Chairman Ken Allen Dr h. c. Jürgen Gerdes (until 12 June 2018) John Gilbert Melanie Kreis Dr Thomas Ogilvie (since 1 September 2017) Tim Scharwath (since 1 June 2017) Share­based payment 1 2017 SAR s 2018 SAR s 13,726 –18,183 6,169 6,726 2,422 1,085 57 57 – 5,769 – 6,161 –2,916 –1,271 –39 –39 30,242 –34,378 1 Gain on the reversal of the SAR provision in financial year 2018, owing to the current share price performance. Consolidated Financial Statements — NOTES — Other disclosures 48.3 Remuneration disclosures in accordance with the HGB Auditor’s fee BOARD OF MANAGEMENT REMUNERATION The remuneration paid to members of the Board of Management in financial year 2018 totalled €11.4 million (previous year: €11.6 million). Non-performance-related components accounted for €8.1 million (previous year: €7.6 million) and €3.3 million was attributable to the annual bonus paid as a performance-related component (previous year: €4.0 million). An additional €0.6 million of the annual bonus was transferred to the medium-term component (deferral). In financial year 2018, the Board of Management members received a total of 1,191,840 SARs (previous year: 2.003.970 SARs), which at the issue date were valued at €5.4 million (previous year: €7.2 million). FORMER MEMBERS OF THE BOARD OF MANAGEMENT Benefits paid to former members of the Board of Management or their surviving dependants amounted to €9.6 million (previous year: €7.0 million). The defined benefit obligation (DBO) for current pensions calculated under IFRS s was €94 million (previous year: €95 million). REMUNERATION OF THE SUPERVISORY BOARD The total remuneration of the Supervisory Board in financial year 2018 amounted to €2.7 million (previous year: €2.6 million); €2.4 million of this amount was attributable to a fixed component, as in the prior year, and €0.3 million to attendance allowances (previous year: €0.2 million). Further information on the itemised remuneration of the Board of Man- agement and the Supervisory Board can be found in the remuneration report, which forms part of the Group Management Report. SHAREHOLDINGS OF THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD As at 31 December 2018, 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 Article 19 of the Market Abuse Regulation (EU) No 596/2014 can be viewed on the company’s website at  dpdhl.com/en/investors. 49 Auditor’s fees The fee for the auditor of the consolidated financial statements, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, amounted to €11 million and was recognised as an expense. 163 2018 11 0 0 0 11 € m Audit services Other assurance services 1 Tax advisory services Other services Total 1 Rounded below €1 million. The audit services category includes the fees for auditing the consoli- dated financial statements and for auditing the annual financial statements prepared by Deutsche Post AG and its German subsidiaries. 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 engage- ment, such as audits of the internal control system, are also reported in this category. Other assurance services relate to fees for the issuance of comfort letters and of certificates for the internal control system in particular. 50 Exemptions under the HGB and local foreign legislation For financial year 2018, the following German subsidiaries have exer- cised the simplification options under section 264(3) of the HGB, section 264 B of the HGB and section 291 of the HGB: • Agheera GmbH • Albert Scheid 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 164 Deutsche Post DHL Group — 2018 Annual Report • 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 • 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 Beraterdienstleistungen mbH • it4logistics GmbH • Saloodo! GmbH • StreetScooter GmbH • yunexus GmbH The following companies in the UK make use of the audit exemption under section 479A 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 • National Carriers Limited • Ocean Group Investments Limited • Ocean Overseas Holdings Limited • Power Europe Development No. 3 Limited • Power Europe Operating Limited • 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 • 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 Consolidated Financial Statements — NOTES — Other disclosures — RESPONSIBILITY STATEMENT 165 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 2018 re- quired by section 161 of the AktG. This Declaration of Conformity can be accessed online at  dpdhl.com/en/investors.  