RESILIENT 2020 Annual Report Key figures Financial figures Revenue Profit from operating activities (EBIT) Return on sales 1 EBIT after asset charge (EAC) Consolidated net profit for the period 2 Net cash from operating activities Free cash flow Capex 3 Equity ratio 4 Net debt 5 Net gearing 6 Stock data Basic earnings per share 7 Diluted earnings per share 8 Cash flow per share 7, 9 Dividend per share Dividend distribution Number of shares as at 31 December Year-end closing price ESG figures CO2e efficiency index (CEX) CO2e emissions 12 Energy consumption, fleet 12 Energy consumption, buildings and facilities (including electric vehicles) Employee Opinion Survey, approval rating for Employee Engagement KPI Number of employees 13 Staff costs Share of women in management 14 Accident rate (number of accidents per 200,000 hours worked) € m € m % € m € m € m € m € m % € m % € € € € € m millions € index points million tonnes million kWh million kWh % € m % 2016 2017 2018 2019 2020 57,334 3,491 6.1 1,963 2,639 2,439 444 2,074 29.6 2,261 16.6 2.19 2.10 2.03 1.05 1,270 1,240.9 31.24 30 26.86 20,798 3,039 75 508,036 19,592 21.1 4.0 60,444 3,741 6.2 2,175 2,713 3,297 1,432 2,268 33.4 1,938 13.1 2.24 2.15 2.72 1.15 1,409 1,228.7 39.75 32 28.86 21,733 3,194 75 519,544 20,072 21.5 4.4 61,550 3,162 5.1 716 2,075 5,796 1,059 2,648 27.5 12,303 47.0 1.69 1.66 4.71 1.15 1,419 1,236.5 23.91 33 29.46 23,243 3,194 76 547,459 20,825 22.1 4.3 63,341 4,128 6.5 1,509 2,623 6,049 867 3,617 27.6 13,367 48.2 2.13 2.09 4.90 1.15 1,422 1,236.5 34.01 35 27.42 23,100 3,099 77 546,924 21,610 22.2 4.2 66,806 4,847 7.3 2,199 2,979 7,699 2,535 2,999 25.5 12,928 47.9 2.41 2.36 6.22 1.35 10 1,673 10, 11 1,239.1 40.50 37 27.38 24,294 3,089 82 571,974 22,234 23.2 3.9 1 EBIT / revenue. 2 After deduction of non-controlling interests. 3 As of 2017: capex relating to assets acquired. 4 Equity (including non-controlling interests) / total equity and liabilities. 5 Calculation Combined Management Report. 6 Net debt / net debt and equity (including non-controlling interests). 7 The average weighted number of shares outstanding is used for the calculation. 8 The average weighted number of shares outstanding is adjusted for the number of all potentially dilutive shares. 9 Cash flow from operating activities. 10 Proposal. 11 Estimate. 12 Adjusted for 2019. 13 Headcount at the end of the year, including trainees. 14 Upper and middle management. CONTENTS 3 CONTENTS 4 EDITORIAL 6 BOARDS AND COMMITTEES 6 Members of and mandates held by the Board of Management 7 Members of and mandates held by the Supervisory Board 9 REPORT OF THE SUPERVISORY BOARD 13 REPORTING PRACTICE 14 COMBINED MANAGEMENT REPORT 14 GENERAL INFORMATION 14 Business model 23 Strategy 25 Management 27 Research and development 27 REPORT ON ECONOMIC POSITION 27 Overall assessment 27 Forecast/actual comparison 28 Economic parameters 29 Significant events 29 Results of operations 32 Financial position 37 Net assets 38 Divisions DEUTSCHE POST AG (HGB) Deutsche Post AG as parent company 45 45 45 Employees 45 Results of operations 46 Net assets and financial position 47 Expected developments, opportunities and risks 100 CONSOLIDATED FINANCIAL STATEMENTS 100 INCOME STATEMENT 100 STATEMENT OF COMPREHENSIVE INCOME 48 NON-FINANCIAL STATEMENT 49 Environment 51 Society 52 Employees 56 Compliance 58 EXPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 58 Forecast period 58 Future economic parameters 59 Expected developments 60 Opportunity and risk management 63 Opportunity and risk categories 69 Overall assessment 70 GOVERNANCE 70 Annual Corporate Governance Statement 75 Disclosures required by takeover law 77 Remuneration 101 BALANCE SHEET 102 CASH FLOW STATEMENT 104 STATEMENT OF CHANGES IN EQUITY 106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG Income statement disclosures 106 Basis of preparation 120 Segment reporting 123 129 Balance sheet disclosures 149 Lease disclosures 150 Cash flow disclosures 151 Other disclosures 170 RESPONSIBILITY STATEMENT 170 INDEPENDENT AUDITOR’S REPORT 175 INDEPENDENT PRACTITIONER’S REPORT 177 FINANCIAL CALENDAR 177 CONTACTS Deutsche Post DHL Group – 2020 Annual Report EDITORIAL 4 We have shown that we are robust and that we are essential to trade and the global flow of goods. Frank Appel Dear Readers, 2020 was an extraordinarily challenging year, which we managed to conclude very successfully in the end. Against the backdrop of the COVID-19 pandemic, we have shown that we are robust and that we are essen- tial to trade and the global flow of goods. The pandemic presented new challenges every day, which we mastered by working together across our business units: We adjusted routes and processes, increased resources and repeatedly rescheduled supply chains. That enabled us to keep global trade flowing, safeguard industry supply chains and handle the enormous parcel volume. At the same time, we have taken extensive protective measures to maximise the safety of our employees and customers. Group EBIT was €4.8 billion, marking the best year in our company’s history. Adjusted for non-recurring effects this figure reached more than €5.4 billion. These results underline the resilience of our business model. We have taken extensive measures to protect our employees and customers. We have proven that we deliver reliably, even in a turbulent market environment. We are able to respond to changing cir- Deutsche Post DHL Group – 2020 Annual Report EDITORIAL 5 cumstances with agility and, through the interaction of our divisions, master even the most difficult logistics challenges. Our growth drivers remain fully intact and have even strength- ened – especially the global boom in e-commerce. We con- tinue to grow even without economic tailwinds. The crisis has revealed the true strength of Deutsche Post DHL Group. The crisis has revealed our true strength. Our resilience is the result of the disciplined and consist- ent execution of our Group strategy in recent years. Focus- sing on our profitable core logistics business has proven successful and, along with a systematic positioning on e-commerce, increased our profitability. Furthermore, con- tinuous investment in our logistics network and in digital transformation has made us more agile in the face of global economic turmoil. Deutsche Post DHL Group is therefore very well positioned for future profitable growth. As one of several logistics providers currently delivering COVID-19 vaccines, we are making a vital contribution to society in keeping with our purpose of connecting people, improving lives. principles for our corporate actions. We want to use our global network and capabilities to contribute to a better world for us all. This is the core of our understanding of sustainability. Sustainability is a cornerstone of our Strategy 2025 – De- livering excellence in a digital world. As a signatory to the UN Global Compact and a supporter of the United Nation’s Sustainable Development Goals, we have integrated these objectives into our strategy. We want to contribute to a better world for us all. Over the course of 2020, we updated our ESG roadmap in order to lay the foundation for our future success. In the first quarter of 2021, we will announce an update to the measures with which we as a company want to achieve a targeted contribution to overcoming the long-term challenges in the environmental, social and governance dimensions. We also set milestones to focus our efforts and monitor our progress. These transparent, time-bound targets and KPIs will keep us on track and be pursued as rigorously as our financial targets. The most important challenges of our time shall never fade into the background, they always have to form the guiding Sincerely yours, Frank Appel Chief Executive Officer Deutsche Post DHL Group – 2020 Annual Report BOARDS AND C OMMITTEES 6 BOARDS AND COMMITTEES Members of and mandates held by the Board of Management Members Mandates Memberships on comparable bodies Ken Allen Blue Dart Express Ltd.1, India (Board of Directors) Dr Frank Appel Chief Executive Officer Global Business Services Born in 1961, nationality German Board member since November 2002 CEO since February 2008 Appointed until October 2022 Ken Allen eCommerce Solutions Born in 1955, nationality British Board member since February 2009 Appointed until July 2022 Oscar de Bok Supply Chain Born in 1967, nationality Dutch Board member since October 2019 Appointed until September 2022 Melanie Kreis Finance Born in 1971, nationality German Board member since October 2014 Appointed until June 2022 Dr Tobias Meyer Post & Parcel Germany Born in 1975, nationality German Board member since April 2019 Appointed until March 2022 Dr Thomas Ogilvie Human Resources, Corporate Incubations Born in 1976, nationality German Board member since September 2017 Appointed until August 2025 John Pearson Express Born in 1963, nationality British Board member since January 2019 Appointed until December 2026 Tim Scharwath Global Forwarding, Freight Born in 1965, nationality German Board member since June 2017 Appointed until May 2025 You can find more information on our Website. 1 Group mandate. Deutsche Post DHL Group – 2020 Annual Report BOARDS AND C OMMITTEES 7 Members of and mandates held by the Supervisory Board Members Shareholder representatives Dr Nikolaus von Bomhard (Chair) Chair of the Supervisory Board and former Chair of the Board of Management, Münchener Rückversicherungs-Gesellschaft AG (Munich Re) Roland Oetker (until 27 August 2020) Managing partner, ROI Verwaltungsgesellschaft mbH Lawrence Rosen (since 27 August 2020) Gabriele Gülzau Chair of the Works Council, Deutsche Post AG, Mail Branch, Hamburg Thomas Held Chair of the Central Works Council, Deutsche Post AG Dr Günther Bräunig CEO of KfW Bankengruppe Member of various supervisory boards, former member of the Board of Management of Deutsche Post AG Mario Jacubasch Deputy Chair of the Group Works Council, Deutsche Post AG Dr Mario Daberkow Member of the Managing Board of Volkswagen Financial Services AG Dr Stefan Schulte Chair of the Executive Board of Fraport AG Thomas Koczelnik Chair of the Group Works Council, Deutsche Post AG Ingrid Deltenre Member of various boards of directors, former Director General of the European Broadcasting Union Werner Gatzer (until 12 February 2020) State Secretary, Federal Ministry of Finance Dr Heinrich Hiesinger Member of various supervisory boards, former Chair of the Board of Management, thyssenkrupp AG Dr Jörg Kukies (since 16 April 2020) State Secretary, Federal Ministry of Finance Simone Menne Member of various supervisory boards, former member of the Board of Managing Directors, Boehringer Ingelheim GmbH Prof. Dr-Ing. Katja Windt Member of the Managing Board of SMS group GmbH Thorsten Kühn (since 28 August 2020) Employee representatives Andrea Kocsis (Deputy Chair) Deputy Chair of ver.di National Executive Board and Head of Postal Services, Forwarding Companies and Logistics Department on the ver.di National Executive Board Rolf Bauermeister (until 15 July 2020) Trade Union Secretary, ver.di National Administration Jörg von Dosky Chair of the Group and Company Executive Representation Committee, Deutsche Post AG Head of Postal Services, Co-determination and Youth, and Head of National Postal Services Group at ver.di National Administration Ulrike Lennartz-Pipenbacher Deputy Chair 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 Deutsche Post DHL Group – 2020 Annual Report BOARDS AND C OMMITTEES 8 Mandates Shareholder representatives Memberships of comparable bodies Memberships of statutory supervisory boards Dr Nikolaus von Bomhard (Chair) Münchener Rückversicherungs- Gesellschaft AG (Munich Re) (Chair) Dr Günther Bräunig Deutsche Pfandbriefbank AG (Chair) Deutsche Telekom AG Werner Gatzer (until 12 February 2020) Flughafen Berlin Brandenburg GmbH PD-Berater der öffentlichen Hand GmbH (Chair) Dr Heinrich Hiesinger BMW AG Fresenius Management SE (since 1 July 2020) ZF Friedrichshafen AG (since 1 January 2021) Dr Jörg Kukies (since 16 April 2020) KfW IPEX-Bank GmbH 1 Simone Menne BMW AG Springer Nature KGaA ( until 20 February 2020) Henkel AG & Co. KGaA (since 17 June 2020) Lawrence Rosen (since 27 August 2020) Lanxess AG Lanxess Deutschland GmbH 2 Prof. Dr-Ing. Katja Windt Fraport AG Dr Nikolaus von Bomhard (Chair) Athora Holding Ltd., Bermuda (Board of Directors, Chair) Dr Mario Daberkow Softbridge-Projectos Tecnológicos S. A., Portugal (Board of Directors) 3 Volkswagen Participações Ltda., Brazil (Supervisory Board) 3 Volkswagen Holding Financière S. A., France (Supervisory Board) 3 Volkswagen Payments S. A., Luxembourg (Supervisory Board, Chair) 3 Volkswagen S. A., Institución de Banca Múltiple, Mexico ( Supervisory Board) 3 VW Credit, Inc., USA (Board of Directors) 3 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) (until 9 November 2020) Akara Funds AG, Switzerland (Board of Directors) (since 31 August 2020) Dr Jörg Kukies (since 16 April 2020) KfW Bankengruppe (Deputy member of the Board of Directors) Simone Menne Johnson Controls International plc, Ireland (Board of Directors) Russell Reynolds Associates Inc., USA (Board of Directors) Roland Oetker (until 27 August 2020) Rheinisch-Bergische Verlagsgesellschaft mbH (Supervisory Board) (until 31 March 2020) 1 Group mandate, KfW Bankengruppe. 2 Group mandate, Lanxess AG. 3 Group mandates, Volkswagen AG. 4 Group mandates, Fraport AG. You can find more information on our Website. Lawrence Rosen (since 27 August 2020) Qiagen N. V., Netherlands (Supervisory Board, Chair) Dr Stefan Schulte Fraport Ausbau Süd GmbH (Supervisory Board, Chair) 4 Fraport Regional Airports of Greece A S. A., Greece (Board of Directors, Chair) 4 Fraport Regional Airports of Greece B S. A., Greece (Board of Directors, Chair) 4 Fraport Regional Airports of Greece Management Company S. A., Greece (Board of Directors, Chair) 4 Fraport Brasil S. A. Aeroporto de Porto Alegre, Brazil (Supervisory Board, Chair) 4 Fraport Brasil S. A. Aeroporto de Fortaleza, Brazil (Supervisory Board, Chair) 4 Employee representatives Memberships of statutory supervisory boards Jörg von Dosky PSD Bank München eG Stephan Teuscher DHL Hub Leipzig GmbH (Deputy Chair) Deutsche Post DHL Group – 2020 Annual Report REPORT OF THE SUPERVISORY BOARD 9 REPORT OF THE SUPERVISORY BOARD Dear Shareholders, Deutsche Post DHL Group, the world’s leading logistics company, continued its growth trajectory in 2020, even in an economic environment shaped by the COVID-19 pandemic. Thanks to our broad portfolio of logistics ser- vices, our global reach and the tireless commitment of our around 570,000 employees worldwide, the Group ensured the delivery of services to the public and kept important supply chains running for industry, even in extremely chal- lenging times. Despite the extraordinary circumstances in the year under review, the Board of Management and Supervisory Board again worked together constructively in an atmos- phere of trust and successfully led the company through the crisis triggered by COVID-19. From the start of the pandemic, the Board of Management kept the Supervisory Board abreast of current developments and precautions taken. The Supervisory Board regularly discussed the de- tails of business performance in the divisions with the Board of Management to ensure that operations were running smoothly whilst protecting the health of our employees. Along with the Board of Management, the Supervisory Board decided to hold the 2020 Annual General Meeting virtually and, thanks to the positive business situation in summer, to pay a dividend equal to that of the prior year. The Supervisory Board prepared for the pending change in auditor in the 2023 financial year and resolved to propose Deloitte GmbH Wirtschaftsprüfungsgesellschaft to the Annual General Meeting as auditor of the company’s annual and consolidated financial statements. We deliber- ated on the system for remunerating the Board of Manage- ment in several meetings and will present the remunera- tion system with some modifications to the 2021 Annual Attendance at plenary and committee meetings General Meeting for approval. In future, we will continue to comply with all of the suggestions and recommendations in the new German Corporate Governance Code and therefore issued an unqualified Declaration of Conformity along with the Board of Management. Moreover, we regularly con- sidered issues related to maintaining our competitiveness in the committees and the plenary meetings. Supervisory Board meetings Committee meetings Supervisory Board member Dr Nikolaus von Bomhard (Chair) Andrea Kocsis (Deputy Chair) Rolf Bauermeister (until 15 July 2020) Dr Günther Bräunig Dr Mario Daberkow Ingrid Deltenre Jörg von Dosky Werner Gatzer (until 12 February 2020) Gabriele Gülzau Thomas Held Dr Heinrich Hiesinger Mario Jacubasch Thomas Koczelnik Thorsten Kühn (since 28 August 2020) Dr Jörg Kukies (since 16 April 2020) Ulrike Lennartz-Pipenbacher Simone Menne Roland Oetker (until 27 August 2020) Lawrence Rosen (since 27 August 2020) Dr Stefan Schulte Stephan Teuscher Stefanie Weckesser Prof. Dr-Ing. Katja Windt Number 6 / 6 6 / 6 4 / 4 6 / 6 6 / 6 6 / 6 6 / 6 – 6 / 6 6 / 6 6 / 6 6 / 6 6 / 6 2 / 2 5 / 5 6 / 6 6 / 6 4 / 4 2 / 2 6 / 6 6 / 6 6 / 6 6 / 6 Attendance % 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Number 15 / 15 13 / 13 5 / 5 5 / 5 – 8 / 8 – – – 4 / 4 2 / 2 – 19 / 19 2 / 2 11 / 12 – 10 / 10 5 / 5 – 10 / 10 12 / 12 10 / 10 – Attendance % 100 100 100 100 – 100 – – – 100 100 – 100 100 92 – 100 100 – 100 100 100 – Deutsche Post DHL Group – 2020 Annual Report REPORT OF THE SUPERVISORY BOARD 10 The regular discussions I had with Board of Manage- ment Chair Frank Appel as well as those between Finance and Audit Committee Chair Stefan Schulte and Chief Finan- cial Officer Melanie Kreis were a springboard for thorough deliberations on current issues in the committees and plenary meetings. Members of the Supervisory Board participated in these in-depth discussions and in passing resolutions. The meeting attendance rate in the year under review was – with one exception – 100 %. Six plenary Supervisory Board meetings and 25 com- mittee meetings in total were held in the reporting year. The members of the Board of Management participated in plenary meetings and reported on the business per- formance in the divisions for which they are responsible. The Supervisory Board dealt with certain agenda items without the participation of the Board of Management members, except for the presence of the Chair of the Board of Management. In its September meeting, the Super visory Board also met without the Board of Man- agement present. The Chair and the members of the Board of Management with responsibility for the relevant areas attended the committee meetings. Executives from the tier immediately below the Board of Management and rep- resentatives of the auditors were also invited to attend for individual agenda items. I held talks with investors regard- ing issues that are the Supervisory Board’s responsibility. We will consider the substance of these discussions in our work going forward. Key topics addressed in plenary meetings In our March 2020 meeting, we discussed the annual and consolidated financial statements, including the combined management report and the separate combined non-finan- cial report. Following the report by the auditor regarding the findings of the audit, we approved the financial statements at the recommendation of the Finance and Audit Commit- tee. We concurred with the Board of Management’s pro- posed resolution on the appropriation of the net retained profit. Based upon the results of the audit, no objections were raised regarding the non-financial report. We deter- mined the annual bonus for active Board of Management members based upon the degree of target achievement and cor responding recommendations by the Strategy and Executive Committees. The proposed resolutions for the 2020 Annual General Meeting, including the dividend pro- posal, were also approved at this meeting. In addition, we considered the options for StreetScooter and approved the realignment resolved by the Board of Management. In May, our intensive discussions revolved around the effects of the COVID-19 pandemic on the health of employ- ees and the course of business. Our Strategy 2025 proved viable. Despite the exceptional situation, solid results were delivered in the first quarter. The meeting in June was focused mainly on the gen- eral performance of our business during the pandemic, implementation of the digital transformation strategy in the Supply Chain division and the remuneration system for Board of Management members. In July, we discussed the preliminary half-year figures, the forecasts for 2020 and 2022, and the adjusted proposal on the appropriation of available net earnings. The September meeting concentrated primarily on strategic issues. At the last Supervisory Board meeting of the year in December, we approved the Group’s business plan for 2021 and the targets for variable remuneration of the Board of Management for the 2021 financial year, approved modifications to the remuneration system for Board of Management members and again issued an unquali- fied Declaration of Conformity along with the Board of Management. We additionally agreed to propose to the Annual General Meeting the election of Deloitte GmbH Wirtschaftsprüfungsgesellschaft as the auditor for the 2023 financial year. Our annual Directors’ Day was held on the day prior to the meeting. The head of accounting presented detailed information on the company’s current financial position and was available to answer questions and provide explanations. Specific support was provided to the most recently elected members of the Supervisory Board by the company in the form of on-boarding sessions held with the Chair and other members of the Board of Management; additional measures included the provision of informational materials, access to a digital data room specially designed for the Supervisory Board and the offer of reimbursement for the cost of attending selected exter- nal training events and subscribing to industry publications. In addition, to the extent permitted by the coronavirus Deutsche Post DHL Group – 2020 Annual Report REPORT OF THE SUPERVISORY BOARD 11 restrictions, regular guided walk-throughs at operating units of the company were held in conjunction with Super- visory Board meetings with the participation of members of the Board of Management. These provided Supervisory Board members with an in-depth look at operational work- flows and conditions on the ground. Key topics addressed in committee meetings The six committees of the Supervisory Board prepare the decisions to be taken in the plenary meetings. They have also been tasked with taking the final decisions regarding 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. The composi- tion of the committees is outlined in the Annual Corporate Governance Statement. The Executive Committee met four times and dealt mainly with Board of Management issues, particularly re- viewing the remuneration system, and preparatory work for Supervisory Board meetings. The Personnel Committee also held four meetings. Items discussed focussed upon keeping employees safe during the pandemic, promoting women to executive pos- itions, HR processes and services, leadership and culture, and talents and skills. The Finance and Audit Committee met ten times. It examined the financial statements and the combined management report for the company and the Group. The committee also discussed the half-yearly financial report following the review by the auditor and the quarterly finan- cial statements with the Board of Management and the auditor prior to publication. In addition, it issued the audit engagement for the auditors elected by the Annual General Meeting and specified the key audit priorities. The commit- tee also discussed the call for tenders for auditing services for the 2023 financial year on several occasions and pro- vided extensive support for this process. At the end of the year, we agreed to propose that the Annual General Meeting elect Deloitte GmbH Wirtschafts prüfungs gesellschaft as the auditor for the 2023 financial year. Also covered at the meetings were the non-audit services provided by the audi- tor, the accounting process, risk management and the find- ings of internal audits. It obtained detailed reports from the Chief Compliance Officer on compliance and on updates to the compliance organisation and compliance management. The Strategy Committee met five times, primarily ad- dressing the business units’ strategic positioning in their respective market segments and the implementation of our Strategy 2020 and Strategy 2025. Particular areas of focus included regular status updates by the divisions once again in 2020. The Nomination Committee met twice. In March, the committee recommended that the Supervisory Board propose to the Annual General Meeting that, in addition to Lawrence Rosen, Jörg Kukies, who is State Secretary in Germany’s Federal Ministry of Finance, be proposed as a candidate to the Supervisory Board for a five-year term of office. Both candidates were elected with a large majority of the Annual General Meeting. In December, the Supervisory Board recommended that Ingrid Deltenre, Katja Windt and Nikolaus von Bomhard be re-elected. The Mediation Committee did not meet in the year under review. Changes to the Supervisory Board A shareholder representative, Roland Oetker, stepped down from the company’s Supervisory Board as planned with effect from the end of the 2020 Annual General Meeting held in August. He was not available for re-election due to the age limit resolved by the Supervisory Board. The Annual General Meeting elected Lawrence Rosen as his succes- sor. Lawrence Rosen served as Deutsche Post AG’s Chief Financial Officer from 2009 to 2016. He complements the Supervisory Board skill set and, as a CFO who has worked internationally, possesses a wide range of experience and expertise in the areas of strategy, finance, accounting and financial statement auditing. Werner Gatzer stepped down in February after accepting a position as Supervisory Board member at Deutsche Bahn AG. Upon our proposal, the Annual General Meeting elected Jörg Kukies as his succes- sor. Mr Kukies is a State Secretary in Germany’s Federal Ministry of Finance. He expands the Supervisory Board skills profile with his experience and expertise in financial mar- kets, investment banking and EU policy. We therefore found suitable successors for Werner Gatzer and Roland Oetker, who, as members of key Supervisory Board committees, Deutsche Post DHL Group – 2020 Annual Report REPORT OF THE SUPERVISORY BOARD 12 lent their expert knowledge and broad business perspec- tive to advise the Board of Management for many years. After a long period of active service on the Supervisory Board, employee representative Rolf Bauermeister stepped down with effect from 15 July 2020. As at 28 August 2020, the court appointed Thorsten Kühn to replace him. An overview of current Supervisory Board members is submission of the Declaration of Conformity in Decem- ber 2019, and decided to continue to comply with all sug- gestions and recommendations in the new version dated 16 December 2019, which was published in the Federal Gazette on 20 March 2020. Further information regarding corporate governance within the company can be found in the Annual Corporate Governance Statement. provided in Boards and committees. Managing conflicts of interest Supervisory Board members do not hold positions on the governing bodies of, or provide consultancy services to, or maintain personal relationships with, the Group’s main competitors. The Supervisory Board Chair was not informed of any conflicts of interest affecting individual members during the year under review. Company in compliance with all recommendations of the German Corporate Governance Code In December, the Board of Management and the Super- visory Board issued an unqualified Declaration of Conformity pursuant to section 161 of the Aktiengesetz (AktG – German Stock Corporation Act), which was also published on the company’s website. The declarations from previous years are also available there. The company also continued to comply with all recommendations 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 2017, following 2020 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 2020, including the combined manage- ment report, and issued unqualified audit opinions. PwC also reviewed the half-yearly financial report and the non-financial statement without issuing any objections. After prior examination by the Finance and Audit Committee, the Supervisory Board in its meeting today focussed upon the annual and consolidated financial state- ments, including the Board of Management’s proposal on the appropriation of the net retained profit, the combined management report including the combined non-finan- cial statement for the 2020 financial year, and discussed these in depth with the Board of Management. The auditors reported on the results of their audit before the Finance and Audit Committee and plenary meeting and were available to answer questions. The Supervisory Board concurred with the results of the audit and approved the annual and con- solidated financial statements for the 2020 financial year, as recommended by the Finance and Audit Committee. No objections were raised on the basis of the final outcome of the examination by the Supervisory Board and the Finance and Audit Committee of the annual and consolidated financial statements, the combined management report including the combined non- financial statement, and the proposal for the appropriation of the net retained profit. The Super visory Board endorsed the Board of Management’s proposal for the appropriation of net retained profit and the payment of a dividend of €1.35 per share. We would like to thank the members of the Board of Management and the employees of the company for their steadfast and effective support in the extraordinary past financial year. Bonn, 8 March 2021 The Supervisory Board Nikolaus von Bomhard Chairman Deutsche Post DHL Group – 2020 Annual Report REPORTING PRACTICE 13 REPORTING PRACTICE This publication contains both financial and non-financial information about the results for the 2020 financial year. It was published on 9 March 2021 in German and English and is available in print. The re- port sections that are subject to publication requirements are published in the Federal Gazette (Bundesanzeiger), in due consideration of the European Single Electronic Format (ESEF). online, as a PDF or RESILIENT 2020 Annual Report RESILIENT 2020 Annual Report Financial reporting standards As a listed company, Deutsche Post AG has prepared its consolidated financial statements in accordance with sec- tion 315e Handelsgesetzbuch (HGB – German Commercial Code) in compliance with International Financial Reporting Standards (IFRS s) and the corresponding Interpretations of the International Accounting Standards Board (IASB) as adopted in the European Union. The combined management report comprises the Group Management Report of Deutsche Post DHL Group and the Management Report of Deutsche Post AG. Unless other- wise noted, the information presented refers to the Group. Any information pertaining solely to Deutsche Post AG is identified as such. Independent audit The consolidated financial statements of Deutsche Post AG and its subsidiaries and the combined management re- port for the financial year from 1 January to 31 Decem- ber 2020 were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC) in a reasonable assurance engagement, Auditor’s report. The contents of the combined non-financial statement were audited separately by PwC in a limited assurance en- gagement, Practitioner’s report. The contents of the Corporate Governance Statement pur- suant to section 289f and 315d HGB have not been audited. Forward-looking statements This Report contains forward-looking statements which are not historical facts. They also include statements con- cerning assumptions and expectations which are based upon current plans, estimates and projections, and the information available to Deutsche Post AG at the time this Report was completed. They should not be considered to be assurances of the future performance and results contained therein. Instead, they depend on a number of factors and are subject to various risks and uncertainties (particularly those described in the “Expected develop- ments, opportunities and risks” section) and are based on assumptions that may prove to be inaccurate. It is possible that actual performance and results may differ from the forward-looking statements made in this Report. Deutsche Post AG assumes no obligation beyond the statu- tory requirements to update the forward-looking state- ments made in this Report. If Deutsche Post AG updates one or more forward-looking statements, no assumption can be made that the statement(s) in question or other for- ward-looking statements will be updated regularly. Additional information Refers to information contained elsewhere in the report. Indicates a hyperlink to content available online that is not part of this report. Translation The English version of the 2020 Annual Report of Deutsche Post DHL Group constitutes a translation of the original German version. Only the German version is legally bind- ing, insofar as this does not conflict with legal provisions in other countries. Deutsche Post Corporate Language Services at al. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 14 COMBINED MANAGEMENT REPORT GENERAL INFORMATION Business model An international service portfolio Deutsche Post AG is a listed corporation domiciled in Bonn, Germany. Under its Deutsche Post and DHL brands, Organisational structure as at 31 December 2020 Deutsche Post DHL Group provides an international service portfolio consisting of letter and parcel dispatch, express delivery, freight transport, supply chain management and e-commerce solutions. The Group is organised into five op- erating divisions: Post & Parcel Germany, Express, Global Forwarding, Freight, Supply Chain, and eCommerce Solu- tions. Each of the divisions is managed by its own divisional headquarters and subdivided into functions, business units and regions for reporting purposes. The internal services that support the entire Group are consolidated in our Global Business Services unit. Group management functions are centralised in Corporate Functions. Corporate Functions Finance Board member Melanie Kreis Functions • Corporate Accounting & Controlling • Investor Relations • Corporate Finance • Corporate Audit & Security • Taxes • Divisional Finance Organisa- tions • Legal Services (including Compliance) Human Resources, Corporate Incubations Post & Parcel Germany Express Divisions Global Forwarding, Freight Board member Thomas Ogilvie Board member Tobias Meyer Board member John Pearson Board member Tim Scharwath Business units • Post Germany • Parcel Germany • International Regions • Europe • Americas • Asia Pacific • MEA (Middle East and Africa Business units • Global Forwarding • Freight Functions • Corporate HR Germany • Employee Relations, Engagement, Compensation & Benefits • Corporate People Manage- ment & Platforms • HR for Group Functions • Divisional HR Organisations Business unit • Corporate Incubations Supply Chain Board member Oscar de Bok Regions • EMEA ( Europe, Middle East and Africa) • Americas • Asia Pacific eCommerce Solutions Board member Ken Allen Regions • Americas • Europe • Asia Function • Customer Solutions & Innovation CEO, Global Business Services Board member Frank Appel Functions • Board Services • Corporate Legal • Corporate Office • Corporate Development & First Choice • Corporate Executives • Corporate Communications, Sustainability & Brands • Corporate Public Policy & Regulation Management • Global Business Services (Corporate Procurement, Corporate Real Estate, IT Services, Insurance & Risk Management etc.) Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 15 Organisational changes No material changes were made to the Group’s organisa- tional structure during the 2020 financial year. On 1 January 2021, however, the Corporate Incuba- tions board department was discontinued and Corporate Functions renamed Group Functions. A presence that spans the globe Deutsche Post DHL Group’s locations can be found in the list of shareholdings. The following table provides an over- view of market volumes in key regions. Our market shares are detailed on the following pages. Relevant market volumes 1 (2019) Air freight (m tonnes) 2 Ocean freight (m TEUs) 3 Contract logistics (€ bn) 4 International express market (€ bn) 5 Road transport (€ bn) 6 Mail communication (€ bn) 7 Advertising market (€ bn) 8 Asia Pacific Americas Middle East / Africa Europe Germany 10.4 34.6 78.3 8.0 – – – 5.1 9.2 66.7 8.2 – – – 1.5 5.9 8.1 – – – – 6.4 8.3 74.9 7.1 207 – – – – – – – 4.3 23.8 Global 23.4 58.0 227.9 – – – – 1 Regional volumes do not add up to global volumes due to rounding. 2 Data based solely on 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 on target achievement. 5 In 2016. 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 Market volume covers 25 European countries, excluding bulk and specialties transport. Source: DHL Market Intelligence Study 2020, based upon company calculations and content supplied by IHS Markit Group, copyright© IHS Global Inc., 2020. All rights reserved. 7 In 2020. Business communication only. Source: company estimates. 8 In 2020. Includes all advertising media with external distribution costs. Source: company estimates. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 16 POST & PARCEL GERMANY DIVISION Nationwide transport and delivery network in Germany, 2020 36 parcel centres Around 2,000 sales points Around 13,000 retail outlets Around 10,500 Paketshops Around 118,600 letter and parcel deliverers Around 6,650 Packstations Around 5.9 million parcels per working day 82 mail centres Around 49 million letters per working day Around 109,500 post boxes Europe’s largest postal company As Europe’s largest postal company, our workforce of some 118,600 mail couriers delivers around 49 million letters and 5.9 million parcels in Germany every working day via our nationwide transport and delivery network, as depicted in the graphic opposite. The postal service for Germany Our products and services in the mail communication segment are targeted towards both private and business customers and range from physical and hybrid letters to special products for merchandise delivery, and include additional services such as registered mail, cash on deliv- ery and insured items. In the year under review, the German market for mail communication for business customers was worth around €4.3 billion (previous year: around €4.2 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. At 62.6 % our market share remained stable compared with the prior year (62.2 %). German mail communication market, business customers, 2020 Market volume: around €4.3 billion Deutsche Post Competition Source: company estimates. 62.6 % 37.4 % Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 17 Cross-channel customer dialogue On request, our dialogue marketing unit offers end-to-end solutions to advertisers – from address services and tools for design and creation to printing, delivery and evaluation. This supports cross-channel, personalised and automated customer dialogue so that digital and physical items with inter-related content reach recipients according to a co- ordinated timetable and without any coverage waste. The advertising market in Germany reported a drop of 11.5 % in 2020 to come in at €23.8 billion. Our share of this highly fragmented market declined to 7.1 % (previous year: 7.5 %). customers can now have all items sent automatically to a Packstation or retail outlet of their choice. We support busi- ness customers in growing their online retail businesses and can cover the entire logistics chain through to returns management on request. The German parcel market continues to be subject to competition-driven structural changes. Thus, in addition to the services offered by the established pro viders, new players have also begun offering solutions, with online retailers and marketplace operators organising deliv- ery of a proportion of orders through their own delivery organisations. German advertising market 1, 2020 Market volume: €23.8 billion Competition Deutsche Post 92.9 % 7.1 % 1 Includes all advertising media with external distribution costs; the placement costs are shown as ratios. Source: company estimates. Dense parcel network further expanded We maintain a dense network of parcel acceptance and drop-off points in Germany, which we expanded even fur- ther in the reporting year with a focus on Packstations. We plan to double the number of Packstations to 12,000 by 2023 to make it even easier for customers all over Germany to send and receive parcels and to create an environ- mentally friendly parcel delivery system that puts fewer vehicles on the road. Our portfolio of recipient services allows customers to receive their parcels individually and conveniently. They can decide at short notice whether their parcels should be delivered to an alternative address, a spe- cific retail outlet or a Paketshop. Furthermore, registered Impacts of the pandemic The COVID-19 pandemic has accelerated the structural transformation already underway in the mail delivery mar- ket. As letter mail volumes containing documents continue to decline, volumes of parcels containing merchandise are growing, in some cases substantially. The dialogue marketing business was hard hit by the pandemic as businesses spent significantly less on adver- tising due to temporary retail sale closures. The parcel market, by contrast, is registering strong, pandemic-related growth driven by the shift from retail sale businesses to online sales across all merchandise cat- egories. Comprehensive measures and regulations to reduce or avoid physical contact were put in place to protect em- ployees, and these in turn had a direct impact on production processes. Shifts in inbound and outbound processing, for example, had to be adapted, as was the case in all other areas in mail and parcel centres where employees work together in close proximity. Delivery operations were sub- ject to staggered starting times. This led, on the one hand, to delays in the processing of items and, in turn, to backlogs which partly resulted in transit time delays. But on the on the other hand, they prevented the need for operational closures and more extensive restrictions. Fast and reliable delivery According to surveys conducted by Quotas, a quality re- search institute, around 89 % of all domestic letters posted in Germany during daily opening hours at our retail outlets or before final collection were delivered to their recipients the very next day in 2020. Around 98 % reached their recip- ients within two days. This puts us well above the legally required levels of 80 % (D+1) and 95 % (D+2). In the parcel business, around 80 % of items reached their recipients the next working day in the year under re- view. This figure reflects parcels collected from business customers that were delivered on the following day. These figures can be deemed very positive in light of the highly demanding operational situation caused by the pandemic. Our approximately 25,500 sales points were open for an average of 55 hours per week in the year under review, as was the case in 2019. The annual survey conducted by Kundenmonitor Deutschland, the largest consumer survey in Germany, showed a high acceptance level for our exclusively partner-operated retail outlets: 94.6 % of customers were satisfied with our quality and service (previous year: 94.5 %). In addition, customers gave our sales points an average rating of 4.39 out of 5 stars in the Deutsche Post location finder (previous year: 3.96). The fixed-location acceptance and sales network has grown to around 32,000 sites (previous year: 30,000) thanks to the expansion of our Packstation network. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 18 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 111,000 employees provide services to around 2.7 million customers. Time-definite international shipments: our core business The division’s main product is Time Definite International (TDI). Our TDI services enable delivery at predefined times, and our expertise in customs clearance keeps shipments moving as a prerequisite in ensuring fast and reliable, door-to-door service. We also provide industry-specific services to round out our TDI product. For example, our Medical Express transport solution, which is tailored specifically to customers in the Life Sciences & Health- care sector, offers various types of thermal packaging for temperature- controlled, chilled and frozen contents. Our virtual airline Our global air freight network is operated by multiple air- lines, some of which are wholly owned by the Group. The combination of our own and purchased capacities allows us to respond flexibly to fluctuating demand. The oppo- site graphic illustrates how our available freight capacity is organised and offered on the market. Most of the freight capacity is used for TDI, our main product. If any cargo space remains on our own flights, we sell it to customers in the air freight sector. The largest buyer of remaining capacity is the DHL Global Forwarding business unit. Modernising our intercontinental fleet In 2018, we contracted with Boeing to purchase 14 new 777F aircraft as part of upgrading our intercontinental fleet. By the end of 2020, ten of the new aircraft had been deliv- ered and had entered service in our network. The remaining four aircraft are scheduled for delivery over the course of 2021. We have also ordered eight additional B777 freight- ers, the first of which have a planned delivery date of 2022. Available capacity Core Express TDI core product – capacity based upon average utilisation, adjusted on a daily basis Impact of the pandemic on our global network Overall, the Express division has coped well with the CO- VID-19 pandemic, maintaining our service while giving top priority to the safety and well-being of our employees by shifting to mostly contactless delivery and by dispensing with signatures when delivering shipments processed on our B2C platform. The pandemic seriously impacted passenger airlines. Many flights were cancelled and many aeroplanes grounded, curtailing our ability to purchase freight capacity on commercial flights. In order to minimise the impact on our operations, we adapted our air freight network to allow more of our own dedicated flights and to continue serving areas for which commercial flight capacity was not availa- ble. We also took the opportunity to introduce new direct dedicated services, for example between Brussels (BRU) and Miami (MIA), East Midlands (EMA) and Los Angeles (LAX), Hong Kong (HKG) and Sydney (SYD) via Guam (GUM), and Shenzhen (SZX) to European destinations. According to Eurostat, the statistical office of the European Union, DHL was the busiest operator in Europe in most weeks of April 2020. The pandemic and pandemic-related restrictions have further accelerated online sales growth. In all regions, espe- cially in the B2B and B2C e-commerce sectors, increases in shipping volumes significantly exceeded expectations. BSA Block Space Agreement – guaranteed air cargo product ACS Air Capacity Sales, average total spare capacity that is not slated to be utilised for BSA or TDI core volumes Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 19 Reliable partner in the MEA region In the MEA (Middle East and Africa) region, the Middle East continued to suffer from the sometimes unstable political situation in 2020. We were nonetheless able to maintain our operations whilst ensuring the safety of our employ- ees. In April 2019, we launched the DHL Africa eShop as an online marketplace which connects more than 200 US and UK retailers with buyers in Africa. More than 100,000 users from 35 countries are active on the portal. Keeping our customer promise In order to keep our commitments to our customers as a global network operator, we monitor their ever-changing requirements, for example through our Insanely Customer Centric Culture programme and as part of the Net Promoter Approach. Our managers speak personally to customers in order to continuously translate criticism into improvements. At our quality control centres, we track shipments across the globe and adjust our processes dynamically. All premium products are tracked until they are delivered. We conduct regular reviews of operational safety, com- pliance with standards and quality of service at our facilities in co-operation with government authorities. Approximately 370 locations, around 100 of which are in Asia, have been certified by the Transported Asset Protection Association (TAPA), making us a leader in this area. Continuing to expand and modernise our European network In the Europe region, we are reinforcing our network by steadily expanding our infrastructure and modernising our fleet. We committed to two Airbus A321 conversions, both of which will enter service from the start of 2021. We also introduced a resource-saving “green” flight from Leipzig (LEJ) to New York (JFK), whereby various fuel-saving op- tions were identified in order to reduce CO2e emissions. In London, we launched a new delivery service via Thames River boat to reduce inner city traffic. Improving operating infrastructure in the Americas region We continue to make major investments in operating in- frastructure, for example in our new hub in Toronto, and we are investing in facilities, retail and service centres in the United States, Mexico and Colombia. Three converted Boeing 737-800 aircraft were put into service, and we also launched a dedicated flight from Los Angeles (LAX) to Sydney (SYD). The new flight connects to our South Asia hub in Singapore (SIN). Additional investments in Asia We acquired three A330-300 aircraft for conversion into freighters, two of which were put into service in our Asian network (with the third entering service in 2021). A new flight connecting Melbourne (MEL), Auckland (AKL) and Christchurch (CHC) was introduced in November 2020 to cater to increased trade between Australia and New Zealand. We also launched a service centre in Sydney in September. In November, we opened the Osaka Distribution Centre – our largest distribution facility in Japan. GLOBAL FORWARDING, FREIGHT DIVISION The air, ocean and overland freight forwarder Our air, ocean and overland freight forwarding services in- clude standardised transports as well as multimodal and sector-specific solutions, together with customised indus- trial projects, which our around 43,000 employees in over 150 countries deliver for more than 175,000 customers. Our business model is based upon brokering transport ser- vices between customers and freight carriers. The global reach of our network allows us to offer efficient routing and multimodal transport options. Compared with the Group’s other divisions, our operating business model is asset-light. Impacts of the pandemic The global forwarding market also felt the effects of the COVID-19 pandemic in 2020, and suffered a considerable drop in volumes, whilst capacity shortages particularly in air freight caused freight rates to increase, at times con- siderably. According to the International Air Transport Associ- ation (IATA), this resulted in a 10.6 % decrease in total freight tonne kilometres flown worldwide in the year under review. The ocean freight market also registered a drop in vol- umes in 2020. A number of key distribution points experi- enced congestion and delays as freight carriers attempted to adjust capacity to match market demand and avoid major capacity surpluses. The European road transport market also suffered as a result of the pandemic, with order volumes falling sharply, particularly in the first half of 2020. Figures increasingly recovered towards the end of the year thanks to the relax- ation in COVID-19 regulations. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 20 Market leadership maintained amidst volume declines The pandemic was the main reason for the decline. We re- mained the market leader in 2019 with around 1.9 million tonnes of export air freight transported, as shown in the following graphic. Air freight market, 2019: top 4 Thousands of tonnes 1 DHL Kuehne + Nagel DB Schenker DSV Panalpina 1,872 1,643 1,186 1,071 1 Data based solely on export freight tonnes. Source: Annual reports / other publications, company estimates. Ocean freight market also reports volume declines With around 3.2 million twenty-foot equivalent units trans- ported, we remained the second-largest provider of ocean freight services in 2019, as shown in the following graphic. Ocean freight market, 2019: top 4 Thousands of TEUs 1 Kuehne + Nagel DHL DB Schenker DSV Panalpina 4,861 3,207 2,294 1,907 1 Twenty-foot equivalent units. Source: Annual reports / other publications, company estimates. European road transport market position further strengthened In 2019, DHL was able to further strengthen its market po- sition within the European road transport market in this fragmented and competitive environment. Systematic collection of customer feedback In the Global Forwarding business unit, we systematically record customer feedback by calculating Net Promotor scores and conducting annual surveys of customer satis- faction. The feedback collected during the reporting period indicated steady improvements in customer satisfaction at a high level. In addition, we improved our workflows to en- able us to address the issues brought up by customers in a faster and more targeted manner. In the Freight business unit, we sought feedback from our customers in more than thirty countries in 2020. Based upon the information received, we defined initiatives aimed at steadily improving our products and services. Going for- ward, we will receive customer feedback reports linked to specific cases on an even more regular basis. Digital sales channels such as Saloodo!, our freight quotation tool and our customer portal in Sweden help us reach new cus- tomer segments and increase efficiency. We now offer our premium Eurapid product as a sustainable solution whereby carbon offsets are offered for each customer shipment at no additional charge. We also made additional improvements to end-to-end service quality throughout our network. SUPPLY CHAIN DIVISION Customer-centric contract logistics solutions As the world leader in the contract logistics market, our around 168,000 employees help us support more than 1,400 customers in managing their supply chains in over 50 countries. This is our profitable core business, and in- cludes warehousing and transport as well as value-added services such as e-fulfilment, Lead Logistics Partner (LLP), Real Estate Solutions, Service Logistics and packaging solutions for strategic industrial sectors. We also develop innovative and sustainable solutions. Using innovative technologies and digitalising the supply chain In the interest of our customers, we are driving standard- isation across our processes and tools. Innovative technol- ogies, such as wearable devices and collaborative robotics, are being increasingly scaled across our operations to take us to the next level in efficiency. We are constantly striving to increase speed and agility along the entire supply chain through standardisation and the use of new technologies. In addition, we leverage data analytics to enhance the cus- tomer experience and forecast the success of new business. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 21 To make us even more agile, we are deploying the tech- nologies shown in the graphic opposite across all regions. Automation and digitalisation of the supply chain Leading position in contract logistics The global contract logistics market is estimated at around €228 billion. DHL is the global market leader in contract logistics with a market share of 5.9 % (2019) and operations in more than 50 countries. Contract logistics market, 2019: top 10 Market volume: €227.9 billion DHL XPO Logistics Kuehne + Nagel CEVA Hitachi Transport System UPS SCS DB Schenker SNCF Geodis Ryder DSV 5.9 % 2.4 % 2.2 % 1.7 % 1.6 % 1.4 % 1.2 % 1.0 % 1.0 % 0.8 % Source: company estimates; Transport Intelligence. Market share is presented on the basis of divisional revenue. Impacts of the pandemic Local lockdown measures in conjunction with global eco- nomic restrictions in certain sectors have had a significant impact on the contract logistics market in the year under re- view. We, too, were confronted with reduced volumes and compulsory temporary site closures, however, our main focus remained the protection of our employees. Robotic arms Assisted picking robots Data analytics Semi-automated trailer (un)loading Indoor robotic transport Wearable devices Goods-to-person robot Visibility along the entire supply chain via MySupplyChain Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 22 Meeting or exceeding our customers’ quality expectations We continuously build upon our position as a quality leader in contract logistics. Our Operations Management System First Choice ensures that we either meet or exceed our customers’ quality expectations and continuously improve. As part of our operations excellence programme, a service quality KPI routinely measures how well our locations meet specified customer requirements. The KPI for the reporting year was at a high level of 95.3 %. Thanks to our systematic follow-up on customer feedback, our scores for customer loyalty and satisfaction, which are calculated as part of our Net Promoter Approach, improved by another 14 percentage points in the year under review. In addition, we are growing our share of sustainable solutions to meet increased customer demand. ECOMMERCE SOLUTIONS DIVISION Domestic and non-time-definite international parcel delivery Our core business is domestic last-mile parcel delivery in selected countries in Europe, the US, India and selected Asian emerging markets, and non-TDI cross-border services primarily to, from and within Europe. Within the division, we employ a total of around 37,000 employees who delivered more than 1.1 billion parcels over the course of 2020. Domestic last-mile parcel delivery service is provided via our own and partner networks, serving a mix of B2C and B2B customers in all sectors. Our non-TDI cross-border service provides worldwide shipping solutions to enable our customers to capitalise on strong growth in cross-bor- der trade, whilst meeting their expectations for speed, transparency and quality. The DHL Parcel Connect platform simplifies pan- European cross-border shipping for our cus- tomers with a harmonised label, common IT systems, core features and local services. Management of the business is centrally organised according to the regions in which we operate. Impacts of the pandemic The pandemic and pandemic-related factors have re- inforced trend towards online shopping. Across all regions, we have seen increases in shipping volumes that signifi- cantly exceeded expectations, especially in the B2C e-com- merce sector. We succeeded in providing continuous and reliable services for our customers across all regions despite the pandemic-related operational challenges and lockdown re- strictions (e. g. in India and Spain), whilst focusing on the safety and well-being of our employees. We have adapted our operational and delivery processes and guidelines to ensure that pandemic protection measures, such as social distancing and contactless delivery, are complied with, both for our customers and employees. Satisfied customers and high level of delivery reliability We focus on delivering industry-leading performance as well as quality and service excellence. Even against the background of pandemic operational challenges and vol- ume increases, we succeeded in achieving an overall global on-time delivery quality of above 94 %. In Europe, we were able to provide on-time delivery quality of 95 % to our do- mestic service customers. Our on-time delivery quality for cross-border service in this region is 85 %. In the United States, our commitment to quality and reliability continues to win us new business. Our US do- mestic delivery reliability rate surpassed 94 % in the year under review. Despite the severe impact of the lockdown restrictions in India, we were able to achieve delivery reliability rate of 93 %. Our overall domestic delivery reliability rate in the Asia Pacific region was 91 % in 2020. eCommerce Solutions’ regions and services Americas Europe Nationwide domestic delivery in the United States, and cross-border shipping from the United States and Canada Domestic delivery in seven countries, and pan- European cross-border shipping via the DHL Parcel Connect platform India (Blue Dart) Nationwide domestic courier delivery and Asia Pacific integrated express parcel distribution Nationwide domestic and cross-border delivery in Thailand, Malaysia and Vietnam. Cross-border shipping from China, India, Australia and Singapore Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 23 Strategy Our compass for safely navigating a volatile, fast-changing environment We announced our Strategy 2025 in October 2019. It draws on the successful elements of Strategy 2015 and 2020, which established us as the world’s leading supplier of logis- tics services. Building on this strong foundation, Strategy 2025 can help us to cement and grow that leading position as the pace of change in the world around us accelerates. We defined our strategic goals in a comprehensive pro- cess in which we worked with relevant stakeholder groups including employees, customers, suppliers and investors. Our Strategy House illustrates the most important elem- ents of our strategy and how they are connected. Strategy 2025 has been our guide in navigating the volatile, fast-changing environment brought about by the global pandemic. In the reporting year, we undertook a detailed review of our corporate strategy and found it not only to be fundamentally sound but that it had also made Deutsche Post DHL Group more resilient in the face of the pandemic. That resilience is the result of disciplined and consistent execution of our Group strategy, with each and every element playing a key role. Strategic triad of purpose, vision and values Our purpose of “Connecting people, improving lives” re- flects our understanding of sustainability, and has never been more important than it is today. In keeping with our vision of being THE logistics company for the world, Deutsche Post DHL Group strives to continue leading the industry in an increasingly digital world. Our core values of respect and results are just as much a part of our strategy today as they have been in the past. Our Purpose Connecting people, improving lives Our Vision We are THE logistics company for the world Our Values Respect & Results Our Mission Excellence. Simply delivered. Along the three bottom lines in a sustainable way Enabled by Common DNA Our Business Unit focus Strengthening the profitable core Supported by Group functions Digitalisation Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 24 The triad of purpose, vision and values underpins the three building blocks of Strategy 2025 – sustained execution ex- cellence along the three bottom lines, our aim of becoming employer, provider and investment of choice, a focus on our profitable core business and digital transformation. Our mission of “Excellence. Simply delivered.” is de- fined by our three bottom lines. We believe that having motivated and skilled employees is the key to providing excellent service quality and achieving profitable growth. At Deutsche Post DHL Group, when we speak of our common DNA we mean the beliefs and standards we share throughout the Group. Group-wide programmes such as Certified, First Choice and Safety First play a crucial role in building a common DNA by influencing what we do on a day-to-day basis. Irrespective of division, geographical re- gion or function, our common DNA is an expression of who we are and how we do things at Deutsche Post DHL Group. ESG roadmap to be released in the first quarter of 2021 Sustainability is an integral part of our strategy and is an- chored in our mission along our three bottom lines. Our long-term business performance also depends on how successful we are in including sustainability in everything we do. Only by meeting our customers’ needs whilst minimising our Environmental (E) impact, increasing our contribution to Society (S) and acting as a role model for Governance (G) in all of the countries and territories around the world in which we operate can we continue to succeed as a profitable and sustainable organisation. That’s why we adhere to ESG principles aimed at reduc- ing our ecological footprint, creating a safe, inclusive and motivating workplace for our employees, and ensuring that our business practices are transparent and in compliance with the law, Non-financial statement. We are in the process of reviewing our ESG roadmap, which we aim to release with further clear initiatives, objec- tives and targets in the first quarter of 2021. As a signatory to the United Nations Global Compact and a supporter of the United Nations Sustainable Development Goals (SDGs), we continue to integrate them in our strategy. Divisions focus on profitable core business Our divisions focus relentlessly on their profitable core. In so doing, they ensure that our services and solutions can be provided reliably, even in unusual circumstances. Digital transformation as a key lever Representing the biggest opportunity for gaining traction, digital transformation plays a crucial role in our strategy. That is why we are investing in initiatives designed to en- hance both the customer experience and the employee ex- perience, and to improve operational performance. We are upgrading our IT systems and incorporating new technol- ogies with the aim of steadily improving our performance, our processes and our standards. Between now and 2025, our digital transformation spending is expected to reach around €2 billion and is projected to contribute at least €1.5 billion annually to earnings by 2025. We take two parallel approaches to driving technical innovation. In our divisions, we have several initiatives and programmes in place to improve the IT backbone, ensure our future agility and increase IT efficiency. In our Centers of Excellence, we have combined technologies and expertise in the area of automation and data. They will also allow us to foster and develop in-house know-how and make it available across the divisions. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 25 Dedicated employees contribute to our success Our annual worldwide Employee Opinion Survey, whose re- sults from the reporting year are presented in Employees, shows us how we are perceived as a Group from the per- spective of our employees. We added employee engage- ment to our performance indicators in 2020 and include it in the calculation of executive bonuses. Reducing greenhouse gases lowers negative impacts on the environment We aim to reduce our dependency on fossil fuels, improve our greenhouse gas efficiency and lower costs. We there- fore use “greenhouse gas efficiency” as a target in our GoGreen environmental protection programme. Green- house gas efficiency is measured using a carbon efficiency index (CEX) based upon business unit-specific emission intensity figures, which are indexed to a base year. CEX is used as a management indicator to quantify the Group’s non-financial performance. The figures obtained for the Environment section. year under review are provided in the Management Financial and non-financial key performance indicators 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 prior-year data and forecast data to assist in making management decisions. The year- to-year changes in the financial and non-financial perfor- mance indicators described here also play an important role in the calculation of management remuneration. The Group’s financial performance indicators are intended to preserve a balance between profitability, the efficient use of resources and adequate liquidity. How these metrics are computed is illustrated in the Calculations graphic. Their performance in the reporting year is described in the Report on economic position. EBIT and EAC (EBIT after asset charge) The profitability of the Group’s operating areas is measured as profit from operating activities (EBIT). EBIT after asset charge (EAC) is another key perform- ance indicator used by the Group. EAC is calculated by sub- tracting the asset charge, a cost of capital component, from EBIT. Making the asset charge a part of business decisions encourages the efficient use of resources and ensures that our operating business is geared towards increasing value sustainably whilst improving cash flow. The asset charge is calculated on the basis of the weighted average cost of capital, or WACC, which is defined as the weighted average net cost of interest-bearing liabil- ities and equity, taking into account company- specific risk factors in accordance with the Capital Asset Pricing Model. A standard WACC of 8.5 % is applied across the div- isions. That 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 cur- rent situation on the financial markets. To ensure better comparability of the asset charge with previous figures, in 2020 the WACC used here 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 Calculations graphic into account during the year. The shows the composition of the Group’s net asset base. Free cash flow facilitates liquidity management Along with EBIT and EAC, cash flow is another key per- formance metric used by Group management. The goal is to maintain sufficient liquidity to cover all of the Group’s financial obligations from debt repayment and dividends, in addition to meeting payment commitments arising from the Group’s operations and investments. Cash flow is cal- culated using the cash flow statement. Operating cash flow (OCF) includes all items that are related directly to operating value creation. Another key parameter impacting OCF is net working 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) is a management indicator derives from OCF. It is used as an indicator of how much cash is available to the company for paying out dividends or repay- ing debt at the end of a reporting period. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION 26 Calculations 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 EBIT Profit from operating activities EBIT Asset charge 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 EBIT 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 repayments 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. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GENERAL INFORMATION – REPORT ON ECONOMIC P OSITION 27 Research and development Forecast/actual comparison As a service provider, Deutsche Post DHL Group does not engage in research and development activities in the nar- rower sense and therefore has no significant expenses to report in this connection. REPORT ON ECONOMIC POSITION Overall assessment The 2020 financial year was shaped by the COVID-19 pan- demic, which impacted our divisions’ business differently. Strong growth in volumes, especially B2C volumes, led to clear revenue increases at Post & Parcel Germany, Express and eCommerce Solutions. At Global Forwarding, Freight revenue rose despite a volume decline due to the higher freight rates associated with shortages of capacity. By contrast, global economic restrictions in certain sectors serviced by the Supply Chain division resulted in signifi- cant revenue losses and a decline in earnings to below the prior-year level. In total, Group EBIT came to €4.8 billion, meaning that we actually exceeded the most recently pro- jected earnings corridor of €4.1 billion to €4.4 billion by a wide margin. The Group’s cash position is rock solid with investments of €3.0 billion and free cash flow of €2.5 bil- lion in the reporting year. Deutsche Post DHL Group has emerged from 2020 stronger than before and regards itself as well positioned to benefit from the sustained e-commerce boom. Forecast/actual comparison Targets for 2020 Results for 2020 Targets for 2021 EBIT 1 EBIT EBIT • Group: €4.1 billion to €4.4 billion • Post & Parcel Germany division: approx. €1.5 billion • DHL divisions: €3.3 billion to €3.6 billion • Corporate Functions: around €–0.7 billion (including around €–350 million for StreetScooter) • Group: €4.8 billion • Post & Parcel Germany division: €1.6 billion • DHL divisions: €3.9 billion • Corporate Functions: €–0.7 billion (including €–318 million for StreetScooter) • Group: more than €5.6 billion • Post & Parcel Germany division: around €1.6 billion • DHL divisions: around €4.5 billion • Group Functions 2: around €–0.4 billion EAC EAC EAC • EAC projected to increase in line • EAC rose to €2.2 billion in line • EAC projected to increase in line with EBIT Cash flows 1 with EBIT Cash flows with EBIT Cash flows • Free cash flow to exceed €2.0 billion • Free cash flow reached €2.5 billion • Free cash flow of around €2.3 billion Capital expenditure (capex) 1 Capital expenditure (capex) Capital expenditure (capex) • Investment spending (excluding leases): around €2.9 billion • Capital expenditure (excluding leases): €3.0 billion • Investment spending (excluding leases): approx. €3.4 billion Dividend distribution Dividend distribution Dividend distribution • Dividend payout of 40 % to 60 % of net profit • To be proposed: dividend payout of 48.9 % of adjusted net profit • Dividend payout of 40 % to 60 % of net profit Employee Opinion Survey Employee Opinion Survey Employee Opinion Survey • Employee Engagement approval rate • Employee Engagement approval rate • Employee Engagement approval rate of 78 % of 82 % of more than 80 % Greenhouse gas efficiency Greenhouse gas efficiency Greenhouse gas efficiency • CEX projected to increase by • CEX up by two index points to • CEX projected to increase by one index point 37 index points one index point • KPI and targets will be reviewed as part of the ESG roadmap 3 1 Forecast adjusted during the year. 2 Previously Corporate Functions, Business model. 3 Strategy. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 28 Economic parameters Global economy affected by COVID-19 pandemic In 2020, the COVID-19 pandemic led to a collapse of the global economy even more dramatic than the one follow- ing the financial crisis of 2009. To combat the pandemic, governments worldwide took far-reaching steps to limit contacts. The lockdowns they enacted took a toll on eco- nomic activity, in some cases a considerable one. The first wave of the pandemic peaked in the spring. The second wave, which hit in autumn, was much worse in many countries and is still ongoing. Average annual gross domestic product (GDP) fell approximately 5.0 % in the industrial countries, and even the high-growth emerging markets saw a decline of around 2.0 % on average for the year. Global economic output, which had been rising by an average of 3.1 % per year for the past decade, fell 3.9 % in the year under review. The IMF’s World Economic Outlook for October forecast even a decline of 9.6 % in world trade volume in US dollars based on an assumption of constant real effective exchange rates. Political volatility in the United States was another detrimental factor, as were the lengthy trade negotiations between the EU and the United Kingdom after Brexit finally went into effect. Led by China, Asia recovered fastest from the pan- demic, thanks in part to strict lockdown measures and ex- perience with previous coronavirus epidemics. China only suffered a decline in GDP in the first quarter of 2020, with average growth for the year coming in at approximately 2.0 % (previous year: 6.1 %). This is all the more remarka- ble in light of the ongoing disruptive trade conflict with the United States. Japan’s economy shrank by approxi- mately 5.4 %. However, since the Japanese economy was nearly stagnant in 2019, the impact of the pandemic on Japan was only moderately stronger than on China in the reporting year. In the United States, a 3.6 % decline in GDP in 2020 contrasted with growth of 2.2 % in 2019. The fact that the growth shock was not worse than it was, given the higher average rates of infection and mortality, is due to the looser lockdown measures imposed by the authorities in the United States compared with Europe. This could neg- atively impact the speed at which the economy recovers following the pandemic. The decline in economic output was even greater in the eurozone, where GDP plummeted from +1.3 % in 2019 to –7.1 % in the reporting period. The decline is directly linked to drastic social distancing restrictions that included widespread closures of shops and prohibited services and lockdowns lasting for weeks in some cases. These restric- tions were only sustainable thanks to massive government public relief programmes, including subsidies for short- time work. The German economy performed similarly to the eu- rozone as a whole, albeit with less severe downturns in the second and third quarters owing to the initially lower rates of infection and extensive government support initiatives. Thanks to the option of putting employees on short-time work, the unemployment rate only rose from 5.0 % at the end of 2019 to 6.0 % at the end of 2020. Private consumption fell by nearly 4.0 % in the third quarter of 2020 compared with the prior year. However, the high savings rate – most recently estimated at 16.2 % – promises growth potential once the pandemic is over. The decline in capital spending was surprisingly moderate, which speaks to a certain level of fundamental optimism amongst businesses. The pro- jected decline in GDP of 5.0 % (not calendar-adjusted) will be far less than in the other major EU countries of France, Italy and Spain. Price of oil recovers as the year progresses The price of Brent crude oil dropped by nearly half to approx- imately US$30 per barrel in the first quarter of 2020 as the pandemic was just getting underway. Since May, however, oil prices have been gradually rising and were back up over US$50 per barrel by the end of the year. Global demand is likely to pick up again as soon as enough vaccinations have been given to permit an easing of social distancing restrictions. Euro moves up after a weak phase The European Central Bank (ECB) continued to pursue an extremely expansionary monetary policy in 2020. The ECB announced that it will be conducting additional net asset purchases as part of its Pandemic Emergency Purchase Pro- gramme (PEPP) until March 2022 and will extend the Asset Purchase Proramme (APP) by €20 billion per month, likely until shortly before the key interest rate increases again. As such it is highly probable that the key interest rate will re- main at 0.00 % for several more years. The euro nonetheless gained ground in 2020. Especially its recovery against the US dollar was due, amongst other things, to the US Federal Reserve’s change in strategy announced in August, whereby inflation rates of above 2 % will be tolerated as long as com- pensatory measures are taken whenever inflation under- shoots the target for a time. This strategy lowers interest rate risk and thus potential support for the US dollar. Some government bond yields dip even lower A tentative rebound in yields on ten-year German govern- ment bonds at the end of 2019 was wiped out by the pan- demic and the dramatic drop in ten-year US treasuries from 2.14 % in 2019 to 0.89 % in 2020. However, the renewed dip in ten-year German yields to –0.50 % went hand in hand with lower risk premiums in eurozone bond markets. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 29 Trade volumes: average annual growth rate, 2019 to 2020 % Export Asia Pacific Europe Latin America MEA (Middle East and Africa) North America Import Asia Pacific –1.2 –3.7 3.7 –7.1 –3.5 Europe – 5.5 0.3 –1.2 – 4.6 –11.5 Latin America MEA (Middle East and Africa) North America –7.5 –11.8 – 8.9 4.2 –10.7 – 0.7 – 4.6 2.3 4.1 – 6.1 – 0.9 – 5.3 0.8 1.4 10.8 Source: Seabury Consulting, as at 11 January 2021; 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. As bond yields were falling, stock markets had already recovered from the pandemic shock by April 2020, and in some cases had surpassed their January levels by year-end. The German DAX ended the year at 13,719 points, a year-on- year increase of 3.5 %. The increase reflects expectations of a strong upswing from mid-2021 once large swaths of the population have been vaccinated. The EURO STOXX 50 was down 5.1 %, and the STOXX Sustainability Index registered growth of 12.7 %. In the United States, the S & P 500 ended the year up 16.3 %. Trade volumes decline due to pandemic The global trade movements of relevance to us – air and ocean freight sent in containers, excluding liquids and bulk goods – declined by 2.8 % in the year under review (previous year: +0.6 %). The decrease was less than expected given the impact of the pandemic. The fall in demand caused by the pandemic led to a drop of 11.1 % in air freight volumes. Ocean freight tonnes declined by 2.7 %. ing this issue and legal risks is contained in note 44 to the consolidated financial statements. Significant events At the end of February, the Board of Management decided to refocus StreetScooter upon operating its existing fleet and to discontinue its own production of the electric de- livery vehicles in the midterm. Total charges came to €318 million in the reporting year. In May, we issued three bonds with varying maturities and an aggregate principal amount of €2.25 billion. In recognition of their achievements during the pan- demic, we paid our employees a special bonus of €300 each in the third quarter of 2020. This resulted in additional staff costs of €163 million. Legal environment In view of our leading market position, many of our services are subject to sector-specific regulation under Post gesetz (PostG – German Postal Act). Further information regard- Portfolio unchanged There were no material changes in our portfolio in the re- porting year. Results of operations Consolidated revenue up 5.5 % In financial year 2020, consolidated revenue rose by €3,465 million to €66,806 million, although currency ef- fects reduced it by €1,615 million. The proportion of rev- enue generated abroad increased from 69.9 % to 70.3 %. Revenue for the fourth quarter of 2020 was up by 12.7 % to €19,116 million, and was also adversely affected by cur- rency effects of €768 million. Other operating income declined by €256 million to €2,095 million in the reporting year. In the previous year, this item included income of €439 million from the sale of our Supply Chain business in China. Revenue, 2020 € m 66,806 2019 63,341 Change + 5.5 % Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 30 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 € m € m % € m € m € € 2019 63,341 4,128 6.5 1,509 2,623 2.13 1.15 2020 66,806 4,847 7.3 2,199 2,979 2.41 1.35 4 Q 4 2019 16,956 1,258 7.4 595 858 0.70 – Q 4 2020 19,116 1,966 10.3 1,310 1,302 1.05 – 1 EBIT / revenue. 2 After deduction of non-controlling interests. 3 Basic earnings per share. 4 Proposal. Increase in materials expense Primarily higher transport costs, especially in the Express division, increased materials expense from €32,070 mil- lion to €33,794 million. At €22,234 million, staff costs ex- ceeded the prior-year figure by €624 million for reasons including the special bonus we paid our employees. De- preciation, amortisation and impairment losses grew by €146 million to €3,830 million partly due to pandemic- related impairment losses necessary in the Supply Chain division, see note 15 to the consolidated financial statements. At €4,454 million, other operating expenses remained at the prior-year level (€4,431 million). Consolidated EBIT improves by 17.4 % In the year under review, consolidated EBIT stood at €4,847 million, a considerable €719 million over the pre- vious year’s level (€4,128 million). In the fourth quarter, the increase was even larger, by 56.3 % to €1,966 million. At €–676 million, net finance costs were on a level with the previous year (€–654 million). A foreign currency loss was offset by lower interest expenses. Profit before income taxes rose by €697 million to €4,171 million. Income tax expense increased by €297 million to €995 million also due to a slightly higher tax rate. EBIT, 2020 € m 4,847 2019 4,128 Change + 17.4 % Sharp improvement in consolidated net profit Consolidated net profit showed a sharp improvement in 2020, rising from €2,776 million to €3,176 million. Of this amount, €2,979 million is attributable to Deutsche Post AG shareholders and €197 million to non-controlling interest shareholders. Basic earnings per share also rose from €2.13 to €2.41 and diluted earnings per share from €2.09 to €2.36. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 31 Proposed dividend: €1.35 per share Our finance strategy calls for paying out 40 % to 60 % of net profits as dividends as a general rule. The Board of Man- agement and the Supervisory Board will therefore propose a dividend of €1.35 per share for financial year 2020 to shareholders at the Annual General Meeting on 6 May 2021 (previous year: €1.15). The payout ratio in relation to con- solidated net profit adjusted for significant one-off effects amounts to 48.9 %. In relation to the consolidated net profit attributable to Deutsche Post AG shareholders, the payout ratio amounts to 56.2 %. The net dividend yield based on the year-end closing price for our shares is 3.3 %. The dividend will be distributed on 11 May 2021. EBIT after asset charge (EAC) grows significantly EAC improved significantly in 2020, rising from €1,509 mil- lion to €2,199 million. Whilst EBIT was up considerably, the imputed asset charge rose only moderately. EBIT after asset charge (EAC) € m EBIT Asset charge EAC 2019 4,128 2020 4,847 –2,619 –2,648 1,509 2,199 + / – % 17.4 –1.1 45.7 Net asset base (consolidated) 1 € m Intangible assets and property, plant and equipment Net working capital Operating provisions (excluding provisions for pensions and similar obligations) Other non-current assets and liabilities Net asset base 31 Dec. 2019 31 Dec. 2020 + / – % 33,285 33,673 – 818 – 505 1.2 38.3 –2,036 –2,267 –11.3 53 35 –34.0 30,484 30,936 1.5 1 Assets and liabilities as described in the segment reporting, note 9 to the consolidated financial statements. Total dividend and dividend per no-par value share € m 1,409 1,419 1,422 1,270 1.05 1,030 1,027 0.85 0.85 The net asset base increased by €452 million to €30,936 mil- lion as at the reporting date. Intangible assets and property, plant and equipment increased, mainly on account of the acquisition of freight aircraft and investments in warehouses, sorting facilities and the vehicle fleet. Net working capital also rose over the previous year. Operating provisions were up year-on-year, whereas 1,673 1.35 1.15 1.15 1.15 other non-current assets and liabilities decreased. 14 15 16 17 18 19 20 1 Dividend per no-par value share (€) 1 Proposal. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 32 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 financing activities Finance strategy Credit rating • Maintain “BBB+” and “Baa1” ratings • FFO to debt used as dynamic performance metric Dividend policy • Pay out 40 % to 60 % of net profit • Consider cash flows and continuity Excess liquidity • Pay out special dividends or implement share buy-back 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 2019 2,862 –203 6,049 –2,140 – 4,112 2020 4,482 1,809 7,699 –3,640 –2,250 Q 4 2019 Q 4 2020 2,862 654 2,663 –1,095 – 914 4,482 233 2,918 –1,672 –1,013 Investors • Reliable and consistent information from the company • Predictability of expected returns Group • Preserve financial and strategic flexibility • Assure low cost of capital Financial management is a centralised function in the Group The Group’s financial management activities include man- aging liquidity along with hedging against fluctuations in interest rates, currencies and commodity prices, arranging Group financing, issuing guarantees and letters of comfort and liaising with rating agencies. Responsibility for these activities rests with Corporate Finance at Group headquar- ters in Bonn, which is supported by three Regional Treas- ury Centres in Bonn ( Germany), Weston (Florida, USA) and Singapore. The regional centres act as interfaces between Group headquarters and the operating companies, advise the companies on financial management issues and ensure compliance with Group-wide requirements. Corporate Finance’s main task is to minimise financial risk and the cost of capital in addition to preserving the Group’s financial stability and flexibility over the long term. In order to maintain its unrestricted access to the capital markets, the Group continues to aim for a credit rating ap- propriate to the sector. Maintaining financial flexibility and low cost of capital The Group’s finance strategy builds upon the principles and aims of financial management. In addition to the interests of shareholders, the strategy also takes creditor require- ments into account. The goal is for the Group to maintain its financial flexibility and low cost of capital by ensuring a high degree of continuity and predictability for investors. A key component of the strategy is a target rating of “BBB+” as well as a sustained dividend policy and clear pri- orities regarding the use of excess liquidity. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 33 FFO to debt € m Operating cash flow before changes in working capital Interest received Interest paid Adjustment for pensions 2019 2020 6,045 8,103 82 608 190 67 556 97 Funds from operations, FFO 5,709 7,711 Reported financial liabilities 16,974 19,098 Financial liabilities at fair value through profit or loss Adjustment for pensions Surplus cash and near-cash investments 1 Debt FFO to debt (%) 23 4,872 54 5,826 1,916 4,350 19,907 20,520 28.7 37.6 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 re- ceived less interest paid and adjusted for pensions, as shown in the FFO to debt calculation. In addition to finan- cial liabilities and surplus cash and near-cash investments, the figure for debt also includes pension liabilities funded by provisions. The FFO to debt performance metric saw a year-on- year increase in the year under review because funds from operations rose whilst debt remained almost stable. Funds from operations were up by €2,002 million to €7,711 million, mainly on account of a positive change in operating cash flow before changes in working capital. The adjustment for pensions decreased, chiefly due to lower pen- sion payments from plan assets and lower interest expenses. Debt rose by €613 million year-on-year to €20,520 mil- lion. Reported financial liabilities increased, mainly on ac- count of three new bonds totalling €2.25 billion and higher lease liabilities. Conversely, one bond and one promissory note loan were repaid in the amount of €385 million in 2020. The adjustment for pensions rose, since pension obligations increased faster than plan assets. Surplus cash and near-cash investments increased due to positive free cash flow of €2,535 million and the cash inflow from the issuance of bonds. This item was reduced by dividends paid, repayment of a bond and a promissory note loan, as well as negative currency effects. pool their external payment transactions in the intra-group Payment Factory, which executes payments on behalf of the respective companies via Deutsche Post AG’s central bank accounts. Limiting market risk The Group uses both primary and derivative financial in- struments to limit market risk. Interest rate risk is managed exclusively via swaps. Currency risk is additionally hedged using forward transactions, cross-currency swaps and op- tions. We pass on most of the risk arising from commodity fluctuations to our customers and, to some extent, use commodity swaps to manage the remaining risk. The pa- rameters, responsibilities and controls governing the use of derivatives are laid down in internal guidelines. Cash and liquidity managed centrally The cash and liquidity of our globally operating subsidiaries is managed centrally by Corporate Treasury. Approximately 86 % of the Group’s external revenue is consolidated in cash pools and used to balance internal liquidity needs. In countries where this practice is ruled out for legal reasons, internal and external borrowing and investment are man- aged centrally by Corporate Treasury. In this context, we observe a balanced banking policy in order to remain inde- pendent 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 exe- cuted in accordance with uniform guidelines using stand- ardised processes and IT systems. Many Group companies Flexible and stable financing The Group covers its long-term financing requirements by means of equity and debt. This ensures our financial stabil- ity and also provides adequate flexibility. Our most impor- tant source of funds is net cash from operating activities. We also have a syndicated credit facility in a total vol- ume of €2 billion that guarantees us favourable market conditions and acts as a secure, long-term liquidity reserve. The facility was extended by one year in the year under re- view and now runs until 2025. Thanks to our solid liquidity situation, the syndicated credit facility was not drawn down during the year under review. As part of our banking policy, we spread our business volume widely and maintain long-term relationships with the financial institutions we entrust with our business. In Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 34 addition to credit lines, we meet our borrowing require- ments through other independent sources of financing, such as bonds, promissory note loans and leases. Most debt is taken out centrally in order to leverage economies of scale and specialisation benefits and hence minimise borrowing costs. In the reporting period, three bonds totalling €2.25 bil- lion were issued, and one bond and one promissory note loan were repaid in the amount of €0.3 billion and €0.1 billion, respectively. Further information on bonds is contained in note 38 to the consolidated financial statements. Sureties, letters of comfort and guarantees Deutsche Post AG provides security for the loan agree- ments, leases and supplier contracts entered into by Group companies, associates and joint ventures by issuing sure- ties, letters of comfort or guarantees as needed. This prac- tice allows better conditions to be negotiated locally. The sureties are provided and monitored centrally. No change in the Group’s credit rating The ratings of “BBB+” issued by Fitch Ratings (Fitch) and “A3” issued by Moody’s Investors Service (Moody’s) remain in effect for our credit quality. The stable outlook from both rating agencies also still applies. We remain well positioned in the transport and logistics sector with these ratings. The following table shows the ratings as at the reporting date and the underlying factors. The complete and current ana- lyses by the rating agencies and the rating categories can be found at Creditor relations. No change in the Group’s credit rating of BBB+ and A3 Agency ratings Fitch Ratings Long-term: BBB+ Short-term: F2 Outlook: stable Rating factors Moody’s Investors Service Long-term: A3 Short-term: P –2 Outlook: stable Rating factors • Balanced business risk profile • Growth in parcel and express business fuelled by e-commerce • Dynamic volume growth in Time Definite International and Time Definite Domestic products • Solid credit metrics and good liquidity • Large scale and strong business profile, supported by global leadership positions in Express and Logistics and large German mail business • Support that is built into the rating because of the German government’s indirect shareholding and the importance of the company’s services to the German economy Rating factors • Structural mail volume decline in the Post & Parcel Germany division and challenges in managing • Solid financial profile Rating factors the cost structure in the division • Challenges in the domestic postal division resulting from the structural decline in traditional mail • Exposure to global market volatility and competitiveness through the DHL divisions business • Exposure to highly competitive mature markets and volatile market conditions in the logistics business • Increasing capital spending, which hamper cash generation Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 35 Liquidity and sources of funds As at the reporting date, the Group had cash and cash equiv- alents in the amount of €4.5 billion (previous year: €2.9 bil- lion) at its disposal. The centrally available cash is either invested on the money and capital markets in the short term or deposited in existing bank accounts. These central, short-term financial investments had a volume of €3.9 bil- lion as at the reporting date (previous year: €1.5 billion). The following table gives a breakdown of the financial li- abilities reported in the balance sheet. Additional information is provided in note 38 to the consolidated financial statements. Financial liabilities € m Lease liabilities Bonds Amounts due to banks Promissory note loans Financial liabilities at fair value through profit or loss Other financial liabilities 2019 10,301 5,467 468 235 2020 10,459 7,410 479 150 23 480 54 546 16,974 19,098 Capex and depreciation, amortisation and impairment losses, full year Drop in capital expenditure for assets acquired Investments in property, plant and equipment and intan- gible assets acquired (excluding goodwill) amounted to €2,999 million in the year under review (previous year: €3,617 million). A breakdown of capex into asset classes and regions is presented in note 9, 21 and 22 to the consoli- dated financial statements. 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 Post & Parcel Germany adjusted 1 2019 468 28 496 339 2020 590 14 604 329 2019 2,080 940 3,020 1,314 Express 2020 1,428 974 2,402 1,383 Global Forwarding, Freight Supply Chain adjusted 1 eCommerce Solutions Corporate Functions Consolidation adjusted 1, 2 2019 114 159 273 254 2020 104 207 311 246 2019 324 702 1,026 901 2020 351 973 1,324 920 2019 132 126 258 213 2020 141 143 284 169 2019 502 772 1,274 663 2020 385 448 833 784 2019 –3 0 –3 0 2020 0 0 0 –1 2019 3,617 2,727 6,344 3,684 Group 2020 2,999 2,759 5,758 3,830 1.46 1.84 2.30 1.74 1.07 1.26 1.14 1.44 1.21 1.68 1.92 1.06 – – 1.72 1.50 1 Prior-period amounts adjusted, note 9 to the consolidated financial statements. 2 Including rounding. Capex and depreciation, amortisation and impairment losses, Q 4 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 Post & Parcel Germany adjusted 1 2019 184 2 186 115 2020 260 2 262 89 2019 557 216 773 345 Express 2020 737 259 996 355 Global Forwarding, Freight Supply Chain adjusted 1 eCommerce Solutions Corporate Functions Consolidation adjusted 1, 2 2019 41 54 95 65 2020 41 74 115 60 2019 92 280 372 217 2020 99 289 388 228 2019 52 42 94 54 2020 79 39 118 43 2019 120 150 270 169 2020 165 151 316 190 2019 –1 0 –1 1 2020 0 0 0 0 2019 1,045 744 1,789 966 Group 2020 1,381 814 2,195 965 1.62 2.94 2.24 2.81 1.46 1.92 1.71 1.70 1.74 2.74 1.60 1.66 – – 1.85 2.27 1 Prior-period amounts adjusted, note 9 to the consolidated financial statements. 2 Including rounding. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 36 In the Post & Parcel Germany division, the largest capex portion was attributable to the expansion of our network. The acquisition and development of property were stepped up in the year under review. Another key focus was expand- ing Packstations. Investments in the Express division related to buildings and technical equipment. Capital spending also focussed upon continuous maintenance and renewal of the Express intercontinental aircraft fleet: Six new 777F cargo planes were put into service in 2020. compared with a cash inflow of €4 million in the previous year. This was attributable, amongst other things, to the increase in trade receivables on account of the growth in business volume. Net cash used in investing activities increased signifi- cantly from €2,140 million to €3,640 million. Investments in property, plant and equipment and intangible assets declined by €690 million to €2,922 million: in the previous year, €1.1 billion was paid to modernise the Express inter- continental aircraft fleet; €321 million was paid for this pur- pose in the reporting period. The previous year’s figures included net proceeds from the sale of the Supply Chain business in China amounting to €653 million. The change in short-term financial investments led to an operating cash inflow of €527 million in the prior year, while the year under review saw outflows of €933 million. Calculation of free cash flow In the Global Forwarding, Freight division, we invested € m in warehouses, office buildings and IT. In the Supply Chain division, the majority of funds were invested to support customer implementations in all re- gions, mostly in the Americas and EMEA regions. In the eCommerce Solutions division, most of the in- vestments were attributable to a new terminal in the Nether- lands and investments in India and the United States. At Corporate Functions, investments in the reporting year were mainly in the vehicle fleet and IT solutions. Higher operating cash flow Net cash from operating activities improved from €6,049 mil- lion to €7,699 million. Based upon EBIT, which at €4,847 mil- lion was well over the prior- year figure (€4,128 million), all non-cash income and expense items were adjusted. In the previous year, payments resulting from the sale of the Supply Chain business in China were shown in net cash from / used in investing activities. The change in provisions was from €–506 million to €73 million. In the previous year, we had mainly used provisions due to the early retirement programme in the Post & Parcel Germany division or reclas- sified them as liabilities. In the reporting period, the change in working capital resulted in a cash outflow of €404 million 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 for leases Interest received Interest paid (without leasing) Net interest paid Free cash flow 2019 6,049 138 –3,612 2020 7,699 122 –2,922 Q 4 2019 2,663 34 – 933 Q 4 2020 2,918 38 –1,259 –3,474 –2,800 – 899 –1,221 702 0 –14 – 8 680 32 –1,894 – 416 –2,278 82 –192 –110 867 5 0 0 –13 – 8 27 –1,894 –394 –2,261 67 –162 – 95 2,535 24 0 0 0 24 13 – 476 –106 – 569 23 –79 – 56 1 0 0 0 1 10 – 478 – 96 – 564 16 –75 – 59 1,163 1,075 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 37 Free cash flow improved substantially from €867 million to €2,535 million. At €2,250 million, net cash used in financing activities was well below the prior-year figure (€4,112 million). The bonds issued in May 2020 led to a cash inflow of €2.2 billion. Cash and cash equivalents rose from €2,862 million as at 31 December 2019 to €4,482 million. Net assets Selected indicators for net assets to €22,007 million due to investment activity exceeding disposals, negative currency effects and depreciation and impairment losses. However, other non-current assets were down by €235 million to €160 million on account of actuarial losses that reduced pension assets. Our purchase of money market funds sharply increased current financial assets from €394 million to €1,315 million. Trade receiv- ables rose by €424 million to €8,985 million. Cash and cash equivalents grew by €1.6 billion to €4,482 million. At €13,777 million, equity attributable to Deutsche Post AG shareholders was lower than at 31 December 2019 (€14,117 million). Consolidated net profit for the period in- creased this figure, whilst actuarial losses from pension obligations, the dividend distribution and currency effects decreased it. Lower interest rates resulted in a sharp in- crease in provisions for pensions and similar obligations by €733 million to €5,835 million. Financial liabilities rose considerably from €16,974 million to €19,098 million, primarily because we issued three bonds with a total vol- ume of €2.25 billion. Other current liabilities increased by €222 million to €5,135 million, for reasons including an in- crease in employee-related liabilities. Equity ratio Net debt Net interest cover Net gearing 31 Dec. 2019 31 Dec. 2020 27.6 25.5 13,367 12,928 7.8 48.2 9.9 47.9 % € m % Balance sheet structure of the Group as at 31 December € m ASSETS 52,169 55,307 Intangible assets 23 % 21 % Equity EQUITY AND LIABILITIES 52,169 55,307 28 % 26 % Consolidated total assets up sharply The Group’s total assets amounted to €55,307 million as at 31 December 2020, €3,138 million higher than at 31 De- cember 2019 (€52,169 million). Intangible assets dropped from €11,987 million to €11,658 million, primarily because negative currency ef- fects decreased goodwill. In contrast, property, plant and equipment was up substantially from €21,303 million Property, plant and equipment 41 % 40 % Non-current provisions and liabilities 40 % 43 % Trade receivables Other assets 16 % 20 % 16 % 23 % Current provisions and liabilities 32 % 31 % 2019 2020 2019 2020 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 38 Net debt drops to €12,928 million Our net debt declined from €13,367 million as at 31 Decem- ber 2019 to €12,928 million as at 31 December 2020, as the growth of financial assets outpaced financial liabilities. At 25.5 %, the equity ratio was lower than at 31 December 2019 (27.6 %). At 9.9, net interest cover was up on the previous year’s level (7.8). Net gearing was 47.9 % as at 31 Decem- ber 2020. 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 31 Dec. 2019 13,708 31 Dec. 2020 15,833 2,916 2,893 16,624 18,726 2,862 394 4,482 1,315 1 1 3,257 5,798 13,367 12,928 1 Less operating financial liabilities. 2 Recognised in non-current financial assets in the balance sheet. Divisions POST & PARCEL GERMANY DIVISION Key figures, Post & Parcel Germany € m Revenue of which Post Germany Parcel Germany International Other / Consolidation Profit from operating activities (EBIT) Return on sales (%) 2 Operating cash flow 2019 adjusted 1 2020 + / – % Q 4 2019 adjusted 1 Q 4 2020 + / – % 15,400 16,455 8,203 4,854 2,201 142 1,230 8.0 1,130 8,030 5,915 2,397 113 1,592 9.7 1,703 6.9 –2.1 21.9 8.9 –20.4 29.4 – 50.7 4,269 2,204 1,411 607 47 522 12.2 655 4,801 2,211 1,839 726 25 674 14.0 695 12.5 0.3 30.3 19.6 – 46.8 29.1 – 6.1 1 Reported figures adjusted to reflect new product structure and reclassifications, 2 EBIT / revenue. note 9 to the consolidated financial statements. Revenue surpasses prior-year level Division revenue was up 6.9 % year-on-year to €16,455 mil- lion in the reporting year. The increase was driven in particular by growth in the German parcel business, sup- ported by additional 3.7 working days compared with the prior-year period. Revenue for the fourth quarter of 2020 was up 12.5 % versus the prior year. Since the first quarter of 2020, revenue from trans- porting documents and goods across Germany’s borders has been presented as International revenue. Varying business unit performance Mail Communication volumes nearly reached the prior-year level despite the general market decline, which was com- pensated by the transfer of non-promotional bulk mail from Dialogue Marketing to Mail Communication in combination with greater demand from retail customers. Revenue im- proved due to follow-on effects from the postage rate in- crease effective as of 1 July 2019. In contrast, Dialogue Marketing registered significant declines in both addressed and unaddressed mail. The downturn was attributable to pandemic-related revenue losses and cuts in advertising budgets. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 39 Post & Parcel Germany: revenue € m Post Germany of which Mail Communication Dialogue Marketing Other / Consolidation (Post Germany) Parcel Germany 2019 adjusted 1 8,203 5,287 2,130 786 4,854 2020 + / – % 8,030 5,525 1,804 701 5,915 –2.1 4.5 –15.3 –10.8 21.9 1 Reported figures adjusted to reflect new product structure and reclassifications. Q 4 2019 adjusted 1 2,204 1,428 572 204 Q 4 2020 + / – % 2,211 1,519 507 185 0.3 6.4 –11.4 – 9.3 30.3 1,411 1,839 Post & Parcel Germany: volumes Mail items (millions) Post Germany of which Mail Communication Dialogue Marketing Parcel Germany 2 2019 adjusted 1 2020 + / – % 15,908 14,260 6,442 8,197 1,400 6,420 6,827 1,614 –10.4 – 0.3 –16.7 15.3 Q 4 2019 adjusted 1 4,226 1,674 2,224 404 Q 4 2020 + / – % 3,889 1,753 1,870 498 – 8.0 4.7 –15.9 23.3 1 Reported figures adjusted to reflect new product structure and reclassifications. 2 Without international shipments. The German parcel business saw moderate growth in volumes until the end of March, as expected. Starting at the end of March, year-on-year volumes began increasing sharply in the wake of the pandemic-related restrictions imposed in the middle of March by the German government, particularly on retail sale. Volumes continued growing un- til the end of June, even after retail businesses gradually began reopening. Another volume surge was seen at the end of the year when Germany went back into lockdown. Supported by rate increases, revenue rose by 21.9 % in the year under review. Imports shipped as letter mail were heavily impacted by declining volumes coming from China during the report- ing year, although significant decreases from Europe were also recorded due to pandemic-related restrictions. By contrast, imports shipped as parcels recorded significant growth over the course of the year. Trends varied as regards exports of goods and documents to Europe and the rest of the world. The decline in document exports accelerated further, whereas the number of shipments containing mer- chandise increased beyond the level achieved in Germany, especially in our European target markets. Significant EBIT improvement over prior year Division EBIT improved 29.4 % in 2020 to €1,592 million. The increase was predominantly attributable to higher parcel revenues, the postage rate increase effective as of 1 July 2019 and strict cost management. By contrast, we registered revenue losses in other areas such as Dialogue Marketing. The EBIT figure includes the special bonus pay- ment to employees totalling €51 million. Division EBIT in the fourth quarter of 2020 amounted to €674 million, an improvement of 29.1 %. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 40 EXPRESS DIVISION Key figures, Express € 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. Express: revenue by product € m per day 1 Time Definite International (TDI) Time Definite Domestic (TDD) 2019 2020 + / – % Q 4 2019 Q 4 2020 + / – % 17,101 19,135 7,650 3,599 6,097 1,229 8,110 3,971 7,139 1,257 –1,474 –1,342 2,039 11.9 3,291 2,751 14.4 4,382 11.9 6.0 10.3 17.1 2.3 9.0 34.9 – 33.2 4,643 2,096 985 1,659 320 – 417 611 13.2 970 5,599 2,424 1,152 2,046 348 –371 1,040 18.6 1,381 20.6 15.6 17.0 23.3 8.8 11.0 70.2 – 42.4 2019 51.1 4.8 2020 58.1 5.4 + / – % Q 4 2019 Q 4 2020 13.7 12.5 55.2 5.3 69.6 6.4 + / – % 26.1 20.8 1 To improve comparability, product revenues were translated at uniform exchange rates. These revenues are also the basis for the weighted calculation of working days. Express: volume by product Thousands of items per day Time Definite International (TDI) Time Definite Domestic (TDD) 2019 1,009 531 2020 1,097 615 + / – % Q 4 2019 Q 4 2020 8.7 15.8 1,100 588 1,290 716 + / – % 17.3 21.8 International business posts strong revenue growth Revenue in the division increased by 11.9 % in the year under review to €19,135 million. This includes foreign currency losses of €639 million, excluding which revenue grew by 15.6 %. The revenue figure also reflects the fact that fuel sur- charges were lower than in the previous year in all regions. Excluding currency effects and fuel surcharges, revenue was up by 16.8 %. Per-day revenues and shipment volumes were up in both our Time Definite International (TDI) and our Time Definite Domestic (TDD) product lines in the reporting year. While B2C volumes were the main driver of growth for the year as a whole, the fourth quarter also saw further recovery in B2B volumes. Operating business up sharply in Europe region Revenue in the Europe region increased by 6.0 % to €8,110 million in the reporting year, including foreign currency losses of €133 million. Year-on-year revenue growth excluding foreign currency losses was 7.8 %. In the TDI product line, per-day revenue increased by 6.6 % and per-day shipment volumes by 6.8 %. In the fourth quarter of 2020, international revenues per day were up strongly by a 19.3 % and per-day shipment volumes by 16.2 %. Americas region sees double-digit growth In the Americas region, revenue rose by 10.3 % to €3,971 mil- lion in 2020. That figure includes currency losses of €234 million. Revenue growth excluding foreign currency losses was 16.8 %. Per-day TDI volumes were up 13.6 % compared with the previous year. Per-day TDI revenues grew by 13.2 %. In the fourth quarter of 2020, shipment volumes improved by 22.2 % and per-day international revenues rose 29.6 %. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 41 Revenue growth accelerates in Asia Pacific region In the Asia Pacific region, revenue improved by 17.1 % to €7,139 million in the reporting year. That figure includes foreign currency losses of €179 million; growth excluding currency losses was 20.0 %. In the TDI product line, revenue per day increased by 21.7 % and per-day volumes by 10.9 %. Growth in the fourth quarter of 2020 came to 31.0 % for revenues per day and 15.5 % for per-day volumes. TDI shipments improve in the MEA region Revenue in the MEA (Middle East and Africa) region im- proved by 2.3 % in the reporting period to €1,257 million, including foreign currency losses of €53 million. Growth excluding currency effects was 6.6 %. Per-day TDI revenues increased by 8.6 % and per-day volumes rose 1.3 %. Growth in the fourth quarter of 2020 amounted to 23.5 % for per- day revenues and 24.3 % for per-day volumes. EBIT up sharply year-on-year Division EBIT climbed 34.9 % in 2020 to €2,751 million. Fourth-quarter EBIT was up by 70.2 % to €1,040 million. GLOBAL FORWARDING, FREIGHT DIVISION Key figures, Global Forwarding, Freight € m Revenue of which Global Forwarding Freight Consolidation / Other Profit from operating activities (EBIT) Return on sales (%) 1 Operating cash flow 1 EBIT / revenue. Global Forwarding: revenue € m Air freight Ocean freight Other Total Global Forwarding: volumes Thousands Air freight 1 of which exports 1 Ocean freight 1 Prior-year figures adjusted due to change in volume calculation. 2 Twenty-foot equivalent units. 2019 15,128 10,680 4,565 –117 521 3.4 801 2020 15,914 11,681 4,345 –112 590 3.7 664 + / – % Q 4 2019 Q 4 2020 + / – % 5.2 9.4 – 4.8 4.3 13.2 – –17.1 3,854 2,724 1,160 –30 173 4.5 386 4,390 3,238 1,181 –29 172 3.9 260 13.9 18.9 1.8 3.3 – 0.6 – –32.6 2019 4,772 3,604 2,304 2020 6,137 3,441 2,103 10,680 11,681 + / – % Q 4 2019 Q 4 2020 + / – % 28.6 – 4.5 – 8.7 9.4 1,265 1,770 871 588 932 536 2,724 3,238 39.9 7.0 – 8.8 18.9 tonnes tonnes TEU 2 2019 3,379 1,872 3,207 2020 2,969 1,667 2,862 + / – % –12.1 –11.0 –10.8 Q 4 2019 Q 4 2020 + / – % 897 501 795 842 478 762 – 6.1 – 4.6 – 4.2 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 42 Positive revenue trend Revenue in the division increased by 5.2 % in the year un- der review to €15,914 million. Excluding negative currency effects of €415 million, the year-on-year revenue increase came to 7.9 %. Revenue for the fourth quarter of 2020 amounted to €4,390 million, exceeding the prior-year quarter by 13.9 %. Revenue in the Global Forwarding business unit in- creased by 9.4 % to €11,681 million in the reporting year. Excluding currency losses of €393 million, the increase was 13.1 %. At €2,576 million, gross profit in the Global Forward- ing business unit was likewise up on the prior-year figure of €2,524 million. Higher gross profit from air freight, capacity shortages in ocean freight We registered a decline of 12.1 % in air freight volumes in 2020, due mainly to a worldwide decrease in market vol- umes. Air freight revenue nonetheless saw an increase of 28.6 % on the prior-year level due to transport capacity shortages, which caused prices to rise. Gross profit im- proved by 17.2 %. A central system for sourcing air freight capacity and improvements in our global infrastructure contributed to the revenue increase. In the fourth quarter of 2020, air freight revenue saw a significant rise of 39.9 % whilst gross profit was up 15.7 %. Ocean freight volumes for the year under review were down 10.8 % year-on-year. Ocean freight revenues fell by 4.5 % and gross profit by 1.5 %. However, fourth-quarter in- creases were recorded in both revenue (7.0 %) and gross profit (11.0 %) due to the increased freight rates associated with a shortage of transport capacity, particularly for trans- ports from Asia. The share of revenue related to industrial project business and reported under Other dropped below the prior-year level of 34.3 % to 30.5 %. Gross profit for in- dustrial project business decreased by 14.8 %. Volume growth in European overland transport business Revenue in the Freight business unit decreased by 4.8 % to €4,345 million in the reporting year, due in part to foreign currency losses of €25 million. Volumes were up 2.1 % year- on-year. The business unit’s gross profit declined by 3.0 % to €1,116 million. The fourth quarter proved to be stronger than in 2019, with revenue up by 1.8 % and volumes by 8.9 %. Earnings improve despite lower volumes Division EBIT rose from €521 million to €590 million in the reporting year despite lower volumes. Earnings benefitted primarily from a central procurement system for freight capacity, further improvements to the global infrastructure for air freight operations and strict cost management. In the fourth quarter, the Global Forwarding, Freight division reached the prior-period level, with EBIT of €172 million. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 43 SUPPLY CHAIN DIVISION Key figures, Supply Chain € m Revenue of which EMEA ( Europe, Middle East and Africa) Americas Asia Pacific Consolidation / Other Profit from operating activities (EBIT) Return on sales (%) 2 Operating cash flow 2019 adjusted 1 2020 + / – % Q 4 2019 adjusted 1 Q 4 2020 + / – % 13,533 12,537 6,805 4,759 1,992 –23 911 6.7 6,104 4,640 1,814 –21 426 3.4 –7.4 –10.3 –2.5 – 8.9 8.7 – 53.2 – 1,337 1,064 –20.4 3,597 1,776 1,324 502 – 5 176 4.9 811 3,498 1,689 1,310 505 – 6 175 5.0 699 –2.8 – 4.9 –1.1 0.6 –20.0 – 0.6 – –13.8 1 Prior-year figures adjusted due to reclassifications, as described in 2 EBIT / revenue. note 9 to the consolidated financial statements. Reduced business activity impacts revenue Revenue in the division decreased by 7.4 % in the year under review to €12,537 million. The revenue decline was largely due to pandemic-related temporary location closures and reduced business activity. Foreign currency losses of €457 million and business disposals in 2019 – mainly the China business – additionally impacted revenue growth. Fourth-quarter 2020 revenue was down 2.8 % to €3,498 million. Supply Chain: revenue by sector and region, 2020 Total revenue: €12,537 million of which Retail Consumer Auto-mobility Technology Life Sciences & Healthcare Engineering & Manufacturing Others of which Europe / Middle East / Africa / Consolidation Americas Asia Pacific 28 % 23 % 13 % 13 % 10 % 5 % 8 % 49 % 37 % 14 % New business worth €1,296 million secured In 2020, the division concluded additional contracts worth approximately €1,296 million in annualised revenue – an increase year-on-year – with both new and existing cus- tomers. The Retail, Consumer and Life Sciences & Health- care sectors accounted for the majority of the new business. A large proportion can also be attributed to e-commerce business. The annualised contract renewal rate remained at a consistently high level. Earnings performance in the 2020 financial year heavily impacted by lockdown measures Division EBIT decreased to €426 million in the year under review (previous year: €911 million). EBIT was affected by extraordinary expenses of €62 million caused by non- recurring impairment losses resulting from lockdown measures and the payment of a special bonus totalling €52 million. The decline in EBIT was impacted by net pro- ceeds of €426 million from the sale of the division’s busi- ness in China and non-recurring expenses of €151 million recorded in the previous year. In the fourth quarter of 2020, the Supply Chain division reached the prior-year level with EBIT of €175 million thanks to increased business activity. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT REPORT ON ECONOMIC P OSITION 44 ECOMMERCE SOLUTIONS DIVISION Key figures, eCommerce Solutions € m Revenue of which Americas Europe Asia Other / Consolidation Profit from operating activities (EBIT) Return on sales (%) 1 Operating cash flow 1 EBIT / revenue. Revenue up in the reporting year The division generated revenue of €4,829 million in the reporting period, a rise of 19.4 % on the prior-year figure of €4,045 million. All regions contributed to the increase. The impact of the pandemic varied greatly from region to region, with sharp declines in volumes and supplemental costs being reported above all in Spain and India. Overall growth in B2C volumes in other countries was able to com- pensate for those losses. Revenue increased significantly in the Americas and Europe regions and was up slightly in the Asia region. Excluding foreign currency losses of €117 mil- lion, total revenue increased year-on-year by 22.3 %. In the fourth quarter of 2020, division revenue was up by 33.9 % to €1,455 million. The increase was driven by growth in B2C volumes, which led to higher revenue in all regions. 2019 4,045 1,153 2,307 586 –1 – 51 –1.3 161 2020 4,829 1,629 2,618 593 –11 158 3.3 337 + / – % Q 4 2019 Q 4 2020 + / – % 19.4 41.3 13.5 1.2 <–100 >100 – >100 1,087 1,455 319 611 159 –2 –11 –1.0 33 495 785 182 –7 75 5.2 37 33.9 55.2 28.5 14.5 <–100 >100 – 12.1 Significant EBIT improvement on the back of prior-year restructuring expenditures EBIT in the division improved significantly in the reporting year, rising from €–51 million in the prior year to €158 mil- lion. Prior-year EBIT was impacted mainly by net restruc- turing expenses of €80 million, incurred, amongst other things, for portfolio optimisation, overhead reductions and loss allowances. In the reporting period, impairment losses of €30 million were recognised in the second quarter and the payment of a special bonus of €10 million was recog- nised in the third quarter. EBIT for the fourth quarter of 2020 amounted to €75 million (previous year: €–11 million). Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT DEUTSCHE POST AG (HGB) 45 DEUTSCHE POST AG (HGB) Deutsche Post AG as parent company To supplement the reporting on the Group, the perform- ance of Deutsche Post AG is outlined below. As the parent company of Deutsche Post DHL Group, Deutsche Post AG prepares its annual financial statements in accordance with the principles of Handelsgesetzbuch (HGB – German Commercial Code) and Aktiengesetz (AktG – German Stock Corporation Act). The HGB financial state- ments are relevant for calculating the dividend. There are no separate performance indicators relevant for management purposes that are applicable to the parent company Deutsche Post AG as a legal entity. For this reason, the explanations presented for Deutsche Post DHL Group are also applicable to Deutsche Post AG. Employees The number of full-time equivalents at Deutsche Post AG was 166,143 at the reporting date (previous year: 156,989). An increase in volumes in the German parcel business was the main factor contributing to the need to hire new staff. Results of operations Income statement for Deutsche Post AG (HGB) 1 January to 31 December Revenue grew by a total of €628 million (4.2 %) year-on- year. Due to a change in the reporting structure for the Post & Parcel Germany division, revenue from transporting documents and goods across Germany’s borders is now presented as International revenue. Revenue from German letter mail business was €7,716 million in the year under review and thus 2.1 % below the prior-year level of €7,882 million. A total of €5,085 million (previous year: €4,855 million) of the rev- enue was attributable to Mail Communication, €1,693 mil- lion (previous year: €2,013 million) to Dialogue Marketing and €938 million (previous year: €1,014 million) to other services. Revenue from our German parcel business was €5,164 million in the reporting period, an increase of 30.1 % on the prior-year figure of €3,969 million. Factors here were an increase in volumes as well as the merger of the DHL Delivery regional companies with Deutsche Post AG in 2019. Mail volumes from online sales increased due to pandemic-related closures of brick-and-mortar re- tail locations. Revenue of €2,079 million (previous year: €1,963 million) was reported for our International business unit. Other revenue amounted to €626 million (previous year: €1,143 million). € m Revenue Other own work capitalised Other operating income Materials expense Staff costs Amortisation of intangible assets and depreciation of property, plant and equipment Other operating expenses Financial result Taxes on income 2019 2020 14,957 15,585 32 625 53 972 15,614 16,610 – 4,949 – 8,374 – 5,207 – 8,532 –310 –291 –1,861 –2,156 –15,494 –16,186 2,215 2,765 – 85 –274 Result after tax/Net profit for the period 2,250 2,915 Retained profits brought forward from previous year Net retained profit 4,234 5,062 6,484 7,977 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT DEUTSCHE POST AG (HGB) 46 Other operating income registered a year-on-year increase of €347 million, or 55.5 %, driven mainly by higher income from currency translation (€237 million). Materials expense rose by €258 million on account of an increase in the cost of transport services for letters and parcels. Staff costs increased by €158 million year-on-year, due primarily to new hires and tariff increases. In financial year 2020 the impact of the tariff increases as at 1 October 2019 was felt throughout the year. In addition, the one-off payment due under the collective bargaining agreement in a total amount of €43 million and the bonus payment totalling €50 million were made in 2020. Amortisation of intangible assets and depreciation of property, plant and equipment declined slightly (by €19 million). The increase of €295 million in other operating ex- penses stemmed primarily from higher currency transla- tion expenses (€277 million). The financial result in the amount of €2,765 million (previous year: €2,215 million) comprises net invest- ment income of €3,399 million (previous year: €2,581) and net interest expense of €634 million (previous year: net interest expense of €366 million). The change in net investment income is mainly due to the €857 million in- crease in income from profit transfer agreements attrib- utable to Deutsche Post Beteiligungen Holding GmbH. Deutsche Post Beteiligungen Holding GmbH results were affected by very good operating results in the subsidiaries as well as the reversal of impairment loss on the carrying amount for a subsidiary. Lower income from plan assets led to the decline in net interest income. After deducting taxes on income of €274 million (pre- vious year: €85 million), net profit for the period totalled €2,915 million (previous year: €2,250 million). Including retained profits brought forward, net retained profit for the period amounted to €7,977 million (previous year: €6,484 million). Net assets and financial position Total assets up Total assets rose to €43,012 million at the balance sheet date (previous year: €38,315 million). Fixed assets increased from €19,169 million to €19,333 million, with investments in property, plant and equipment totalling €475 million (previous year €384 mil- lion) and relating primarily to land and buildings (€164 mil- lion), technical equipment (€109 million), other equipment, operating and office equipment (€69 million) and advance payments and assets under development (€133 million). Investments were mainly made in mail and parcel centres, conveyor and sorting systems, Packstations and real es- tate for network expansion. Long-term financial assets decreased by €69 million due to lower loans to affiliated companies. Balance sheet of Deutsche Post AG (HGB) as at 31 December € m ASSETS Fixed assets Intangible fixed assets Property, plant and equipment Long-term financial assets Current assets Inventories Receivables and other assets Securities Cash and cash equivalents Prepaid expenses TOTAL ASSETS EQUITY AND LIABILITIES Equity Subscribed capital Treasury shares Issued capital (Contingent capital: €207 million) Capital reserves Revenue reserves Net retained profit Provisions Liabilities Deferred income 2019 2020 178 3,209 15,782 19,169 190 3,430 15,713 19,333 66 68 17,471 19,251 8 1,315 1,208 2,767 18,860 23,294 286 385 38,315 43,012 1,237 –1 1,236 4,618 4,457 6,484 16,795 4,889 16,568 63 1,239 0 1,239 4,670 4,480 7,977 18,366 5,388 19,186 72 TOTAL EQUITY AND LIABILITIES 38,315 43,012 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT DEUTSCHE POST AG (HGB) 47 profit transfer agreements. As a result, the subsidiaries’ future operating results also influence the future results of Deutsche Post AG. The HGB financial statements are rel- evant for calculating the dividend. For financial year 2021, we anticipate a result for Deutsche Post AG that will enable a dividend payment compatible with our financial strategy. Current assets grew by €4,434 million, largely due to an increase of €2,215 million in receivables from affiliated companies resulting from intra-group cash management and profit transfer agreements. In addition, our securities holdings increased by €1,200 million and cash and cash equivalents by €1,452 million, mainly due to the issuance of new bonds worth €2,250 million. Equity rose from €16,795 million in the previous year to €18,366 million. The 2020 distribution to shareholders totalling €1,422 million was more than offset by the net profit for 2020 of €2,915 million. The increase of €52 mil- lion in capital reserves and the increase of €23 million in revenue reserves is attributable to the commitment and settlement of shares for executive remuneration plans. In total, the equity ratio decreased from 43.8 % in the previous year to 42.7 % in the reporting period. Provisions rose by €499 million in the reporting period. Provisions for pensions and similar obligations increased by €296 million, provisions for taxes by €31 million and other provisions by €172 million. The rise in other provisions is attributable to personnel-related provisions amounting to €104 million and other provisions amounting to €68 million. Liabilities increased by €2,618 million to €19,186 mil- lion. By contrast with the increase of €1,946 million in bond liabilities, amounts due to banks decreased by €240 mil- lion. In financial year 2020, we issued three new bonds worth €2,250 million and repaid on schedule one bond with a principal amount of €300 million. The increase of €955 million in liabilities to affiliated companies resulted mainly from intragroup cash management. Increase in cash and cash equivalents Deutsche Post AG’s cash and cash equivalents increased by €1,452 million to €2,767 million in financial year 2020. Debt Deutsche Post AG’s debt (provisions and liabilities) rose by €3,117 million to €24,574 million compared with the previ- ous year. The increase was chiefly due to higher bond liabil- ities (€1,946 million), higher liabilities to affiliated compa- nies (€955 million) and higher provisions for pensions and similar obligations (€296 million) in the reporting period. Expected developments, opportunities and risks Deutsche Post AG is included fully in the Group’s inter- national strategy and the associated forecast of expected developments. Since Deutsche Post AG is interconnected, to a large degree, with the companies of Deutsche Post DHL Group through arrangements including financing and guar- antee commitments and direct and indirect investments in its investees, Deutsche Post AG’s opportunities and risks align closely with those of the Group. The section entitled Expected developments, opportunities and risks therefore also covers expected developments, opportunities and risks with respect to the parent company. The Post & Parcel Germany division reflects Deutsche Post AG’s core business in mate- rial respects. The DHL divisions have an indirect influence on Deutsche Post AG through net investment income from Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 48 NON-FINANCIAL STATEMENT Expectations for sustainable business practices have be- come more prominent than ever not only amongst employ- ees, customers and capital market actors, but also amongst members of society and politics. In order to appropriately depict this development for our company, we revised our reporting effective as of the start of financial year 2020. Rather than issuing a separate sustainability report, the combined management report now includes the combined non-financial statement for Deutsche Post AG and for the Group in accordance with sections 289b(1) and 315b(1) HGB. In addition, we are currently updating our ESG roadmap Strategy and will accordingly expand our as part of our ESG reporting to include more detail in the future. The two non-financial performance indicators used in managing the Group – greenhouse gas efficiency and employee engagement – were determined on the basis of their materiality as defined by HGB; German Accounting Standards (GASs) were applied Management. The sustainability reporting standards issued by the Global Reporting Initiative (GRI) are taken as the framework for determining material non-financial topics, amended by HGB requirements. In addition to the components of the non-financial statement, we are committed to topics that we have summarised here for reasons of related content. This applies above all to the content added to the employee section and to our commitment to the principles set out in the UN Global Compact. The section entitled General information contains in- formation on our business model. Opportunities and risks relevant to the minimum re- quirements of the non-financial statement are included and quantified as part of the Group’s opportunity and risk management process. No reportable risks were identified for the Group that were linked to its own business activities, business relationships, products or services, and that very likely have or will have a severe negative impact on signifi- cant aspects. Please refer to “Opportunities and risks aris- ing from human resources” and “Opportunities and risks arising from climate change, catastrophes and epidemics” in the section entitled Expected developments, opportunities and risks concerning opportunities and risks. We have not identified any significant risks or opportunities in the afore- mentioned areas. Components of the non-financial statement Aspect (HGB) E = Environment Environmental matters S = Social Social matters Concept Objective / result Report section Energy efficiency and climate change Improve greenhouse gas efficiency / CEX improved to 37 index points Management; actual comparison; Forecast / Environment; Corporate citizenship Employee pride in our contribution to society / 78 % approval rate Society Expected developments Respect for human rights Compliance with laws, principles and policies Prevent violations / Raise employee awareness / Training and on-site reviews Employees Employee matters Employee engagement Employee development Increase Employee Engagement score to 78 % / Employee Engagement score increased to 82 % Increase participation in the Group’s “Certified” initiatives to 80 % / Participa- tion rate increased to 74 % Management; actual comparison; Forecast / Employees; Expected developments Employees Occupational health and safety Prevent accidents / LTIFR decreased to 3.9 Employees G = Governance Anti-corruption and -bribery matters Compliance with laws, principles and policies Prevent violations / Training and anti-corruption day / Regular audits Respect for human rights Standards in the supply chain Adhere to supplier code of conduct / Regular audits /Follow-up measures Compliance Compliance More information on sustainability is available on our Website. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 49 Commitment to shared values We conduct our business in accordance with applicable laws, ethical principles, ecological standards and interna- tional guidelines. We take guidance from the principles set out in the Universal Declaration of Human Rights, the OECD Guidelines for multinational enterprises and the Interna- tional Labour Organization’s (ILO) Declaration on Funda- mental Principles and Rights at Work, as well as from the principle of social partnership. Through ongoing dialogue with our stakeholders, we ensure that their expectations concerning social and environmental issues are accounted for appropriately and that our business is aligned system- atically with those interests. Values such as integrity, trans- parency, equal opportunity and responsibility, as well as environmental standards, are firmly established in our Code of Conduct and clearly elaborated in our Supplier Code of Conduct. We use our expertise as a mail and logistics services group for the benefit of society and the environment. For example, we provide logistical support in the event of nat- ural disasters, prepare airports for such scenarios, help to improve career opportunities for young people and support our employees’ local projects. Our product and service portfolio and our near-global presence enable individuals and companies to take part in global trade, and hence contribute to economic development. As part of the strategic development of our business, we are committed to a holistic definition of sustainability and to further developing the ESG roadmap that will permit us to meet stakeholder demands even better in the future Strategy. Environment Dealing with the impact of our operations Our initiatives to increase greenhouse gas efficiency and our environmentally friendly product range enable us to meet our responsibility for the environment whilst strengthening our own market position. Due to the sustained e-commerce boom as an impor- tant driver of global trade, the demand for transportation solutions is growing. Whilst our business benefits from this trend, our business activities also have an impact on the global environment, primarily in the form of greenhouse gas emissions. Our goal is to minimise that impact by taking measures aimed at protecting the environment and setting climate protection targets to enable us to reach net zero emissions by 2050. Environmental and climate protection is embedded in our Code of Conduct, our Supplier Code of Conduct and our Environmental and Energy Policy, which provide our employees with clear guidelines as to how they can con- tribute to the success of our climate protection measures in their immediate surroundings and within the context of their job responsibilities. Improving emissions and fuel efficiency We are reducing our dependence on fossil fuels and pro- moting the use of alternative energy sources in our fleets and buildings. As part of the Group’s GoGreen initiative, we develop strategies aimed at improving emissions effi- ciency and fuel efficiency and intensifying the use of alter- native energy sources. The GoGreen initiative addresses both direct and indirect greenhouse gas emissions caused by our operations and by the activities of our transport subcontractors. We are tracking emissions and greenhouse gas effi- ciency within our internal management information system. Our divisions regularly provide updates to the Operations Board headed by the CEO on their progress in implement- ing their environmental protection measures and on their contributions towards the defined targets. Quarterly busi- ness review meetings are used to discuss not only oper- ational trends, but also changes in our environmental KPIs. Deviations from planned targets are discussed and appropriate solutions are identified and resolved. Topics of special relevance to our environmental targets are also regularly discussed at Board of Management meetings. Efficiency target exceeded We use our carbon efficiency index (CEX) to measure and manage our greenhouse gas efficiency, Management. 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 business 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 are disclosed in the form of CO2 equivalents (CO2e). Our CEX score reflects the ratio of the relevant emissions to performance indica- tors specific to the respective business units. In 2020, our direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions amounted to 6.77 million tonnes of CO2e (previous year, adjusted: 6.48 million tonnes of CO2e). The indirect greenhouse gas emissions (Scope 3) of our transport subcontractors came to 20.61 million tonnes of CO2e (previous year, adjusted: 20.94 million tonnes of CO2e). Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 50 The use of biofuels in our Group and amongst our sub- contractors led to a reduction of 210 kilotonnes in green- house gas emissions in the reporting year (previous year: 210 kilotonnes). This was, by and large, achieved through the common market practice of blending biofuels with fossil fuels. CO2e emissions, 2020 Total: 27.38 million tonnes 1 66 %Air transport 22 % Ground transport 2 % Buildings 10 % Ocean transport 1 Scope 1 to 3 (previous year, adjusted: 27.42 million tonnes). Amongst other things, we have set ourselves the envi- ronmental target of improving our CEX score by 50 % with respect to the 2007 base year by 2025. In 2020, we improved our CEX figure by two index points to 37 index points, Forecast / actual comparison. This development was driven in particular by increased utilisation and efficiency of our own network due to a shift of air freight volumes from passenger flights to our more efficient cargo aircraft and, amplified by a pandemic-related shortage of air freight capacity in the market. Higher volumes in the German parcel and international e-commerce businesses as well as greater efficiencies in our ocean freight business contributed also to this positive development. Furthermore, we increased our use of green electricity at our locations by 3 % to 86 %. Energy consumption by company fleet and company buildings Million kWh Consumption by fleet Air transport (jet fuel) Road transport (petrol, biodiesel, diesel, bio-ethanol, LPG) Road transport (biogas, CNG, LNG) Consumption in buildings and facilities (including electric vehicles) Electricity of which Green electricity 2019 23,100 18,613 1 2020 24,294 19,624 4,442 45 3,099 1,681 1,392 4,630 40 3,089 1,710 1,463 1 Prior-year figure adjusted to reflect the switch to the use of an air transport emission factor that is based on actual consumption (sourced from EcoTransIT). Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 51 Society Contributing to economic development and social progress We contribute to socioeconomic development of the re- gions in which we operate through our sites, our employees and our suppliers, thereby making an indirect contribution to social and individual prosperity. As part of our corporate citizenship initiatives, we are leveraging our global network and the expertise of local employees in line with our pur- pose of “Connecting people, improving lives”. Partnerships and initiatives Our Group-wide initiatives can be broken down into five broad themes, as shown in the illustration opposite: Em- ployee community involvement (volunteering), disaster management (GoHelp), improving employability (GoTeach), environmental protection (GoGreen) and fostering growth through trade (GoTrade). We cooperate with established partner organisations in all areas. It is thanks to the expertise of our partners that we can ensure the social relevance and effectiveness of our initiatives. All Group-wide activities in this area are coordinated and managed by the CEO’s board department. The focus areas and objectives of our engagement activities are set down in our Code of Conduct and further specified in our Corporate Citizenship Guideline. We thus offer our employ- ees at all locations clear guidance on how they can take part in initiatives, what the prerequisites for participation are and how their efforts will help support Group objectives. Corporate citizenship Local projects • Volunteering of employees Global projects • Disaster management (GoHelp) • Get Airports Ready for Disaster (GARD) • Disaster relief • Improving employability (GoTeach) • Partnership with Teach For All • Partnership with SOS Children’s Villages • Refugee aid • Environmental protection (GoGreen) • Employees involved in environmental and climate protection Commercial projects • Fostering growth through trade (GoTrade) As part of our GoHelp programme, we again supported disaster relief efforts following natural disasters in the re- porting period, for example in Puerto Rico, Honduras and the Philippines. Thanks to our GoTeach programme, we increasingly succeeded in helping young people improve their career options with our online resources. In addi- tion, our employees in numerous countries volunteered to support local relief organisations in their fight against COVID-19. GoTrade is a new Group programme designed to enable and accelerate cross-border trade in developing economies in cooperation with national governments and multinational organisations. Amongst other things, the new programme trains SMEs in customs clearance and other logistics-relevant activities. To support local projects, we have provided a central plat- form that employees use to share their experiences and that catalogues all activities of relevance for the reporting pro- cess. Based on the dialogue with our employees, we know that corporate citizenship is a relevant factor in dermining their overall level of motivation. They want to contribute to social and environmental objectives not only in their per- sonal lives but also at work, to help society and the envi- ronment and to enhance the Group’s reputation. According to this year’s Employee Opinion Survey, 78 % of employees reported being proud of how Deutsche Post DHL Group is contributing to society. This was the first time that question was asked; we no longer disclose the Corporate Citizenship Index, a derived metric that we previously calculated. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 52 Employees Being an Employer of Choice Our employees are our most valuable asset. With some 570,000 employees, we are one of the world’s largest em- ployers in our sector. We strive to be an Employer of Choice in order to at- tract skilled, dedicated employees to our company, provide them with ongoing employee development opportunities and maintain long-term relationships with them. Motivated employees are a prerequisite for providing the excellent service quality that leads to satisfied customers and sus- tainable success for our business. Management responsibilities The HR Board, which is chaired by the Board member for Human Resources, is responsible for dealing with HR- related matters. Cross-divisional and cross-functional issues, such as how to implement our policies and regu- lations in the supply chain, are addressed by the Group’s Sustainability Advisory Board. The Employee Relations Forum handles questions and initiatives relating to em- ployee concerns, social policies and workforce-related agreements, and human rights. The Diversity Council ad- vises on the further development of diversity management in the Group’s divisions. Issues of special significance and importance for the Group are decided by the Board of Man- agement. We obtain external recommendations through our Sustain ability Advisory Council (SAC). Respecting human and workers’ rights We have embedded our understanding of ethically and legally correct conduct in our Code of Conduct, which is applicable across the Group. Respect and results are the keys to understanding, and living, our corporate culture. We are committed to respecting human rights, ensur- ing equal opportunity in our recruiting and employment practices, and promoting occupational health and safety. Because our executives play a key role when it comes to implementing our values and objectives, we have made the Code of Conduct an integral component of their em- ployment contracts. As a signatory to the UN Global Compact, we are com- mitted to upholding its principles. This also applies to the principles laid out in the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work, in compliance with national legislation. We have specifically included the standards long en- trenched in our Code of Conduct and our Supplier Code of Conduct in our Human Rights Policy Statement. The Policy Statement applies to our employees all over the world, and its clearly formulated requirements and distinct allocation of responsibilities supplement the provisions of our Code of Conduct. Apart from repudiating child and other forced labour, the Policy Statement focuses on working conditions and the right to freedom of association. Efforts around working conditions emphasise employee remuneration, working hours and occupational health and safety. Our management system effectively implements the requirements of our human rights policy throughout the Group. The management system includes training ini tiatives and on-site reviews as an important means of raising employee and executive awareness, conducted by specially trained and externally certified experts from the divisions and corporate headquarters. A risk-based ap- proach is taken to the selection of countries and locations for the on-site reviews based on internal criteria, such as number of employees, as well as external criteria such as suggestions from international trade union confederations, Verisk Maplecroft’s Human Rights Index and Transparency International’s Corruption Perceptions Index. Our employees’ working conditions and the associated rules and remuneration policies are governed by collective bargaining agreements, works agreements and statutory provisions. In addition to direct dialogue with their super- iors and management representatives, employees can turn to employee committees, works councils, trade unions and other bodies to assist in representing their interests. At the global level, we engage in regular, open dialogue with international trade union confederations such as UNI Global Union (UNI) and the International Transport Workers’ Federation (ITF). Increase in employee engagement Our annual, Group-wide Employee Opinion Survey is not only an important tool for measuring employee satisfac- tion and employee engagement, but a key component in our striving to become Employer of Choice. We added “Em- ployee Engagement” to our Group-wide key performance indicators in 2020 to assist us in quantifying our employees’ commitment to the company and their motivation to help the Group succeed; Management. Our “Employee Engage- ment” KPI exceeded the target of 78 % for the reporting year with a score of 82 %; Forecast / actual comparison. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 53 Selected results from the Employee Opinion Survey % Response rate Approval rating for Employee Engagement KPI 2019 77 2020 75 77 82 Fostering our corporate culture and promoting expertise Driven by our common values, core convictions and stand- ards of conduct, our strong corporate culture is a key fac- tor in our success and a fundamental component of our Strategy, which we have summarised in the term “Com- mon DNA”. Our corporate culture connects us as a Group across our various business units and operating regions, thus defining who we are and how we operate. It ensures greater process standardisation and hence effective imple- mentation of our strategy. We communicate our company culture not only in our day-to-day operations but also through select training in- itiatives. One example is our Group-wide “Certified” em- ployee motivation and development programme, which aims to make our employees experts in their respective areas of responsibility. We use an effective mix of employee engagement, training and knowledge transfer to create an atmosphere conducive to customer-centric action and service excellence. In addition to a foundation module, we offer our employees a wide range of follow- up modules customised to their specific roles and areas of expertise. Some 373,100 employees have completed the founda- tion module of the “Certified” programme in recent years. This represents 74 % of our workforce excluding turnover. Due to pandemic- related restriction of in-person training as well as structural changes in the company, the comple- tion rate for 2020 fell below the 80 % target we had set for that year. Since 2020, we have been placing special emphasis on providing training for management and team leaders to help reinforce them in their roles and support them in carrying out their leadership duties. Such training focuses on leadership attributes that are applicable to all Group executives and serve as a behavioural compass. Number of employees continues to rise As at 31 December 2020, we employed 521,842 full-time equivalents, or 4.5 % more than in the previous year. Added to this were another 77,301 external FTEs subject to the control and direction of the Group. The headcount for our own employees was 571,974 at the end of the year. Female employees made up 34.2 % of our global workforce, with 23.2 % of all upper and mid-level management positions being held by women in 2020 (previous year: 22.2 %). 18 % of all employees took advantage of the opportu- nity for part-time employment (previous year: 17 %). 8.0 % of employees left the Group at their own request over the course of 2020 (previous year: 9.0 %). In Germany we offer the opportunity to enrol in du- al-study apprenticeship programmes consisting of in-house training combined with programmes at state vocational schools. In 2020, we offered approximately 2,000 positions in these apprenticeship and study programmes. Our current planning foresees a slight increase in the number of employees in financial year 2021. Number of employees 2019 2020 + / – % Full-time equivalents At year-end 1 499,250 521,842 of which Post & Parcel Germany 2 157,545 166,700 Express 98,203 104,594 4.5 5.8 6.5 Global Forwarding, Freight 42,712 40,798 – 4.5 Supply Chain 2 158,004 165,584 eCommerce Solutions Corporate Functions 30,335 12,451 Consolidation 3 4.8 5.4 31,987 12,177 –2.2 2 of which Germany 185,795 193,187 4.0 Europe (excluding Germany) Americas Asia Pacific Other regions 117,748 118,038 94,696 111,734 80,135 20,876 79,954 18,929 Average for the year 4 499,461 502,207 0.2 18.0 – 0.2 – 9.3 0.5 Headcount At year-end 4 Average for the year of which Hourly workers and salaried employees Civil servants Trainees 546,924 571,974 544,282 547,128 4.6 0.5 512,325 518,277 1.2 26,296 23,611 –10.2 5,661 5,240 –7.4 1 Excluding trainees. 2 Prior-period amounts adjusted. 3 Including rounding. 4 Including trainees. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 54 Strength in diversity Diversity, non-discrimination and inclusion are embedded firmly in our core values. We consider the diversity of our workforce to be not only an asset to the company but also one of its major strengths. Our Group employs people from cultures all over the world, with 183 nations represented at our German sites alone. We take an equal opportunity approach to new hirings, both internally and externally, and look exclusively to a candidate’s qualifications when decid- ing on their suitability. As set forth in our Diversity and Inclusion Statement, “diversity” refers to all differences that make us unique as individuals; this extends to gender, national or ethnic ori- gin, religion, age, sexual orientation or identity, disability and any other categories protected by law. We published our first Code of Conduct in 2006, and it applies across all of our regions and divisions. The Code of Conduct serves as an “ethical compass” and contains guidelines for day-to-day workplace conduct as well as our under- standing of diversity. Appreciation for diversity amongst our workforce and mutual respect embody our core values for constructive co-operation within the Group and thus contribute to our economic success. During the reporting period, we updated the Code of Conduct in response to new developments. For instance, we addressed some of the core topics from our Strategy 2025, such as digital transformation and sustainability, and incorporated up- dated Group guidelines and policies. In line with our inclusive approach, we give disabled individuals all over the world professional perspective. In Germany, employers are required by law to ensure that employees with disabilities make up at least 5 % of their workforce. At Deutsche Post AG, our principal entity in Germany, 8.5 % of the total workforce represented employ- ees with disabilities in the reporting year, i. e. 15,053 disa- bled employees (number of mandated positions filled), 17 of whom were trainees. This figure is significantly higher than the statutory quota. The average age of Group employees declined slightly to 40 years of age. Employee gender distribution remained nearly constant compared with the previous year, with 65.8 % of all positions held by men and 34.2 % by women. The steadily rising proportion of female managers has meanwhile reached 23.2 %, meaning that one out of five mid- to upper-level management positions is held by women. Our Strategy 2025 lays out a Group-wide target of 30 % for the proportion of women in middle and upper management to be reached by 2025. The Annual Corporate Governance Statement specifies the legally required targets established for the proportion of women on the Board of Management and the top two executive tiers of Deutsche Post AG. It also contains infor- mation on diversity in the Group. In Germany, we offered a total of around 2,000 spots in our post- secondary educational training programmes during the reporting year. In 2021, the number of openings advertised in our training programmes will remain at the level of the reporting year, with dual apprenticeships being offered in 17 fields and 180 spots available in dual study programmes in various fields. We provide college and university graduates with the chance to choose between various post-graduate training programmes. Our trainee programmes extend over several months and enable holders of a bachelor’s or master’s de- gree to become specialists and managers. The programmes are practice-driven and structured in modules, some of which include time abroad. Participants are familiarised with our leadership attributes and employee leadership tools and taught how to manage processes. Performance-based, market-rate pay At €22,234 million, staff costs exceeded the prior-year fig- ure of €21,610 million. Details can be found in note 14 to the consolidated financial statements. We foster employee loyalty and motivation by offer- ing performance-based pay in line with market standards, supplemented by contributions to defined benefit and de- fined contribution pension plans, amongst other benefits. Employees of Deutsche Post AG covered by the collect- ive wage agreement may opt to take additional time off in lieu of a pay increase. At present, they may choose between four models offering some five to 21 additional days off per year. As at 31 December 2020, 17.7 % of our covered em- ployees had opted to take additional time off. Responding to demographic change In response to demographic change in Germany as well as for the purpose of ensuring an ageing-friendly workplace, we have established a Generations Pact enabling employ- ees aged 55 and over to reduce their working hours. A total of 30,220 of our non-civil servant employees maintain a working time account in line with this proven model and 5,997 are already in partial retirement. Since 2016, we have Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 55 also been offering comparable arrangements for civil serv- ants, 4,104 of whom have established a lifetime working account and 1,234 of whom have entered partial retirement. An early retirement programme initiated two years ago and aimed chiefly at civil servants in overhead areas in the Post & Parcel Germany division was continued during the year under review. The main requirement for taking part in the “engaged retirement” programme is that the civil servant be working in an area with a surplus of personnel and that there be no option for employment elsewhere in the company or in federal administrative organisations. Moreover, there may be no operational or business-related objections to placement in the programme. The civil serv- ant must also commit to performing volunteer work within the first three years of commencing retirement. We offer both defined benefit and defined contribution pension plans in which approximately 70 % of our employ- ees participate. Our main retirement benefit plans are pro- vided in Germany, the UK, the USA, the Netherlands and Switzerland. Occupational retirement benefit expenses added €944 million to staff costs in the reporting year (previous year: €688 million). Occupational health and safety The health and safety of our employees in the workplace is of particular importance to us. We place especially high pri- ority on complying with the Group’s existing occupational health and safety policies, statutory regulations and indus- try standards, and we have embedded these in our Code of Conduct. Our Supplier Code of Conduct, which is a binding part of the Group’s contracts with suppliers, requires our business partners to adhere to these same high standards. These codes serve to ensure that our company and our business partners conduct risk analyses and workplace risk assessments, instruct employees on potential risks and hazards in the workplace, take preventive measures to protect workers and others from injury and conduct reg- ular safety training. We measure the success of these initiatives based on the accident rate per 200,000 working hours (Lost Time Injury Frequency Rate, LTIFR). The LTIFR for the year under review was 3.9, an improvement of 0.3 on the previous year. We therefore slightly exceeded our target of 4.0 for 2020. Our objective for 2021 is to maintain LTIFR at 3.9, independ- ent of the development of the COVID-19 pandemic. Slips, trips and falls are still amongst the most common causes of accidents and injury in pick-up and delivery, with the main causes in contract logistics being manual lifting and heavy load handling. We continue to raise awareness through communications and training and plan to step up those measures with the aim of reducing LTIFR to 3.1 by 2025. We carry out health projects and local initiatives to cre- ate a health-promoting work environment and foster our employees’ awareness of a healthy lifestyle. Stress man- agement and dealing with mental health issues were again topics of focus during the reporting year, especially in the context of the pandemic, as was the increasing availability of online health programmes. Workplace accidents Accident rate (number of accidents per 200,000 hours worked) of which Post & Parcel Germany Express Global Forwarding, Freight Supply Chain eCommerce Solutions Corporate Functions Working days lost per accident Number of fatalities due to workplace accidents of which As a result of traffic accidents 2019 2020 4.2 12.5 2.4 0.9 0.6 1.6 0.4 16.5 3 1 3.9 11.0 2.1 0.7 0.5 1.4 0.4 17.2 5 5 Our Group-wide employee benefits programme also en- ables employees outside of Germany to enjoy primary or supplementary health insurance benefits. Many of our em- ployees work in countries that do not offer sufficient social health coverage. We have been offering employees and their dependants in numerous countries high-quality insur- ance plans at attractive terms since 2015. Some 250,000 employees in 100 countries have meanwhile enrolled in the programme. We also incentivise local management to rein- vest insurance savings into health initiatives for employees and their families. The Group’s worldwide sickness rate rose slightly to 5.4 % in 2020, due in part to the impact of the pandemic. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 56 Compliance In compliance with applicable legislation We render all of our services in compliance with current legislation and in accordance with our own values. This includes all legally required disclosures relating to anti- corruption and bribery matters, and respect for human rights in the supply chain. We observe all applicable international anti-corruption standards and statutes and are a member of the Partnering Against Corruption initiative. Our focus at all times is on preventing potential violations of statutory requirements and internal guidelines. Codifying our values Our values such as integrity, transparency, equal opportu- nity and responsibility, as well as environmental standards, are embedded in our Code of Conduct and, in greater detail, in our Supplier Code of Conduct. Ensuring legally compliant conduct in our business activities and in our interactions with employees is an essential task of all Group manage- ment bodies. The rules of ethical conduct as defined in our Code of Conduct are further specified in our Anti-Corrup- tion Policy, which also sets out the rules for dealing with donations and gifts to political parties and government institutions. Systematically preventing corruption and bribery With our compliance management system (CMS) we have implemented effective measures for the prevention of corruption and bribery throughout the Group. Responsi- bility for designing the system lies with the Chief Compli- ance Officer, who reports directly to the Chief Financial Officer. The Global Compliance Office (GCO) develops the CMS standards and supports the corresponding divisional activities. Our Code of Conduct and our Anti-Corruption Policy help employees identify situations in which the integrity of the company could be called into question with respect to relevant third parties. Potential violations can be reported around the clock via a compliance hotline or a special web application. External whistleblowers can use a form on the Group’s website. Information on relevant violations is collected and included in the regular compliance reports made to the Board of Management and to the Supervisory Board’s Finance and Audit Committee. In light of the special challenges seen in 2020, concepts for the virtual implementation of planned classroom train- ing in the area of compliance were tested and introduced. We also held a Group-wide employee-awareness competi- tion as part of our campaign commemorating International Anti- Corruption Day. also performed. As a supplement to the internal Group monitoring system, these audits support ongoing com- pliance activities, and facilitate the identification of other compliance risks and the refinement of the compliance pro- gramme. The audit findings are also used to review existing audit criteria for topicality and completeness. Defining and upholding supply chain standards Corporate Procurement defines the standards for procure- ment, designs the Corporate Procurement Policy and de- termines the selection processes for suppliers. The Chief Procurement Officer reports directly to the CEO and ensures that standardised selection processes are applied. Respect for human rights is an explicit requirement of our Supplier Code of Conduct, which is a binding com- ponent of the Group’s contracts with suppliers, including subcontractors. By signing, suppliers commit to complying with our ethical principles and are encouraged to imple- ment those principles in their own supply chains. Suppliers with high environmental and social responsi- bility standards are preferred. Supplier selection is based on a standardised, multistep assessment process. We contin- ually train procurement staff so as to raise their awareness of the need to identify potential risks related to possible suppliers at an early stage. In the year under review, a total of 163 regular audits that were either directly or indirectly related to aspects of compliance were conducted throughout the Group by Corporate Internal Audit. A number of ad hoc audits were In the context of those regular audits in the year under review, Corporate Internal Audit also reviewed the pro- cesses for compliance with the Supplier Code of Conduct and the implementation of follow-up measures. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT NON-FINANCIAL STATEMENT 57 In the reporting period, we recognised taxes and social security contributions totalling €3,765 million. Taxes and social security contributions, 2020 € m Income taxes paid Other business taxes of which Taxes on capital, real estate and vehicles Other operating taxes Employer’s social security contributions Total 754 306 132 174 2,705 3,765 Tax strategy to be adhered to worldwide Our tax strategy is aligned with our Group strategy and must be adhered to by all of our majority-owned legal en- tities worldwide. Responsibility for preparation, updating and adherence to the tax strategy lies with the Group tax department. The overarching value approach applied by the Group is that taxes always are incidental to and follow business needs. We do not undertake aggressive tax planning or en- ter into artificial arrangements with the goal to avoid taxes. Our Group maintains locations in more than 220 countries and territories, including some with lower tax rates than those in Germany. These locations are necessary for car- rying out our logistics operations in those regions. None of our companies was established with the purpose of obtain- ing tax benefits or is currently used to pursue aggressive tax structuring. In interpreting and applying tax legislation, we do not merely follow the letter of the law, but also consider its spirit and intended purpose. As a globally active group of companies, our activities necessarily include operations in countries where uncertainty is high. We mitigate this uncer- tainty through continual dialogue with tax authorities and tax advisors to obtain the greatest possible degree of legal certainty. This allows us to meet tax compliance require- ments in the countries in which we operate to the best of our knowledge and belief. Our Group risk management sys- tem incorporates a tax risk management framework that enables us to monitor and avoid tax risk as far as possible. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 58 EXPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS Forecast period The information contained in the report on expected devel- opments generally refers to financial year 2021. Future economic parameters Impact of pandemic to remain perceptible The second wave of COVID-19 infections in the winter of 2020/21 proved to be more serious than had been either predicted or hoped. Governments worldwide are not likely to start easing restrictions significantly until the spring, as- suming incidences show a significant and lasting decrease. Because the declines in GDP growth recorded at the year-end substantially push down average figures for the year, GDP for 2021 is likely to remain relatively low in both the eurozone and the USA. However, average growth figures for 2022 are projected to receive a boost from the upward momentum expected to set in no later than mid-year. European exports were already benefitting from strong growth in China and other Asian countries at the start of 2021. The anticipated relaxation of social distanc- ing restrictions as more people are vaccinated is expected to help the service industry recover, additionally spurred on by a consumer spending backlog. At that point, capital expenditure is also expected to see a sharp uptick. At the same time, however, businesses that had been kept afloat during the pandemic will likely be letting workers go as they increasingly face insolvency. In light of rising demand amidst short-term supply shortages, the price of oil is ex- pected to show some upward movement in 2021. IHS Markit has forecast the following GDP growth for key countries and regions in 2021: The Chinese economy is likely to post growth of 7.6 % given the much earlier onset of economic recovery, which has remained constant, whereas Japan is only expected to see an increase of 2.3 %. Growth of 4.0 % is predicted for the US and 3.4 % for the eurozone. Although IHS Markit has projected growth of just 2.8 % for the German economy, this should still be viewed posi- tively in light of the mild recession experienced by the rest of Europe in 2020. The IHS Markit projection is lower than those issued by the IMF in October (4.2 %) and the German Council of Economic Experts in November (3.7 %) given the tense pandemic situation and the strict lockdown in place since mid-December. Pandemic reinforces trend towards online shopping The German market for paper-based mail communication will continue to decline as digital communication increases. As part of our digital transformation agenda for Post & Par- cel Germany, we will be realigning our product portfolio to reflect the rise in online communication and the adoption of new digital technologies for secure communication, along with physical delivery. The German advertising market is expected to shrink slightly in 2021, depending on how lastingly the trend to- wards online shopping has changed consumer behaviour and led to a reallocation of advertising budgets. The trend towards automated dialogue marketing campaigns is set to remain unchanged. In the international letter mail business, increases in merchandise shipments are expected to largely compen- sate for declining volumes of small-format documents. Whether the compensatory effect is stronger or weaker will depend on developments in cross-border trade restrictions and air freight capacity levels. The German parcel market will continue to grow and the shift from in-store to online shopping, which is being driven by pandemic-related restrictions, will likely continue. Highly cyclical international express market Experience shows that growth in the international express market, particularly in the B2B segment, is highly depend- ent upon economic factors. We believe that the steadily growing cross-border e-commerce sector will continue to drive growth in the international express market in 2021. Air and ocean freight business dependent upon normalisation of freight flows Growth rates, particularly in our core air and ocean freight business, will depend significantly upon when and how rap- idly international trade flows return to normal. In light of the uncertain market situation, this remains dificult to predict, however, a gradual return to normalisation is expected in the second half of the year in particular. Of additional significance for the air cargo market is how quickly passenger flights resume, which is closely linked to how the pandemic develops. This also applies to growth in the European road trans- port market, in which we expect to see a substantial recov- ery in 2021 compared with the reporting year. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 59 Contract logistics market continues to grow The trend towards outsourcing warehousing and distri- bution is set to continue, given the increased demand for flexibility, agility and speed. Demand for e-fulfilment solu- tions is expected to grow even further, due in part to the pandemic. Following recovery from the pandemic, the market for contract logistics is expected to continue experiencing steady growth. Good growth prospects for eCommerce Solutions Our eCommerce Solutions division is heavily dependent on local economic trends. The pandemic and pandemic- related restrictions have reinforced the trend towards online shopping. In all regions, especially in the B2C e-com- merce sectors, increases in shipping volumes significantly exceeded expectations in 2020. We expect this trend to continue, if not accelerate, in 2021. We are confident that our product portfolio, our digitalisation and automation in- vestments, and our focus on quality and customer- centric solutions will continue to contribute to good overall growth in 2021. Expected developments business in the Post & Parcel Germany, eCommerce Solu- tions and international Express networks, but also in Global Forwarding, Freight’s air, ocean and road freight operations, and at the Supply Chain locations. Group EBIT expected to exceed €5.6 billion We expect consolidated EBIT to reach more than €5.6 bil- lion in financial year 2021. For the DHL divisions, we ex- pect total EBIT to come to around €4.5 billion. We proceed from an EBIT of around €1.6 billion for the Post & Parcel Germany division. Group Functions (previously Corporate Functions) is anticipated to contribute around €–0.4 billion to earnings. to the customary upturn in business in the second half of the year. Capital expenditure of around €3.4 billion expected In 2021, we plan to increase capital expenditure (excluding leases) to around €3,4 billion in support of our strategic objectives and further growth. The focus of capital expend- iture will be similar to that of previous years. Anticipated EAC and free cash flow In line with the projected growth in EBIT, we expect that EAC will also increase in 2021. Free cash flow is expected to amount to around €2.3 billion. Proposed dividend: €1.35 per share The Board of Management and the Supervisory Board will propose a dividend of €1.35 per share for financial year 2020 to shareholders at the Annual General Meeting on 6 May 2021 (previous year: €1.15). High approval for employee engagement maintained With regard to the Employee Engagement performance indicator, the level of approval is expected to be more than 80 % across the Group in 2021 and remain at least at that level until 2025. No change in the Group’s credit rating In light of the earnings forecast for 2021, we expect our “FFO to debt” performance indicator to remain stable on the whole and do not expect the rating agencies to change our credit rating from the present level. Further improving greenhouse gas efficiency We expect the Group to continue improving its greenhouse gas efficiency. Our CEX score is projected to increase by one index point during financial year 2021. As part of our Strategy, we are currently working on updating our ESG roadmap on the way to reaching net-zero greenhouse gas emissions by 2050. In this context, we are also analysing metrics and targets relating to greenhouse gas efficiency and absolute carbon emissions. Growth even during the COVID-19 pandemic Financial year 2020 and the impacts of the COVID-19 pan- demic have established a sustained, higher new baseline for volume growth, especially in B2C networks. Starting from the higher baseline, growth rates for B2C shipments are expected to be more moderate from the second quarter of 2021 onward. However, we expect B2B volumes to gradu- ally recover as the year progresses, not only with respect to Liquidity to remain solid We anticipate a reduction in our cash position in the first half of 2021 as a result of the dividend payment for financial year 2020 scheduled for May 2021, repayment of a bond and the annual pension-related prepayment due to Bundesanstalt für Post und Telekommunikation ( German federal post and telecommunications agency). Our operating liquidity situ- ation will improve again towards the end of the year due Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 60 Opportunity and risk management Opportunity and risk management process Uniform reporting standard As an internationally operating logistics company, we are facing numerous changes. Our aim is to identify the re- sulting opportunities and risks at an early stage and take the necessary measures in the specific areas affected in due time to ensure that we achieve a sustained increase in enterprise value. Our Group-wide opportunity and risk management system facilitates this aim. Each quarter, managers estimate the impact of future scenarios, evaluate opportunities and risks in their departments, and present planned measures as well as those already taken. Queries are made and approvals given on a hierarchical basis to ensure that different managerial levels are involved in the process. Opportunities and risks can also be reported at any time on an ad-hoc basis. Opportunity and risk management covers not only op- portunities and risks, but also sustainability. With the goal of devoting even greater attention to sustainability, in 2020 we launched a Group-wide project aimed at identifying new, cross-divisional opportunities and risks related to specific topics in the area of environmental, social and governance (ESG) structures. Our early identification process uses a proprietary IT application that is constantly updated to take elements of the Group’s opportunity and risk management system and combine them into a uniform reporting standard. Fur- thermore, we use a Monte Carlo simulation for the pur- pose of aggregating opportunities and risks in standard evaluations. The simulation is a stochastic model that takes the probability of occurrence of the underlying risks and op- portunities into consideration and is based upon the law of 1 Identify and assess Assess Define measures Analyse Identify 5 Control Review results Review measures Monitor early warning indicators Corporate Audit reviews 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 Corporate Audit large numbers. One million randomly selected scen arios – one for each opportunity and risk – are combined on the basis of the distribution functions for each individual op- portunity and risk. The most important steps in our opportunity and risk management process are: 1 Identify and assess: Managers in all divisions and regions evaluate the opportunity and risk situation on a quarterly basis and document the actions taken. They use scenarios to assess best, expected and worst cases. Each identified risk is assigned to one or more risk owners who assess and monitor the risk, specify possible procedures for going forwards and then file a report. The same applies to opportunities. At least one management process used to measure net risk expos- ure must be reported for each opportunity or risk. In isolated cases where it is not initially possible to make a quantitative assessment, risks may be assessed on a qualitative basis to ensure that the full scope of all risks is captured. The results are compiled in a database. We also conduct an annual risk workshop for each division with the Divisional Boards, as supplements to the quar- terly process. Workshop discussion focuses on oppor- tunities and risks of significance to the whole division. At the same time, newly identified opportunities and risks are subsequently integrated into the quarterly process. 2 Aggregate and report: The control units collect the results, evaluate them and review them for plausibil- ity. If individual financial effects overlap, this is noted in our database and taken into account in the compil- ation process. After being approved by the division risk owner, 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 Manage- ment on significant opportunities and risks as well as Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 61 on the potential overall impact each division might ex- perience. For this purpose, opportunities and risks are aggregated for the key organisational levels. We use two methods for this. In the first method, we calcu- late a possible spectrum of results for the divisions and combine the respective scenarios. The totals for “worst case” and “best case” indicate the total spectrum of re- sults for the respective division. Within these extremes, the total “expected cases” shows current expectations. The second method makes use of a Monte Carlo simu- lation, the divisional results of which are regularly in- cluded 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 ana- lyse and report on opportunities and risks. The reports created by Corporate Controlling provide the Board of Management with an additional, regular source of in- formation for managing the Group as a whole. 4 Operating measures: The measures to be used to take advantage of opportunities and manage risks are determined within the individual organisational units. They use cost-benefit analyses to assess whether risks can be avoided, mitigated or transferred to third parties. 5 Control: With respect to key opportunities and risks, early-warning indicators have been defined that are monitored constantly by the risk owners. Corporate Audit has the task of ensuring that the Board of Man- agement’s specifications are adhered to. It also reviews the quality of the entire opportunity and risk manage- ment operation. The control units regularly analyse all parts of the process as well as the reports from Corpo- rate Audit and the independent auditors, with the goal of identifying potential for improvement and making adjustments where necessary. Accounting-related internal control and risk management system Disclosures required under sections 289(4) and 315(4) Handelsgesetzbuch (HGB – German Commercial Code) and explanatory report Deutsche Post DHL Group has implemented an ac- counting-related internal control system (ICS) as part of its risk management system. The ICS aims to ensure the com- pliance of (Group) accounting and financial reporting with generally accepted principles. Specifically, it is intended to ensure that all transactions are recorded promptly, accu- rately and in a uniform manner on the basis of the applica- ble norms, accounting standards and internal Group regu- lations. Accounting errors are to be avoided in principle and significant measurement errors detected promptly. The ICS was designed to follow the internationally recognised COSO framework for internal control systems (COSO: Committee of Sponsoring Organizations of the Treadway Commission). 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 quan- titative and qualitative aspects into account. • Risks that could lead to material misstatements in the fi- nancial reports are identified and minimum requirements are formulated 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. • To maintain the system’s effectiveness and implement continuous improvements, the ICS is subjected to ongo- ing reviews using the “four eyes” principle of dual control. • 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 reconcilia- tion of the single-entity financial statements and ensure that international financial reporting standards (EU IFRS s) are applied in a uniform manner throughout the Group. In addition, German GAAP accounting policies have been established for Deutsche Post AG and the other Group com- panies subject to HGB reporting requirements. A standard chart of accounts is required to be applied by all Group companies. We immediately assess new developments 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 standard- ise them. The IFRS financial statements of the individual Group companies are recorded in a standard, SAP-based system and then processed at a central location where one- step consolidation is performed. Other quality assurance components include automatic plausibility reviews and sys- tem 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 of preparing financial statements by using a centrally administered financial statements calendar guarantees a structured and efficient accounting process. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 62 Over and above the ICS and risk management, Corpor- ate 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, however, always be taken into consideration that no ICS, regardless of how well designed, can offer ab- solute 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 opportunities which, from a current standpoint, could have a significant impact upon the Group during the fore- cast period beyond the impact already accounted for in the business plan. The risks and opportunities have been as- sessed in terms of their probability of occurrence and their impact. The assessment is used to classify opportunities and risks as either low, medium or high. Medium and high risks and opportunities are considered “significant”, and are shown as black or grey in the table below. The following assessment scale is used (measured on a net basis): Classification of risks and opportunities Probability of occurrence (%) Planned Group EBIT Risks Opportunities > 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 following assessment scale applies to qualitative risk (measured on a net basis): Assessing qualitative risk Probability of occurrence (%) Risks > 50 > 15 to ≤ 50 ≤ 15 Low Medium High Effects Significance for the Group: Low Medium High High-impact risks tend to affect the entire Group, whereas medium-impact risks play out at a divisional level and low-impact risks at a local level. Qualitative risk can be measured for financial risk, reputational risk, operational risk and environmental risk. The opportunities and risks described here are not nec- essarily 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 decentrally at Deutsche Post DHL Group. Reporting on possible deviations 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 combined the decentrally reported opportunities and risks in categories for the Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 63 purposes of this report. It should be noted that the fig- ures provided in the underlying individual reports exhibit a significant correlation with the performance of the world economy and global economic output. Unless otherwise specified, a low relevance is attached to the individual op- portunities and risks within the respective categories and in the forecast period under observation (2021). The op- portunities and risks generally apply to all divisions, unless indicated otherwise. Opportunity and risk categories 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 fast- est-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 con- dition for lasting, profitable business success. With respect to our strategic orientation, we are focussing upon our core competencies in the mail and logistics businesses with an eye towards growing organically and simplifying our pro- cesses for the benefit of our customers. Digital transforma- tion plays a key role in this. Digital transformation involves the integration of new technologies into a corporate culture that uses the changing environment to its advantage. This gives rise to opportunities from new infrastructure net- working possibilities and from digital business models, for example. Our earnings projections regularly take account of development opportunities arising from our strategic orientation. We take action early to counter potential strategic risks. In so doing, it helps that our customer and supplier portfolios are as broad as possible and that we focus on profitable sectors and products, regularly review customer and product performance, practice strict cost management and add surcharges whenever necessary. We also offer our customers a high level of service quality. In the observation period specified, risks arising from the current corporate strategy, which covers 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 re- sponding to the challenges posed by the structural shift from a physical to a digital business and the continual decline in letter mail occurring parallel with the steady in- crease in parcel volumes and merchandise mail items. 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 in the coming years and are therefore expanding our par- cel network. We are also expanding our range of electronic communications services, securing our standing as a qual- ity leader and, where possible, making our transport and delivery costs more flexible. We follow developments in the market very closely and take them into account in our earnings projections. For the specified forecast period, we do not see any significant strategic opportunities or risks for the Post & Parcel Germany division. In the Express division, our future success depends above all upon general factors such as trends in the com- petitive environment, costs and quantities transported. We plan to keep growing our international business and expect a further increase in shipment volumes. Based upon this assumption, we are investing in our network, our services, our employees and the DHL brand. Against the backdrop of the past trend and the overall outlook, we do not see any significant strategic opportunities or risks for the Express division. In the Global Forwarding, Freight division, we pur- chase transport services for our customers from airlines, shipping companies and freight carriers rather than pro- viding them ourselves. In the best case, we are able to outsource transport services at such a low rate that we can generate a margin. 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 opportunities 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 brokering transport services helps us to capitalise on op- portunities and minimise risk. We do not currently see any significant strategic opportunities or risks for the Global Forwarding, Freight division. In the Supply Chain division, our success is highly de- pendent on our customers’ business performance. Since we offer customers a widely diversified range of products in dif- ferent 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 contin- uously improve our existing business, seamlessly integrate new business and grow in our most important markets and customer segments. We do not see any significant strategic opportunities or risks for the Supply Chain division. The eCommerce Solutions division is responsible for all of the Group’s international parcel delivery services and predominantly serves customers in the fast-growing Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 64 e-commerce sector. Our goal is to leverage our international resources and services to build a cross-border solutions platform that can be connected to the most cost-efficient networks for last-mile delivery. We want to grow profitably in all sectors and customer segments. We took measures to counteract the fundamental risk of rising cost pressure and to improve network efficiency and cost flexibility. Other- wise, we do not see any significant strategic opportunities or risks relating to the eCommerce Solutions division. We currently do not see any specific corporate strategy opportunities or risks of material significance. Legal and compliance-related opportunities and risks Legal disputes or legal proceedings may arise or be initiated in cases of non-compliance with national or international laws, regulations or agreements. Examples are violations of antitrust and competition law or of regulatory, statutory or contractual requirements. Investigations of any such violations may cause considerable (financial) sanctions to be imposed in the context of legal proceedings or out-of- court settlements. We have established a corporate compliance unit to monitor adherence to Group-wide standards at both Group and divisional level with respect to typical compliance risks. The compliance unit monitors adherence to external laws and regulations and our corresponding internal policies to prevent risks from materialising. In addition to our compli- ance initiative aimed at fighting corruption and violations of cartel and competition law, we have introduced initiatives in all divisions intended to ensure compliance with data protection laws – for example to ensure adherence to the provisions of the European Union’s General Data Protection Regulation (GDPR). A similar, Group-wide compliance initi- ative aims to ensure adherence to international and national export controls and embargo regulations. At present, we do not see any specific legal or compli- ance-related opportunities or risks of material significance. Opportunities and risks arising from capital expenditure and projects Our Group invests in growing our network, in buildings and technical equipment, in IT solutions and in our fleet of vehi- cles and freight carriers. This can lead to risk in the event of deviations from budgets. Deviations from time frames and in implementation could impair the continuity and quality of the services we provide. Complex projects or a lack of resource availability may likewise lead to deviations from budgets or times frames. The Group is constantly on the lookout for attractive, financially advantageous investment options to firm up our divisions’ positioning. Project management and project and investment mon- itoring keep a constant watch on the status of investments and current projects in order to identify risks at an early stage so that targeted countermeasures can be taken. We report regularly to the Group Board of Management on the status of projects under monitoring in our reporting system. The Supervisory Board is additionally provided with regu- lar, comprehensive reports on the Group’s biggest projects. Moreover, the Group Board of Management is informed promptly of any critical projects. We do not currently see any specific opportunities or risks of material significance in the area of capital expend- iture and projects. Operational opportunities and risks Logistics services are generally provided in bulk and require a complex, external operational infrastructure with high quality standards. Any weaknesses with regard to the ten- dering, sorting, transport, warehousing, customs clearance or delivery of shipments could seriously compromise our competitive position. To consistently guarantee reliability and punctual delivery, processes must be organised so as to proceed smoothly with no technical or personnel-related glitches. We counteract potential operational risks, e. g., through efficient workflows and structures and by contin- uously improving our fleet management. We also take out insurance policies to guard against potential losses. Most recently, the global pandemic has revealed how external factors can reduce the availability of our employees and hence potentially impair our operating performance. For more information on the measures we are taking to protect our employees, please refer to the report sections on “Human resources” and “Climate change, catastrophes and epidemics.” A large number of internal processes must be aligned so that we can render our services. These include – in add- ition to our fundamental operating processes – supporting functions such as sales and purchasing as well as the cor- responding management processes. The extent to which we succeed in aligning our internal processes to meet customer needs whilst simultaneously lowering costs cor- relates with potential positive deviations from the current projections. Our earnings projections already incorporate the expected cost savings. We do not currently see any specific operational op- portunities or risks of material significance. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 65 Opportunities and risks arising from human resources It is essential for us to have qualified and motivated employ- ees in order to achieve long-term success. In some mar- kets, however, demographic change may lead to a scarcity of available workers. Our work in the area of human resources aims to avoid potential risk that may arise from changing demographic and social structures. The goal is to motivate our personnel, to provide them with employee development opportunities and to foster their long-term loyalty to the company. Of par- ticular importance in this context is training management and team leaders in our leadership attributes, which are applicable to all Group executives and serve as a behav- ioural compass. We keep a constant eye on developments in the job market, communicate directly with our employees and en- deavour to further enhance the Group’s attractiveness as an employer to both existing and prospective employees. Chronic disease or acute illnesses on the part of em- ployees may negatively impact their health and our ability to provide our services. We therefore place high value on occupational health and safety standards. We additionally counter the risk of disease or illness by carrying out ini- tiatives tailored to local requirements and by cooperating across divisions in the management of healthcare initiatives, such as app-supported exercise programmes, options to have check-ups performed on-site and the Group-wide em- ployee benefits programme. In addition, we address risk in the area of mental health using a new system for assessing risks associated with mental stresses. Thanks to a targeted and coordinated approach, we were able to limit the impact of the pandemic in the year under review without generating any serious repercussions for our illness rate. We foresee similar results for 2021. Overall, we do not currently see any specific person- nel-related opportunities or risks of material significance. Opportunities and risks arising from information technology The security of our information systems is particularly im- portant to us. The goal is to ensure continuous IT system operation and prevent unauthorised access to our systems and databases. To this end, we have defined guidelines, standards and procedures based upon ISO 27001, the international standard for information security manage- ment. In addition, IT risk is monitored and assessed on an ongoing basis by Group Risk Management, Internal Audit, Data Protection and Corporate Security. We estimate the latent risk of third parties gaining unauthorised access to our systems and jeopardising the availability of our data as medium. For our business processes to run smoothly at all times, the essential IT systems must be continuously available. We have therefore designed our systems to protect against complete system failure. 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 up- grades – to control risks that could arise from outdated software or from software upgrades. We limit access to our systems and data such that em- ployees can only access the data they need to perform their duties. All systems and data are backed up on a regular basis, and critical data are replicated across data centres. In addition to outsourced 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. Based upon the measures de- scribed above, we estimate the probability of experiencing a significant IT incident with serious consequences as very low. We also take continuous action to minimise risk, such as holding regular training courses for our employees and monitoring all of our networks and IT systems globally via our Cyber Defence Centre, along with regular information security incident simulations. We currently do not see any other specific IT-related opportunities or risks of material significance. Financial opportunities and risks As a global operator, we are exposed to financial opportu- nities and risks arising from fluctuating foreign exchange rates, interest rates and commodities prices, as well as the general risk inherent in the use of financial instruments. Changes in pension obligations also impact our business. We attempt to reduce the volatility of our financial perform- ance due to financial risk by implementing both operational and financial management measures. With respect to currencies, opportunities and risks result from scheduled foreign currency transactions as well as those budgeted for the future. Any significant currency risks arising from budgeted transactions are quantified as a net position over a rolling 24-month period. Highly cor- related currencies are consolidated in blocks. At the Group level, the most important net surpluses are budgeted for the “US dollar block” as well as for the pound sterling, the Japanese yen and the Korean won. The Czech koruna is Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 66 the only currency with a considerable net deficit. As at the reporting date, there were no significant currency hedges for scheduled foreign currency transactions. Any general depreciation of the euro presents an op- portunity as regards the Group’s earnings position. Based upon current macroeconomic estimates, we consider the likelihood of such an opportunity arising to be low. The main risk to the Group’s earnings position would be a gen- eral appreciation of the euro. The significance of this risk is deemed low when considering the individual risks arising from changes in the respective currencies. The aggregate effect of all foreign currency gains and losses is currently deemed to result in a risk of low rele- vance for the Group. However, recent exchange rate trends indicate that an opportunity could arise over the course of the year. 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 customers via operating measures (fuel surcharges). The key control parameters for liquidity management are the centrally available liquidity reserves. The Group’s li- quidity is secured over the short and medium terms. More- over, the Group enjoys open access to the capital markets on account of its good ratings within the industry and is well positioned to ensure that long-term capital requirements are fulfilled. We therefore see no significant risk to the Group at present in the area of liquidity. Further information on the Group’s financial position and finance strategy as well as on the management of fi- nancial risks can be found in the report on the economic position and in note 42 to the consolidated financial statements. Detailed information on risks and risk mitigation in rela- tion to the Group’s defined benefit retirement plans can be found in note 36 to the consolidated financial statements. Risk may also arise from our financial and managerial accounting processes and our budgetary processes. We monitor those processes continuously to prevent such risk from materialising. We do not currently see any other significant financial opportunities or risks. Tax-related opportunities and risks Due to the international scope of our operations, we are subject to a variety of tax regimes. Opportunities and risks arise from the introduction of new types of taxes, legislative changes and judicial rulings. We mitigate this risk through continual dialogue with taxation authorities and tax advisors to obtain the greatest possible degree of legal certainty. This allows us to meet tax compliance requirements in the countries in which we operate to the best of our knowledge and belief. Our Group risk management system incorporates a tax risk manage- ment framework that enables us to monitor avoid tax risk as far as possible. Currently, we have not identified any significant tax- related opportunities or risks. Opportunities and risks related to real estate transactions Deutsche Post DHL Group is one of the world’s biggest us- ers of industrial real estate. A large portion of the Group’s industrial real estate portfolio consists of leased properties. Ownership solutions have additionally been implemented for a number of especially strategic properties. Our busi- ness may be impacted by opportunities and risks arising from the lease, purchase, sale, construction or use of real estate. A global team of real estate experts manages the Group portfolio and ensures that any opportunities or risks are identified at an early stage and a suitable response is selected. We negotiate suitable solutions early with our lessors, analyse real estate markets and identify suitable properties for expanding or optimising the current portfolio based on our divisions’ business strategies and operational location planning. The main objective is to secure the availability of properties needed for our core business. We do not currently see any specific opportunities or risks of significance in the area of real estate. Market- and customer-specific opportunities and risks Macroeconomic and sector-specific conditions are a key factor in determining the success of our business. Along with the global economic cycle, of particular importance here is the evolution of the logistics market in the interplay between our company and our stakeholders, and including our customers, suppliers and competitors. Changes in de- mand present both opportunities and risks. As a provider of choice, our business is based on our customers’ needs. Our customers are likewise exposed to macroeconomic trends that impact growth in their sec- tors. We monitor market developments on an ongoing basis and review the potential financial effects of cus- tomer and supplier relationships at regular intervals to enable us to avert any risk that could arise from potential insolvencies, for example, at an early stage. Our Customer Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 67 Solutions & Innovation unit uses a customer risk dashboard for this purpose. We expect the positive development of our business to carry over into 2021. Growth opportunities will arise in all areas of business as the world economy gradually recovers and structural growth continues in the area of e-commerce. Although the consequences of the pandemic have weakened world trade, our DHL divisions are bene- fitting from rising demand for complex logistics solutions, amongst other things, thanks to our position as the global market leader. In addition, our strong position in all the regions in which we operate allows us to compensate for declines in certain trade lanes based on growth in others. Whether and to what extent the logistics market will grow depends on a number of factors. The trend towards outsourcing business processes continues. Supply chains are becoming more complex and more international, due in part to an increasing desire on the part of many businesses for supplier diversity as a re- sult of the global pandemic. However, the added complexity also makes supply chains more prone to disruption. Cus- tomers are therefore calling for stable, integrated logistics solutions, which is what we provide with our broad-based service portfolio. We are unable to generally rule out the possibility of an economic downturn in specific regions or a stagnation or decrease in transport quantities. However, we assume that this would not reduce demand in all business units. For example – as we have just learned during the pandemic – the opposite effect has occurred in our parcel business as online sales have resulted in higher demand. Cyclical risks can affect our divisions differently depending on their magnitude and point in time, which could mitigate the total effect. Moreover, we have taken measures in re- cent years to make costs more flexible and to allow us to respond quickly to changes in market demand. For instance, our Coronavirus Task Force was able to respond swiftly and flexibly to changes caused by the pandemic. This enabled us to keep our supply chain intact and provide the best pos- sible service to customers. Deutsche Post and DHL are in competition with other providers and new competitors entering the market. 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 sav- ings 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. As a logistics concern, we are additionally exposed to the effects of fluctuations in market prices on Group profit. No significant opportunities or risks are seen at present in this risk category. Opportunities and risks arising from political, regulatory or legal conditions Our business is fundamentally intertwined with the pol- itical and legal environment in which we operate. Due to the international flow of goods, this includes the import, export and transit regulations of more than 220 countries and territories as well as their applicable foreign trade laws. In recent years, not only has the number and complexity of such laws and regulations increased (including their extraterritorial application), but violations are also being pursued more aggressively by the competent authorities, with stricter penalties imposed. We have implemented a Group-wide compliance programme in response to this de- velopment. In addition to the legally prescribed checking of all senders, recipients, suppliers and employees against current embargo lists, this specifically includes the legally required review of shipments for the purpose of enforcing applicable export restrictions as well as country sanctions and embargos. Deutsche Post DHL Group also co-operates with the responsible authorities, both in working to prevent violations as well as in assisting in the investigation of any infringements in order to avoid or limit potential sanctions. A number of risks arise primarily from the fact that the Group provides some of its services in regulated markets. Many of the postal services rendered by Deutsche Post AG and its subsidiaries (particularly the Post & Parcel Germany division) are subject to sector-specific regulation by Bundes netzagentur (German federal network agency). Bundes netzagentur approves or reviews prices, formulates the terms of downstream access, has special supervisory powers to combat market abuse and guarantees the pro- vision of universal postal services. This general regulatory risk could lead to a decline in revenue and earnings in the event of negative decisions. Revenue and earnings risk can arise in particular from the price cap procedure used to determine the rates for individual pieces of letter mail. The current rates for 2019 to 2021 were approved by Bundesnetzagentur on 12 Decem- ber 2019 as part of the price cap procedure; the approved rates are in effect until 31 December 2021. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 68 In its capacity as a consumer of postal services, a German courier, express and parcel (CEP) association and other customers and providers of postal services filed an action with the Cologne Administrative Court against the pricing approvals granted on 12 December 2019. On 4 January 2021, the Cologne Administrative Court ruled that the CEP association’s action suspends the effect of Bundes netz agentur’s decision to raise prices for standard, compact, large format (Großbrief) and extra-large format (Maxibrief) letters within Germany. The ruling only applies to the CEP association. The proceedings in the main action are still pending. Moreover, the same CEP association had previously (on 4 December 2015) filed an action against the pricing approvals granted for the years from 2016 to 2018. The German Federal Administrative Court ruled on that action brought by the CEP association on 27 May 2020. The only one of the approvals that the court deemed unlawful con- cerned the increase in the price of a standard domestic letter to €0.70 for the years from 2016 to 2018. The ruling is only directly applicable to the plaintiff. The amount in dispute was set by the Federal Administrative Court at a mid-range, four-digit euro amount. In the grounds for its decision, the court stated that the pricing approval in question was unlawful because the method used to calculate the allowable profit margin under the amended provisions of the 2015 Post-Entgelt- regulierungs verordnung (PEntgV – Postal Rate Regulation Act) was not in compliance with the provisions of Post gesetz (PostG – German Postal Act) regarding the authority to is- sue statutory instruments. The German government plans to remedy this formal deficiency through an amendment to Postgesetz, which will allow previous regulatory practice to continue by and large. Bundes netz agentur will examine the consequences of the Federal Administrative Court’s ruling on the current pricing approvals granted for the years from 2019 to 2021. It cannot currently be ruled out that the effects on ex- isting pricing approvals, or on future price-cap procedures, of the court’s decisions, the change in the regulatory frame- work or the actions currently pending could be negative for Deutsche Post. According to current assessments, this represents a medium risk. We describe other significant legal proceedings in note 44 to the consolidated financial statements. However, we do not see any of these other proceedings as posing a risk of significant deviations from the projections for the 2021 forecast period. In addition, the German federal government intends to amend the German Postal Act and its regulations with the stated aim of ensuring good-quality postal services and healthy competition as well as reducing unnecessary regulation. On 1 August 2019, the German Federal Ministry for Economic Affairs and Energy published key points appli- cable to the revision of Postgesetz. The legislative process to amend Postgesetz is expected to begin in the course of 2021. Depending upon the structure of the new regulatory framework, opportunities and risks may arise for the com- pany’s regulated areas. Apart from legal aspects, the economic and political situations in our regions are of significance to us. At present, we are mainly focussing on potential effects of the UK’s exit from the EU. Alongside other aspects, Brexit poses a risk to the Group’s net assets, financial position and results of operations owing to potential changes in exchange rates, the economy, air traffic rights and customs duties, as well as the impact on our customers both within and outside of the UK. The topic-specific working groups we have established in this context have helped us to prepare as thoroughly as possible for the effects of Brexit. Due to a change in the EU customs regime, all EU im- ports will be subject to VAT starting on 1 July 2021. Import VAT will also be charged on goods from non-EU sellers valued at below €22. It will also be necessary to submit an electronic customs declaration form for each shipment. The relocation of customs classification from the destina- tion country to the country of origin will result in additional costs for the Group due to the need to modify processes and provide IT support. We do not currently anticipate this leading to any significant risk for the Group. We have not identified any other significant opportu- nities or risks associated with the political, regulatory or statutory environment. Opportunities and risks arising from climate change, catastrophes and epidemics Our business operations can be both positively and neg- atively impacted by natural disasters, epidemics and eco- logical factors. The year 2020 was crucially shaped by the COVID-19 pandemic, which presented us with challenges posing both opportunities and risks. Our focus at all times was, and con- tinues to be, on safeguarding the health of our employees. At the same time, we succeeded in significantly increasing our revenues due to volume increases in both the German parcel business and in express deliveries. At the same time, Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT ExPECTED DEVELOPMENTS, OPPORTUNITIES AND RISKS 69 measures aimed at containing the pandemic led to eco- nomic restrictions and uncertainty about how the global economy as a whole and our business will fare going for- ward. We are making a collective effort to contain the virus and adapt our business to the current situation by taking suitable measures such as improving hygiene protocols, requiring masks to be worn, enabling remote working where possible and holding virtual meetings. The further course of the virus cannot be predicted at present. We are therefore examining the impact of the pandemic on our operations in the individual regions at regular intervals. We believe that the overall effect of the opportunities and risks described will be of medium relevance for the Group in the coming years. We deal with additional potential effects of the pandemic in the report on expected developments. We are paying close attention to current developments in environmental policy and their effects on our business – for instance the introduction of a national emission trad- ing system in 2021. At present, we do not see the Group as being exposed to any significant risk based on these developments, given our objective of achieving net-zero greenhouse gas emissions by 2050. We have not identified any significant opportunities or risks in this area other than the effects of the pandemic. Overall assessment We expect consolidated EBIT to reach more than €5.6 bil- lion in financial year 2021. For the DHL divisions, we ex- pect total EBIT to come to around €4.5 billion. We proceed from an EBIT of around €1.6 billion for the Post & Parcel Germany divison. Group Functions (previously: Corporate Functions) is anticipated to contribute around €–0.4 billion to earnings. In line with the projected growth in EBIT, we expect that EAC will also increase in 2021. With planned investment (excluding leasing) of around €3.4 billion, we expect free cash flow to amount to around €2.3 billion. The current business planning has not identified any significant changes in the Group’s overall opportunity and risk situation compared with last year’s risk report. No new risks with a potentially critical impact upon the Group’s result have been identified according to current assess- ments. Based upon the Group’s early warning system and in the estimation of its Board of Management, there were no identifiable risks for the Group in the current 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 sta- ble to positive outlook projected for the Group is moreover reflected in our Credit rating. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 70 GOVERNANCE Annual Corporate Governance Statement pursuant to sections 289f and 315d Handelsgesetzbuch (HGB – German Commercial Code) with respect to Deutsche Post AG and Deutsche Post DHL Group. Company in compliance with all recommendations of the German Corporate Governance Code The new German Corporate Governance Code (the “Code”) entered into force in March 2020. The Board of Manage- ment and the Supervisory Board reviewed the principles, recommendations and suggestions contained therein and in December 2020 resolved to again issue an unqualified Declaration of Conformity pursuant to section 161 of the Aktiengesetz (AktG – German Stock Corporation Act) with respect to the new Code recommendations: “The Board of Management and the Supervisory Board of Deutsche Post AG hereby declare that all recommenda- tions of the Government Commission German Corporate Governance Code (DCGK) as amended on 7 February 2017 and published in the Federal Gazette on 24 April / 19 May 2017 have been complied with, including after issuance of the Dec- laration of Conformity in December 2019, and that all recom- mendations of the Code as amended on 20 March 2020 and published in the Federal Gazette on 16 December 2019 shall be complied with in the future.” The suggestions made in the Code as amended on 16 February 2019 will likewise be implemented without exception. The current Declaration of Conformity and all Declar- ations of Conformity for the past five years are available on the company’s website. Corporate governance principles and shared values Our business relationships and activities are based upon responsible business practice that complies with applicable laws, ethical 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 re- lationships with our shareholders, our employees and other stakeholders, whose decisions to select Deutsche Post DHL Group as a supplier, employer or investment are increas- ingly also based upon the requirement that we apply good corporate governance criteria. As a Group-wide framework of policies and regula- tions, the Code of Conduct is firmly established within the company and is applicable across all divisions and regions. The Code of Conduct was updated in the year under review. For one thing, we addressed some of the core topics from our Strategy 2025, such as sustainability and digital trans- formation. We also reviewed the provisions of the Code of Conduct for conformity with the Group’s broader policies and regulations. This relates to the “Anti-Corruption and Anti-Bribery” and “Human Rights” sections, for example. The Code of Conduct is based upon the principles set out in the United Nations (UN) Global Compact and the Uni- versal Declaration of Human Rights. It is consistent with recognised legal standards, including the applicable an- ti-corruption legislation and agreements. We adhere to the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work and the OECD Guidelines for Multinational Enterprises. As a long standing partner of the United Nations, we also support the UN’s Sustainable Development Goals (SDGs). for the recruitment and professional development of our employees are their skills and qualifications. Our Diversity Council discusses the strategic aspects of diversity manage- ment and divisional requirements. Its members comprise executives from the central functions and divisions and it is chaired by the Board member for Human Resources. Mem- bers 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 executive positions. Doing business 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 en- gage personally. Ensuring that our interactions with business partners, shareholders and the public are conducted with integrity and within the bounds of the law is vital to maintaining our reputation. This is also the foundation of Deutsche Post DHL Group’s lasting business success. Our compliance manage- ment system (CMS) focusses upon preventing corruption and anti-competitive conduct. Insights gained from com- pliance audits and reported violations are also used to con- tinually improve and upgrade the CMS system, Compliance. Co-operation between the Board of Management and the Supervisory Board As a German listed company, Deutsche Post AG is managed by the members of the Board of Management, who are ap- pointed, advised and supervised by the members of the Supervisory Board. The Code of Conduct also defines what is meant 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 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. The members of the Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 71 Board of Management manage their board departments on their own responsibility, except where decisions of par- ticular significance and consequence for the company or the Group must be taken by the members of the Board of Management as a whole. They are required to subordinate the interests of their individual board departments to the collective interests of the company and to inform the full Board of Management about significant developments in their spheres of responsibility. The Chair of the Board of Management conducts Board business, aligns board department activities with the com- pany’s overall goals and plans, and ensures that corporate policy is implemented. When making decisions, members of the Board of Management may not act in their own per- sonal interest or exploit corporate business opportunities for their own benefit. Any conflicts of interest must be disclosed to the chairs of the Supervisory Board and the Board of Management without delay; the other Board of Management members must also be informed. The Supervisory Board works with the Board of Man- agement to ensure long-term succession planning for the Board of Management. In addition to the requirements of the Aktiengesetz (AktG – German Stock Corporation Act) and the German Corporate Governance Code, succession planning is based on the diversity criteria stipulated by the Supervisory Board for the Board of Management’s com- position and the target for the percentage of women on the Board of Management. Taking into account the specific qualifications required, the Executive Committee devel- ops a profile, selects particularly suitable candidates from those available for interviews and submits candidate pro- posals to the Supervisory Board. The initial term of service for members of the Board of Management runs for no more than three years. No member of the Board of Management is a member of a supervisory board of a non-Group listed company or exercises a comparable function. The Supervi- sory Board has stipulated that the term of service of Board of Management members generally should end no later than the year in which the Board of Management member reaches the age of 65. The company’s D & O insurance for the members of the Board of Management provides for a deductible as set out in the AktG. The rules of procedure for the Supervisory Board include principles governing the Board’s internal organisation and the work of the Supervisory Board committees as well as a catalogue of Board of Management transactions requir- ing approval. The Chair elected by the members from their ranks co-ordinates the work of the Supervisory Board and represents the Supervisory Board publicly. The Supervisory Board represents the company in respect of the Board of Management members. The Annual General Meeting de- termines the remuneration of Supervisory Board members. There are no contracts between the company and Super- visory Board members apart from those governing their Supervisory Board activities and the employment contracts with the employee representatives. The Supervisory Board meets at least twice each half- year, often without the Board of Management present. Extraordinary Supervisory Board meetings are held when- ever decisions need to be taken at short notice or particular issues require discussion. In the 2020 financial year, Super- visory Board members held six plenary meetings, 25 com- mittee meetings and one closed meeting, as described in the Report of the Supervisory Board. Some of those meetings were held as conference calls due to pandemic- related re- strictions. Whenever the Supervisory Board held meetings without the participation of the full Board of Management, certain agenda items were only dealt with when the Chair of the Board of Management was present. In September, the Supervisory Board met without the Board of Management present. The attendance rate was very high at nearly 100 %. The Report of the Supervisory Board contains a breakdown of attendance by member. The Board of Management and the Supervisory Board regularly discuss the Group’s strategy, the divisions’ object- ives and strategies, the financial position and performance of the company and the Group, key business transactions, the progress of acquisitions and investments, compliance and compliance management, risk exposure and risk man- agement, and all material business planning and related implementation issues. Of particular importance in the year under review were the effects of the pandemic on our employees’ health and on the performance of our divisions, including the specific measures implemented by the divi- sions. The Board of Management informs the Supervisory Board promptly and in full about all issues of significance. The Chair of the Supervisory Board and the CEO maintain close contact about current issues. Supervisory Board decisions are prepared in advance in separate meetings of the shareholder representatives and the employee representatives, and by the relevant committees. Each plenary Supervisory Board meeting in- cludes a detailed report regarding the committees’ work and the decisions taken. Supervisory Board members are personally responsible for ensuring they receive the train- ing and professional development measures they need to perform their tasks. They receive appropriate support from the company in the process. One of the core elements is the annual Directors’ Day, which was last held in Decem- ber 2020. Speakers from within the company made pres- entations on current issues and developments and were available to answer questions. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 72 Independence of shareholder representatives on the Supervisory Board All Supervisory Board members are independent within the meaning of the German Corporate Governance Code. The number of independent Supervisory Board members therefore exceeds both the previous target of a minimum of 75 % we had set for the Supervisory Board as a whole and the more ambitious target – set in December 2020 to replace the previous target – of a minimum of 60 % for the group of shareholder representatives. The largest share- holder in the company, KfW Bankengruppe, currently holds 20.49 % of the shares in Deutsche Post AG and therefore does not exercise control. Accordingly, Dr Jörg Kukies and Dr Günther Bräunig are also independent. None of the shareholder representatives have been on the Supervisory Board for more than twelve years. Lawrence Rosen is the only former Board of Management member with a seat on the Supervisory Board. It has been more than four years since Mr Rosen served on the Board of Management. No Supervisory Board member exceeds the maximum age limit of 72, holds seats on governing bodies of the Group’s main competitors or provides consultancy services to or maintains personal relationships with such competitors. Effectiveness of the Supervisory Board’s activities The Supervisory Board carries out an annual review of the effectiveness of its work in plenary meetings and in the committees. This review is based upon a questionnaire, individual conversations between the Supervisory Board members and the chair and discussion in a Supervisory Board meeting, without the Board of Management. Sug- gestions made by individual members of the Supervisory Board are also taken up and implemented during the year. In the 2020 financial year, the Supervisory Board reviewed the efficiency of its activities in its September meeting. The Board concluded that it had performed its monitoring and advisory duties effectively and efficiently. Constructive col- laboration within the Supervis ory Board and with Board of Management members in an atmosphere of trust enables duties to be performed in a proper and professional man- ner, as does the way in which the meetings are organised and conducted, which extends to the timely provision of decision-useful information. Targets for the composition of the Supervisory Board (skills profile) The Supervisory Board most recently amended the targets it had set for its composition in December 2020 to reflect Recommendation C.6 of the new German Corporate Gov- ernance Code. The target for an appropriate number of in- dependent Supervisory Board members now relates solely to the group of shareholder representatives. The new tar- get of 60 % is higher than the figure previously set with due consideration for the group of employee representatives. The targets established also act as targets for the skills profiles sought by the Supervisory Board. 1 When proposing candidates to the Annual General Meet- ing for election as Supervisory Board members, the Super visory Board is guided purely by the best interests of the company. Subject to this requirement, the Super- visory Board aims to ensure that the independent group of shareholder representatives as defined in C.6 of the German Corporate Governance Code accounts for at least 60 % of the Supervisory Board, and that at least 30 % of Supervisory Board members are women. 2 The Supervisory Board’s future proposals to the An- nual General Meeting will continue to consider candi- dates whose origins, education or professional expe- rience equip them with international knowledge and experience. 3 The Supervisory Board should be in a position to collec- tively provide competent advice to the Board of Man- agement on fundamental future issues; in its opinion this includes, in particular, digital transformation. 4 The Supervisory Board should collectively have suffi- cient expertise in the areas of accounting and finan- cial statement audits. This includes knowledge of international developments in the field of accounting. Additionally, the Supervisory 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 advice to, and supervision of, the Board of Manage- ment. The Supervisory Board will decide how to deal with potential or actual conflicts of interest on a case-by-case basis, in accordance with the law and giving due consideration to the German Corporate Governance Code. In accordance with the age limit adopted by the Super- visory Board and laid down in the rules of procedure for the Supervisory Board, proposals for the election of 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 Super- visory Board member reaches the age of 72. As a gen- eral rule, Supervisory Board members should not serve more than three full terms of office. The current Supervisory Board meets these targets and this skills profile. The Supervisory Board took such targets and the skills profile into account in the election proposals it made to the 2020 Annual General Meeting. It will do the same with respect to election proposals to be made to this year’s Annual General Meeting. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 73 Board of Management and Supervisory Board committees All Board of Management members meet once a year to hold business review meetings for each division. Additional business review meetings are held per division or cross- divisional function between the CEO, the CFO and repre- sentatives of management for each division. The review meetings involve discussions of strategic initiatives, oper- ational matters and the budgetary situation in the divisions. The members of the Supervisory Board’s committees prepare the resolutions to be taken in the plenary meetings and fulfil the duties assigned to them by the law, the com- pany’s Articles of Association and the rules of procedure for the Supervisory Board. The Executive Committee prepares the resolutions to be taken in the plenary meetings regarding the appointment of members to the Board of Management, preparation of their service agreements (including remuneration), the system for remunerating Board of Management members, the establishment of variable remuneration targets and the review of the appropriateness of Board of Management re- muneration. The Executive Committee also works on long- term succession planning for the Board of Management. The Finance and Audit Committee reviews the com- pany’s accounts, oversees its accounting process and the ef- fectiveness of the internal control system, risk management, internal audit and the audit of the financial statements, in particular with respect to audit quality and the independ- ence of the auditors. It prepares the proposals of the Super- visory Board to be made to the Annual General Meeting concerning appointment of the auditor and is responsible for carrying out the selection process. The Finance and Audit Committee, moreover, deals with the audit of the non-financial statement. If the auditor is to be engaged to perform non- audit services, the committee must also approve any such engagement. It examines corporate com- pliance and discusses the half-yearly financial reports and the quarterly statements with the Board of Management prior to their publication. Based upon its own assessment, the committee submits pro posals for the approval of the annual and consolidated financial statements by the Super- visory Board. Since 1 January 2020, the Finance and Audit Committee has been additionally responsible for issuing findings on the required Supervisory Board approvals of significant transactions between the company and related parties. The Chairman of the Finance and Audit Committee, Stefan Schulte, is an independent financial expert as de- fined in sections 100(5) and 107(4) of the AktG and in D.4 of the German Corporate Governance Code. 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 will be informed without delay of any potential grounds for exclusion or for impair- ment of the auditors’ independence that arise during the audit, to the extent that any such grounds for exclusion or impairment are not immediately remedied. In addition, it has been agreed that the auditors will inform the Super- visory Board without delay of all material findings and in- cidents occurring in the course of the audit. Furthermore, the auditors must inform the Supervisory Board if, whilst conducting the financial statements audit, they find any facts leading to the Declaration of Conformity issued by the Board of Management and Supervisory Board being incor- rect. The Audit Committee chair and the auditor regularly exchange information both at meetings and at other times. 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 divisions. In addition, it does preparatory work on corporate acquisitions and divestitures that require the Supervisory Board’s approval. The Nomination Committee presents the shareholder representatives of the Supervisory Board with recommen- dations for shareholder candidates for election to the Super- visory Board at the Annual General Meeting. The Personnel Committee discusses human resources principles for the Group. The Mediation Committee carries out the duties as- signed to it pursuant to the MitbestG: it makes proposals to the Supervisory Board on the appointment of members of the Board of Management in those cases in which the required majority of two-thirds of the votes of the Super- visory Board members is not reached. The Committee did not meet in the past financial year. Further information about the work of the Supervisory Board and its committees in the 2020 financial year is con- tained in the Report of the Supervisory Board. The members of the Supervisory Board and all offices held by them can be found on page 7 f., and the members of the Board of Management and all offices held by them can be found on page 6. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 74 Committees of the Supervisory Board Executive Committee Dr Nikolaus von Bomhard (Chair) Andrea Kocsis (Deputy Chair) Strategy Committee Dr Nikolaus von Bomhard (Chair) Andrea Kocsis (Deputy Chair) Rolf Bauermeister (until 15 July 2020) Rolf Bauermeister (until 15 July 2020) Ingrid Deltenre Dr Günther Bräunig Werner Gatzer (until 12 February 2020) Dr Heinrich Hiesinger (since 4 September 2020) Thomas Held Thomas Koczelnik Thorsten Kühn (since 4 September 2020) Roland Oetker (until 27 August 2020) Dr Jörg Kukies (since 23 April 2020) Stephan Teuscher (since 4 September 2020) Personnel Committee Andrea Kocsis (Chair) Dr Nikolaus von Bomhard (Deputy Chair) Ingrid Deltenre (since 4 September 2020) Thomas Koczelnik Roland Oetker (until 27 August 2020) Finance and Audit Committee Dr Stefan Schulte (Chair) Stephan Teuscher (Deputy Chair) Nomination Committee Dr Nikolaus von Bomhard (Chair) Ingrid Deltenre Werner Gatzer (until 12 February 2020) Dr Jörg Kukies (since 23 April 2020) Mediation Committee (pursuant to section 27(3) of the German Co-determination Act) Dr Nikolaus von Bomhard (Chair) Andrea Kocsis (Deputy Chair) Werner Gatzer (until 12 February 2020) Rolf Bauermeister (until 15 July 2020) Thomas Koczelnik Dr Jörg Kukies (since 23 April 2020) Simone Menne Stefanie Weckesser Dr Heinrich Hiesinger (since 4 September 2020) Thorsten Kühn (since 4 September 2020) Roland Oetker (until 27 August 2020) Diversity When selecting members for the Board of Management, the Supervisory Board pays close attention to ensuring that they have a variety of qualifications, abilities and experience and that their skills profiles offer a meaningful addition to the Board of Management as a whole. Long-term succes- sion planning in all divisions guarantees that there will be sufficient qualified candidates to fill Board of Management positions in future. The early promotion of women in the company also plays a key role. The current target for the proportion of women on the Board of Management until the 2021 Annual General Meeting is 2:8. The Board of Management has set a target of 30 % for the percentage of women at Deutsche Post AG at both executive tiers below the Board of Management. We aim to meet these targets by 31 December 2024. The two ex- ecutive tiers are defined on the basis of their reporting lines: tier 1 comprises executives assigned to the N-1 re- porting line, whilst tier 2 consists of executives from the N-2 reporting line. The company intends to increase the share of women in management positions globally and has therefore set itself the goal of increasing the percentage of women in middle and upper management to 30 % by 2025. This figure has risen continually in recent years and stood at 23.2 % as at 31 December 2020. The diversity criteria important to the Supervisory Board when considering its own composition, are outlined in the list of its goals. With a proportion of women of 35 %, the Supervisory Board has exceeded its own target of 30 %, which also reflects the minimum statutory requirement. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 75 Shareholders and Annual General Meeting Shareholders exercise their rights, and in particular their right to receive information and to vote, at the Annual Gen- eral Meeting. Each share in the company entitles the holder to one vote. The agenda with the proposed resolutions for the Annual General Meeting and additional information will be made available on the company website at the lat- est when the General Meeting is convened. A detailed CV is published for each Supervisory Board candidate put forth for election. 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 by the shareholders. Additionally, shareholders can authorise company proxies and submit postal votes via the online service offered by the company. Due to the pandemic, the 2020 Annual General Meeting was held online in line with the applicable statutory provisions. Shareholders were able to submit their questions online up to two days prior to the AGM. They were able to vote either by absentee ballot or by authorising a company proxy to vote in their place. The 2021 Annual General Meeting will also be held online given that the pandemic is still ongoing. Remuneration of the Board of Management and the Supervisory Board The remuneration system applied to Board of Management members must be presented to the Annual General Meet- ing for approval whenever there are significant changes, or at least every four years. The 2018 Annual General Meeting approved the Board of Management remuneration system with around 89 % of the votes cast in favour. The remu- neration system continues to apply in largely unchanged form, as explained in greater detail in the Remuneration Report. That report also contains information regarding the remuneration of the individual members of the Board of Management and the Supervisory Board. In Decem- ber 2020, the Super visory Board decided to modify the remuneration system for Board of Management mem- bers to reflect the requirements of the AktG, which was amended by way of the Act on the Implementation of the Second Shareholder Rights Directive (ARUG II), and in line with the recommendations and suggestions set out in the revised German Corpor ate Governance Code. The modified remuneration system will be presented to the 2021 Annual General Meeting for approval. The Board of Management and the Supervisory Board will additionally put forward their proposal for Supervisory Board remuneration to the AGM for voting. The remuneration system for Board of Management members and the AGM’s resolution on Supervisory Board remuneration will be made accessible on the company’s website. Disclosures required by takeover law Disclosures required under sections 289a(1) and 315a(1) Handelsgesetzbuch (HGB – German Commercial Code) and explanatory report. Composition of issued capital, voting rights and transfer of shares As at 31 December 2020, the company’s share capital totalled €1,239,059,409 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 indi- vidual shareholder or group of shareholders is entitled to special rights, particularly rights granting powers of control. The exercise of voting rights and the transfer of shares are based upon statutory provisions and the company’s Articles of Association, which place no restrictions on the exercise of voting rights or transfer of shares. Shareholdings exceeding 10 % of voting rights KfW Bankengruppe (KfW), Frankfurt am Main, is our larg- est shareholder, holding 20.49 % 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 Aktien gesetz (AktG – German stock corporation act) and section 31 of the Mitbestimmungsgesetz (MitbestG – German Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 76 co-determination act)). Article 6 of the Articles of Associ- ation 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 6 and section 179 (1), sentence 1 of the AktG, amendments to the Articles of Association are adopted by resolution of the AGM. In ac- cordance with article 21 (2) of the Articles of Association in conjunction with sections 179 (2) and 133 (1) of the AktG, such amendments generally require a simple majority of the votes cast and a simple majority of the share capital 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. Board of Management authorisation, particularly regarding issue and buy-back of shares The Board of Management is authorised, subject to the con- sent of the Supervisory Board, to issue up to 160,000,000 new, no-par value registered shares (Authorised Capital). Details may be found in article 5 (2) of the Articles of As- sociation. The Articles of Association are available on the company’s website 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 au- thorised by resolution of the AGMs of 27 May 2014 (agenda item 8), 28 April 2017 (agenda item 7), 24 April 2018 (agenda item 6) and 27 August 2020 (agenda items 7 and 8) to issue Performance Share Units (PSUs). The authorisa- tion resolutions are included in the notarised minutes of the AGM, which can be viewed in the commercial register of the Bonn Local Court. In order to service both current PSUs and those yet to be issued, the AGM approved con- tingent capital increases. Details may be found in article 5 of the Articles of Association. As at 31 December 2020, the PSUs already issued conferred rights to up to 29,678,108 Deutsche Post AG shares, assuming the conditions are met. Under the authorisations granted, up to 49,350,484 addi- tional PSUs may still 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 option of using the treasury shares acquired on that basis or on the basis of a preceding authorisation, may be found in the authorisation resolution adopted by the AGM of 28 April 2017 (agenda item 8). In addition, the AGM of 28 April 2017 authorised the Board of Management to buy back shares within the scope specified in agenda item 8, including through the use of derivatives (agenda item 9). Based upon that authorisation resolution, the company re- purchased 2,003,334 shares during the financial year. As at 31 December 2020, the company held no treasury shares. Significant agreements that are conditional upon a change of control following a takeover bid and agree- ments with members of the Board of Management or employees providing for compensation in the event of a change of control Deutsche Post AG holds a syndicated credit facility with a volume of €2 billion under an agreement entered into with a consortium of banks. If a change of control within the meaning of the agreement occurs, each member of the bank consortium is entitled, under certain conditions, to cancel its share of the credit facility as well as its share of any outstanding loans and to request repayment. The terms and conditions of the bonds issued under the Debt Issuance Programme established in March 2012 and those of the convertible bond issued in December 2017 also con- tain change-of-control clauses. In the event of a change of control within the meaning of those terms and condi- tions, creditors are, under certain conditions, granted the right to demand early redemption of the respective bonds. Finally, Deutsche Post AG has concluded a factoring agree- ment providing for a maximum volume of €70 million in connection with distribution partnerships. The factoring agreement can be terminated without notice in the event of a change of control as defined in the agreement. In the event of a change of 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 of 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). Starting in the 2021 financial year, Board members are no longer entitled to receive a severance payment when exercising their right to early termination. With regard to the Annual Bonus Plan with Share Matching for executives, the holding period for the shares will become invalid with immediate effect in the event of a change of control of the company. The participating executives will receive the total number of matching shares corresponding to their investment (or a cash equivalent) in due course. In such a case, the employer will be responsible for any tax disadvantages resulting from a reduction of the holding period. Taxes normally incurred after the holding period are exempt from this provision. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 77 Remuneration Changes to the remuneration system Object Annual bonus Previous regulations New regulations The remuneration report describes the system of remu- neration applied to members of the Board of Management and the Supervisory Board for the 2020 financial year. It explains in detail and in individualised form the structure and amount of the individual components of Board of Management and Supervisory Board remuneration. The remuneration report has been prepared in accordance with the requirements of the German Commercial Code ( Handelsgesetzbuch – HGB), German Accounting Stand- ards (GASs), International Financial Reporting Standards (IFRS s) and the recommendations of the German Corpor- ate Governance Code (Deutscher Corporate Governance Kodex – the Code). It also contains previously selected dis- closures made on a voluntary basis in accordance with the requirements of the Act Implementing the Second Share- holder Rights Directive (ARUG II) of 12 December 2019. BOARD OF MANAGEMENT REMUNERATION In terms of its basic design, the remuneration system for members of the Board of Management of Deutsche Post AG has been in place for many years. The Supervisory Board reviewed the remuneration system in depth in 2020 in response to changes in the regulatory framework due to ARUG II and the revision of the German Corporate Govern- ance Code. The review also considered investor feedback as one of its key focuses. On 11 December 2020, the Super- visory Board therefore resolved changes to the remunera- tion system, as summarised in the following table. Target structure: • 75 % financial targets • 25 % non-financial targets, of which 12.5 % are ESG targets Calculation: Based on target achievement From 2022 Target structure: • 70 % financial targets • 30 % non-financial targets, all from the ESG area: 10 % “environmental” 10 % “social” 10 % “governance” Calculation: Based on target achievement, in exceptional circumstances option for up to 20 % increase / decrease From 2021 or 2022 Remuneration granted including fringe benefits will be limited beginning in 2021, amount received including fringe benefits will be limited beginning in 2022 From 2021 No entitlement to severance payment for termination upon change of control Maximum remuneration Limit to amount of remuneration granted and, beginning in 2022, to amount received, excluding fringe benefits Change of control Entitlement to severance payment for termination upon change of control Pension commitment • Variable interest with iBoxx Corporates From 2021 AA 10+ Annual Yield • Minimum interest rate 2.25 % • Variable interest with weighted annual interest rate of Deutsche Post pension assets in Germany • Minimum interest rate 1 % Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 78 All incumbent members of the Board of Management have modified their current employment contracts to reflect the amended terms. The remuneration system was last approved at the 2018 Annual General Meeting by 88.56 % of the votes cast. It will be submitted to the 2021 Annual General Meeting for approval for the first time in accordance with section 120a of the German Stock Corporation Act (Aktiengesetz – AktG). Principles of the remuneration system for the Board of Management The remuneration system for the Board of Management provides incentives for the successful implementation of the corporate strategy as well as sustainable development of the Group and is largely geared toward creating long-term value for shareholders. It complies with the requirements of the German Stock Corporation Act and the recommendations and suggestions of the German Corporate Governance Code. Furthermore, the Supervisory Board aims to set the re- muneration so that it is competitive and in line with market standards in order to attract and retain the best candidates for Board of Management positions. In designing the remuneration system, the Supervisory Board also ensures that, as far as possible, it is harmonised with the remuneration system for executives below the Board of Management in order to provide comparable per- formance incentives. When determining the remuneration system and levels of remuneration, the Supervisory Board therefore considers the following guidelines: Principles for determining Board of Management remuneration The remuneration system makes a significant contribution to implementing corporate strategy. The remuneration structure is intended to support the Group’s long-term, sustainable development. The performance criteria are based primarily on strategic targets in addition to operating targets. Ambitious targets ensure that outstanding performance is rewarded appropriately, whereas remuneration is reduced when targets are missed (“pay for performance”). The remuneration system takes into account the concerns of shareholders, employees and other stakeholders. The Supervisory Board ensures that targets are consistent between the Board of Management and executives. The remuneration appropriately reflects the duties and perform- ance of Board of Management members and the situation of the company, and is also customary in comparison with other companies. The Supervisory Board determines the remuneration for members of the Board of Management and resolves the underlying remuneration system. It is supported in this process by the Executive Committee, which supervises the appropriate design of the remuneration system and pre- pares the Supervisory Board’s resolutions. If necessary, the Supervisory Board calls in external consultants. It ensures the independence of all consultants selected. Determining levels of remuneration Based on the remuneration system, the Supervisory Board sets specific target and maximum remuneration amounts for every member of the Board of Management. For five- year contracts, remuneration is reviewed three years after the start of the contract. When setting remuneration levels, the Supervisory Board places value on providing appropriate remuneration for members of the Board of Management. The criteria for this include responsibilities, personal performance, and experience of the individual Board of Management members as well as the company’s economic situation, success, and future prospects and the customary of remuneration levels in consideration of the market environment (horizontal appropriateness) and the remuneration structure that otherwise applies in the com- pany (vertical appropriateness). In order to assess horizontal appropriateness, the DAX companies are used as the peer group; the positioning within the peer group is determined in consideration of the market position of Deutsche Post based on the key figures revenue, number of employees and market capitalisation. In terms of vertical appropriateness, the Supervisory Board considers the relation to the remuneration of the senior management level and the company’s workforce in Germany, including the development over time. The Super visory Board has de- fined senior management as the top management levels within management levels B to D specified by the company. The remaining workforce consists of other executives and the employees both covered and not covered by collective agreements, for whom representative remuneration groups are considered. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 79 As additional components, pension contributions make up 35 % of the respective base salary. Fringe benefits (excluding any compensation paid to new members of the Board of Management for variable remuneration granted by former employers and subsequently forfeited) should, as a rule, not exceed 15 % of the base salary. In the 2020 financial year, they amounted, as a rule, to significantly less than 5 % of the respective base salary, or up to 10 % of the base salary in isolated cases involving other countries. Overview of the remuneration components The following table provides an overview of the remuner- ation system components, their purpose and how they relate to the company’s strategy, as well as their design. Board of Management remuneration components The total remuneration for members of the Board of Man- agement consists of fixed and variable components. Fixed remuneration consists of base salary, fringe benefits and pension commitments. Variable remuneration consists of a short-term annual bonus, which is partially transferred into a medium-term remuneration component by means of a delayed payment (deferral), and long-term variable remuneration, the Long-Term Incentive Plan (LTIP). The individual performance-based components are differentiated inter alia according to the term and the cri- teria used to assess performance. Remuneration structure When determining the variable remuneration, the Super- visory Board ensures a predominantly multi-year structure, i. e. long-term and medium-term remuneration compo- nents exceed short-term remuneration. This fosters the sustainable and long-term development of the company. At the same time, the share of the short-term variable re- muneration ensures that the focus is also always on annual operative targets, the achievement of which forms the basis for future development. The target remuneration structure (excluding fringe benefits and pension commitment) is as follows: Remuneration components Target remuneration structure Base salary Fringe benefits Fixed remuneration Long-Term Incentive Plan 36 % Pension commitments Annual bonus including deferral Long-Term Incentive Plan Variable remuneration Deferral 14 % Annual bonus 14 % Base salary 36 % Ratio of one-year to multi-year variable remuneration 22 % : 78 % Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 80 Remuneration components 1. Fixed remuneration Component Purpose Design Fixed remuneration Base salary Fringe benefits • Serves to attract and retain Board of Management members who, due to their experience and expertise, are able to develop and successfully implement the strategy. Simultaneously fosters an independent, risk-adjusted and autono- mous management of the company Pension commitment • Ensures adequate income in retirement Variable remuneration Annual bonus with medium-term component (deferral) Long-term component – Long-Term Incentive Plan (LTIP) • Ensures profitable growth in consider- ation of the overall responsibility of the Board of Management and the performance of the individual Board of Management members • Provides incentives for Board of Management members to concentrate on successfully carrying out annual business priorities • The deferred component, which is subject to an additional performance criterion, reinforces the focus of the Board of Management remuneration upon the company’s long-term performance • Fosters sustainable, positive develop- ment of the company’s value and connects the interests of the Board of Management members with those of shareholders • Fixed, contractually agreed annual remuneration, generally paid monthly in twelve equal amounts • Mainly the use of a company car (including the services of a driver, if applicable), allowances for health and long-term care insurance in analogous application of the regulations and benefits under German social insurance law, and benefits in cases where two households are maintained • Annual contribution of 35 % of the base salary • Interest rate: Pension contributions allocated up to and including 2020 in accordance with “iBoxx Corporates AA10+ Annual Yield”, but at least 2.25 % • Pension contributions allocated as of 2021: Weighted annual interest rate of overall pension assets of all German pension schemes of Deutsche Post, however no less than 1 % • Target amount: 80 % of the respective base salary • Payout: 50 % in the following year, 50 % after an additional two years (sustainability phase), but only if the cost of capital is earned at the end of the sustainability phase (medium-term component) • Deferred component designed solely as a malus provision • Until 2021: • 75 % financial and 25 % non-financial performance targets • Maximum amount (cap): 100 % of the respective base salary • From 2022: • 70 % financial performance targets and 30 % ESG targets • Option for an increase / decrease of up to 20 % in the event of exceptional developments • Maximum amount (cap): 120 % of the respective base salary possible in the event of exceptional developments • Plan type: Stock appreciation rights • Amount allocated: 100 % of the base salary • Personal investment: 10 % of the base salary • Performance targets based on share price: • Absolute increase in share price • Relative performance versus the STOXX Europe 600 • Cap: 4x base salary (2.5x base salary for the Chairman of the Board of Management) • Exercisability: based on performance targets reached after four years. • Cash payout: in the fifth or sixth year after allocation, depending on the individual exercise date BASE SALARY AND FRINGE BENEFITS The base salary fosters independent, risk-adjusted and autonomous management of the company. Board of Man- agement members also receive fringe benefits, which are taxed as a non-cash benefit. Fringe benefits may include the provision of a company car, including for personal use; the use of a driver; allowances for health and long-term care insurance; the assumption of costs for security instal- lations at the board member’s private residence; benefits in the event of assignments outside of the member’s home country, such as the reimbursement of moving costs, bene- fits for maintaining two households, the reimbursement of costs associated with taking a position in Germany (e. g. for engaging a relocation service, for official applications or for tax consulting costs); reimbursement of expenses for jour- neys home. The amount of fringe benefits is capped. Fringe benefits should not exceed 15 % of the base salary as a rule. In addition, compensation payments may be made to new members of the Board of Management to compensate them for variable remuneration that had been granted by former employers but subsequently forfeited. The overall cap (see number 3) increases by the compensation amount in the year any such compensation payment is made. PENSION COMMITMENTS The members of the Board of Management are granted contribution-based pension commitments, the main fea- tures of which are shown in the table below. The company credits an annual amount to a virtual pension account for each member of the Board of Management. In connection with the review of the remuneration system, the Supervis- ory Board decided to no longer link the interest rate for Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 81 pension contributions made from 2021 onward to an ex- ternal reference index, but to base it on the return gener- ated by the company pension assets of the employees in Germany. For these pension contributions, the relevant in- terest rate therefore is the weighted annual interest rate of the overall pension assets of all German pension schemes of Deutsche Post for the year the interest is granted. At the same time, the minimum interest rate was lowered to 1 %. Contribution-based pension commitment Aspect Description Type of retirement benefit Capital payment with annuity option Retirement age 62 years Contribution amount 35 % of base salary, limited to 15 years Invalidity and survivor’s pension Payout of the pension account balance without any risk benefit Interest rate Pension contributions allocated up to and including 2020: “iBoxx Corporates AA10+ Annual Yield”, or 2.25 % at minimum. Pension contributions allocated as of 2021: Weighted annual interest rate of overall pension assets of all German pension schemes of Deutsche Post, or a minimum of 1 % Adjustment of annuities 1 % p. a. In lieu of the benefits described, members of the Board of Management whose primary residence is outside of Germany may receive an annual amount equivalent to 35 % of their base salary, paid directly (pension substitute). Since the contribution-based pension commitment was launched in 2008, this option has not been used. When first appointed in 2002, the Chairman of the Board of Management was granted a final-salary-based pension commitment, as was customary in the company at the time. The main features of this pension commitment are shown in the following table. Final salary-based legacy pension commitment Aspect Description Type of retirement benefit Retirement age Annuity with capital payment option Contractual retirement age: 55 (not applied), payments commence after leaving the Board of Management Pension amount 50 % of last base salary Invalidity pension 50 % of last base salary Survivor’s pension Widow: 60 % of the original beneficiary’s pension benefit Children: 20 % of the original beneficiary’s pension benefit until reaching the age of 27 Maximum of 100 % of the original beneficiary’s pension in total Annuity adjustment According to the consumer price index for Germany 2. Variable remuneration By applying selected strategic performance criteria and ambitious targets, the variable remuneration of Board of Management members provides incentives for managing the company in line with the corporate strategy and in the interests of the shareholders and other stakeholders. The annual bonus – in combination with its medium-term component, which provides for a two-year sustainability phase with its own performance criterion – focuses on the annual targets derived from the company’s strategy and simultaneously ensures that these are sustainably pursued. The long-term component, which takes the form of grant- ing stock appreciation rights, aims for a lasting increase in enterprise value. The long-term component directly links the interests of Board of Management members with long- term shareholder interests by way of its performance tar- gets, which are based on the company’s share price, and its duration of up to six years. Neither the performance targets nor the comparison parameters are changed after the fact. There is no provision for the payment of special bonuses. Duration of variable remuneration components of target remuneration Year granted Year 2 Year 3 Year 4 Year 5 Year 6 Annual bonus Deferral Long-Term Incentive Plan (LTIP) LTIP exercise period Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 82 ANNUAL BONUS WITH MEDIUM-TERM COMPONENT ( DEFERRAL) The annual bonus provides incentives for members of the Board of Management to focus on successfully implement- ing the annual business priorities. The aim is to achieve profitable growth whilst taking into account the overall re- sponsibility of the Board of Management and the individual performance of the Board members. The deferral, which is subject to an additional performance criterion, reinforces the focus of the Board of Management remuneration on the company’s long-term performance. Performance criteria The performance criteria used to measure the performance of Board of Management members for the annual bonus comprise financial and non-financial targets. Each perform- ance criterion is geared towards ensuring that the business targets of the Group and its divisions are met and align with the strategic bottom lines. In the spirit of value-based corporate management, the financial targets are derived from the Group’s main key performance indicators with the aim of increasing profit- ability through the efficient use of capital. As such, the EBIT after asset charge (including asset charge on goodwill and before goodwill impairment – hereinafter EAC) for the Group and the divisions as well as the Group’s free cash flow (FCF) are used as main financial key performance indicators to assess performance. Up to and including 2021, financial targets comprise 75 % and non-financial targets 25 % of the total. From the 2022 financial year onward, the share of non-financial tar- gets will increase to 30 %. The target agreements for indi- vidual Board of Management members for 2021 include an employee target as a non-financial ESG metric as well as additional individual targets that reflect the individual ac- tivities and priorities of the individual Board of Management members in the respective financial year. From 2022 onward, the non-financial targets will be sustainability targets. Sustainability is a core element of the company’s Strategy 2025. Together with its stakeholders, Deutsche Post has identified key topics for the Group which can be broken down into the ESG topics of environment, social responsibility and governance. Going forward, the three ESG topics will each be weighted at 10 % in the target portfolio for the annual bonus. Linking ESG criteria to the Board of Management remuneration further underscores the significance of sustainability for the Group. In the area of social responsibility, the employee target “Employee en- gagement” will be retained. In the environmental area, the improvement of energy efficiency will be added. In 2022, the focus with respect to governance will be placed on preventing corruption and bribery. For subsequent years, different ESG targets may be agreed that are based on the Group’s strategy and are essential for its implementation (for example, data protection and information security, or increasing the proportion of women in management positions). The Group pursues clear and measurable targets in the area of sustainability. Beginning in 2022, progress in the respective areas can therefore be objectively and clearly measured using key indicators. More detailed information is disclosed ex post in the remuneration report for the re- spective financial year. The performance criteria and their weighting are as follows: Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 83 Overview of performance criteria Performance criterion Weighting 1 Incentive effect / Strategic connection Group EAC 55 % / 65 % From 2022: 50 % / 60 % • Key performance indicator for the company • Adds a cost of capital component to EBIT to encourage the efficient use of resources and to ensure that the operating business is geared towards increasing value sustainably and generating increasing cash flow Divisional EAC 0 % / 10 % • Measurement of individual performance in the respective Board departments • Incentive for market-leading performance in every division Free cash flow 10 % • Key performance indicator for the company • Measure of how much cash the company generates, taking into account payment commitments arising from the Group’s operations as well as capital expenditure and lease and interest payments • Indicator of how much cash is available to the company for paying dividends, for repaying dept or for other purposes (e. g. funding pension obligations) Non-financial targets (until 2021): • Employee engagement • Individual targets in line with Group strategy 25 % (12.5 % each) • Becoming employer of choice • Quantifies the identification of employees with the company and their motivation to contribute to the company’s success • Compared with external benchmarks, identifies strengths and indicates action areas • Option of setting operational focal points each year depending on current priorities and the implementation level of the strategy • For example, implementation of digitalisation initiatives necessary for ensuring long-term business success, implementation of measures for improving customer satisfaction Non-financial targets (from 2022): • E – improvement of energy 30 % (10 % each) • Sustainability is a core element of Strategy 2025 • ESG targets are essential to achieving our corporate mission “Connecting efficiency • S – employee engagement • G – anchoring compliance as an integral component of all business activities people, improving lives” • E – serves the implementation of the target of reducing all logistics-related emissions to zero • S – measures progress in achieving the target of becoming “employer of choice” • G – incentivises operating in accordance with ethical standards and, in doing so, fosters the minimisation of business risks 1 Group EAC is weighted at 65 % for the Chairman of the Board of Management, the CFO and the Board of Management member responsible for Human Resources. From 2022 onward, Group EAC will be weighted at 60 %. In isolated cases, the Supervisory Board may change the weighting of the performance criteria for strategic reasons at the beginning of a performance period. Even if their weightings are changed, financial objectives should comprise a share of at least 75 % and, beginning in 2022, at least 70 %. Target agreement and achievement When defining target values and the lower and upper thresholds, the Supervisory Board ensures that targets are both adequate and ambitious. If the lower threshold of a performance criterion is not reached, the share of variable remuneration attributable to this criterion will decrease to zero. If the upper threshold of a performance criterion is exceeded, the share of variable remuneration attributable to this criterion is capped to a maximum amount. This ap- proach provides for a balanced risk / opportunity profile in the remuneration system. The actual amount of the annual bonus is based on the degree to which the predefined performance criteria have been met. The target amount for an overall target achievement of 100 % is set at 80 % of the base salary. The target achievement of each performance criterion can range between 0 % and 125 % (upper threshold). In case of a target achievement of less than 62.5 % (lower thresh- old), the performance criterion has not been met; there will be no payout. In case of maximum target achievement, the payout amount resulting from target achievement is limited to 100 % of the base salary. Using Group EAC as an example, the payout curve is as follows: Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 84 Payout curve Target achievement 125 % 100 % 62.5 % 0 0 No payout Cap Opportunity if target value is exceeded Lower threshold Target Upper threshold Actual Group EAC Transfer to the medium-term component 50 % of the annual bonus, determined based on target achievement, and from 2022 onward, if applicable, a pos- sible increase or decrease, will be paid out after the consoli- dated financial statement for the respective financial year has been approved. The remaining 50 % is transferred to a multi-year re- muneration component, the medium-term component (deferral). A payout from the medium-term component will only be made after a two-year sustainability phase has expired and if, in addition, the sustainability criterion EAC has been achieved during this period. To meet this criterion, EAC must either be greater at the end of the sustainabil- ity period than it was in the initial year, or cumulative EAC must be positive during the sustainability phase, i. e. the cost of capital (including the asset charge on goodwill) must be covered at minimum. Because this is exclusively a malus arrangement, overfulfillment does not increase the amount paid out. If the sustainability criterion is not met, the deferral will not be paid out; it shall expire with no replacement. More detailed information on the target agreements and target achievement is shown under Remuneration of the Group Board of Management in the 2020 financial year. Adjustment in case of exceptional developments From the 2022 financial year onward, the Supervisory Board may adjust the calculated annual bonus in case of exceptional developments by increasing or decreasing the amount by up to 20 % (bonus / malus option). The Super- visory Board will increase or decrease the annual bonus as calculated on the basis of the target achievement if it does not adequately reflect the actual performance of a mem- ber of the Board of Management in the overall picture. In particular, potential situations in which this may occur are: exceptional successes or failures with regard to the sustain- able development or reorganisation of Deutsche Post DHL Group, exceptional developments and/or an exceptional change in market circumstances, exceptional innovations or specific lapses in management conduct and integrity. After exercising the option for an increase or decrease for exceptional developments, the maximum amount of the an- nual bonus can therefore amount to 120 % of the base salary. Should the Supervisory Board adjust the amount of the annual bonus on this basis, a detailed explanation will be published in the following year’s remuneration report which is submitted to the Annual General Meeting for approval. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 85 Calculation of annual bonus (until 2021) Target achievement 0 % – 125 % each Weighting Group EAC 55 % – 65 % Divisional EAC 0 % – 10 % Total target achievement 0 % – 125 % each Free cash flow 10 % Employee engagement 12.5 % Target amount 80 % of base salary Individual targets 12.5 % Calculation of annual bonus (from 2022) Target achievement 0 % – 125 % each Weighting Group EAC 50 % – 60 % Divisional EAC 0 % – 10 % Free cash flow E – energy efficiency 10 % 10 % S – employee engagement 10 % G – corruption prevention 10 % NEW: inclusion of ESG criteria in target portfolio Total target achievement 0 % – 125 % each Amount after target achievement Target amount 80 % of base salary Increase / decrease factor 0.8 – 1.2 NEW: increase/decrease in the event of exceptional circumstances Payout one-year share 50 % Annual bonus 50 % Medium-term component deferral Payout one-year share 50 % Annual bonus 50 % Medium-term component deferral LONG-TERM COMPONENT (LONG-TERM INCENTIVE PLAN, LTIP) As a long-term component, the company grants members of the Board of Management a share-price-based cash re- muneration by issuing stock appreciation rights (SAR s) on an annual basis. With a term of up to six years per tranche, the LTIP provides an incentive for the long-term and sus- tainable development of the company. Prior to the grant date of the respective tranche, the Board of Management members are required to deposit a personal investment of 10 % of their base salary at the grant date, primarily in shares of the company. The personal investment must be held throughout the lock-up period. If a member of the Board of Management reclaims the personal investment before the lock-up period ends, all SAR s from the respect- ive tranche lapse. Each year, members of the Board of Management are granted a number of SAR s with a four-year lock-up period and a value of 100 % of the base salary on the grant date; the number of SAR s resulting from the grant value is calculated by the company actuary using financial mathematics and rounded to the nearest figure divisible by six. The Board of Management members receive remuneration from the granted SAR s no earlier than upon expiry of the lock-up period. After the lock-up period has expired, the first step is determining whether the predefined performance targets have been met. Six share price based performance targets have been defined, two of which include a comparison with an index, in accordance with the Group’s strategic bottom line of being the investment of choice. The performance targets are not linked to the payment of a dividend. Upon achievement of each performance target, one-sixth of the SAR s granted at the beginning of the lock-up period be- comes exercisable. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 86 Four performance targets can be achieved through an absolute increase in the price of Deutsche Post shares, if the final closing price of Deutsche Post shares at the end of the lock-up period exceeds the issue price by at least 10 %, 15 %, 20 % or 25 % (absolute share price targets). The issue price is determined at the start of the lock-up period based on the 20-day average price of Deutsche Post shares prior to the grant date. The final closing price is determined at the end of the four-year lock-up period based on the 60-day average price before the lock-up period expires. The four absolute share price targets emphasise the importance of the company’s long-term development and value growth, while gearing the Board of Management remuneration firmly toward the interests of shareholders. The two further performance targets are linked to the performance of Deutsche Post shares in relation to the performance of the STOXX Europe 600 Index. Those tar- gets are achieved if the share price equals the index per- formance or if it outperforms the index by more than 10 % (relative share price targets). Here too, the performance of the index is determined on the basis of the 20-day or 60-day average. This also places focus on the performance of the company compared to that of the market. In the me- dium term, the Supervisory Board is considering including ESG criteria derived from the Group Strategy into the long- term component. Mechanism of stock appreciation rights SAR performance targets Thresholds Number of exercisable SARs 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 SAR s may be exercised on one or more occasions within an exercise period of two years after expiration of the lock-up period in compliance with insider trading regulations; any SAR s not exercised during this period will lapse. Each SAR exercised entitles the Board of Management 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 issue price determined at the start of the four-year lock-up period. The Board of Management member there- fore only receives a payout if the share price exceeds the issue price of the SAR s. In this way, the LTIP creates an in- centive to increase the price of Deutsche Post shares for a period of up to six years. For each tranche of the LTIP, the Chairman of the Board of Management is entitled to receive a maximum amount of two-and-a-half times his base salary, whilst regular Board of Management members are entitled to receive a max- imum amount of four times their base salary. Non-exercisable SAR s lapse without replacement if a member of the Board of Management leaves the company, unless one of the following exceptions applies: provided that the performance targets have been met at the end of the lock-up period, SAR s that have already been allocated may be exercised until the end of the respective exercise period if a Board of Management member resigns at the instigation of the company before the end of the agreed contractual term or if the employment relationship ends after the end of the agreed contractual term without the company offering to renew the member’s contract. The same applies if a member retires or takes early retirement. In the event of termination upon a change of control, a Board of Management member may exercise the already granted SAR s after the four-year lock-up period expires, should the exercise requirements governed in the respect- ive plan conditions be met by the end of the respective exercise period. If none of these exceptions apply, any exercisable SAR s at the time of departure must be exercised within six months of termination of employment, otherwise they too will lapse without replacement. In the event of death, the company shall exercise the SAR s without delay. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 87 3. Cap on variable remuneration and maximum total remuneration The Supervisory Board has defined upper limits for all variable remuneration components granted to Board of Management members. As previously explained, the max- imum amount that can be received from the annual bonus, including the deferred portion (deferral), is limited to 100 % of the base salary until year 2021. From 2022 onward, the maximum amount can be 120 % of the base salary if the option for an increase is applied due to exceptional circum- stances; usually, the maximum amount is limited to 100 % of the base salary. For each tranche of the LTIP, the Chair- man of the Board of Management is entitled to receive a maximum amount of two-and-a-half times his base salary, whilst regular Board of Management members are entitled to receive a maximum amount of four times their base sal- ary. In addition, the Supervisory Board may limit the payout amount in the event of exceptional developments. Example of remuneration components included The remuneration system also provides for an overall cap on the amount paid out. First of all, this limits the re- muneration granted in a specific financial year. For regular Board of Management members, the cap on remuneration granted is €5 million excluding fringe benefits until 2020 and €5.15 million including fringe benefits from 2021 onwards. For the Chairman of the Board of Management, remuneration granted is capped at €8 million excluding fringe benefits until 2020 and €8.15 million including fringe benefits from 2021 onwards. Starting in the 2022 financial year, the payments attributable to a financial year are also capped at €5.15 million and €8.15 million, respect- ively. In the event a compensation payment is made in ac- cordance with number 1, the overall cap for the Board of Management member receiving the payment increases by the compensation amount. Total cap on remuneration granted: Example for 2020 Total cap on remuneration granted: Example for 2021 Total cap on amounts paid out: Example for 2022 Remuneration components included Remuneration components included Remuneration components included • Long-Term Incentive Plan 2020 tranche • Deferral from 2020 annual bonus • Proportion of 2020 annual bonus for immediate payout • Base salary 2020 • Pension expense (service cost 1) 2020 • Long-Term Incentive Plan 2021 tranche • Deferral from 2021 annual bonus • Proportion of 2021 annual bonus for immediate payout • Fringe benefits 2021 • Base salary 2021 • Pension expense (service cost 1) 2021 • Long-Term Incentive Plan 2016 / 2017 / 2018 2 tranches • Deferral from 2020 annual bonus • Proportion of 2022 annual bonus for immediate payout • Fringe benefits 2022 • Base salary 2022 • Pension expense (service cost 1) 2022 1 In case of payout of a pension substitute: amount of pension substitute. 2 The payment date depends on the date of exercise within the two-year exercise period. Total remuneration range for the Chairman of the Board of Management Maximum total remuneration ase salary 1 0 % of b 0 % – 2 5 0 g 0 % 2 1: 0 % – 1 0 2 2 0 m 2 e b a s e o f b a s e s ala r y, fr o h 2 n al 0 % o f t h p tio s ala r y in e x c e p t o 1 2 m st a n c e s cir c u u u h r o T Base salary Maximum amount LTIP Maximum amount annual bonus (including deferral) Base salary Pension expenses and fringe benefits Pension expenses and fringe benefits Minimum Maximum 1 The maximum amount from the LTIP is 400 % of the base salary for the regular members of the Board of Management. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 88 4. Other contractual terms and conditions MALUS AND CLAWBACK PROVISIONS RELATING TO VARIABLE REMUNERATION Recommendation G.11 of the German Corporate Govern- ance Code as amended on 20 March 2020 states that the Supervisory Board should have the possibility to account for exceptional developments to an appropriate extent. In justified cases, the Supervisory Board should be permit- ted to retain or reclaim variable remuneration. The first recommendation has been complied with in that SAR s are granted on the condition that the Supervisory Board may limit the payout amount in the event of exceptional devel- opments. From 2022 onward, the Supervisory Board may also increase or decrease the annual bonus in the event of exceptional developments by up to 20 % in each instance. The second recommendation has been met in the form of a retention in that the variable remuneration components may be omitted in part or in full. Moreover, 50 % of the annual bonus resulting from the target achievement is transferred into the medium-term component and is subject to a two- year sustainability phase. This medium-term component will be completely withheld if the sustainability target EAC is not met during the sustainability phase. The SAR s granted are clawed back and lapse without replacement if and to the extent that the absolute or relative performance targets are not met during the four-year lock-up period. The statutory clawback rules are applied additionally within the statutory limitation periods. SHARE OWNERSHIP The targets for the LTIP are based on share price, ensuring that Board of Management remuneration is strongly and directly linked to, and aligned with, the interests of our shareholders. For each SAR tranche, a Board of Manage- ment member is entitled to receive at most two-and-a- half times (Chairman of the Board of Management) or four times (regular Board of Management members) their base salary, provided the cap on total remuneration is not met first. Even considering a one-year horizon, this provides an incentive for focusing upon share price that far exceeds one annual base salary. This effect is multiplied over several years. Furthermore, participation in the LTIP requires Board of Management members to make a personal investment of 10 % of their base salary by the grant date per tranche, primarily in company shares. CONTRACTUAL TERM AND COMMITMENTS ASSOCIATED WITH CESSATION OF SERVICE ON THE BOARD OF MANAGEMENT Initial appointments to the Board of Management are gen- erally made for a contract term of three years. Reappoint- ments are usually made for a term of five years. Termination upon change of control In the event of a change of control, Board of Management members are entitled to resign from office for good cause within a period of six months following the change of con- trol, after giving three months’ notice to the end of the month and to terminate their Board of Management con- tract (right to early termination). The severance payment claim previously provided for in the event of the exercise of the right to early termination will no longer apply from the 2021 financial year. Disability or death If a Board of Management member is temporarily unable to work due to illness, accident or another reason for which the Board of Management member is not responsible, re- muneration will continue to be paid for a period of twelve months, but no longer than the end of the Board of Man- agement contract. In the case of permanent disability of a Board of Management member during the term of the Board of Management contract, the contract shall expire at the end of the quarter in which the permanent disability was determined. If the Board of Management contract ends on account of death or permanent disability, the annual fixed salary and maximum annual bonus, prorated in each case, will continue to be paid for a period of six months following the end of the month in which the Board of Management contract ends, but no longer than the scheduled expiration date of the contract. If the contract ends due to the death of the Board of Management member, the payment is made to the deceased’s beneficiaries as joint and several creditors. Termination by mutual consent In the event of mutually agreed termination prior to the end of an appointment term at the instigation of the company, all commitments under the employment contracts shall be fulfilled by the time of departure. Variable remuneration components are paid out pursuant to the originally agreed conditions and at the originally agreed times. Variable remu- neration components are not paid out early. In accordance with the Code recommendation, Board of Management contracts contain a provision stipulating that, in the event of early termination of a Board of Management member’s contract, the severance payment may compensate no more Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 89 than the remaining term of the contract. The severance payment is limited to a maximum amount of two years’ re- muneration including fringe benefits (severance payment cap). The severance payment cap is calculated exclusive of the value of any rights allocated from LTIPs. No severance will be paid if the mutually agreed, early termination is in- stigated by the Board of Management member; the annual bonus will be paid out pro rata in accordance with the level of target achievement of the Board of Management member at the end of the assessment period. Any claims arising from the LTIP are subject to the provisions therein. Post-contractual non-compete clause After leaving the Board of Management, Board of Man- agement members are subject to a one-year non-compete period. During this period, the company pays compensa- tion to the Board of Management member in an amount equivalent to the member’s base salary. Any other income is subtracted from this compensation. In accordance with the Code recommendation, a severance payment is sub- tracted from the compensation paid. Any pension payments are also subtracted from the compensation. Prior to, or con- current with, the end 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. Income from mandates Members of the Board of Management shall assume man- dates on supervisory boards, boards of administration and advisory boards, as well as similar functions or activities in companies in which the company holds a direct or in- direct interest, as well as functions or activities in associ- ations or organisations of which the company is a member (“Group mandates”). Any resulting remuneration must be fully transferred to the company. Prior approval from the Supervisory Board’s Execu- tive Committee is required before any offices can be held or work performed at external entities. Remuneration re- ceived from such activities is not transferred to the company. Remuneration of the Group Board of Management in the 2020 financial year In the following, the application of the remuneration sys- tem for Board of Management members in the 2020 finan- cial year is described. This includes detailed information on total remuneration, on targets and target achievement of variable remuneration components as well as a breakdown of remuneration paid to individual Board of Management members. IMPACTS OF THE PANDEMIC In the current global health crisis, our logistics services and our worldwide network play a crucial role – whether for shipping medical equipment and supplies to healthcare workers, for delivering important merchandise to residen- tial customers or for providing solutions to companies to help them remain in business. Therefore, ever since the pan- demic set in, it has been necessary to continually adapt the business processes of Deutsche Post DHL Group in order to mitigate potential impacts, whilst placing top priority on en- suring the safety of our employees and our customers. Our global operations in more than 220 countries and territories with more than 570,000 employees worldwide and our very large number of business and private customers require us to respond quickly to the constantly changing pandemic situation with strong regional variations. This has neces- sitated taking finely tuned, coordinated action at all times in an evolving situation. Our agile responses enabled us to handle the economic uncertainties and operating challenges brought by the COVID-19 pandemic in 2020 and to main- tain our business operations. The Group even added some 25,000 additional jobs while also paying its employees all over the world a special bonus of €300 each in recognition of their outstanding achievements during the pandemic. Moreover, the Group’s management had already laid the foundation that would permit the company to benefit from an acceleration of the structural trends seen in 2020 through its targeted build-up of e-commerce activities. The Group’s good business performance – as reflected in the key per- formance metrics for the Group and the divisions and thus in the Board of Management’s level of target achievement – rests on successful management of the company in both the short and long term. However, the changed economic climate impacted the long-term remuneration components for the reporting year, with significantly fewer SAR s having been granted in the 2020 financial year compared with the prior year due, amongst other things, to the crisis-related volatility of Deutsche Post shares. In an overall view, the remuneration system for the Board of Management thus suitably reflects all of the impacts of the pandemic. Tim Scharwath’s and Thomas Ogilvie’s base salaries were increased in the reporting year due to contractual ar- rangements made back in 2019. The salary increase reflects the Group’s long-standing practice to adjust base salaries at the second term of appointment, starting from low en- try-level salaries compared to the DAX peer Group. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 90 The remuneration paid to Melanie Kreis was also adjusted as at 1 November 2020 due to the Group’s long-standing practice to review remuneration after six years of service and as is contractually stipulated. In 2020, the effect amounts to €7,750 in the base salary compared to the prior year. The decision not to exempt Melanie Kreis from the usual salary adjustments was made by the Supervisory Board in 2020 after careful consideration, which included taking the company’s situation during the pandemic into account. In the case of Melanie Kreis and Tim Scharwath, these salary adjustments did not result in higher total target remuneration; in fact the total target remuneration decreased from the previous year. TOTAL REMUNERATION Remuneration totalling €12.56 million was paid to mem- bers of the Board of Management in the 2020 financial year (previous year: €13.62 million) in accordance with the applicable accounting standards. Of that amount, €8.26 mil- lion (previous year: €8.15 million) was attributable to non- performance- related components and €4.30 million (previous year: €5.47 million) to performance-related com- ponents consisting of annual bonus payments (including the 2018 deferral). An additional €3.88 million (previous year: €2.88 million) of the annual bonus was transferred to the medium-term component (deferral) and will be paid out in 2023 subject to reaching the EAC sustainability indicator. In the 2020 financial year, Board of Management mem- bers were additionally granted a total of 816,498 SAR s (previous year: 2,322,978 SAR s), which at the issue date were valued at €8.00 million (previous year: €9.90 million). BASE SALARY AND FRINGE BENEFITS The base salaries of regular Board of Management mem- bers ranged from €715,000 to €1,005,795. The Chairman of the Board of Management received a base salary of €2,060,684. In the 2020 financial year, Board of Management mem- bers received fringe benefits in the amount of between approximately 1 % and 10 % of their base salary. PENSION COMMITMENTS The following overview presents a breakdown of contribu- tions made for contribution based pension commitments in the 2020 financial year as well as the present value of defined benefit obligations (DBOs). Contribution based pension commitments € Ken Allen Oscar de Bok (since 1 October 2019) Melanie Kreis Tobias Meyer (since 1 April 2019) Thomas Ogilvie John Pearson (since 1 January 2019) Tim Scharwath Total Total contribution for 2019 Total contribution for 2020 Present value (DBO) as at 31 Dec. 2019 Present value (DBO) as at 31 Dec. 2020 352,028 62,563 325,500 187,688 250,250 250,250 250,250 352,028 250,250 325,500 250,250 301,000 250,250 301,000 1,678,529 2,030,278 3,888,461 517,661 2,294,996 745,611 758,257 267,327 711,698 9,184,011 4,378,058 788,925 2,863,862 1,147,360 1,240,551 549,361 1,092,752 12,060,869 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 91 Final salary-based legacy pension commitment to the Board of Management Chair: individual breakdown Frank Appel, Chairman Total Pension commitments Pension level on 31 Dec. 2019 % 50 Pension level on 31 Dec. 2020 % 50 Maximum pension level % 50 Present value (DBO) as at 31 Dec. 2019 € 26,570,684 26,570,684 Present value (DBO) as at 31 Dec. 2020 € 31,533,867 31,533,867 Former members of the Board of Management or their surviving dependants received benefits in the amount of €8.9 million in the 2020 financial year (previous year: €6.3 million). The defined benefit obligation (DBO) for current pensions calculated under IFRS s was €105 million (previous year: €100 million). Target achievement for 2020 annual bonus Performance criterion Group EAC 1 Divisional EAC 1 Post & Parcel Germany ANNUAL BONUS INCLUDING MEDIUM-TERM COMPONENT Global Forwarding, Freight (DEFERRAL), 2020 In 2020, the target agreements with the Board of Manage- ment members reflected the Overview of performance criteria table and their weighting as determined by the remunera- tion system. In the 2020 financial year, the performance targets for the financial performance criteria corresponded to the fig- ures budgeted in December 2019. In setting the targets for 2020, it has already been agreed with the Board of Manage- ment members who are division heads that any effects on Group EAC arising from StreetScooter will not be taken into account when calculating their levels of target achievement. Express Supply Chain eCommerce Solutions Free cash flow Employee Engagement score (%) 1 Including the asset charge on goodwill before goodwill impairment. 2 Without StreetScooter. Target amount € m Actual amount € m Level of target achievement % 2,070 2,111 2 1,023 111 1,079 237 –38 1,129 77 2,212 2,535 2 1,050 74 1,697 – 44 67 2,535 82 125.00 125.00 120.45 85.98 125.00 0.00 125.00 125.00 125.00 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 92 In addition, individual targets were agreed on to ensure that the remuneration of individual Board of Management members reflects their own performance in addition to the collective performance of the Board of Management as a whole. The individual targets focussed on the operational priorities of the financial year and the status of strategy im- plementation. The majority of targets agreed on with Board of Management members in the reporting year related to the respective Board department’s digital transformation initiatives, which are necessary for lasting business success. Based upon the level of target achievement deter- mined, the average annual bonus (including deferral) amounted to 97.49 % of one base salary. The annual bonus amount paid out to each individual Board of Management Payments table. Equivalent member is shown in the amounts were transferred to the medium-term compo- nent (deferral) and are eligible for payout in the spring of 2023, if the costs of capital are covered at minimum at the end of the two-year sustainability phase. The deferred amounts otherwise lapse without replacement. culate absolute target achievement, was about 23 % higher than the initial value recorded in 2016. This means that three of the four absolute share price targets were met. The shares’ performance relative to the STOXX Europe 600 was approximately 16 %. Both of the relative share price targets were therefore met. In total, five of six performance targets were met, meaning that five-sixths of the SAR s granted in the 2016 financial year have become exercisable. Board of Management members are able to exercise these SAR s un- til 31 August 2022. One-sixth of the SAR s originally granted lapsed without replacement. LONG-TERM COMPONENTS (LTIP), 2020 TRANCHE On 1 September 2020, the members of the Board of Man- agement were again granted SAR s by way of the 2020 tranche. The number of SAR s granted to individual Board of Management members corresponded to their individual base salaries at the date of granting. The value of one SAR at the grant date was computed by the company actuary and amounted to €9.80. MEDIUM-TERM COMPONENT (DEFERRAL), 2018 The requirement for payout of the share of the annual bonus deferred in 2018 was likewise that the costs of capital be covered at minimum at the end of the two-year sustain- ability phase, i. e. that EAC at the end of the sustainability phase exceed EAC for the base year, or that cumulative EAC be positive during the sustainability phase. Both of those requirements were met. The individual amounts paid out Payments table. from the 2018 Deferral are shown in the LONG-TERM COMPONENTS (LTIP), 2016 TRANCHE The lock-up period for the 2016 SAR tranche granted four years previously ended on 31 August 2020. The 60-day av- erage price of Deutsche Post shares, which is used to cal- Long-Term Incentive Plan: number of SAR s granted Quantity Frank Appel, Chairman Ken Allen Oscar de Bok (since 1 October 2019) Melanie Kreis Tobias Meyer (since 1 April 2019) Thomas Ogilvie John Pearson (since 1 January 2019) Tim Scharwath SAR s 2019 tranche SAR s 2020 tranche 656,568 210,276 336,210 102,636 – 310,878 239,010 253,824 239,010 287,478 72,960 94,902 72,960 94,902 72,960 94,902 A comparison of SAR s granted indicates that in the 2020 financial year, individual Board of Management members generally received less than one-third of the SAR s granted in the previous year. One reason for this is that the SAR s granted in the 2019 financial year corresponded on average to 139 % of the respective Board of Management member’s base salary at the grant date. In contrast, in the 2020 fi- nancial year, SAR s in the amount of 100 % of the individual member’s base salary were granted to all Board of Manage- ment members. Another reason is that the value of a single SAR increased significantly compared with the previous year, mainly due to a substantial increase in the volatility of Deutsche Post shares during the pandemic, meaning that fewer SAR s could be granted under this aspect as well. At the grant date (1 September 2020), the index started out at 368.10 points. The issue price was €37.83. Payments from the 2020 tranche will be made no earlier than 1 September 2024, assuming that some of the total of six share price targets are met. If none of the targets are met, the SAR s will lapse without replacement, which means that they will never give rise to any payments. The value of the SAR s granted to the individual Board of Man- agement members in the 2020 financial year is presented in the Target remuneration table. The following table summarises the basic information on each of the tranches whose lock-up periods or exercise periods were still in effect in the 2020 financial year: Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 93 SAR tranches Tranche 2014 2015 2016 2017 2018 2019 2020 Date granted 1 September 2014 1 September 2015 1 September 2016 1 September 2017 1 September 2018 1 September 2019 1 September 2020 Issue price (exercise price) € 24.14 25.89 28.18 34.72 31.08 28.88 37.83 End of the waiting period End of the exercise period 31 August 2018 31 August 2019 31 August 2020 31 August 2021 31 August 2022 31 August 2023 31 August 2024 31 August 2020 31 August 2021 31 August 2022 31 August 2023 31 August 2024 31 August 2025 31 August 2026 BENEFITS ASSOCIATED WITH CESSATION OF SERVICE ON THE BOARD OF MANAGEMENT No such benefits were required to be extended as no Board of Management members left the Board in the 2020 finan- cial year. LOANS The company did not extend any loans to Board of Man- agement members. REMUNERATION AMOUNT The following tables, which are based on the reference ta- bles contained in the German Corporate Governance Code as amended on 7 February 2017, provide a detailed break- down of the remuneration granted to (target remuneration) and remuneration received (payments) by the members of the Board of Management. In addition to the base salary and fringe benefits, the Target remuneration table indicates the target amount of the annual bonus (including deferral) granted in the 2020 financial year. This is the amount upon target achievement of 100 %. Moreover, the long-term component granted in the reporting year (2020 tranche) is reported at fair value The on the grant date. With respect to pension commitments, the pension expense, i. e. the service cost in accordance with IAS 19, is presented. The presentation is supplemented by the minimum and maximum values that can be achieved. Payments table contains the same figures for base salary and fringe benefits as the Target remuneration table. With respect to the one-year variable remuneration, the payments made for the 2020 financial year (amount paid out) are indicated. With regard to the medium-term component (the deferral), the payment amount reported is that of the deferral whose calculation period ended upon expiry of the year under review, which in the reporting year was the 2018 deferral. The table also reflects the amount paid out from the tranches of the long-term components that were exercised in the 2020 financial year. The pension expense (service cost pursuant to IAS 19) incurred for pen- sion plans is also included in line with the previous “Pay- ments” reference table. All amounts are shown in comparison with the prior- year figures. The individual remuneration tables conclude with a breakdown of remuneration in accordance with the HGB and GAS 17. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 94 Target remuneration € Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration LTIP with four-year lock-up period Annual bonus: deferred with three-year deferral period Total Pension expense (service cost) Total remuneration Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2020 Frank Appel Chairman Ken Allen eCommerce Solutions 2019 2020 2,060,684 2,060,684 50,933 49,759 Min. 2020 2,060,684 49,759 2,111,617 2,110,443 2,110,443 824,274 3,621,254 2,796,980 824,274 6,557,145 1,093,499 7,650,644 824,274 2,884,979 2,060,705 824,274 5,819,696 1,280,054 7,099,750 0 0 0 0 2,110,443 1,280,054 Max. 2020 2,060,684 2019 2020 1,005,795 1,005,795 49,759 100,672 101,726 Min. 2020 1,005,795 101,726 Max. 2020 1,005,795 101,726 2,110,443 1,030,342 6,182,053 5,151,711 1,030,342 9,322,838 1,280,054 1,106,467 1,107,521 1,107,521 1,107,521 402,318 1,834,573 1,432,255 402,318 402,318 1,408,151 1,005,833 402,318 0 0 0 0 502,898 4,526,078 4,023,180 502,898 3,343,358 2,917,990 1,107,521 6,136,497 348,733 351,897 351,897 351,897 3,390,497 10,602,892 3,692,091 3,269,887 1,459,418 6,488,394 8,000,000 5,000,000 Oscar de Bok Supply Chain (since 1 October 2019) Melanie Kreis Finance Min. 2020 Max. 2020 2020 Min. 2020 Max. 2020 Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration LTIP with four-year lock-up period Annual bonus: deferred with three-year deferral period Total Pension expense (service cost) Total remuneration Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2020 2019 178,750 13,499 192,249 71,500 71,500 – 71,500 335,249 – 2020 715,000 21,856 736,856 286,000 1,001,008 715,008 286,000 2,023,864 225,189 335,249 2,249,053 715,000 21,856 736,856 0 0 0 0 736,856 225,189 962,045 715,000 21,856 736,856 357,500 3,217,500 2,860,000 357,500 2019 930,000 20,674 950,674 372,000 1,696,340 1,324,340 372,000 937,750 1 17,849 955,599 375,100 1,305,140 930,040 375,100 937,750 17,849 955,599 0 0 0 0 4,311,856 3,019,014 2,635,839 225,189 309,440 346,444 955,599 346,444 4,537,045 3,328,454 2,982,283 1,302,043 5,959,793 n. a. 5,000,000 937,750 17,849 955,599 468,875 4,188,875 3,720,000 468,875 5,613,349 346,444 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 95 Tobias Meyer Post & Parcel Germany (since 1 April 2019) Thomas Ogilvie Human Resources and Corporate Incubations Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration LTIP with four-year lock-up period Annual bonus: deferred with three-year deferral period Total Pension expense (service cost) Total remuneration Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2020 Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration LTIP with four-year lock-up period Annual bonus: deferred with three-year deferral period Total Pension expense (service cost) Total remuneration Cap on the maximum payment amount (excluding fringe benefits) from remuneration granted in 2020 2019 536,250 20,045 556,295 214,500 1,232,683 1,018,183 214,500 2020 715,000 21,649 736,649 286,000 1,001,008 715,008 286,000 Min. 2020 Max. 2020 715,000 21,649 736,649 0 0 0 0 715,000 21,649 736,649 357,500 3,217,500 2,860,000 357,500 2019 763,333 14,079 777,412 305,333 1,386,623 1,081,290 305,333 883,333 2 12,578 895,911 353,333 1,283,373 930,040 353,333 883,333 12,578 895,911 0 0 0 0 2020 Min. 2020 Max. 2020 2,003,478 2,023,657 – 267,454 736,649 267,454 4,311,649 2,469,368 2,532,617 267,454 242,938 338,495 895,911 338,495 2,003,478 2,291,111 1,004,103 4,579,103 2,712,306 2,871,112 1,234,406 5,837,740 John Pearson Express (since 1 January 2019) Tim Scharwath Global Forwarding, Freight n. a. 5,000,000 2019 715,000 86,469 801,469 286,000 1,304,183 1,018,183 286,000 2020 715,000 73,916 788,916 286,000 1,001,008 715,008 286,000 Min. 2020 Max. 2020 715,000 73,916 788,916 0 0 0 0 715,000 73,916 788,916 357,500 3,217,500 2,860,000 357,500 2019 799,583 40,620 840,203 319,833 1,544,489 1,224,656 319,833 900,833 2 28,398 929,231 360,333 1,290,373 930,040 360,333 900,833 28,398 929,231 0 0 0 0 2020 Min. 2020 Max. 2020 2,391,652 2,075,924 246,341 263,357 788,916 263,357 4,363,916 2,704,525 2,579,937 263,357 244,868 261,072 929,231 261,072 2,637,993 2,339,281 1,052,273 4,627,273 2,949,393 2,841,009 1,190,303 5,811,137 n. a. 5,000,000 883,333 12,578 895,911 441,667 4,161,667 3,720,000 441,667 5,499,245 338,495 900,833 28,398 929,231 450,417 4,170,417 3,720,000 450,417 5,550,065 261,072 1 Regular adjustment, see Impacts of the pandemic. 2 Regular adjustment contractually agreed in 2019, see Impacts of the pandemic. Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 96 Payments € Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration Annual bonus: 2017 deferral Annual bonus: 2018 deferral LTIP, 2013 tranche LTIP, 2014 tranche LTIP, 2015 tranche Other Total Pension expense (service cost) Total Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration Annual bonus: 2017 deferral Annual bonus: 2018 deferral LTIP, 2013 tranche LTIP, 2014 tranche LTIP, 2015 tranche Other Total Pension expense (service cost) Total Frank Appel Chairman Ken Allen eCommerce Solutions Oscar de Bok Supply Chain (since 1 October 2019) 2019 2,060,684 50,933 2,111,617 754,520 5,768,086 952,351 – 4,815,735 – – – 8,634,223 1,093,499 9,727,722 2020 2,060,684 49,759 2,110,443 1,020,039 5,614,848 – 0 1 – 3,925,166 1,689,682 – 8,745,330 1,280,054 10,025,384 2019 1,005,795 100,672 1,106,467 402,217 1,361,956 487,945 – 874,011 – – – 2,870,640 348,733 3,219,373 2020 1,005,795 101,726 1,107,521 502,898 1,793,120 – 195,124 – 1,597,996 – – 3,403,539 351,897 3,755,436 2019 178,750 13,499 192,249 71,482 – – – – – – – 2020 715,000 21,856 736,856 321,750 – – – – – – – 263,731 – 263,731 1,058,606 225,189 1,283,795 Melanie Kreis Finance Tobias Meyer Post & Parcel Germany (since 1 April 2019) Thomas Ogilvie Human Resources and Corporate Incubations 2019 930,000 20,674 950,674 335,963 405,892 405,892 – – – – – 2020 937,750 2 17,849 955,599 457,153 0 – 0 3 – – – – 2019 536,250 20,045 556,295 205,947 – – – – – – – 2020 715,000 21,649 736,649 356,200 – – – – – – – 2019 763,333 14,079 777,412 268,388 116,188 116,188 – – – – – 1,692,529 309,440 2,001,969 1,412,752 346,444 1,759,196 762,242 – 762,242 1,092,849 267,454 1,360,303 1,161,988 242,938 1,404,926 2020 883,333 4 12,578 895,911 427,865 96,275 – 96,275 – – – – 1,420,051 338,495 1,758,546 Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 97 Base salary Fringe benefits Total Annual bonus: one-year share Multi-year variable remuneration Annual bonus: 2017 deferral Annual bonus: 2018 deferral LTIP, 2013 tranche LTIP, 2014 tranche LTIP, 2015 tranche Other Total Pension expense (service cost) Total Remuneration in accordance with the HGB (DRS 17) € Base salary Fringe benefits Annual bonus: one-year share Annual bonus: 2017 deferral Annual bonus: 2018 deferral LTIP, 2019 tranche LTIP, 2020 tranche Total John Pearson Express (since 1 January 2019) Tim Scharwath Global Forwarding, Freight 2019 715,000 86,469 801,469 262,977 – – – – – – – 2020 715,000 73,916 788,916 357,500 – – – – – – – 2019 799,583 40,620 840,203 301,043 196,780 196,780 – – – – – 1,064,446 246,341 1,310,787 1,146,416 263,357 1,409,773 1,338,026 244,868 1,582,894 2020 900,833 4 28,398 929,231 436,358 129,773 – 129,773 – – – – 1,495,362 261,072 1,756,434 2018 Annual Report. 2 Regular adjustment, see Impacts of the pandemic. 3 No payments were made to Melanie Kreis, who waived Impacts of the pandemic. Frank Appel Chairman Ken Allen eCommerce Solutions 2019 2,060,684 50,933 754,520 952,351 – 2,796,980 – 6,615,468 2020 2,060,684 49,759 1,020,039 – 0 1 – 2,060,705 5,191,187 2019 1,005,795 100,672 402,217 487,945 – 1,432,255 – 3,428,884 2020 1,005,795 101,726 502,898 – 195,124 – 1,005,833 2,811,376 1 No payments were made to Frank Appel, who waived his 2018 annual bonus, including the deferred portion, her 2018 annual bonus, including the deferred portion, 2018 Annual Report. 4 Regular adjustment contractually agreed in 2019, see Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 98 Base salary Fringe benefits Annual bonus: one-year share Annual bonus: 2017 deferral Annual bonus: 2018 deferral LTIP, 2019 tranche LTIP, 2020 tranche Total Base salary Fringe benefits Annual bonus: one-year share Annual bonus: 2017 deferral Annual bonus: 2018 deferral LTIP, 2019 tranche LTIP, 2020 tranche Total Oscar de Bok Supply Chain (since 1 October 2019) Melanie Kreis Finance Tobias Meyer Post & Parcel Germany (since 1 April 2019) 2019 178,750 13,499 71,482 – – – – 263,731 2020 715,000 21,856 321,750 – – – 715,008 1,773,614 2019 930,000 20,674 335,963 405,892 – 1,324,340 – 3,016,869 2020 937,750 2 17,849 457,153 – 0 3 – 930,040 2,342,792 2019 536,250 20,045 205,947 – – 1,018,183 – 1,780,425 2020 715,000 21,649 356,200 – – – 715,008 1,807,857 Thomas Ogilvie Human Resources and Corporate Incubations John Pearson Express (since 1 January 2019) Tim Scharwath Global Forwarding, Freight 2019 763,333 14,079 268,388 116,188 – 1,081,290 – 2,243,278 2020 883,333 4 12,578 427,865 – 96,275 – 930,040 2,350,091 2019 715,000 86,469 262,977 – – 1,018,183 – 2,082,629 2020 715,000 73,916 357,500 – – – 715,008 1,861,424 2019 799,583 40,620 301,043 196,780 – 1,224,656 – 2,562,682 2020 900,833 4 28,398 436,358 – 129,773 – 930,040 2,425,402 1 No payments were made to Frank Appel, who waived his 2018 annual bonus, including the deferred portion, her 2018 annual bonus, including the deferred portion, 2018 Annual Report. 4 Regular adjustment contractually agreed in 2019, see Impacts of the pandemic. 2018 Annual Report. 2 Regular adjustment, see Impacts of the pandemic. 3 No payments were made to Melanie Kreis, who waived Deutsche Post DHL Group – 2020 Annual Report COMBINED MANAGEMENT REPORT GOVERNANCE 99 REMUNERATION OF THE SUPERVISORY BOARD Remuneration paid to Supervisory Board members Remuneration for the members of the Supervisory Board is governed by article 17 of the Articles of Association of Deutsche Post AG, according to which Supervisory Board members only receive fixed annual remuneration in the amount of €70,000 (as in the previous year). The Supervisory Board chairman and the Supervisory Board committee chairs receive an additional 100 % of the remuneration, and the Supervisory Board deputy chair and committee members receive an additional 50 %. This does not apply to the Mediation or Nomination Commit- tees. 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 the Supervisory Board or committee meeting that they attend. They are entitled to 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 2020 totalled €2.6 million. The following table presents a breakdown of the amounts paid out to each Supervisory Board member. € Board members Dr Nikolaus von Bomhard (Chair) Andrea Kocsis (Deputy Chair) Rolf Bauermeister (until 15 July 2020) Dr Günther Bräunig Dr Mario Daberkow Ingrid Deltenre Jörg von Dosky Gabriele Gülzau Thomas Held Dr Heinrich Hiesinger Mario Jacubasch Thomas Koczelnik Thorsten Kühn (since 28 August 2020) Dr Jörg Kukies (since 16 April 2020) Ulrike Lennartz-Pipenbacher Simone Menne Roland Oetker (until 27 August 2020) Lawrence Rosen (since 27 August 2020) Dr Stefan Schulte Stephan Teuscher 1 Stefanie Weckesser Prof. Dr-Ing. Katja Windt 2019 2020 Fixed component Attendance allowance 315,000 245,000 140,000 91,875 70,000 105,000 70,000 17,000 16,000 12,000 6,000 4,000 8,000 4,000 70,000 105,000 43,750 70,000 4,000 8,000 3,000 4,000 Total 332,000 261,000 152,000 97,875 74,000 Fixed component Attendance allowance 315,000 245,000 75,833 21,000 19,000 9,000 Total 336,000 264,000 84,833 105,000 11,000 116,000 70,000 6,000 76,000 113,000 116,667 14,000 130,667 74,000 74,000 70,000 17,500 70,000 6,000 – 6,000 76,000 17,500 76,000 113,000 105,000 10,000 115,000 46,750 74,000 81,667 70,000 8,000 6,000 89,667 76,000 175,000 19,000 194,000 175,000 25,000 200,000 – – 70,000 105,000 140,000 – 140,000 105,000 105,000 70,000 – – 4,000 11,000 12,000 – 11,000 11,000 11,000 4,000 – – 74,000 116,000 152,000 – 151,000 116,000 116,000 74,000 37,917 99,167 70,000 4,000 41,917 16,000 115,167 6,000 76,000 105,000 16,000 121,000 93,333 26,250 140,000 116,667 105,000 70,000 9,000 2,000 16,000 18,000 16,000 6,000 102,333 28,250 156,000 134,667 121,000 76,000 Werner Gatzer (until 12 February 2020) 140,000 14,000 154,000 1 Stephan Teuscher receives €1,500 per year for his service on the Supervisory Board of DHL Hub Leipzig GmbH. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS INCOME STATEMENT – STATEMENT OF C OMPREHENSIVE INCOME 100 CONSOLIDATED FINANCIAL STATEMENTS INCOME STATEMENT 1 January to 31 December € m 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 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 (€) STATEMENT OF COMPREHENSIVE INCOME Note 10 11 12 13 14 15 16 24 17 18 19 19 2019 63,341 2,351 239 –32,070 –21,610 –3,684 – 4,431 – 8 4,128 194 – 846 –2 – 654 3,474 – 698 2,776 2,623 153 2.13 2.09 2020 66,806 2,095 292 –33,794 –22,234 –3,830 – 4,454 –34 4,847 220 – 838 – 58 – 676 4,171 – 995 3,176 2,979 197 2.41 2.36 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 compre- hensive 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 subsequently reclassified to profit or loss Hedging reserves 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 compre- hensive income 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 Note 2019 2,776 2020 3,176 36 –1,068 –1,087 18 18 –29 3 75 0 – 5 0 80 0 –1,019 –1,012 – 4 7 243 30 –1 2 277 –742 2,034 1,882 152 11 –29 – 954 0 7 – 8 – 973 –1,985 1,191 1,009 182 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEET 101 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 Non-current assets Inventories Current financial assets Trade receivables Other current assets Income tax assets Cash and cash equivalents Assets held for sale Current assets TOTAL ASSETS Note 31 Dec. 2019 31 Dec. 2020 Note 31 Dec. 2019 31 Dec. 2020 21 22 23 24 25 26 27 28 25 29 26 30 31 11,987 21,303 25 123 759 395 11,658 22,007 12 73 746 160 2,525 2,390 37,117 37,046 396 394 8,561 2,598 232 2,862 9 15,052 52,169 439 1,315 8,985 2,815 209 4,482 16 18,261 55,307 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 financial liabilities Other non-current liabilities Non-current provisions and liabilities Current provisions Current financial liabilities Trade payables Other current liabilities Income tax liabilities Liabilities associated with assets held for sale Current provisions and liabilities TOTAL EQUITY AND LIABILITIES 32 33 33 34 35 36 27 37 38 39 37 38 39 31 1,236 3,482 –700 10,099 14,117 275 14,392 5,102 56 1,650 13,736 360 20,904 964 3,238 7,225 4,913 519 14 16,873 52,169 1,239 3,519 –1,666 10,685 13,777 301 14,078 5,835 36 1,790 15,851 328 23,840 1,080 3,247 7,309 5,135 611 7 17,389 55,307 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS CASH FLOW S TATEMENT 102 CASH FLOW STATEMENT 1 January to 31 December € m Consolidated net profit for the period Income taxes Net finance costs Profit from operating activities (EBIT) Depreciation, amortisation and impairment losses Net costs / 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 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 Note 41 2019 2,776 698 654 4,128 3,684 – 465 – 57 – 506 101 3 – 843 6,045 36 – 498 466 6,049 702 138 51 891 –14 2020 3,176 995 676 4,847 3,830 29 132 73 – 56 2 –754 8,103 – 44 –1,305 945 7,699 5 122 44 171 0 –3,612 –2,922 – 8 – 6 –3,640 82 527 41 –2,140 –13 –10 –2,945 67 – 933 –3,640 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS CASH FLOW S TATEMENT 103 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 holders Purchase of treasury shares Proceeds from issuing shares or other equity instruments Interest paid Net cash used in financing activities Net change in cash and cash equivalents Effect of changes in exchange rates on cash and cash equivalents Changes in cash and cash equivalents associated with assets held for sale Changes in cash and cash equivalents due to changes in consolidated group Cash and cash equivalents at beginning of reporting period Cash and cash equivalents at end of reporting period Note 41 30 2019 349 –2,214 –105 40 – 5 –1,419 –150 –11 11 – 608 – 4,112 –203 15 33 0 3,017 2,862 2020 2,488 –2,488 23 – 88 – 5 –1,422 –157 – 45 0 – 556 –2,250 1,809 –192 0 3 2,862 4,482 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY 104 STATEMENT OF CHANGES IN EQUITY 1 January to 31 December € m Note Balance at 1 January 2019 Dividend Transactions with non-controlling interests Changes in non-controlling interests due to changes in consolidated group Issued capital Capital reserves 32 1,233 33 3,469 Capital increase / decrease 3 13 Total comprehensive income Consolidated net profit for the period Currency translation differences Change due to remeasurements of net pension provisions Other changes Total Balance at 31 December 2019 1,236 3,482 Other reserves Reserve for equity instruments without recycling Hedging reserves Currency translation reserve Equity attributable to Deutsche Post AG shareholders Non-controlling interests Total equity –7 0 2 – 5 8 0 –30 –22 – 948 0 275 Retained earnings 33 9,835 –1,419 7 41 2,623 – 990 2 34 13,590 –1,419 7 0 57 2,623 275 – 990 –26 1,882 35 283 –155 –7 1 1 153 0 –1 0 152 275 13,873 –1,574 0 1 58 2,776 275 – 991 –26 2,034 14,392 – 673 10,099 14,117 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY 105 Balance at 1 January 2020 Dividend Transactions with non-controlling interests Changes in non-controlling interests due to changes in consolidated group Issued capital Capital reserves 1,236 3,482 Capital increase / decrease 3 37 Total comprehensive income Consolidated net profit for the period Currency translation differences Change due to remeasurements of net pension provisions Other changes Total Balance at 31 December 2020 1,239 3,519 Other reserves Reserve for equity instruments without recycling Currency translation reserve –22 – 673 0 –3 Hedging reserves – 5 0 – 946 –12 –17 – 5 –27 –1,622 10,685 Retained earnings 10,099 –1,422 8 28 2,979 –1,007 0 Equity attributable to Deutsche Post AG shareholders Non-controlling interests Total equity 14,117 –1,422 5 0 68 2,979 – 946 –1,007 –17 1,009 13,777 275 –165 –11 20 0 197 –15 0 0 182 301 14,392 –1,587 – 6 20 68 3,176 – 961 –1,007 –17 1,191 14,078 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 106 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 port- folio of logistics (DHL) and communication ( Deutsche Post) services. The financial year of Deutsche Post AG and its consoli- dated subsidiaries is the calendar year. Deutsche Post AG, whose registered office is in Bonn, Germany, is entered in the commer- cial register of the Bonn Local Court under HRB 6792. Basis of accounting 1 As a listed company, Deutsche Post AG prepared its consolidated financial statements in accordance with section 315e Handels- gesetzbuch (HGB – German Commercial Code) (“consolidated financial statements in accordance with International Financial Reporting Standards”) in compliance with International Finan- cial 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 European Council on the application of international accounting standards. The requirements of the standards applied have been sat- isfied 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 in- come 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 clar- ity 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 disclo- sures in the notes to the IFRS consolidated financial statements for the 2020 financial year are generally based on the same accounting policies used in the 2019 consolidated financial statements. Exceptions to this are the changes in international note 4 with an financial reporting under the IFRS s described in effective date for the Group of 1 January 2020. The accounting policies are explained in note 6. These consolidated financial statements were author- ised for issue by a resolution of the Board of Management of Deutsche Post AG dated 19 February 2021. The consolidated financial statements are prepared in euros (€). Unless otherwise stated, all amounts are given in mil- lions of euros (€ million, € m). No separate reporting is provided in cases where effects cannot be unequivocally attributed to the COVID-19 pandemic. Consolidated group 2 The consolidated group includes all companies controlled by Deutsche Post AG. Control exists if Deutsche Post AG has de- cision-making powers, is exposed, and has rights, to variable returns, and is able to use its decision-making powers to affect the amount of the variable returns. The Group companies are consolidated from the date on which Deutsche Post DHL Group is able to exercise control. When Deutsche Post DHL Group holds less than the major- ity 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 vot- ing 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 concern- ing 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 accord- ance with section 313(2) nos. 1 to 6 and (3) HGB may be viewed on the company’s website. The number of companies consolidated with Deutsche Post AG is shown in the following table: 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 2019 2020 81 617 1 0 1 18 81 633 1 0 1 17 No companies were acquired in the 2020 financial year. Changes in the consolidated group are the result firstly of the formation of subsidiaries, and secondly of the change in the method of con- solidation for DHL Aero Expreso S. A. (Aero Expreso), Panama, notes 22, 24 and 35. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 107 2.1 Disposal and deconsolidation effects in 2020 Corporate Functions The sale of facility management company CSG.PB GmbH was completed in March 2020. The company’s assets and liabilities had been reported as held for sale as at 31 December 2019. The deconsolidation gain amounted to €1 million. In December 2020, UK-based TRAILAR Limited and Germany-based TRAILAR GmbH, which specialise in solar and vehicle technology, were sold and deconsolidated. The gain was €1 million. The deconsolidation gains were reported under other op- erating income. Deconsolidation effects € m 1 January to 31 December 2020 Non-current assets Current assets Cash and cash equivalents ASSETS Non-current provisions and liabilities Current provisions and liabilities EQUITY AND LIABILITIES Net assets Cash consideration received Deconsolidation gain Total 9 6 2 17 11 5 16 1 3 2 2.2 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 established by Lufthansa Cargo AG and Deutsche Post Beteiligungen Holding GmbH, which each hold 50 % of its cap- ital and voting rights. Aerologic has been assigned to the Ex- press segment. Aerologic’s shareholders are simultaneously its customers, giving them access to its freight aircraft capacity. Aerologic mainly serves the DHL Express network from Monday to Friday, and 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 The following significant transactions occurred in the 2020 fi- nancial year: Out of total impairment losses amounting to €138 million, €99 million resulted from the adverse impact of lockdown meas- ures during the pandemic and affected the Supply Chain and eCommerce Solutions segments in particular, notes 15 and 24. At the end of February, the Board of Management decided to transition StreetScooter GmbH into an operator of the exist- ing fleet and to discontinue the production of electric vehicles in the medium term. The net expense incurred in connection with StreetScooter amounted to €318 million. In addition to the re- sult from current StreetScooter operations, this mainly included depreciation and impairment losses on current and non-current assets and restructuring expenses. The special bonus of €300 paid to each employee in recog- nition of their service during the pandemic increased staff costs by €163 million, note 14. In May 2020, Deutsche Post AG issued three straight bonds, each with a principal amount of €750 million and maturing in 2026, 2029 and 2032. The new bonds are earmarked for general company purposes such as the scheduled repayment of existing financial liabilities and the implementation of investment pro- jects already announced. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 108 4 New developments in international accounting under IFRS s New accounting standards effective in the 2020 financial year The following standards, changes to standards and interpret- ations must be applied from 1 January 2020: Standard Subject matter and significance Amendments to References to the Conceptual Framework in IFRS Standards Amendments to IAS 1 and IAS 8 – Definition of Material Interest Rate Benchmark Reform – Phase 1: Amendments to IFRS 9, IAS 39 and IFRS 7 Amendments to IFRS 3, Business Combinations – Definition of a Business The revised Conceptual Framework for Financial Reporting is used to develop new standards and interpretations. The definitions of assets and liabilities as well as the guidance on measurement and derecognition, presentation and disclosures were amended. This did not result in any technical amendments to current standards. The amendments merely updated the references to the conceptual framework in existing standards. The conceptual framework itself was not the subject of the endorsement procedure. The consolidated financial statements were not affected. 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 anchored in IAS 1. The consolidated financial statements were not materially affected. Entities can continue to use hedge accounting and designate new hedging relationships despite the expected replacement of various interest rate benchmarks. The consolidated financial statements were not materially affected. The amendments relate to the definition of a business and include clearer guidance for distinguishing between a business and a group of assets when applying IFRS 3. According to the amendments, the definition of a business includes having both inputs and at least one substantive process that together are able to create outputs. Output is deemed to be only the sale of goods and provision of services as well as 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 consolidated financial statements were not materially affected. New accounting standards adopted by the EU but only effective in future periods The following standards, amendments to standards and inter- pretations have already been endorsed by the EU. However, they will only be effective in future periods. Standard (issue date) beginning on or after Subject matter and significance Effective for financial years Amendments to IFRS 4, Insurance Contracts – Deferral of Effective Date of IFRS 9 (25 June 2020) Amendment to IFRS 16: COVID-19-Related Rent Concessions (28 May 2020) Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (27 August 2020) 1 January 2023 The effective date of IFRS 17, which will replace IFRS 4, was deferred to 1 January 2023. The expiry date of the temporary exemption from IFRS 9 in IFRS 4 was therefore also deferred to 1 January 2023. 1 June 2020 Under certain conditions, the amendment permits lessees not to assess whether rent concessions granted as a direct consequence of the COVID-19 pandemic are lease modifications. If the conditions are met, lessees may instead account for those rent concessions as if they are not lease modifications. The amendment must be applied for annual periods beginning on or after 1 June 2020 and only applies to relevant lease payments before 30 June 2021. The early voluntary application did not materially affect the consolidated financial statements. 1 January 2021 The amendments simplify the reporting of changes to contractual cash flows and hedge accounting required as a result of IBOR reform. They relate to the actual change in interest rate benchmarks. Application will not have a material effect on the consolidated financial statements. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 109 New accounting standards not yet adopted by the EU ( endorsement procedure) The IASB and the IFRIC issued further standards, amendments to standards and interpretations in the 2020 financial year and in previous years whose application was not mandatory for the 2020 financial year. The application of these IFRS s is dependent on their adoption by the EU. Standard (issue date) beginning on or after Subject matter and significance Effective for financial years Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies (12 February 2021) Amendments to IAS 8, Definition of Accounting Estimates (12 February 2021) IFRS 17, Insurance Contracts (18 May 2017), including amendments to IFRS 17 (25 June 2020) 1 January 2023 The amendments serve to assist entities with deciding which accounting policies to disclose in their financial statements. The amendment of IAS 1 explains and requires that a disclosure of “material” rather than “significant” accounting policies must be made. To support this approach, the amendments to IFRS Practice Statement 2 demonstrate the application of the concept of materiality to accounting policy disclosures. The effects on the consolidated financial statements are being assessed. 1 January 2023 The amendments introduced a new definition of accounting estimates and explain how entities should distinguish changes in accounting estimates from changes in accounting policies. The effects on the consolidated financial statements are being assessed. 1 January 2023 IFRS 17 will replace IFRS 4, Insurance Contracts, in future. It 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. Amendments to IFRS 3, Reference to the Conceptual Framework (14 May 2020) 1 January 2022 The amendments contain an update to IFRS 3 so that it refers to the 2018 revision of the Conceptual Framework. Additionally, it stipulates that, for transactions within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 to identify liabilities assumed in a business combination instead of the Conceptual Framework. Contingent liabilities are excluded from this requirement. IFRS 3 continues to prohibit recognition of contingent assets. The effects on the consolidated financial statements are being assessed. Amendments to IAS 16, Property, Plant and Equipment – Proceeds before Intended Use (14 May 2020) Amendments to IAS 37, Onerous Contracts – Cost of Fulfilling a Contract (14 May 2020) Annual Improvements to IFRS s (2018 – 2020 Cycle) (14 May 2020) Amendments to IAS 1, Classification of Liabilities as Current or Non-current (23 January 2020) and Deferral of the Effective Date 1 January 2022 The amendment prohibits deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced whilst bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended. The effects on the consolidated financial statements are being assessed. 1 January 2022 The amendment defines the “cost of fulfilling” a contract. All costs that relate directly to the contract must be included when assessing whether a contract is onerous. The effects on the consolidated financial statements are being assessed. 1 January 2022 The amendments relate to IFRS 1, First-time Adoption of International Financial Reporting Standards; IFRS 9, Financial Instruments; IFRS 16, Leases; and IAS 41, Agriculture. The effects on the consolidated financial statements are being assessed. 1 January 2023 The amendments to IAS 1 relate solely to the presentation of debt and other liabilities in the statement of financial position. They clarify that a liability must be classified as non-current if the entity has a right at the reporting date to defer settlement of the liability for at least twelve months after the reporting date. The determining factor is that such a right exists; no intention to exercise that right is required. No material effects on the consolidated financial statements are expected. The effective date has been deferred to 1 January 2023 due to the COVID-19 pandemic. Currency translation 5 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 functional currency is predominantly the local currency. In the consolidated financial statements, as- sets and liabilities are therefore translated at the closing rates, whilst periodic income and expenses are generally translated at the monthly closing rates. The resulting currency translation differences are recognised in other comprehensive income. In the 2020 financial year, currency translation differences amount- ing to €–961 million (previous year: €275 million) were recog- nised in other comprehensive income, see the statement of comprehensive income. Goodwill arising from business combinations after 1 Janu- ary 2005 is treated as an asset of the acquired company and therefore carried in the functional currency of the acquired company. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 110 The exchange rates for the currencies that are significant for the Group were as follows: Currency AUD CNY GBP HKD INR JPY SEK USD Country Australia China United Kingdom Hong Kong India Japan Sweden USA Closing rates Average rates 2019 1 EUR = 1.6006 7.8215 0.8510 8.7461 80.1796 121.8953 10.4491 1.1232 2020 1 EUR = 1.5878 7.9777 0.8984 9.5118 89.6163 126.4647 10.0295 1.2268 2019 1 EUR = 1.6084 7.7315 0.8758 8.7715 78.8033 121.9835 10.5827 1.1197 2020 1 EUR = 1.6561 7.9017 0.8893 8.8952 84.9217 121.8717 10.4793 1.1468 The carrying amounts of non-monetary assets recognised at sig- nificant consolidated companies operating in hyperinflationary economies are generally indexed in accordance with IAS 29 and thus reflect the current purchasing power at the reporting date. In accordance with IAS 21, receivables and liabilities in the financial 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 rec- ognised in other operating income and expenses in the income statement. In the 2020 financial year, income of €294 million (previous year: €184 million) and expenses of €308 million (pre- vious year: €179 million) resulted from currency translation dif- ferences. In contrast, currency translation differences relating to net investments in a foreign operation are recognised in other comprehensive income. Accounting policies 6 Uniform accounting policies are applied to the annual financial statements of the entities included in the consolidated financial statements. The consolidated financial statements are prepared under the historical cost convention, except for items that 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 in Germany, express delivery, freight transport, supply chain management and e-commerce solutions. All income re- lating to normal business operations is recognised as revenue in the income statement. All other income is reported as other operating income. Revenue is 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. There must be a contract with enforceable rights and obligations and, amongst other things, the receipt of consideration must be likely, taking into account the customer’s credit quality. 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 to the extent that the uncertainty associated 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 consideration is not adjusted for the time value of money. For each performance obligation, revenue is either recognised at a point in time or over time. The obligation to perform transport services is fulfilled over time and revenue is recognised over the performance period. The revenue generated by providing other logistics ser- vices is recognised in the reporting period in which the service was rendered. Whenever third parties are involved in the performance of a service, a distinction must be drawn between the principal and agent. If Deutsche Post DHL Group serves as the principal, then the gross amount of revenue is recognised. If the Group acts as the agent, the net amount is recognised. The transaction price for this specific service is limited to the amount of the commission to be received. Deutsche Post DHL Group is generally the principal when transport services are provided. Operating expenses are recognised in income when the service is utilised or when the expenses are incurred. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 111 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 recognised at cost if it is probable that their production will generate an in- flow of future economic benefits and the costs can be reliably measured. In the Group, this concerns internally developed soft- ware. If the criteria for capitalisation 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 appropriate share of allocable production overhead costs. Any borrowing costs in- curred 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. Impair- ment losses are recognised in accordance with the principles described in the section headed Impairment. The useful lives of significant intangible assets are as follows: Intangible assets that are not affected by legal, economic, con- tractual or other factors that might restrict their useful lives are considered to have indefinite useful lives. They are not amortised but are tested for impairment annually or whenever there are indications of impairment. They generally include brand names from business combinations and goodwill, for example. Impair- ment testing is carried out in accordance with the principles de- scribed in the section headed Impairment. Property, plant and equipment Property, plant and equipment is carried at cost, reduced by ac- cumulated depreciation and valuation allowances. In addition to direct costs, production cost includes an appropriate share of al- locable production overhead costs. Borrowing costs that can be allocated directly to the purchase, construction or manufacture of property, plant and equipment are capitalised. Value added tax arising in 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: Useful lives Useful lives Internally developed software Purchased software Licences Customer relationships Buildings Technical equipment and machinery Aircraft IT equipment Transport equipment and vehicle fleet Other operating and office equipment Years 1 up to 10 up to 5 term of agreement up to 20 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 specific factors such as time and location. 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 specific factors such as time and location. If there are indications of impairment, an impairment test must be carried out; see the section headed Impairment. Impairment At each reporting date, the carrying amounts of intangible assets, property, plant and equipment and investment property are reviewed for indications of impairment. If there are any such indications, an impairment test is carried out. This is done by determining the recoverable amount of the relevant asset and comparing it with the carrying amount. In accordance with IAS 36, the recoverable amount is the asset’s fair value less costs to sell or its value in use (present value of the pre-tax free cash flows expected to be derived from the asset in future), whichever is higher. The discount rate used for the value in use is a pre-tax rate of interest reflecting cur- rent 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 independently generates cash flows (cash generating unit – CGU). If the recov- erable amount of an asset is lower than its carrying amount, an impairment loss is recognised immediately in respect of the asset. If it can be determined, the fair value or value in use of the individual assets represents their minimum carrying amount. If, after an impairment loss has been recognised, a higher recover- able amount is determined for the asset or the CGU at a later date, the impairment loss is reversed up to a carrying amount that does not exceed the recoverable amount. The increased carry- ing 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 recog- nised in respect of goodwill may not be reversed. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 112 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 cumulative adjustments from impairment losses. Purchased goodwill is therefore no longer amortised and instead is tested for impairment annually in accordance with IAS 36, re- gardless of whether any indication of possible impairment exists, as in the case of intangible assets with an indefinite useful life. In addition, the obligation remains to conduct an impairment test if there is any indication of impairment. Goodwill resulting from company acquisitions is allocated to the 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 management purposes. The carrying amount of a CGU to which goodwill has been allocated is tested for impairment annually and whenever there is an indi- cation 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 com- pensation. Since 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 interest rate implicit in the lease to the extent that this can be determined. Otherwise, they are discounted at the incremental borrowing rate. Right-of-use assets are measured at cost, which comprises 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 ex- ercising 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 amortised cost as an asset under property, plant and equipment where it is the lessor. The lease payments received in the period are shown under other operating income. the following: • lease liability; • lease payments made at or prior to delivery, less lease incen- Where the Group is the lessor in a finance lease, it recog- nises the assets as lease receivables in the amount of the net investment in the balance sheet. tives received; • initial direct costs and • restoration obligations. Right-of-use assets are subsequently measured at amort- ised cost. They are depreciated over the term of the lease using the straight-line method. The Group makes 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 state- ment using the straight-line method. Additionally, the require- ments do not apply to leases of intangible assets. The Group also exercises the option available for contracts comprising both lease and non-lease components not to separate these compo- nents, except in the case of real estate and aircraft leases. In addition, under IFRS 8 intra-group leases – in line with intern al management policies – are generally presented as operating leases in the segment reporting in accordance with IAS 17. Extension and termination options exist for a number of leases, particularly for real estate. Such contract terms offer Investments accounted for using the equity method Investments accounted for using the equity method cover asso- ciates 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 investments, the carrying amount of the in- vestment 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 attributable to the invest- ments of Deutsche Post AG or its consolidated subsidiaries. An impairment loss is recognised on investments accounted 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 in- vestments accounted for using the equity method are recognised in other operating income or other operating expenses. Impair- ment losses and their reversal are recognised in net income / loss from investments accounted for using the equity method. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 113 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 receiv- ables, and derivative financial assets. Financial liabilities include contractual obligations to deliver cash or another financial asset to another entity. These mainly comprise trade payables, liabil- ities to banks, liabilities arising from bonds and leases, and de- rivative financial liabilities. Measurement The Group measures financial assets at fair value plus the trans- action costs directly attributable to the acquisition of these assets on initial recognition if they are not subsequently measured at fair value through profit or loss. The transaction costs of assets measured at fair value through profit or loss are recognised as expenses. 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 income rather than in the income statement. Classification Financial assets are classified in the measurement categories below. The classification of debt instruments depends on the business model used to manage the financial assets and their contractual cash flows. DEBT INSTRUMENTS AT AMORTISED COST Debt instruments that are assigned to the “hold to collect con- tractual cash flows” business model and whose cash flows exclusively comprise interest and principal are measured and recognised at amortised cost. Interest income from these finan- cial assets is reported in financial income using the effective interest method. DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (FVOCI) Debt instruments assigned to the “hold to collect and sell” busi- ness model must be measured and recognised at fair value. Gains and losses from fair value measurement are recognised in other comprehensive income. Cumulative gains and losses are reclas- sified to profit or loss when the financial asset is derecognised. DEBT INSTRUMENTS, DERIVATIVES AND EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL) Debt instruments, derivatives and equity instruments acquired to maximise their cash flows by selling them in the short to me- dium term are assigned to the “sell” business model. They are measured at fair value. The resulting measurement gains and losses are reported in profit or loss. EQUITY INSTRUMENTS CLASSIFIED AS FVOCI Most of the equity instruments that the Group invests in for stra- tegic reasons are assigned to the FVOCI measurement category. They are measured at fair value. The effects of any change in the fair value of these equity instruments are recognised in other comprehensive income. On derecognition, these effects are not reclassified to profit or loss. Dividends from such instruments are reported in other income in the income statement. Impairment The Group makes a forward-looking assessment of the expected credit losses associated with its debt instruments (expected credit loss model). Expected credit loss (ECL) within the meaning of IFRS 9 is an estimate of credit loss over the expected lifetime 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. The expected credit loss takes into account the amount and tim- ing of payments. Accordingly, 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 as- sets, both of which are subject to the ECL model: trade receivables and contract assets, on the one hand, and debt instruments meas- ured at amortised cost, on the other. Cash and cash equivalents are also subject to the IFRS 9 impairment rules. However, the impairment 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. In accordance with the three-stage model, debt instru- ments 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 signifi- cant increase in counterparty credit risk since initial recognition are transferred from Stage 1 to Stage 2. A “significant increase” Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 114 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 life- time (lifetime PD). The impairment loss is equivalent to the loss that may occur due to possible default events during the remain- ing 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 significant financial dif- ficulties. This constitutes objective evidence of a credit loss. The financial asset must therefore be transferred to Stage 3. All debt instruments measured at amortised cost are con- sidered to be at low risk of default. The impairment loss recog- nised 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 obligations at short notice. Trade receivables and contract assets are generally short- term in nature and contain no significant financing components. According to the simplified impairment approach in IFRS 9, 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 historical data, current economic conditions and reliable forecasts of future economic conditions (macroeconomic factors). a non-financial asset, the gains and losses recognised directly in equity are included in the initial carrying amount of the asset (basis adjustment). Impairment losses on trade receivables and contract assets are set off against gains on the reversal of impairment losses. Further details are presented in note 42. Derivatives and hedges The Group began to apply the IFRS 9 hedge accounting require- ments as at 1 January 2020. To avoid variations in earnings resulting from changes in the fair value of derivative financial instruments, hedge account- ing is applied where possible and economically useful. Gains and losses from the derivative and the related hedged item are recog- nised 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 instrument are recog- nised 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 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 comprehen- sive income, whilst the gain or loss attributable to the ineff ective 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 42. Recognition and derecognition Regular way purchases and sales of financial assets are recog- nised 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 obli- gations arising from them have expired. Netting Financial assets and liabilities are set off on the basis of netting agreements (master netting arrangements) only if there is an enforceable right of set-off and settlement on a net basis is in- tended as at the reporting date. If the right of set-off is not enforceable in the normal course of business, the financial assets and liabilities are recognised in the balance sheet at their gross amounts as at the reporting date. The master netting arrangement then creates only a conditional right of set-off. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 115 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 meas- ured in accordance with the cost model. Depreciable investment property is depreciated over a period of between 20 and 50 years using the straight-line method. The fair value is determined on the basis of expert opinions. Impairment losses are recognised in accordance with the principles described in the section headed Impairment. Inventories Inventories are assets that are held for sale in the ordinary course of business, are in the process of production, or are consumed in the production process or in the rendering of services. They are measured at the lower of cost or net realisable value. Valuation allowances are charged for obsolete inventories and slow-mov- ing goods. Government grants In accordance with IAS 20, government grants are recognised at their fair value only when there is reasonable assurance that the conditions attaching to them will be complied with and that the grants will be received. The grants are reported in the in- come 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. Such deferred income is presented in other operating income. Assets held for sale and liabilities associated with assets held for sale Assets held for sale are assets available for sale in their present condition and whose sale is highly probable. The sale must be ex- pected to qualify for recognition as a completed sale within one year of the date of classification. Assets held for sale may con- sist of individual non-current assets, groups of assets (disposal groups), components of an entity or a subsidiary acquired exclu- sively for resale (discontinued operations). Liabilities intended to be disposed of together with the assets in a single transaction form part of the disposal group or discontinued operation and are also reported separately as liabilities associated with assets held for sale. Assets held for sale are no longer depreciated or amortised, but are recognised at the lower of their fair value less costs to sell and the carrying amount. Gains and losses arising from the remeasurement of individual non-current assets or dis- posal 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. Cash and cash equivalents Cash and cash equivalents comprise cash, demand deposits and other short-term liquid financial assets with an original maturity of up to three months; they are carried at their principal amount. Overdraft facilities used are recognised in the balance sheet as amounts due to banks. Non-controlling interests Non-controlling interests are the proportionate minority interests in the equity of subsidiaries and are recognised at their carrying amount. If an interest is acquired from, or sold to, other shareholders without affecting the existing control relation- ship, this is presented as an equity transaction. The difference between the proportionate net assets acquired from, or sold to, other shareholders and the purchase price is recognised in other comprehensive income. If non-controlling interests are in- creased by the proportionate net assets, no goodwill is allocated to the proportionate net assets. Share-based payments to executives Equity-settled share-based payment transactions are measured at fair value at the grant date. The fair value of the obligation is 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. Cash-settled, share-based payments (stock appreciation rights, SAR s) 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 dur- ing the vesting period (lock-up period). A provision is recognised for the same amount. Changes in value due to share price move- ments occurring after the grant date are recognised as other fi- nance costs in net finance costs. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 116 Retirement benefit plans There are arrangements (plans) in many countries under which the Group grants post-employment benefits to its employees. These benefits include pensions, lump-sum payments on retire- ment and other post-employment benefits and are referred to in these disclosures as retirement benefits, pensions and similar benefits, or pensions. A distinction must be made between de- fined benefit and defined contribution plans. THE GROUP’S DEFINED BENEFIT RETIREMENT PLANS Defined benefit obligations are measured using the projected unit credit method prescribed by IAS 19. This involves making certain actuarial assumptions. Most of the defined benefit retire- ment plans are at least partly funded via external plan assets. The remaining net liabilities are funded by provisions for pensions and similar obligations; net assets are presented separately as pension assets. Where necessary, an asset ceiling must be ap- plied when recognising pension assets. With regard to the cost components, the service cost is recognised in staff costs, net interest cost in net finance costs and the remeasurements out- side profit and loss in other comprehensive income. Any rights to reimbursement are reported separately in financial assets. DEFINED CONTRIBUTION RETIREMENT PLANS FOR CIVIL SERVANT EMPLOYEES IN GERMANY In accordance with statutory provisions, Deutsche Post AG pays contributions for civil servants in Germany to retirement benefit plans which are defined contribution retirement plans for the company. These contributions are recognised in staff costs. Under the provisions of Gesetz zum Personalrecht der Beschäftigten der früheren Deutschen Bundespost (PostPersRG – Former Deutsche Bundespost Employees Act), Deutsche Post AG provides retirement benefits and assistance benefits through Postbeamtenversorgungskasse (PVK – Postal civil servant pen- sion fund) at Bundesanstalt für Post und Tele kommuni kation (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 ap- pointment. The amount of Deutsche Post AG’s payment obli- gations is governed by section 16 PostPersRG. This act obliges Deutsche Post AG to pay into 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 PostPersRG, the federal government makes good the difference between the current payment ob- ligations of PVK on the one hand, and the funding companies’ current contributions or other return on assets on the other, and guarantees that 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 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 participating companies with sufficient informa- tion to use defined benefit accounting. The plans are therefore accounted for as if they were defined contribution plans. Regarding these multi-employer plans in the USA, con- tributions 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, which could then include a liability for other entities’ obligations as governed by US federal law. The expected employer contributions to the funds for 2021 are €59 million (actual employer contributions in the reporting period: €58 million, in the previous year: €54 million). Some of the plans in which Deutsche Post DHL Group participates are underfunded according to information provided by the funds. No information is available to the Group that would indicate any change from the contribution rates set by current collect- ive 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 one multi-employer plan in the Netherlands, cost cov- erage- based contribution rates are set annually by the manage- ment 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 con- tributions set, even in the case of withdrawal or obligations not met by other entities. Any subsequent underfunding ultimately results in the rights of members being cut and / or no indexation of their rights. The expected employer contributions to the fund for 2021 are €26 million (actual employer contributions in the reporting period: €25 million, in the previous year: €23 million). Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 117 As at 31 December 2020, the coverage degree of plan funding was above 100 %, but below a required minimum of approxi- mately 105 %, according to information provided by the fund. Deutsche Post DHL Group does not represent a significant por- tion 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 economic benefits and whose amount can be measured reliably. They represent uncertain obliga- tions 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 0.00 % and 7.75 % (previous year: –0.20 % to 7.50 %). The effects arising from changes in interest rates are recognised in net financial income / net finance cost. Provisions for restructurings are only established in ac- cordance with the aforementioned criteria for recognition if a detailed, formal restructuring plan has been drawn up and com- municated to those affected. The technical reserves (insurance) consist mainly of out- standing 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 ex- pected 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 in- surers. IBNR reserves represent estimates of obligations in re- spect 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 com- missions an independent actuarial study of these each year in order to verify the reasonableness of its estimates. Financial liabilities Financial liabilities are carried at fair value less transaction costs on initial recognition. The price determined in an 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. Financial liabilities are measured at amortised cost in subsequent periods. Any differences between the amount re- ceived and the amount repayable 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 Leases section. CONVERTIBLE BOND ON DEUTSCHE POST AG SHARES The convertible bond on Deutsche Post AG shares is split into an equity and a debt component, in line with the contractual ar- rangements. The debt component, less the transaction costs, is reported under financial liabilities (bonds), with interest added back up to the issue amount over the term of the bond using the effective interest method (unwinding of the discount). The value of the call option, which allows Deutsche Post AG to redeem the bond 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. Deferred taxes In accordance with IAS 12, deferred taxes are recognised in re- spect of temporary differences between the carrying amounts in the IFRS financial statements and the tax accounts of the in- dividual 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 dif- ferences 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 de- ferred taxes on tax loss carryforwards can be found in note 27. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 118 In accordance with IAS 12, deferred tax assets and liabil- ities are calculated using the tax rates applicable in the individ- ual countries at the reporting date or announced for the time when the deferred tax assets and liabilities are realised. The tax rate applied to German Group companies is unchanged at 30.5 %. 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 calcu- late deferred tax items. The income tax rates applied for foreign companies amount to up to 38 % (previous year: 38 %). Income taxes Income tax assets and liabilities are recognised when they are probable. They are measured at the amounts for which repay- ments from, or payments to, the tax authorities are expected to be received or made. If uncertain tax items are recognised because they are probable, they are measured at their most likely amount. 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 ex- istence will be confirmed only by the occurrence, or non-occur- rence, 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 in the balance sheet; note 43. 7 Exercise of judgement in applying the accounting policies The preparation of IFRS-compliant consolidated financial state- ments 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, man- agement must determine 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 li- abilities 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 included in the balance sheet, the amounts of income and expenses, and the disclosures relating to contin- gent 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 impairment testing and purchase price allocations, taxes and legal proceedings. Disclosures regarding the assumptions made in connec- tion with the Group’s defined benefit retirement plans can be found in note 36. The Group has operating activities around the globe and is subject to local tax laws. Management can exercise judgement when calculating the amounts of current and deferred taxes in the relevant countries. Although management believes that it has made a 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 between actual events and the estimate made could have an effect on tax liabilities and deferred taxes in the period in which the matter is finally decided. The amount recognised for deferred tax assets could be reduced if the estimates of planned taxable income or changes to current tax laws restrict the extent to which future tax benefits can be realised. Goodwill is regularly reported in the Group’s balance sheet as a consequence of business combinations. When an acquisition is initially recognised in the consolidated financial statements, all identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. One of the important estimates this requires is the determination of the fair values of these assets and liabilities at the date of acquisi- tion. Land, buildings and office equipment are generally valued by independent experts, whilst securities for which there is an active market are recognised at the quoted exchange price. If in- tangible 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 the complexity involved in determining its fair value. The in- dependent expert determines the fair value using appropriate valuation techniques, 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. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 119 Impairment testing for goodwill is based on assumptions about the future. The Group carries out these tests annually and also whenever there are indications that goodwill has become impaired. The recoverable amount of the CGU must then be cal- culated. 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 management be- lieves that the assumptions made for the purpose of calculating the recoverable amount are appropriate, possible unforesee- able 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 disclosed in note 44. 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 pro- ceedings and recognises provisions for probable obligations including estimated legal costs. Internal and external legal ad- visers participate in making this assessment. In deciding 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 necessarily mean that a provision is recognised for the associated risk. All assumptions and estimates are based on the circum- stances prevailing and assessments made at the reporting date. For the purpose 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. For example, the economic impact of the COVID-19 pandemic and Brexit could affect the net assets, financial position and results of operations; see Combined Management Report, Expected develop- ments, opportunities and risks. In the event of developments in this general environment 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 ad- justed accordingly. At the date of preparation of the consolidated financial statements, there is no indication that any significant change in the assumptions 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 the 2021 financial year to the carrying amounts of the assets and liabilities recog- nised in the financial statements. Consolidation methods 8 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 2020. Acquisition accounting for subsidiaries included in the consolidated 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 consider- ation 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 proportion 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 pre- viously held is remeasured at the fair value applicable on the acquisition date, and the resulting gain or loss is recognised in profit or loss. Intra-group revenue, other operating income, and expenses as well as receivables, liabilities and provisions between com- panies that are consolidated or proportionately consolidated are eliminated. Intercompany profits or losses from intra-group deliveries and services not realised by sale to third parties are eliminated. Unrealised gains and losses from business transac- tions with investments accounted for using the equity method are eliminated on a proportionate basis. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 120 Segment reporting 9 Segment reporting Segments by division € m Post & Parcel Germany 1 Express Global Forwarding, Freight Supply Chain 1 eCommerce Solutions Corporate Functions Consolidation 1, 2 Group 1 January to 31 December 2019 2020 2019 2020 2019 2020 2019 2020 External revenue Internal revenue Total revenue 15,004 15,983 16,734 18,722 14,175 14,885 13,427 12,445 396 472 367 413 953 1,029 106 92 15,400 16,455 17,101 19,135 15,128 15,914 13,533 12,537 Profit from operating activities (EBIT) 1,230 1,592 2,039 2,751 521 590 911 426 2019 3,852 193 4,045 – 51 of which Net income / loss from investments accounted for using the equity method 0 0 1 3 –2 –2 3 1 – 5 Segment assets 5,904 6,188 15,640 16,263 8,714 8,901 7,898 7,889 1,723 of which Investments accounted for using the equity method Segment liabilities Net segment assets / liabilities Capex (assets acquired) Capex (right-of-use assets) Total capex Depreciation and amortisation Impairment losses Total depreciation, amortisation and impairment losses Other non-cash income (–) and expenses (+) 0 2,707 3,197 0 2,716 3,472 34 24 3,801 4,224 11,839 12,039 22 3,058 5,656 19 3,296 5,605 468 28 496 339 0 339 183 590 14 604 329 0 329 359 2,080 940 3,020 1,314 0 1,314 316 1,428 974 2,402 1,383 0 1,383 527 114 159 273 254 0 254 26 104 207 311 246 0 246 90 14 3,144 4,754 324 702 14 2,912 4,977 351 973 1,026 1,324 871 30 901 204 849 71 920 234 32 629 1,094 1,161 132 126 258 201 12 213 61 141 143 284 164 5 169 60 2020 4,692 137 4,829 158 –35 1,878 0 717 2019 149 1,328 1,477 – 521 2020 79 1,531 1,610 2019 2020 2019 2020 0 0 63,341 66,806 –3,343 –3,674 0 0 –3,343 –3,674 63,341 66,806 – 669 3 –1 – 5 –2 5,495 5,267 21 1,530 3,965 502 772 1,274 662 1 663 85 17 1,567 3,700 385 448 833 753 31 784 209 0 – 83 0 – 62 –21 –3 0 –3 –1 1 0 0 –1 –1 1 4,128 4,847 – 8 –34 – 80 45,291 46,306 –1 – 62 –18 123 73 14,807 15,370 30,484 30,936 0 0 0 –2 1 –1 –1 –1 3,617 2,727 6,344 3,640 44 3,684 875 2,999 2,759 5,758 3,722 108 3,830 1,478 499,461 502,207 Employees 4 157,863 158,889 96,850 99,365 44,265 42,376 157,028 159,152 30,797 29,819 12,659 12,607 1 Prior-period amounts adjusted. 2 Including rounding. 3 Of which StreetScooter: €–318 million (previous year: €–115 million). 4 Average FTEs. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 121 Information about geographical regions € m 1 January to 31 December External revenue Non-current assets Capex 1 Prior-period amounts adjusted. Germany (excluding Germany) Americas Asia Pacific 1 Other regions Europe 1 2019 19,040 9,949 2,160 2020 19,814 10,093 1,707 2019 18,772 10,341 1,323 2020 19,012 10,526 1,409 2019 11,841 7,695 1,997 2020 12,993 7,782 1,887 2019 11,075 4,843 649 2020 12,260 4,817 615 2019 2,613 639 215 2020 2,727 599 140 2019 63,341 33,467 6,344 Group 2020 66,806 33,817 5,758 Adjustment of prior-period amounts Effective as of 1 January 2020, the fulfilment activities of Home Delivery GmbH were transferred from the Post & Parcel Germany segment to the Supply Chain division. The prior-period amounts have been adjusted accordingly. 9.1 Segment reporting disclosures Deutsche Post DHL Group reports five operating segments for the 2020 financial year; these are managed independently by the responsible segment management bodies in line with the prod- ucts 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 responsibility who report directly to Deutsche Post DHL Group’s top management. External revenue is the revenue generated by the divisions from non-Group third parties. Internal revenue is revenue gener- ated with other divisions. If comparable external market prices exist for services or products offered internally within the Group, these market prices or market-based prices are used as transfer prices (arm’s length principle). The transfer prices for services for which no external market exists are generally based on in- cremental 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 obli- gation (nationwide retail outlet network, delivery every working day), and from its obligation to assume the compensation struc- ture as the legal successor to Deutsche Bundespost, are allocated to the Post & Parcel Germany division. In keeping with internal reporting, capital expenditure (capex) is disclosed. Additions to intangible assets net of good- will and to property, plant and equipment, including right-of-use assets, are reported in the capex figure. Depreciation, amort- isation and impairment losses relate to the segment assets al- located to the individual divisions. Other non-cash income and expenses relate primarily to expenses from the recognition of provisions. The profitability of the Group’s operating divisions is meas- ured as profit from operating activities (EBIT). 9.2 Segments by division Reflecting the Group’s predominant organisational structure, the primary reporting format is based on the divisions. The Group distinguishes between the following divisions: Post & Parcel Germany The Post & Parcel Germany division transports, sorts and de livers documents and goods in and outside of Germany. Its business units are called Post Germany, Parcel Germany and International. Express The Express division offers time-definite courier and express services to business and private customers. The division com- prises 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 busi- ness units are Global Forwarding and Freight. Supply Chain The Supply Chain division delivers customised supply chain solu- tions to its customers based on globally standardised modular components including warehousing, transport and value-added services. It is divided into the EMEA (Europe, Middle East and Africa), Americas and Asia Pacific regions. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 122 eCommerce Solutions The eCommerce Solutions division is home to the Group’s inter- national parcel delivery business. Core activities include parcel delivery within selected countries in Europe, the United States and Asia as well as cross-border non-TDI services, especially to, from, and within Europe. In addition to the reported segments shown above, seg- 9.4 Reconciliation of segment amounts to consolidated amounts The following table shows the reconciliation of Deutsche Post DHL Group’s total assets to the segment assets. Financial asset components, income tax assets, deferred taxes, cash and cash equivalents and other asset components are deducted. ment reporting comprises the following categories: 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 Total for reported segments 1 Consolidation 1, 2 1 Prior-period amounts adjusted. 2 Including rounding. 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 business activities. The profit / loss gener- ated by GBS is allocated to the operating segments, whilst its assets and liabilities remain with GBS (asymmetrical allocation). The Corporate Incubations board department was discontinued effective as of 1 January 2021. Consolidation The data for the divisions is presented following consolidation of interdivisional transactions. The transactions between the divisions are eliminated in the Consolidation column. Information about geographical regions 9.3 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 comprise intangible assets, property, plant and equipment and other non-current assets. 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 2019 52,169 2020 55,307 –14,392 –14,078 37,777 41,229 Non-current provisions and liabilities –19,372 –22,237 –3,598 14,807 1,530 13,339 – 62 –3,622 15,370 1,567 13,865 – 62 2019 52,169 –25 – 594 –242 2020 55,307 –12 – 579 –20 Current provisions and liabilities Segment liabilities –2,525 –2,390 of which Corporate Functions Total for reported segments Consolidation 1 1 Including rounding. –232 –20 –378 –2,862 45,291 5,495 39,879 – 83 –209 –10 –1,299 – 4,482 46,306 5,267 41,119 – 80 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 123 The following table shows the reconciliation of the segment amounts to the income statement: Income statement disclosures 10 Revenue by business unit Reconciliation to the income statement € m Total for reported segments 1 Corporate Functions Group / Consolidation 1, 2 Consolidated amount Reconciliation to € m Post & Parcel Germany 1 2019 63,192 2,015 65,207 2,340 2020 66,727 2,143 68,870 1,983 39 –34,376 –20,578 248 –36,386 –21,175 –3,021 – 4,958 –3,047 – 4,943 –3 4,650 –33 5,517 2019 149 1,328 1,477 1,570 174 –1,300 –1,042 – 663 –732 – 5 – 521 2020 79 1,531 1,610 1,637 43 –1,195 –1,068 –784 – 910 –2 – 669 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 / loss from investments accounted for using the equity method Profit 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. 2019 0 –3,343 –3,343 –1,559 26 3,606 10 0 2020 0 –3,674 –3,674 –1,525 2019 63,341 0 63,341 2,351 2020 66,806 0 66,806 2,095 Post Germany Parcel Germany International Other Express 1 239 292 Global Forwarding 3,787 –32,070 –33,794 Freight Global Forwarding, Freight 9 1 –21,610 –22,234 Supply Chain 1 –3,684 – 4,431 –3,830 – 4,454 eCommerce Solutions Corporate Functions Total revenue 1,259 1,399 0 –1 1 –1 2019 15,004 8,158 4,829 1,836 181 16,734 14,175 10,484 3,691 13,427 3,852 149 2020 15,983 7,986 5,885 1,944 168 18,722 14,885 11,469 3,416 12,445 4,692 79 63,341 66,806 – 8 4,128 – 654 3,474 – 698 2,776 2,623 153 –34 4,847 – 676 4,171 – 995 3,176 2,979 197 1 Prior-period amounts adjusted due to reclassifications, note 9. The total amount includes revenue from performance obliga- tions in the amount of €12 million (previous year: €10 million) settled in prior periods. The change in revenue was due to the following factors: Factors affecting revenue, 2020 € m Organic growth Portfolio changes 1 Currency translation effects Total 5,375 –295 –1,615 3,465 1 2019 Annual Report, note 2 to the consolidated financial statements. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 124 The allocation of revenue to geographical regions is presented in the segment reporting. 11 Other operating income € m Income from currency translation Insurance income Income from the reversal of provisions Subsidies Income from the remeasurement of liabilities Income from fees and reimbursements Operating lease income Commission income Sublease income Income from prior-period billings Income from the disposal of assets Income from derivatives Income from loss compensation Income from the derecognition of liabilities Recoveries on receivables previously written off Income from rental concessions Reversals of impairment losses on receivables and other assets Miscellaneous Total 2019 2020 184 247 124 18 197 124 68 80 50 42 525 23 31 18 18 0 140 462 2,351 294 268 191 177 160 110 110 89 65 53 49 46 36 25 18 6 3 395 2,095 Greater use of government subsidies for labour costs amounting to €107 million was made in the course of lockdown measures in the United Kingdom. The increase in income from the reversal of provisions relates primarily to StreetScooter GmbH provisions recognised during the financial year. The reversal of impairment losses on receivables and other assets has been set off against write-downs of current assets since the 2020 financial year, see note 16. In the previous year, other operating income was affected primarily by the sale of the Supply Chain business in China. Miscellaneous other operating income includes a large number of smaller individual items. 12 Changes in inventories and work performed and capitalised € m Changes in inventories – expense (–) / income (+) Work performed and capitalised Total 2019 2020 –130 369 239 74 218 292 Changes in inventories are largely attributable to real estate de- velopment projects. Work performed and capitalised declined mainly as the result of the gradual discontinuation of electric vehicle production and the realignment of StreetScooter GmbH. 13 Materials expense € m Cost of raw materials, consumables and supplies, and of goods purchased and held for resale Aircraft fuel Fuel Goods purchased and held for resale Packaging material Spare parts and repair materials Office supplies Other expenses Cost of purchased services Transport costs Cost of temporary staff and services Maintenance costs Lease expenses Short-term leases Leases (incidental expenses) Low-value asset leases Variable lease payments IT services Commissions paid Other purchased services Materials expense 2019 2020 1,452 1,012 800 265 481 124 71 412 664 469 345 132 101 365 3,605 3,088 21,928 24,263 2,244 1,347 2,106 1,470 544 72 54 22 589 581 1,084 28,465 32,070 490 101 60 17 633 608 958 30,706 33,794 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 125 Aircraft fuel expenses declined due to lower fuel prices. At the same time, transport costs rose on the back of higher delivery volumes. A total of €106 million (previous year: €188 million) of the other expenses included in the cost of raw materials, consum- ables and supplies, and of goods purchased and held for resale, relates to the production of electric vehicles. The other expenses item includes a large number of indi- vidual items. 