dcgk.de and at 52 Significant events after the reporting date and other disclosures New segment structure as of January 2019 The following changes concerning board member responsibilities and segments were effective as of 1 January 2019: the Post - eCommerce - Parcel division was separated into a German and an international division, each led by a separate member of the Board of Management. The Ger- man business was renamed Post & Paket Deutschland and will remain under the interim leadership of the Group’s CEO. A new DHL eCommerce Solutions division is also being created in order to optimally align the Group with the global e-commerce market. Ken Allen has assumed responsibility for the new division in addition to his role as head of CSI. John Pearson has led the Express division since 1 January 2019. There were no other significant events after the reporting date. 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, 15 February 2019 Deutsche Post AG The Board of Management Dr Frank Appel Ken Allen John Gilbert Melanie Kreis Dr Thomas Ogilvie John Pearson Tim Scharwath 166 Deutsche Post DHL Group — 2018 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 com- prise the consolidated statement of financial position as at December 31, 2018, the consolidated statement of comprehensive income, con- solidated statement of profit or loss, consolidated statement of changes in equity, and consolidated statement of cash flows for the financial year from January 1 to December 31, 2018, and notes to the consoli- dated financial statements, including a summary of significant account- ing policies. In addition, we have audited the group management report of Deutsche Post AG for the financial year from January 1 to December 31, 2018. In accordance with the German legal requirements, we have not audited the content of those parts of the group management report listed in the “Other Information” section of our auditor’s report. 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: German Commercial Code] and, in compliance with these require- ments, give a true and fair view of the assets, liabilities, and financial position of the Group as at December 31, 2018, and of its financial performance for the financial year from January 1 to December 31, 2018, and • the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our audit opinion on the group management report does not cover the content of those parts of the group manage- ment 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 management 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 subsequently as “EU Audit Regulation”) in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). We performed the audit of the consolidated financial statements in supplementary compliance with the International Standards on Audit- ing (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” section of our auditor’s report. We are independ- ent of the group entities in accordance with the requirements of Euro- pean law and German 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 pro- vided 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 judgment, were of most significance in our audit of the consolidated financial statements for the financial year from January 1 to December 31, 2018. These matters were addressed in the context of our audit of the con- solidated 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 Effects of the first-time application of IFRS 16 on the accounting of leases 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 167 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 bal- ance sheet item “Intangible assets”, representing approximately 22 % of total assets and 81 % of the Group’s reported equity. Good- will is tested for impairment by the Company on an annual basis as of the balance sheet date or if there are indications that good- will may be impaired. The impairment test of goodwill is based on the value in use, which is determined by applying a measure- ment 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 extent on the estimation of future cash inflows by the Company’s executive directors and the discount rate used, and is therefore subject to considerable un- certainty. 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 prepared by the executive directors and approved by the Company’s super- visory board, and reconciling it against general and sector- 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 eval- uated the Company’s calculation procedure. Due to the material- ity of goodwill and the fact that its measurement also depends on economic conditions which are outside of the Company’s sphere of influence, we carried out our own additional sensitivity analy- ses for those cash-generating units with low headroom (value in use compared with the carrying amount) and found that the re- spective goodwill is sufficiently covered by the discounted future cash inflows. Overall, the measurement parameters and assump- tions used by the executive directors to be reproducable. The Company’s disclosures regarding goodwill are contained in note 22 of the notes to the consolidated financial statements. 3 2 Pension obligations and plan assets 1 In the consolidated financial statements of Deutsche Post AG a total of EUR 4.35 billion is reported under the balance sheet item “Provisions for pensions and similar obligations”. The net pension provisions of EUR 4.1 billion (after consideration of reported plan assets of EUR 0.3 billion) were calculated on the basis of the pres- ent value of the obligations amounting to EUR 16.7 billion, netted against the plan assets of EUR 12.6 billion, which were measured at fair value. The obligations from defined benefit pension plans were measured using the projected unit credit method in accord- ance with IAS 19. This requires 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 recognized directly in equity as actuarial gains or losses. Changes in the measurement parameters resulted in actuarial gains of EUR 0.2 billion. In our view, these matters were of par- ticular significance, as the measurement of the pension obligations and plan assets is to a large extent based on the estimates and assumptions made by the Company’s executive directors. 2 With the knowledge that estimated values bear an increased risk of accounting misstatements and that the executive directors’ measurement decisions have a direct and significant effect on the consolidated financial statements, we assessed the appropriate- ness of the values adopted, in particular the measurement param eters used in the calculation of the pension provisions, inter alia on the basis of actuarial reports made available to us and tak- ing into account the expert knowledge of our internal specialists for pension valuations. Our evaluation of the fair values of plan assets was in particular based on bank confirmations submitted to us, as well as other statements of assets and real estate ap- praisals. On the basis of our audit procedures, we were able to satisfy ourselves that the estimates and assumptions made by the executive directors were sufficiently documented and supported to justify the recognition and measurement of the material pen- sion provisions. The Company’s disclosures relating to provisions for pensions and similar obligations are contained in note 39 of the notes to the consolidated financial statements. 3 168 Deutsche Post DHL Group — 2018 Annual Report 3 1 Effects of the first­time application of IFRS 16 on the  accounting of leases In the Company’s consolidated financial statements rights of use of € 9.5 billion and leasing liabilities of € 9.9 billion are reported as of the balance sheet date. Thus, leasing liabilities represent 20 % of total assets. In the financial year, the first-time application of the new accounting standard relating to leases (IFRS 16) re- sulted in material effects on the opening balance sheet figures and their updating throughout the financial year. The modified retrospective approach was applied for the conversion to IFRS 16. The comparable figures from the prior year’s periods were not adjusted. Due to the large volume of leases and transactions re- sulting from them, the Company has established group-wide processes and controls for the complete and accurate recording of the leases. Furthermore, the first-time application required a central IT system to be implemented to report these leases. The new IFRS 16 accounting standard necessitates that executive directors make estimates and take discretionary decisions for certain areas which have been assessed in the context of our audit. In particular, this relates to assessments regarding exer- cising options with implications for the term of the leasing ar- rangement. Against this background and due to the complexity of the new requirements set forth in IFRS16, the accounting of leases was of particular significance within the course of our audit. 2 As part of our audit and with the assistance of our internal spe- cialists, we assessed, among other things, the appropriateness and operating effectiveness of the processes and controls estab- lished by the Group to record its leases. This also applies to the implementation of the central IT system to report the leases and to the required adjustments made to existing systems in order to process the relevant transactions. In addition, as part of our audit and with the assistance of internal specialists we assessed the impact of the first-time ap- plication of IFRS 16. Together we assessed the implementation work and evaluated the design of the processes set up to report the transactions in accordance with IFRS 16 and of the IT systems in place to support the implementation of the new requirements. In this context, we inspected, on a sample basis, lease arrange- ments and assessed the identification of performance obligations and whether these were recorded completely and appropriately in the newly implemented central system in place to report the leases. In doing so, we evaluated in particular those assessments relating to exercising options with implications for the term of the lease arrangement by means of inquiring Company’s employees and examining suitable supporting documentation. We were able to satisfy ourselves that the systems and pro- cesses established and adjusted to IFRS 16 as well as the imple- mented controls are appropriate. Furthermore, we were able to assess that the estimates and assumptions made by the executive directors are sufficiently documented and substantiated to en- sure that leases are properly accounted for under the first-time application of IFRS 16. 3 The Company’s disclosures relating to the accounting of leases and the effects of the first-time application of IFRS 16 are contained in note 4 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 § 289f HGB and § 315d HGB included in the “Declaration on Corporate Governance and Non-financial Group Report” section of the group management report • the separate non-financial report pursuant to § 289b Abs. 3 HGB and § 315b Abs. 3 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 information, 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 statements, with the group management report or our knowledge obtained 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 Management Report The executive directors are responsible for the preparation of the con- solidated financial statements that comply, in all material respects, with IFRS s as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB and that the consoli- dated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition the executive directors are responsible for such internal control as they have determined nec- essary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the executive 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 addition, they are re- sponsible 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. Consolidated Financial Statements — INDEPENDENT AUDITOR’S REPORT 169 Furthermore, the executive directors are responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material re- spects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the op- portunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (sys- tems) as they have considered necessary to enable the preparation of a group management re-port that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appro- priate evidence for the assertions in the group management report. The supervisory board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated finan cial statements and of the group management report. 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 material 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 con- solidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately pre- sents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the con- solidated 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 compliance with the ISAs will always detect a material misstatement. Misstate- ments can arise from fraud or error and are considered material if, in- dividually 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 consol- idated financial statements and of the group management report, 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 resulting from fraud is higher than for one resulting from error, as fraud may involve collu- sion, forgery, intentional omissions, misrepresentations, 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. • Evaluate the appropriateness of accounting policies used by the ex- ecutive directors and the reasonableness of estimates made by the executive directors and related disclosures. • 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 uncer- tainty 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 inad- equate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained 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 con- solidated financial statements, including the disclosures, and whether the consolidated financial statements present the under lying trans- actions and events in a manner that the consolidated financial state- ments give a true and fair view of the assets, liabilities, financial posi- tion and financial performance of the Group in compliance with IFRS s as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB. • Obtain sufficient appropriate audit evidence regarding the financial 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 responsible for the di- rection, 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 presented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particu- lar, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper deri- vation 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 una- voidable risk that future events will differ materially from the pro- spective information. 170 Deutsche Post DHL Group — 2018 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 inter- nal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, 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 disclo- sure 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 April 24, 2018. We were engaged by the supervisory board on August 8, 2018. We have been the group auditor of Deutsche Post AG, Bonn without interruption since the Company first met the requirements as a public interest entity within the meaning of § 319a 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 committee 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 15, 2019 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Dietmar Prümm Wirtschaftsprüfer (German Public Auditor) Verena Heineke Wirtschaftsprüferin (German Public Auditor) D FURTHER INFORMATION 171 — 178 172 MULTI-YEAR REVIEW 174 GRAPHS AND TABLES 175 INDEX 176 GLOSSARY 177 CONTACTS 177 ONLINE VERSION 177 ORDERING 178 FINANCIAL CALENDAR 172 Deutsche Post DHL Group — 2018 Annual Report MULTI-YEAR REVIEW Key figures, 2011 to 2018 € m Revenue Post - eCommerce - Parcel (until 2013 Mail) Express Global Forwarding, Freight Supply Chain Total for the divisions Corporate Functions (until 2017 Corporate Center/Other) Consolidation Total Profit/loss from operating activities (EBIT) Post - eCommerce - Parcel (until 2013 Mail) Express Global Forwarding, Freight Supply Chain Total for the divisions Corporate Functions (until 2017 Corporate Center/Other) Consolidation Total 2011 adjusted 2012 adjusted 2013 adjusted 2014 adjusted 2015 2016 adjusted 2017 adjusted 2018 13,973 11,691 15,118 13,223 54,005 1,260 13,972 12,778 15,666 14,340 56,756 1,203 15,291 11,821 14,787 14,227 56,126 1,251 15,686 12,491 14,924 14,737 57,838 1,345 16,131 13,661 14,890 15,791 60,473 1,269 17,078 13,748 13,737 13,957 58,520 1,279 18,161 15,049 14,482 14,152 61,844 1,387 18,476 16,147 14,978 13,350 62,951 1,624 –2,436 –2,447 –2,465 –2,553 –2,512 –2,465 –2,787 –3,025 52,829 55,512 54,912 56,630 59,230 57,334 60,444 61,550 1,107 916 440 362 2,825 –389 0 1,048 1,110 514 419 3,091 – 423 –3 1,286 1,083 478 441 3,288 – 421 –2 1,298 1,260 293 465 3,316 –352 1 1,103 1,391 –181 449 2,762 –351 0 1,446 1,544 287 572 3,849 –359 1 1,503 1,736 297 555 4,091 –350 0 656 1,957 442 520 3,575 – 414 1 2,436 2,665 2,865 2,965 2,411 3,491 3,741 3,162 Consolidated net profit for the period 1,266 1,762 2,211 2,177 1,719 2,781 2,853 2,224 Cash flow/capex/depreciation, amortisation and impairment losses Net cash from/used in operating activities Net cash used in investing activities Net cash used in/from financing activities 2,371 –1,129 –1,547 –203 2,989 –1,697 –1,765 1,199 Free cash flow Capex 1 Depreciation, amortisation and impairment losses Assets and capital structure Non-current assets Current assets Equity (excluding non-controlling interests) Non-controlling interests Current and non-current provisions Current and non-current liabilities Total assets 749 –1,885 1,716 1,274 1,697 1,339 21,225 17,183 11,009 190 9,008 21,568 12,289 9,019 209 8,978 –110 1,669 1,747 1,337 21,370 14,091 9,844 190 8,481 18,201 15,651 16,946 3,040 –1,087 –2,348 1,345 1,876 1,381 22,902 14,077 9,376 204 10,411 16,988 3,444 –1,462 –1,367 1,724 2,024 1,665 23,727 14,143 11,034 261 9,361 2,439 –1,643 –1,233 444 2,074 1,377 24,166 14,129 11,087 263 8,507 3,297 –2,091 –1,087 1,432 2,268 1,471 23,916 14,756 12,637 266 7,078 5,796 –2,777 –3,039 1,059 2,648 3,292 34,804 15,666 13,590 283 7,130 17,214 18,438 18,691 29,467 38,408 33,857 35,461 36,979 37,870 38,295 38,672 50,470 Further Information — MULTI-YEAR REVIEW 173  D.01 2011 2012 adjusted 2013 adjusted 2014 2015 2016 2017 2018 Employees/staff costs Number of employees 2 Full-time equivalents 3 At 31 Dec. 471,654 473,626 479,690 488,824 497,745 508,036 519,544 547,459 At 31 Dec. 423,502 428,129 434,974 443,784 450,508 459,262 472,208 499,018 Average number of employees 2 467,188 472,321 478,903 484,025 492,865 498,459 513,338 534,370 Staff costs Staff cost ratio 4 Key figures revenue/income/ assets and capital structure Return on sales 5 Return on equity (ROE) before  taxes 6 Return on assets 7 Tax rate 8 Equity ratio 9 Net debt (+) / net liquidity (–) 10 Net gearing 11 Key stock data Basic earnings per share 12 Diluted earnings per share 13 Cash flow per share 12, 14 Dividend distribution Payout ratio 17 Dividend per share Dividend yield Price-to-earnings ratio 18 Price-to-cash flow ratio 19 Number of shares carrying dividend rights Year-end closing price € m % % % % % % € m % € € € € m % € % 16,730 17,770 17,776 18,189 19,640 19,592 20,072 20,825 31.7 32.0 32.4 32.1 33.2 34.2 33.2 33.8 4.6 4.8 5.2 5.2 4.1 6.1 6.2 5.1 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 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 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 26.3 8.2 15.5 25.9 1,499 13.5 1.71 1.64 2.51 19.7 6.4 16.4 29.8 1,093 8.8 1.27 1.22 2.84 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 19.3 7.1 14.0 27.5 1,938 12,303 13.1 47.0 2.24 2.15 2.72 1.69 1.66 4.71 1,030 1,027 1,270 1,409 1,419 15, 16 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 2.9 17.7 14.6 68.4 1.15 15 4.8 14.1 5.1 millions 1,209.0 1,209.0 1,209.0 1,211.2 1,208.7 1,209.1 1,225.1 1,233.8 16 € 11.88 16.60 26.50 27.05 25.96 31.24 39.75 23.91 1 As of 2017: capex relating to assets acquired. 2 Headcount including trainees. 3 Excluding trainees. 4 Staff costs/revenue. 5 EBIT/revenue. 6 Profit before income taxes/average equity (including non-controlling interests). 7 EBIT/average total assets. 8 Income taxes/profit before income taxes. 9 Equity (including non-controlling interests)/total assets. 10  (including non-controlling interests). 12 The average weighted number of shares outstanding is used for the calculation. 13 The average weighted number of shares outstanding is adjusted for the number of all potentially dilutive shares. 14 Cash flow from operating activities. 15 Proposal.  16 Estimate. 17 Excluding one-off effects, in 2015: 45.8 %, in 2018: 55.4 %. 18 Year-end closing price/basic earnings per share. 19 Year-end closing Group Management Report, page 49. 11 Net debt/net debt and equity price/cash flow per share. 174 Deutsche Post DHL Group — 2018 Annual Report GRAPHS AND TABLES 01 Selected key figures I Report on economic position A.30 Forecast / actual comparison 37 37 Non­financial key performance indicators A.65 Selected results from the Employee A.31 Global economy: growth indicators, 2018 38 A.32 Trade volumes: compound annual growth rate, 2017 to 2018 A.33 Selected indicators for results of operations 39 40 A.34 Changes in revenue, other operating income and operating expenses, 2018 41 A.35 Total dividend and dividend per no-par  value share A.36 EBIT after asset charge (EAC) A.37 Net asset base (consolidated) A.38 Selected cash flow indicators A.39 Finance strategy A.40 FFO to debt A.41 Agency ratings A.42 Financial liabilities 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 Balance sheet structure of the Group as at 31 December A.49 Key figures of the Post - eCommerce - Parcel division A.50 Post: revenue A.51 Post: volumes A.52 eCommerce - Parcel: revenue A.53 Parcel Germany: volumes A.54 Key figures of the Express division A.55 Express: revenue by product A.56 Express: volumes by product A.57 Key figures of the Global Forwarding, Freight division A.58 Global Forwarding: revenue A.59 Global Forwarding: volumes 42 42 42 43 43 44 45 46 46 46 47 48 49 49 50 50 51 51 51 52 52 52 53 54 54 57 57 57 58 59 59 62 62 63 63 66 66 66 Opinion Survey A.66 Number of employees A.67 Workplace accidents A.68 CO2e emissions, 2018 A.69 Fuel and energy consumption in  company fleet and buildings A.70 Brand architecture as at 31 December 2018 A.71 Marketing expenditures, 2018 Expected developments A.72 Global economy: growth forecast Opportunities and risks A.73 Monte Carlo simulation A.74 Opportunity and risk management process A.75 Classification of risks and opportunities 68 B CORPORATE GOVERNANCE B.01 Members of the Supervisory Board B.02 Committees of the Supervisory Board 77 78 B.03 Mandates held by the Supervisory Board 79 B.04 Members of the Board of Management 82 B.05 Mandates held by the Board of Management B.06 Attendance at plenary and committee meetings 82 84 C CONSOLIDATED FINANCIAL STATEMENTS Income statement C.01 88 A.60 Key figures of the Supply Chain division 55 C.02 Statement of comprehensive income A.61 Supply Chain: revenue by sector and region, 2018 Deutsche Post shares A.62 Deutsche Post shares: seven-year overview A.63 Shareholder structure A.64 Shareholder structure by region 55 56 56 56 56 C.03 Balance sheet C.04 Cash flow statement C.05 Statement of changes in equity D FURTHER INFORMATION D.01 Key figures, 2011 to 2018 89 90 91 92 172 A GROUP MANAGEMENT REPORT General information A.01 Organisational structure as at 31 December 2018 A.02 Market volumes A.03 Nationwide transport and delivery network in Germany, 2018 A.04 German mail communication market, business customers, 2018 A.05 German advertising market, 2018 A.06 International mail market (outbound), 2018 A.07 German parcel market, 2018 A.08 Available capacity A.09 Air freight market, 2017: top 4 A.10 Ocean freight market, 2017: top 4 A.11 European road transport market, 2017: top 5 A.12 Automation and digitalisation of the supply chain A.13 Contract logistics market, 2017: top 10 A.14 The Group strategy’s bottom lines A.15 Calculations A.16 Terms of variable remuneration in  target  remuneration A.17 Remuneration components A.18 Performance criteria for the annual bonus A.19 SAR target achievement A.20 Long-Term Incentive Plan: number of SAR s granted 12 12 13 14 14 15 15 15 16 17 17 17 18 18 19 22 25 26 26 27 28 A.21 Mechanism of stock appreciation rights 28 A.22 Function of the contribution-based pension plan A.23 Example illustration of the included remuneration components 29 29 A.24 Remuneration granted in accordance with the German Corporate Governance Code 31 A.25 Remuneration paid in accordance with the German Corporate Governance Code 33 A.26 Remuneration in accordance with the HGB (DRS 17) A.27 Contribution-based pension commitments: individual breakdown A.28 Final-salary-based legacy pension commitments: individual breakdown A.29 Remuneration paid to Supervisory Board members 34 35 35 36 Further Information — GRAPHS AND TABLES — INDEX 175 INDEX A Air freight 13, 17, 39, 54, 64 Annual General Meeting 23 f., 42, 65, 74 ff., 83, 85 f., 127 f., 130, 160, 170 Articles of Association 23 f., 35 Auditor’s report 76, 166 ff. Authorised capital 24, 127 B Balance sheet 21 f., 26, 42, 45 ff., 48 f., 67, 70, 90, 93, 96 ff., 110 ff., 120 ff., 130 f., 133 ff., 138 ff., 143 ff., 149 ff., 156 ff., 162, 165, 172 Balance sheet structure 49 Board of Management 12 f., 15, 23 ff., 37, 40, 42, 66 ff., 74 ff., 80 ff., 93, 96, 112 f., 121, 127 f., 130, 132, 143, 159 f., 162 f., 165 Board of Management remuneration 25 ff., 74, 86, 163 ff. Bonds 24, 38 f., 43, 45 f., 92, 98, 104, 108, 118 f., 135, 138 f., 141, 152 Brands 12, 19, 62, 93 f., 102, 112, 120 Brexit 4, 63, 69, 110 C Capital expenditure 37, 46 f., 65, 111 ff., 151, 172 Capital increase 24, 48, 127 ff. Cash flow statement 21, 47 f., 91, 93, 131, 141 f., 172 Change of control 24, 30 Consolidated net profit 40, 42, 48, 88 f., 91 f., 113, 188 f., 172 Consolidated revenue 21 f., 37, 41, 44, 69, 88, 94 f., 98, 101, 111 ff., 131, 172 Contingent capital 127 f. Contract logistics 13, 18, 61, 64 Corporate governance 24 f., 27, 30, 36, 76, 83 ff., 165 Corporate incubations 12, 40, 46, 74, 76, 112 f., 121 Cost of capital 21 f., 121 Credit lines 45, 143 Credit rating 43, 45, 65 f., 70, 147 D Declaration of conformity 74, 76, 83, 165 Dialogue marketing 14 f., 50 f., 112 Dividend 21 f., 37, 40, 42 f., 48, 56, 65, 74, 76, 91 f., 104 f., 119, 130 f., 139, 156, 160, 173 E Earnings per share 40, 42, 56, 88, 119, 173 EBIT after asset charge 21 f., 26 f., 30, 37, 40, 42 f., 63, 65 eCommerce - Parcel 12, 15, 50 f., 57, 112, 114 eCommerce Solutions 13, 63 ff., 71, 76, 165 Employee Opinion Survey 19, 23, 27, 37, 57, 65, 75 Equity ratio 48 f., 129, 173 Express 12 f., 16, 19 f., 37, 45 ff., 52 f., 57, 61 f., 64 f., 71, 74, 76, 93, 95 f., 98, 101, 111 f., 114, 117, 121, 123, 126 ff., 158, 165, 172 P Parcel Germany 51 Post - eCommerce - Parcel 12 ff., 20, 37, 40 f., 45 ff., 50 f., 57 f., 62, 69, 74 f., 96, 112, 116 f., 121, 165, 172 Post & Paket Deutschland 13, 37, 63, 65, 69, 71, 165 Press products 112 Price-to-earnings ratio 56, 173 Profit from operating activities 21 f., 37, 40 ff., 47, 50 ff., 63 ff., 88, 91, 111 ff., 172 Q Quality 19 f., 60 f., 70 ff. R Rating 43, 45, 65 f., 70, 135, 147 Regulation 12, 39, 65, 69, 157 f. Responsibility statement 165 Retail outlets 14, 60 Return on sales 20, 40, 50 ff., 173 Revenue 18, 20 ff., 37, 40 f., 44, 50 ff., 65, 69, 88, 94 f., 98, 101, 111 ff., 126, 131, 157, 162, 172 f. Road transport 13, 17, 53 f., 59, 64, 113 S Segment reporting 42, 103, 111 ff. Share buy-back 24, 43, 56, 128 f. Share capital 23 f., 127 f., 161, 163 Share price 26 ff., 39, 56, 107, 118, 139, 158 ff., 162 Shareholder structure 56 Staff costs 21 f., 41, 58, 88, 107, 113, 116, 136, 142, 158, 160, 162, 173 Strategy 19 f., 25 ff., 71, 74 f., 83 ff. StreetScooter 40, 47, 60, 74, 112, 115 Supervisory Board 13, 23 ff., 27 f., 34 ff., 42, 67, 74 ff., 77 ff., 83 ff., 127 f., 162 f., 165 Supervisory Board committees 36, 74 ff., 78, 84 f. Supervisory Board remuneration 25, 35 f., 163 Suppliers 45, 69, 83 Supply Chain 12, 18, 20, 37, 40, 46 ff., 55, 57, 62 ff., 70 f., 74, 94 ff., 101, 111, 113 f., 116 ff., 120 ff., 124, 126 f., 172 T Tax rate 173 Training 19 f., 57, 84, 86, 117 W WACC 21 f., 121 Working capital 21 f., 42, 47 f., 121, 142 F Finance strategy 42 f., 65, 71, 132 First Choice 12, 19, 72 Free cash flow 21 f., 26 f., 37, 40, 47 f., 63, 65, 102, 121, 142, 172 Free float 56, 127 Freight 12 f., 17, 20, 53 f., 61, 64, 113 f., 121, 126 Freight forwarding business 17, 53 f., 64 G Global Business Services 12, 82, 113 Global economy 38, 63 f., 68 f. Global Forwarding 12, 16, 20, 47, 53 f., 61, 113 f., 121, 130 Global Forwarding, Freight 12 f., 17, 20, 37, 46 f., 53 f., 57, 61 f., 64, 71, 94, 98, 111, 113 f., 117, 121, 172 Global trade 38 f., 63 f., 121 GoGreen 23 Guarantees 43, 45, 157 I IFRSs 16 37, 40 ff., 44, 48 f., 96 ff., 111 f., 115 f., 118, 121 f., 125, 129, 140, 142, 157 Illness rate 58 Income statement 88, 93, 98, 101, 103 ff., 110, 113 ff., 131, 133, 145 f., 155 f. Income taxes 41, 88 f., 91, 100, 109, 113, 118 ff., 131, 173 Internal control system 67 f. Investments 21 f., 23, 37 f., 40, 42, 46 f., 47, 51, 65, 84, 90 f., 91, 94 ff., 100, 101, 103 f., 104 f., 110, 111, 118, 121, 124, 133, 136, 142, 152, 154, 157, 161 ff., 172 L Letters of comfort 43, 45 Liquidity management 44, 70, 143 ff. M Mail communication 13 f., 50 f., 64 Mandates 79, 82, 84 Market shares 13 ff. N Net debt 48 f., 70, 129, 173 Net gearing 48 f., 129, 173 Net interest cover 48 f. Net working capital 21 f., 42, 121 O Ocean freight 13, 17, 39, 53 f., 59, 64 Oil price 38, 52, 63, 115 Operating cash flow 22, 43 f., 47, 50, 52 f., 55, 69, 91, 131, 142, 172 Opportunities and risk management 66 f. Outlook 37, 40, 45, 63 ff., 68 ff. 176 Deutsche Post DHL Group — 2018 Annual Report GLOSSARY Dialogue marketing Market-orientated activities that apply direct communications to selectively reach target groups using a personal, individualised approach. Ex­ante 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 × 30cm). 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. 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 logistics-related 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 long-term contracts. Medical Express The transport of time-critical or temperature-crit- ical 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. DHL Customer Solutions & Innovation (CSI) DHL’s cross-divisional commercial and innovation unit. Time Definite Delivery of time-critical shipments by a pre- selected time. 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. Third Party Logistics Provider (3PL) Logistics provider, which performs logistics operations (e.g., warehousing, transport management) on behalf of its customers. Transported Asset Protection Association (TAPA) A forum that unites manufacturers, logistics providers, freight carriers, law enforcement authorities and other stakeholders with the common aim of reducing losses from international supply chains. Twenty­foot equivalent unit (TEU) Standardised container unit, 20 feet long and 8 feet wide (6 × 2.4 metres). This Annual Report contains forward-looking statements that relate to the business, financial performance and results of operations of Deutsche Post AG. Forward-looking 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 forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as at the date of this presentation. Deutsche Post AG does not intend or assume any obligation to update these forward-looking statements to reflect events or circumstances after the date of this Annual Report. Further Information — GLOSSARY — CONTACTS — ONLINE VERSION — ORDERING 177 CONTACTS Investor Relations Tel.: + 49 (0) 228 182-6 36 36 Fax: + 49 (0) 228 182-6 31 99 E-mail: ir @ dpdhl.com Press Office Tel.: + 49 (0) 228 182-99 44 Fax: + 49 (0) 228 182-98 80 E-mail: pressestelle @ dpdhl.com ORDERING External E-mail: ir @ dpdhl.com  dpdhl.com/en/investors Internal GeT and DHL Webshop Mat. no. 675-602-579 Published on 7 March 2019. The English version of the 2018 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. ONLINE VERSION An online extract and a complete PDF file are available on the internet:  annualreport2018.dpdhl.com Printed on Envirotop, recycled paper produced from 100 % recovered fibre, which is manufactured climate neutrally and is, amongst other things, FSC certified, has Nordic Ecolabel 244 053 and complies with the EU Ecolabel AT/11/002 guidelines. 178 Deutsche Post DHL Group — 2018 Annual Report FINANCIAL CALENDAR 2019 INTERIM REPORT AS AT 31 MARCH 2019   2019 ANNUAL GENERAL MEETING   DIVIDEND PAYMENT   INTERIM REPORT AS AT 30 JUNE 2019   INTERIM REPORT AS AT 30 SEPTEMBER 2019   2020 2019 ANNUAL REPORT   INTERIM REPORT AS AT 31 MARCH 2020   2020 ANNUAL GENERAL MEETING   DIVIDEND PAYMENT   INTERIM REPORT AS AT 30 JUNE 2020  INTERIM REPORT AS AT 30 SEPTEMBER 2020  Further dates, updates as well as information on live webcasts:  dpdhl.com/en/investors  10 MAY 2019  15 MAY 2019  20 MAY 2019  6 AUGUST 2019  12 NOVEMBER 2019  10 MARCH 2020  12 MAY 2020  13 MAY 2020  18 MAY 2020  5 AUGUST 2020  10 NOVEMBER 2020 Deutsche Post AG Headquarters Investor Relations 53250 Bonn Germany dpdhl.com 

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