14 Staff costs / employees € m Wages, salaries and compensation Social security contributions Retirement benefit expenses Expenses for other employee benefits 2019 17,399 2,656 688 867 2020 17,701 2,705 944 884 Staff costs 21,610 22,234 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 further expenses for the early retirement programme in the amount of €108 million. Wages, salaries and compensation include a special bonus of €300 paid to each employee in recognition of their service during the past several months and led to an additional expense of €163 million. Social security contributions relate, in particular, to statu- tory social security contributions paid by employers. Retirement benefit expenses include the service cost re- lated to the defined benefit retirement plans. These expenses also include contributions to defined contribution retirement plans for civil servants in Germany in the amount of €376 million (previous year: €409 million), as well as for the Group’s hourly workers and salaried employees, totalling €352 million (previ- ous year: €347 million), note 6. For information on the increase in retirement benefit expenses, see note 36. The average number of Group employees in the reporting period, broken down by employee group, was as follows: Employees Headcount (annual average) Hourly workers and salarid employees Civil servants Trainees Total Full-time equivalents 1 As at 31 December Average for the year 1 Including trainees. 2019 2020 512,325 518,277 26,296 5,661 23,611 5,240 544,282 547,128 504,781 499,461 526,896 502,207 The employees of companies acquired or disposed of during the financial year were included rateably. The number of full-time equivalents at joint operations included in the consolidated fi- nancial statements as at 31 December 2020 amounted to 422 on a proportionate basis (previous year: 326). 15 Depreciation, amortisation and impairment losses € m Amortisation of and impairment losses on intangible assets (excluding goodwill), of which Impairment losses: 3 (previous year: 1) Depreciation of and impairment losses on property, plant and equipment acquired, of which Impairment losses: 19 (previous year: 20) Land and buildings Technical equipment and machinery Transport equipment Aircraft IT equipment Operating and office equipment Investment property Depreciation of and impairment losses on right-of-use assets, of which Impairment losses: 73 (previous year: 19) 2019 2020 211 203 207 379 276 327 144 94 2 224 381 289 384 149 104 0 1,429 1,531 Land and buildings 1,451 1,494 Technical equipment and machinery Transport equipment Aircraft IT equipment Investment property Impairment of goodwill Depreciation, amortisation and impairment losses 52 224 310 1 2 2,040 4 45 229 310 1 4 2,083 13 3,684 3,830 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 126 The depreciation, amortisation and impairment losses item in- cludes impairment losses totalling €108 million (previous year: €44 million) as follows: 16 Other operating expenses € m 2019 2020 Impairment losses € m Supply Chain Intangible assets Acquired property, plant and equipment Right-of-use assets eCommerce Solutions Intangible assets Acquired property, plant and equipment Right-of-use assets Corporate Functions Goodwill Acquired property, plant and equipment Right-of-use assets Consolidation (including rounding) Impairment losses 2019 2020 3 19 8 1 1 10 0 0 1 1 44 2 12 57 1 0 4 13 7 11 1 108 Impairment losses relate chiefly to negative impacts stemming from lockdown measures resulting from the pandemic. Goodwill impairment is attributable to the realignment of StreetScooter GmbH, which was assigned to Corporate Incuba- tions. In the previous year, €21 million impairment losses in the Supply Chain segment related to the non-current assets of the power packaging business in the United States. Another €12 mil- lion related to the disposal of assets as part of the strategic part- nership with Austrian Post (eCommerce Solutions segment). Warranty expenses, refunds and compensation payments Cost of purchased cleaning and security services Expenses for advertising and public relations Currency translation expenses Other business taxes Travel and training costs Telecommunication costs Office supplies Write-downs of current assets Insurance costs Customs clearance-related charges Services provided by Bundesanstalt für Post und Telekommunikation (German federal post and telecommunications agency) Consulting costs (including tax advice) Entertainment and corporate hospitality expenses Losses on disposal of assets Monetary transaction costs Voluntary social benefits Commissions paid Contributions and fees Legal costs Audit costs Donations Expenses from prior-period billings Expenses from derivatives Miscellaneous Total 388 442 371 179 280 350 220 202 239 184 149 152 111 188 67 70 86 59 54 70 34 20 17 8 515 475 331 308 306 225 211 208 189 186 165 162 103 102 102 82 78 66 65 63 32 27 19 8 491 4,431 426 4,454 The increase in warranty expenses, refunds and compensation payments, and in losses on disposal of assets, was mainly the result of the negative impact of the gradual discontinuation of vehicle production by StreetScooter GmbH. The COVID-19 pandemic led to lower corporate hospitality expenses and to lower travel costs due to travel restrictions. Reversals of write-downs of receivables and other assets have been offset against write-downs of current assets since the 2020 financial year, see note 11. 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. 17 Net finance costs € m Financial income Interest income Gains on changes in fair value of financial assets Other financial income Finance costs Interest expense from unwinding discounts on provisions Interest expense on leases Other interest expenses Losses on changes in fair value of financial assets Other finance costs Foreign currency loss Net finance costs 2019 2020 100 80 14 194 –113 – 416 –172 – 92 – 53 – 846 –2 – 654 74 127 19 220 – 89 –394 –151 –145 – 59 – 838 – 58 – 676 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 127 The expense from the unwinding of discounts on bonds resulting from the application of the effective interest method amounted to €13 million (previous year: €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 unwinding discounted net pension provi- sions can be found in note 36. 18 Income taxes € m Current income tax expense Current recoverable income tax Deferred tax income (previous year: expense) from temporary differences Deferred tax expense from tax loss carryforwards Income taxes 2019 –704 71 – 633 2020 – 870 12 – 858 – 56 28 – 9 – 65 – 698 –165 –137 – 995 The reconciliation to the effective income tax expense based on consolidated net profit before income taxes and the expected income tax expense is as follows: 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 2019 3,474 2020 4,171 –1,060 –1,272 32 176 188 39 –173 100 – 698 9 45 253 –16 –115 101 – 995 The difference from deferred tax assets not recognised for initial differences is due to differences between the carrying amounts in the opening tax accounts of Deutsche Post AG and the carrying amounts in the IFRS financial statements as at 1 Jan- uary 1995 (initial differences). In accordance with IAS 12.15(b) and IAS 12.24(b), the Group did not recognise any deferred tax assets in respect of these temporary differences, which related mainly to property, plant and equipment as well as to provisions for pensions and similar obligations. The remaining temporary differences between the original IFRS carrying amounts, net of accumulated depreciation or amortisation, and the tax base amounted to €109 million as at 31 December 2020 (previous year: €139 million). The effects from deferred tax assets of German Group com- panies not recognised for tax loss carryforwards and temporary differences relate primarily to Deutsche Post AG and members of its consolidated tax group. Effects from deferred tax assets of foreign companies not recognised for tax loss carryforwards and temporary differences relate primarily to the Americas region. Effects from deferred tax assets not recognised for tax loss carryforwards and temporary differences in the amount of €8 million (previous year: €3 million) relate to the reduction of the effective income 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 the Americas region) reduced the deferred tax expense by €368 million (pre- vious year: €391 million). Effects from unrecognised deferred tax assets amounting to €5 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 carryforwards for which no deferred taxes were recognised. A deferred tax asset in the amount of €78 million was rec- ognised 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 the 2020 financial year, there were no changes in tax rates affecting 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 companies in the amount of €16 mil- lion (tax expense) (previous year: income of €39 million). Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 128 The following table presents the tax effects on the compo- nents of other comprehensive income: 19 Earnings per share Basic earnings per share are computed in accordance with IAS 33, Earnings per Share, by dividing consolidated net profit by the weighted average number of shares outstanding. Outstanding shares relate to issued capital less any treasury shares held. Basic earnings per share for the 2020 financial year were €2.41 (previous year: €2.13). Other comprehensive income € m Before taxes Income taxes After taxes Basic earnings per share 2020 Change due to remeasurements of net pension provisions Hedging reserves Reserve for equity instruments without recycling Currency translation reserve Share of other comprehensive income of investments accounted for using the equity method –1,087 –18 – 5 – 954 – 8 Other comprehensive income –2,072 2019 Change due to remeasurements of net pension provisions Hedging reserves 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 –1,068 3 –29 273 3 2 Other comprehensive income – 816 80 –1,007 6 0 0 1 87 77 –1 –1 0 –1 0 74 –12 – 5 – 954 –7 –1,985 – 991 2 –30 273 2 2 –742 Consolidated net profit for the period attributable to Deutsche Post AG shareholders € m 2019 2,623 2020 2,979 Weighted average number of shares outstanding Basic earnings per share number 1,234,109,757 1,236,900,096 € 2.13 2.41 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 Potentially dilutive shares Weighted average number of shares for diluted earnings Diluted earnings per share € m € m € m € m 2019 2,623 8 1 2020 2,979 8 1 2,630 2,986 number 1,234,109,757 1,236,900,096 number 22,862,212 28,591,660 number 1,256,971,969 1,265,491,756 € 2.09 2.36 To compute diluted earnings per share, the weighted average number of shares outstanding is adjusted for the number of all potentially dilutive shares. This item includes the execu- tives’ rights to shares under the Performance Share Plan and Share Matching Scheme (as at 31 December 2020: 10,649,742 shares; previous year: 4,887,495 shares) and the maximum number of ordinary shares that can be issued on exercise of the conversion rights under the convertible bond issued in Decem- ber 2017. Consolidated net profit for the period attributable to Deutsche Post AG shareholders was increased by the amounts spent for the convertible bond. Diluted earnings per share in the reporting period were €2.36 (previous year: €2.09). 20 Dividend per share A dividend per share of €1.35 is being proposed for the 2020 financial year (previous year: €1.15 paid). Further details on the dividend distribution can be found in note 34. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 129 Balance sheet disclosures 21 Intangible assets 21.1 Overview € m Cost Balance at 1 January 2019 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2019 / 1 January 2020 Additions from business combinations Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2020 Amortisation and impairment losses Balance at 1 January 2019 Additions from business combinations Amortisation Impairment losses Reclassifications Disposals Currency translation differences Balance at 31 December 2019 / 1 January 2020 Additions from business combinations Amortisation Impairment losses Reclassifications Disposals Currency translation differences Balance at 31 December 2020 Carrying amount at 31 December 2020 Carrying amount at 31 December 2019 Internally generated intangible assets Purchased brand names Purchased customer lists Other purchased intangible assets Advance payments and intangible assets under development Goodwill 1,335 0 52 1 – 99 2 1,291 0 39 58 –111 – 4 1,273 1,164 0 77 1 –22 – 88 1 1,133 0 67 1 2 –102 –3 1,098 175 158 453 0 0 0 0 23 476 0 0 0 0 –26 450 422 0 1 0 0 0 22 445 0 0 0 0 0 –23 422 28 31 44 0 0 0 0 1 45 0 0 0 0 – 4 41 18 0 4 0 0 0 1 23 0 4 0 0 0 –1 26 15 22 1,699 0 69 102 –296 13 1,587 1 62 76 –125 –36 1,565 1,381 0 128 0 22 –288 10 1,253 0 129 2 –2 –108 –27 1,247 318 334 12,236 0 0 0 –3 165 12,398 0 0 0 0 –358 12,040 1,037 0 0 4 0 –1 22 1,062 0 0 13 0 0 –33 1,042 10,998 11,336 105 0 86 –76 – 9 0 106 0 132 –101 –12 0 125 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 124 106 Total 15,872 0 207 27 – 407 204 15,903 1 233 33 –248 – 428 15,494 4,022 0 210 5 0 –377 56 3,916 0 200 16 1 –210 – 87 3,836 11,658 11,987 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 130 Goodwill impairment in the 2020 financial year relates exclu- sively to StreetScooter GmbH, note 15. Purchased software, concessions, industrial rights, licences and similar rights and assets are reported under purchased in- tangible assets. Internally generated intangible assets relate to development costs for internally developed software. 21.2 Allocation of goodwill to CGU s 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. € m Post & Parcel Germany Express Global Forwarding, Freight DHL Global Forwarding DHL Freight Supply Chain eCommerce Solutions Corporate Incubations 31 Dec. 2019 31 Dec. 2020 961 920 3,912 3,895 4,019 279 3,858 278 1,992 1,887 160 13 160 0 Total goodwill 11,336 10,998 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 cap- ital, and take both internal historical data and external macroeco- nomic data into account. From a methodological perspective, the detailed planning phase covers a three-year planning horizon from 2021 to 2023. By contrast, an extended planning phase of up to eight years is used for the CGU eCommerce Solutions. Planning is supplemented by a perpetual annuity representing the value added from 2024 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 significant 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 econ- omies, growth expectations for the relevant sectors and long- term inflation forecasts for the countries in which the CGU s operate. The cash flow forecasts are based both on past experi- ence 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 impairment test is the EBIT margin for the perpetual annuity. The pre-tax cost of capital is based on the weighted aver- age cost of capital. The (pre-tax) discount rates for the material CGU s and the growth rates assumed in each case for the perpet- ual annuity are shown in the following table: % Discount rates Growth rates 2019 2020 2019 2020 Post & Parcel Germany Express Global Forwarding, Freight DHL Global Forwarding DHL Freight Supply Chain eCommerce Solutions 7.7 8.2 7.2 7.4 7.2 8.9 6.1 5.8 6.5 6.7 6.5 6.6 0.5 2.0 2.5 2.0 2.5 1.5 0.5 2.0 2.5 2.0 2.5 1.5 On the basis of these assumptions and the impairment tests carried out for the individual CGU s to which goodwill was al- located, it was established 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 De- cember 2020. When performing the impairment test, Deutsche Post DHL Group conducted sensitivity analyses for the significant CGU s in accordance with IAS 36.134 for the EBIT margin, the discount rate and the growth rate. These analyses – which included vary- ing the essential valuation parameters within an appropriate range – did not reveal any risk of impairment to goodwill. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 131 22 Property, plant and equipment Overview of property, plant and equipment, including right-of- use assets € m Cost Balance at 1 January 2019 Additions from business combinations 1 Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2019 / 1 January 2020 Additions from business combinations 2 Additions Reclassifications Disposals Currency translation differences Balance at 31 December 2020 Depreciation and impairment losses Balance at 1 January 2019 Additions from business combinations 1 Depreciation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2019 / 1 January 2020 Additions from business combinations 2 Depreciation Impairment losses Reclassifications Reversals of impairment losses Disposals Currency translation differences Balance at 31 December 2020 Carrying amount at 31 December 2020 Carrying amount at 31 December 2019 Land and buildings Technical equipment and machinery IT systems, operating and office equipment Aircraft Transport equipment Advance payments and assets under development 13,631 0 2,324 234 – 830 157 15,516 16 2,171 203 –731 – 503 16,672 3,477 0 1,640 18 – 6 0 –351 43 4,821 12 1,652 66 1 –2 – 466 –188 5,896 10,776 10,695 6,011 0 278 321 –277 52 6,385 9 249 336 –217 –157 6,605 3,427 0 411 20 1 –1 –233 27 3,652 7 418 7 1 0 –155 – 85 3,845 2,760 2,733 2,489 0 172 100 –257 25 2,529 2 136 114 –192 – 94 2,495 1,821 0 239 0 6 0 –248 18 1,836 1 252 2 –2 0 –180 – 64 1,845 650 693 4,223 3 451 819 –217 33 5,312 83 714 925 –383 –299 6,352 1,387 1 637 0 0 –3 –102 7 1,927 43 694 0 0 0 –328 – 89 2,247 4,105 3,385 3,552 0 475 51 –315 30 3,793 1 672 35 –341 – 89 4,071 1,490 0 500 0 0 0 –248 13 1,755 1 502 17 – 4 0 –273 – 42 1,956 2,115 2,038 898 0 2,437 –1,557 –25 6 1,759 11 1,583 –1,647 –30 –73 1,603 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 2 1,601 1,759 Total 30,804 3 6,137 –32 –1,921 303 35,294 122 5,525 –34 –1,894 –1,215 37,798 11,602 1 3,427 38 1 – 4 –1,182 108 13,991 64 3,518 92 –2 –2 –1,402 – 468 15,791 22,007 21,303 1 Proportionate change from joint operations. 2 Change in the method of consolidation. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 132 Disclosures on right-of-use assets are contained in note 40. Disposals relate primarily to 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. They relate in particular to the renewal of the intercontinental Express aircraft fleet. Advances for this purpose amounted to €321 mil- lion in the reporting period (previous year: €1,100 million). Assets under development relate to items of property, plant and equipment in progress at the reporting date for whose pro- duction internal or third-party costs have already been incurred. Investment property 23 The investment property largely comprises leased property en- cumbered by heritable building rights and developed and un- developed land. Rental income for investment property amounted to €6 million (previous year: €4 million), whilst the related expenses were €2 million (previous year: €3 million). The fair value amounted to €32 million (previous year: €50 million). 24 Investments accounted for using the equity method The following table is an 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. Additions relate mainly to a capital increase in Global-E On- line Ltd., Israel. The disposals relate to Aero Expreso. The effects of initial consolidation are presented in notes 22 and 35. Due to the current earnings situation at France-based Relais Colis SAS resulting from lockdown measures, the carry- ing amount of €30 million was written off in full. The company is assigned to the eCommerce Solutions segment. € m Cost Balance at 1 January Additions Reclassifications Disposals Currency translation differences Balance at 31 December Depreciation and impairment losses Balance at 1 January Depreciation Impairment losses Disposals Reclassifications Currency translation differences Balance at 31 December Carrying amount at 31 December of which Right-of-use assets 2019 2020 € m Associates Joint ventures Balance at 1 January Additions Disposals Impairment losses Changes in Group’s share of equity Changes recognised in profit or loss Profit distributions Changes recognised in other comprehensive income Balance at 31 December Aggregate financial data Profit after income taxes Other comprehensive income Total comprehensive income 29 8 5 – 4 0 38 11 3 1 –2 0 0 13 25 10 38 0 – 6 –1 –3 28 13 4 0 –1 1 –1 16 12 7 2019 106 12 0 0 –10 –2 2 108 –10 2 – 8 2020 108 13 –19 –30 – 5 –2 –7 58 –35 –7 – 42 2019 13 2020 15 0 0 0 2 0 0 15 2 0 2 0 0 0 1 0 –1 15 1 –1 0 2019 119 12 0 0 – 8 –2 2 123 – 8 2 – 6 Total 2020 123 13 –19 –30 – 4 –2 – 8 73 –34 – 8 – 42 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 133 25 Financial assets € m Assets measured at cost Assets at fair value through other comprehensive income Assets at fair value through profit or loss Financial assets Non-current 2020 466 29 251 746 2019 490 34 235 759 Current 2020 81 0 1,234 1,315 2019 369 0 25 394 2019 859 34 260 1,153 Total 2020 547 29 1,485 2,061 Assets measured at cost decreased due to the sale of a promis- sory note loan. At the same time, assets measured at fair value through profit or loss increased, largely on account of the pur- chase of money market fund shares. For details on impairment losses, default risk, maturity structures and restraints on dis- posal, see note 42. 26 Other assets Pension assets declined, primarily because of actuarial losses, see note 36. Of the tax receivables, €430 million (previous year: €420 million) relates to VAT, €86 million (previous year: €91 mil- lion) to customs and duties, and €35 million (previous year: €43 million) to other tax receivables. Miscellaneous other assets include a large number of in- dividual items. € m Prepaid expenses Tax receivables Contract assets Other assets from insurance contracts Income from cost absorption Creditors with debit balances Recoverable start-up costs, non-current only Receivables from loss compensation (recourse claims) Receivables from insurance business Receivables from private postal agencies Receivables from employees Receivables from cash on delivery Pension assets, non-current only Miscellaneous, of which Non-current: 74 (previous year: 98) Other assets of which Current Non-current 2019 2020 759 554 129 126 127 72 55 32 48 44 29 4 242 772 2,993 2,598 395 937 551 182 115 111 66 66 54 50 37 27 3 20 756 2,975 2,815 160 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 134 27 Deferred taxes Breakdown by balance sheet item and maturity € m 2019 2020 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities The increase in work in progress is attributable mainly to real estate development projects. 29 Trade receivables For information on impairment losses, default risk and maturity structures, see note 42. 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 4 350 3 13 58 560 1,621 158 1,957 4,724 759 3,965 –2,199 2,525 97 1,917 96 8 52 45 27 13 2,255 215 2,040 –2,199 56 22 416 2 14 65 589 1,632 198 1,752 4,690 954 3,736 –2,300 2,390 A total of €1,065 million (previous year: €1,422 million) of the deferred taxes on tax loss carryforwards relates to tax loss carryforwards in Germany and €687 million (previous year: €535 million) to foreign tax loss carryforwards (mainly from the Americas region). No deferred tax assets were recognised for tax loss carryforwards of around €2.6 billion (previous year: €4.2 billion) chiefly from the Americas region and for temporary differences of around €4.1 billion (previous year: €3.5 billion) primarily from Germany, as it can be assumed that the Group will probably not be able to use these tax loss carryforwards and temporary dif- ferences in its tax planning. The tax loss carryforwards from the Americas region for which no deferred tax assets were recognised do not expire prior to 2028. Deferred taxes have not been recognised for temporary dif- ferences of €403 million (previous year: €528 million) relating to earnings of German and foreign subsidiaries because these temporary differences will probably not reverse in the foresee- able future. Inventories 28 Adequate valuation allowances were recognised. € m Raw materials, consumables and supplies Work in progress Finished goods and goods purchased and held for resale Advance payments Inventories 2019 251 65 75 5 396 2020 202 196 30 11 439 111 1,995 € m 66 26 58 44 26 10 2,336 242 2,094 –2,300 36 Trade receivables Deferred revenue Trade receivables 30 Cash and cash equivalents € m Cash equivalents Bank balances / cash in transit Cash Other cash and cash equivalents 2019 7,828 733 8,561 2020 8,222 763 8,985 2019 1,103 1,675 13 71 2020 2,787 1,635 17 43 Cash and cash equivalents 2,862 4,482 Of the €4,482 million in cash and cash equivalents, €1,248 mil- lion was not available for general use by the Group as at the reporting date (previous year: €1,054 million). Of this amount, €1,169 million (previous year: €979 million) was attributable to countries where exchange controls or other legal restrictions apply (mostly China, India and Thailand) and €79 million (pre- vious year: €75 million) primarily to companies with non-con- trolling interest shareholders. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 135 31 Assets held for sale and liabilities associated with assets held for sale The amounts reported in this item relate mainly to the following items: € m Sale of Steinfurt property – Corporate Functions segment Sale of fuel business of DHL Supply Chain Limited, United Kingdom – Supply Chain segment Sale of CSG.PB GmbH, Germany – Corporate Functions segment Other Assets held for sale and liabilities associated with assets held for sale Deutsche Post DHL Corporate Real Estate Management GmbH & Co. Logistikzentren KG intends to sell a property in Steinfurt. The most recent measurement prior to reclassification did not indi- cate any impairment. DHL Supply Chain Limited, United Kingdom, intends to sell its fuel business. The most recent remeasurement prior to reclassification to assets held for sale and liabilities associated with assets held for sale did not result in any impairment loss. The sale of CSG.PB GmbH was completed in March 2020, note 2. Issued capital and purchase of treasury shares 32 As at 31 December 2020, KfW Bankengruppe (KfW) held a 20.49 % interest, unchanged from the previous year, in the share capital of Deutsche Post AG. Free float accounts for 79.51 % of the shares. KfW holds the shares in trust for the Federal Republic of Germany. Assets Liabilities 2019 2020 2019 2020 0 0 8 1 9 9 7 0 0 16 0 0 14 0 14 0 7 0 0 7 32.1 Changes in issued capital The issued capital amounts to €1,239 million. It is composed of 1,239,059,409 no-par value registered shares (ordinary shares) with a notional interest in the share capital of €1 per share and is fully paid up. Changes in issued capital and treasury shares € m 2019 2020 Issued capital Balance at 1 January Addition due to contingent capital increase (Performance Share Plan) Balance at 31 December Treasury shares Balance at 1 January Purchase of treasury shares Issue / sale of treasury shares Balance at 31 December 1,237 0 1,237 – 4 0 3 –1 1,237 2 1,239 –1 –2 3 0 Total at 31 December 1,236 1,239 32.2 Authorised and contingent capital Authorised / contingent capital at 31 December 2020 Amount € m 160 Purpose Increase in share capital against cash / non-cash contributions (authorisation until 27 April 2022) 35 Issue of Performance Share Units to executives (authorisation until 7 May 2018) 75 Issue of options / conversion rights (authorisation until 7 May 2018) 12 Issue of Performance Share Units to executives (authorisation until 8 October 2020) 33 Issue of options / conversion rights (authorisation until 8 October 2020) 12 Issue of Performance Share Units to executives (authorisation until 26 August 2023) 40 Issue of options / conversion rights (authorisation until 26 August 2023) Authorised Capital 2017 (Annual General Meeting on 28 April 2017) Contingent Capital 2014 (Annual General Meeting on 27 May 2014) Contingent Capital 2017 (Annual General Meeting on 28 April 2017) Contingent Capital 2018 / 1 (Annual General Meeting on 24 April 2018) Contingent Capital 2018 / 2 (Annual General Meeting on 24 April 2018) Contingent Capital 2020 / 1 (Annual General Meeting on 27 August 2020) Contingent Capital 2020 / 2 (Annual General Meeting on 27 August 2020) Authorised Capital 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 com- pany’s share capital by up to €160 million. 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. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 136 Contingent Capital 2014 The contingent capital increase serves to grant Performance Share Units (PSUs) to selected Group executives. The new shares participate in profit from the beginning of the financial year in which they are issued. In the 2020 financial year, the authorisa- tion resulted in the creation of 2.55 million new shares that were issued to executives in September to settle the 2016 PSP tranche, note 45.3. The share capital was contingently increased by up to €35 million through the issue of up to 35,027,242 new no-par value registered shares. Contingent Capital 2017 The contingent capital increase serves to issue bonds with war- rants, convertible bonds and / or income bonds as well as profit participation certificates, or a combination thereof, in an aggre- gate principal amount of up to €1.5 billion, and to grant options or conversion rights for up to 75 million shares with a proportionate interest in the share capital not to exceed €75 million. The new shares participate in profit from the beginning of the financial year in which they are issued. The authorisation was exercised in part in December 2017, by issuing the convertible bond 2017 / 2025 in an aggregate principal amount of €1 billion. The share capital was increased on a contingent basis by up to €75 million. Contingent capital was not utilised in the 2020 financial year. Contingent Capital 2018 / 1 The contingent capital increase serves to grant Performance Share Units (PSUs) to selected Group executives. The new shares participate in profit from the beginning of the financial year in which they are issued. The share capital was contingently in- creased by up to €12 million through the issue of up to 12 mil- lion no-par value registered shares. Contingent capital was not utilised in the 2020 financial year. Contingent Capital 2018 / 2 The contingent capital increase serves to issue bonds with war- rants, convertible bonds and / or income bonds as well as profit participation certificates, or a combination thereof, in an aggre- gate principal amount of up to €1.5 billion, and to grant options or conversion rights for up to 33 million shares with a proportionate interest in the share capital not to exceed €33 million. The new shares participate in profit from the beginning of the financial year in which they are issued. The share capital was increased on a contingent basis by up to €33 million. Contingent capital was not utilised in the 2020 financial year. Contingent Capital 2020 / 1 The contingent capital increase serves to grant Performance Share Units (PSUs) to selected Group executives. The share cap- ital was contingently increased by up to €12 million through the issue of up to 12 million no-par value registered shares. The new shares participate in profit from the beginning of the financial year in which they are issued. Contingent capital was not utilised in the 2020 financial year. Contingent Capital 2020 / 2 The contingent capital increase serves to issue bonds with war- rants, convertible bonds and / or income bonds as well as profit participation certificates, or a combination thereof, in an aggre- gate principal amount of up to €1.5 billion, and to grant options or conversion rights for up to 40 million shares with a propor- tionate interest in the share capital not to exceed €40 million. The new shares participate in profit from the beginning of the financial year in which they are issued. The share capital was increased on a contingent basis by up to €40 million. Contingent capital was not utilised in the 2020 financial year. 32.3 Authorisation to acquire treasury shares By way of a resolution adopted by the Annual General Meeting on 28 April 2017, the company is authorised to acquire treas- ury 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. In addition, the Board of Management is authorised to acquire treasury shares totalling up to 5 % of the share capital existing when the resolution was adopted by means including using derivatives. Purchase and issuance of treasury shares In the 2020 financial year, 2,003,334 shares were acquired for €45 million at an average price of €22.32 per share. Along with the existing treasury shares, 2,987,028 treasury shares were issued to executives to settle the 2019 tranche and claims to matching shares under the 2015 tranche. As at 31 December 2020, Deutsche Post AG held no treas- ury shares (previous year: 983,694 treasury shares). Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 137 32.4 Disclosures on corporate capital In the 2020 financial year, the equity ratio was 25.5 % (previous year: 27.6 %). The company’s capital is monitored using the net gearing ratio, which is defined as net debt divided by the total of equity and net debt. Corporate capital € m Financial liabilities Less operating financial liabilities 1 Less cash and cash equivalents Less current financial assets Less non-current derivative financial instruments Net debt Plus total equity Total capital Net gearing ratio (%) 1 Relates to e. g. liabilities from overpayments. 2019 16,974 –350 –2,862 –394 –1 13,367 14,392 27,759 48.2 2020 19,098 –372 – 4,482 –1,315 –1 12,928 14,078 27,006 47.9 34 Equity attributable to Deutsche Post AG shareholders The equity attributable to Deutsche Post AG shareholders in the 2020 financial year amounted to €13,777 million (previous year: €14,117 million). Dividends Dividends paid to the shareholders of Deutsche Post AG are based on the net retained profit of €7,977 million reported in Deutsche Post AG’s annual financial statements in accordance with the HGB. The Board of Management is proposing a dividend of €1.35 per no-par value share carrying dividend rights. This corresponds to a total dividend of €1,673 million. The amount of €6,304 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 appropriation of net retained profit on the date of the Annual General Meeting. Total dividend € m Dividend per share € Dividend distributed in the 2020 financial year for the year 2019 Dividend distributed in the 2019 financial year for the year 2018 1,422 1,419 1.15 1.15 33 Reserves 33.1 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 Issue of treasury shares Differences between purchase and issue prices of treasury shares 2019 3,469 2020 3,482 31 –25 6 25 –23 2 0 5 87 –77 10 26 –26 0 24 3 Balance at 31 December 3,482 3,519 33.2 Retained earnings In addition to the items evident in the statement of changes in equity, retained earnings also include changes due to capital increases / decreases: € m Capital increase / decrease of which Exercise of share-based payment schemes Difference between purchase and issue prices of treasury shares Purchase / sale of treasury shares 2019 2020 41 56 – 5 –10 28 74 –3 – 43 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 138 35 Non-controlling interests This balance sheet item includes adjustments for the interests of non-Group shareholders in consolidated equity from acquisition accounting, as well as their interests in profit or loss. The following table shows the companies to which the non-controlling interests relate: € m DHL Sinotrans International Air Courier Ltd., China DHL Aero Expreso S. A., Panama Blue Dart Express Limited, India PT. Birotika Semesta, Indonesia Exel Saudia LLC, Saudi Arabia DHL Global Forwarding Abu Dhabi LLC, United Arab Emirates Other companies Non-controlling interests 2019 2020 169 196 0 17 19 9 7 54 275 18 15 14 8 7 43 301 There are material non-controlling interests in the following two companies: DHL Sinotrans International Air Courier Ltd. (Sinotrans), China, which is assigned to the Express segment, provides do- mestic and international express delivery and transport services. Deutsche Post DHL Group holds a 50 % interest in the company. Deutsche Post AG holds a 75 % interest in Blue Dart Express Limited (Blue Dart), India, which is assigned to the eCommerce Solutions segment. Blue Dart is a courier service provider. The following table gives an overview of their aggregated financial data: Financial data for material non-controlling interests € m Sinotrans Blue Dart 2019 2020 2019 2020 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 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 130 475 605 32 237 269 336 169 124 607 731 24 314 338 393 196 1,677 2,179 330 82 248 –3 245 118 127 120 278 –17 –273 –12 277 –3 262 408 103 305 –14 291 146 119 153 390 –14 –254 122 262 –14 370 106 91 197 38 73 111 86 17 407 3 2 1 –1 0 0 1 0 20 – 6 –31 –17 25 0 8 94 109 203 32 89 121 82 15 355 3 1 2 –7 – 5 –1 0 0 17 –10 – 5 2 8 –1 9 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 139 The portion of other comprehensive income attributable to non-controlling interests largely relates to the currency trans- lation 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 2019 –16 0 0 0 Currency translation reserve at 31 December –16 2020 –16 3 –15 0 –28 36 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. 36.1 Plan features Germany In Germany, Deutsche Post AG has an occupational retirement benefit arrangement based on a collective agreement, which is open to new hourly workers and salaried employees. Depend- ing on the weekly working hours and wage / salary group, retire- ment benefit components are calculated annually for each hourly worker and salaried employee, and credited to an individual pen- sion account. A 2.5 % increase on the previous year is included in every newly allocated component. When the statutory pension falls due, the hourly workers and salaried employees can choose whether to receive payment as a lump-sum or in instalments, or lifelong monthly benefit payments that increase by 1 % each year. The large majority of Deutsche Post AG’s obligations relates to older vested entitlements of hourly workers and salaried employ- ees from a previous agreement, and to legacy pension commit- ments towards former hourly workers and salaried employees who have left or retired from the company. In addition, retirement benefit arrangements are available to executives below the Board of Management level and to specific employee groups through de- ferred compensation in particular. In the previous year, the Group began offering executives below Board of Management level and employees participating in the centrally managed deferred compensation arrangements the option of taking a lump-sum payment rather than receiving a lifetime pension. Details on the retirement benefit arrangements for the Board of Management can be found in the Combined Management Report. The prime source of external funding for Deutsche Post AG’s respective retirement benefit obligations is a contractual trust arrangement, 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 fund- ing 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, Versorgungsanstalt der Deutschen Bundespost (VAP – Deutsche Bundespost institution for supplementary retirement pensions), a shared pension fund for successor companies to Deutsche Bundespost, is used for some of the legacy pension commitments. Individual subsidiaries in Germany have retirement bene- fit plans that were acquired in the context of acquisitions and transfers of operations and that are closed to new entrants. Con- tractual trust arrangements are in place for two (previous year: three) subsidiaries for external funding. United Kingdom In the UK, the Group’s defined benefit pension arrangements are closed to new entrants and for further service accrual. One arrangement which, exceptionally, was partly open until 31 March 2019, was then also closed to new entrants and for further service accrual. Furthermore, in 2019 certain active members of this arrangement were subsequently given the option to transfer their past service benefits to an external pen- sion arrangement. This resulted in settlement payments in the reporting period. The Group’s defined benefit pension arrangements in the UK have mainly been consolidated into a group plan with dif- ferent sections for the participating divisions. These are funded mainly via a group trust. The amount of the employer contribu- tions must be negotiated with the trustee in the course of funding valuations. Until that time, employee beneficiaries of the defined benefit arrangement that was open until 31 March 2019 made their own funding contributions. Other In the Netherlands, collective agreements require that those em- ployees who are not covered by a sector-specific plan participate in a dedicated defined benefit retirement plan. The dedicated plan provides for annual accruals which are subject to a pen- sionable salary cap. Furthermore, the plan provides for monthly benefit payments that increase in line with inflation, on the one hand, and the funds available for such increases, on the other. In Switzerland, employees receive an occupational pension in line with statutory requirements, 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 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 140 retirement plans have been closed to new entrants and accrued entitlements have been frozen. In the previous year, members there whose employment had ended were offered an immediate lump-sum payment instead of receiving a future pension, which primarily led to settlement gains and settlement payments. The Group companies fund their dedicated defined bene- fit retirement plans in these three countries primarily by using respective joint funding institutions. In the reporting period, the allocation of plan assets to the participating Group companies was harmonised in the Netherlands. Both employers and em- ployees contribute to plan funding in the Netherlands and in Switzerland. In the USA, no regular contributions are currently made in this regard. 36.2 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 Present value of defined benefit obligations Fair value of plan assets Net pension provisions 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 1 Including other administration costs in accordance with IAS 19.130 from plan assets. 2019 16,696 218 –274 –24 – – 80 379 – 379 299 – 89 227 –19 –2 – 206 285 – 285 491 –10 2020 18,618 2019 12,608 2020 13,758 2019 4,088 218 –274 –24 12 – 68 379 –291 88 20 2020 4,860 227 –19 –2 10 216 285 –213 72 288 – 89 –10 2,146 1,708 – – – –12 –12 – 291 291 279 – – – – – – –10 –10 – 213 213 203 – – – 2,146 1,708 63 – – 65 – 1,052 546 –1,052 63 2,120 1,633 1,052 – 35 –742 – 49 –13 1 271 – 36 –733 – 68 0 –2 –311 56 19 – 488 – 42 – 5 0 279 546 68 19 –358 – 67 –2 – 5 –313 1,068 – 56 16 –254 –7 – 8 1 – 8 – 65 – 546 1,087 – 68 17 –375 –1 2 3 2 18,618 19,664 13,758 13,849 4,860 5,815 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 141 As at 31 December 2020, the effects of asset ceilings amounted to €5 million; an expedient was applied to their recognition by deducting this amount from the fair value of plan assets (1 January 2020 / 31 December 2019: €5 million; 1 January 2019: €2 million). There were settlement payments in the United Kingdom in particular in the reporting period. Moreover, in Germany the proportion of benefit payments paid directly by the company increased. In the previous year, past service income was attribut- able mainly to plan amendments in Germany. Settlement effects resulted mainly from changes in the UK and the USA; settlement payments were already made in the USA. Total payments amounting to €314 million are expected with regard to net pension provisions in 2021. Of this amount, €272 million is attributable to the Group’s expected direct benefit payments and €42 million to expected employer contributions to pension funds. The disaggregation of the present value of defined benefit obligations, fair value of plan assets and net pension provisions, as well as the determination of the balance sheet items, are as follows: 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 45 %, 18 % and 11 %, respectively (previous year: 44 %, 20 % and 11 %). On account of a change in the allocation of plan assets in the Netherlands to the participating Group companies, the pension assets item declined by around €75 million in the reporting period and the increase in the pen- sion provisions item was correspondingly limited. Additionally, rights to reimbursement from former Group companies existed in the Group in Germany in the amount of €14 million (previous year: €14 million), which had to be reported separately under financial assets. Corresponding benefit pay- ments are being made directly by the former Group companies. € m 31 December 2020 Present value of defined benefit obligations Fair value of plan assets Net pension provisions Reported separately Pension assets Provisions for pensions and similar obligations 31 December 2019 Present value of defined benefit obligations Fair value of plan assets Net pension provisions Reported separately Pension assets Provisions for pensions and similar obligations Germany United Kingdom Other Total 11,134 – 5,901 5,233 0 5,233 10,355 – 5,828 4,527 0 4,527 5,450 – 5,437 13 13 26 5,349 – 5,489 –140 141 1 3,080 –2,511 569 7 576 2,914 –2,441 473 101 574 19,664 –13,849 5,815 20 5,835 18,618 –13,758 4,860 242 5,102 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 142 36.3 Additional information on the present value of defined benefit obligations The significant financial assumptions are as follows: % 31 December 2020 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase 31 December 2019 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase Germany United Kingdom Other 0.80 2.50 1.75 1.40 2.50 1.75 1.20 n. a. 2.60 1.90 n. a. 2.70 1.06 2.36 1.02 1.52 2.32 1.02 Total 0.95 2.47 2.11 1.56 2.47 2.19 The discount rates for defined benefit obligations in the euro- zone and the UK were each derived from an individual yield curve comprising the yields of AA-rated corporate bonds and taking into account membership composition and duration. 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 coun- tries without a deep market for such corporate bonds. The selection of corporate bonds to be used for this pur- pose for the eurozone was refined in June 2020. As a result, cor- porate bonds whose risk-return profile more closely resembles that of government bonds will be selected with greater accuracy in future. This change led to a 0.10 percentage point increase in the discount rate for calculating the DBO for the eurozone as at 31 December 2020, from 0.70 % (old method) to 0.80 %, reducing the Group’s DBO by around €200 million and lifting other com- prehensive income (before tax) by the same amount. Overall, the discount rate fell from 1.4 % to 0.8 % in Germany and the eurozone in the 2020 financial year. Minor effects on current service cost and net interest cost in 2021 are expected as a result. For the annual pension increase in Germany, fixed rates in particular must be taken into account, in addition to the assump- tions shown. The effective weighted average therefore amounts to 1.00 % (previous year: 1.00 %). The most significant demographic assumptions made re- late to life expectancy and / or mortality. For the Group com panies in Germany, they are based on the HEUBECK RICHTTAFELN 2018 G mortality tables. Life expectancy for the retirement benefit plans in the UK is mainly based on the S2PMA / S2PFA tables of the Continuous Mortality Investigation (CMI) of the Institute and Faculty of Actuaries, adjusted to reflect plan-specific mortality according to the latest funding valuation. Current projections of future mortality improvements were taken into account based on the CMI core projection model. For other countries, their own country-specific current standard mortality tables were used. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 143 If one of the significant financial assumptions were to change, the present value of the defined benefit obligations would change as follows: 31 December 2020 Discount rate (defined benefit obligations) Expected annual rate of future salary increase Expected annual rate of future pension increase 31 December 2019 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 United Kingdom 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 –13.41 17.38 0.15 – 0.14 0.36 – 0.33 –12.80 16.37 0.16 – 0.16 0.35 – 0.32 –14.75 19.08 n. a. n. a. 6.01 – 5.64 –14.54 18.79 n. a. n. a. 5.91 – 5.35 –15.36 20.66 1.05 – 0.94 7.13 – 5.33 –14.73 19.74 0.98 – 0.91 6.78 – 4.97 –14.08 18.36 0.25 – 0.23 2.97 –2.57 –13.60 17.58 0.24 – 0.23 2.94 –2.48 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. 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 ben- eficiary would increase the present value of the defined benefit obligations by 5.20 % in Germany (previous year: 4.95 %) and by 4.40 % in the UK (previous year: 4.39 %). The corresponding in- crease for other countries would be 3.33 % (previous year: 3.00 %) and the total increase would be 4.69 % (previous year: 4.49 %). The weighted average duration of the Group’s defined bene fit obligations at 31 December 2020 was 15.3 years in Germany (previous year: 14.6 years) and 17.1 years in the UK (previous year: 16.7 years). In the other countries it was 18.4 years (previous year: 17.9 years), and in total it was 16.3 years (previous year: 15.7 years). 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 presenta- tion does not take into account interdependencies between the A total of 32.1 % (previous year: 31.5 %) of the present value of the defined benefit obligations was attributable to active beneficiaries, 19.6 % (previous year: 19.0 %) to formerly employed beneficiaries and 48.3 % (previous year: 49.5 %) to retirees. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 144 36.4 Additional information on the fair value of plan assets The fair value of the plan assets can be disaggregated as follows: € m 31 December 2020 Equities Fixed income securities Real estate Alternatives 1 Insurances Cash Other Fair value of plan assets 31 December 2019 Equities Fixed income securities Real estate Alternatives 1 Insurances Cash Other Germany United Kingdom Other Total 617 1,755 1,670 356 529 945 29 513 4,243 270 271 0 140 0 751 1,152 343 54 155 17 39 5,901 5,437 2,511 1,100 1,973 1,600 386 538 199 32 470 4,304 279 316 0 120 0 765 1,043 342 30 150 9 102 1,881 7,150 2,283 681 684 1,102 68 13,849 2,335 7,320 2,221 732 688 328 134 Fair value of plan assets 5,828 5,489 2,441 13,758 1 Primarily includes absolute return products. Quoted market prices in an active market exist for around 70 % (previous year: 70 %) of the total fair values of plan assets. The remaining assets for which no such quoted market prices exist are mainly attributable as follows: 14 % (previous year: 14 %) to real estate, 9 % (previous year: 9 %) to fixed income securities, 5 % (previous year: 5 %) to insurances and 2 % (previous year: 2 %) to al- ternatives. The majority of the investments on the active markets are globally diversified, with certain country-specific focus areas. Real estate included in plan assets in Germany with a fair value of €1,563 million (previous year: €1,502 million) is occu- pied by Deutsche Post DHL Group. Hedging measures triggered by developments on the cap- ital markets in 2020 (as a result of the COVID-19 pandemic) re- sulted in a decrease in the proportion of equity and fixed-income holdings and an increase in the proportion of the cash holdings. Asset-liability studies are performed at regular intervals in Germany, the UK and, amongst other places, the Netherlands, Switzerland and the USA, for the purpose of matching assets and liabilities; the strategic allocation of plan assets is adjusted accordingly. Sustainable approaches based mainly on an integration of ESG criteria are increasingly being used when investing plan assets. 36.5 Risk Specific risks are associated with the defined benefit retire- ment 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 obli- gation and would in principle be accompanied by an increase (decrease) in the fair value of the fixed income securities con- tained in the plan assets. Further hedging measures are applied, in some cases using derivatives. INFLATION RISK Pension obligations – especially relating to final salary schemes or schemes involving increases during the pension payment phase – can be linked directly or indirectly to changes in 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 system of retirement benefit components and, in the case of the UK, by closing the defined benefit arrangements. In addition, fixed rates of increase have been set and increases partially capped, and / or lump-sum payments have been provided for. There is also a positive correlation with interest rates. INVESTMENT RISK The investment is in principle subject to a large number of risks; in particular, it is exposed to the risk that market prices may change. This is managed primarily by ensuring broad diversifi- cation and the use of hedging instruments. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 145 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 obli- gations. The mortality tables used in Germany and the UK, for example, include an allowance for expected future increases in life expectancy. 37 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 Miscellaneous provisions Other provisions 37.1 Changes in other provisions € m Balance at 1 January 2020 Changes in consolidated group Utilisation Currency translation differences Reversal Unwinding of discount / changes in discount rate Reclassification Addition Balance at 31 December 2020 Non-current Current 2019 2020 2019 2019 703 438 185 – 35 289 1,650 2020 738 482 211 – 31 328 1,790 154 236 74 147 43 310 964 Total 2020 919 712 283 204 72 680 181 230 72 204 41 352 857 674 259 147 78 599 1,080 2,614 2,870 Other employee benefits Restructuring provisions Technical reserves (insurance) Aircraft maintenance Tax provisions Miscellaneous provisions 857 0 – 475 –37 –14 5 0 583 919 78 0 –38 –3 –7 1 0 41 72 674 0 – 40 –14 –22 7 0 107 712 259 3 –24 –10 –27 1 0 81 283 147 0 – 44 – 4 –3 0 0 108 204 599 0 –241 –28 –115 2 0 463 680 Total 2,614 3 – 862 – 96 –188 16 0 1,383 2,870 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 146 The provision for other employee benefits primarily covers work- force reduction expenses such as severance payments, partial re- tirement, early retirement, stock appreciation rights (SAR s) and jubilee payments. The increase is attributable mainly to higher obligations for severance payments and partial retirement. The restructuring provisions comprise mainly costs from the closure of terminals and termination benefit obligations to employees. Technical reserves (insurance) mainly consist of outstand- ing loss reserves and IBNR reserves; further details can be found in note 6. The provision for aircraft maintenance relates to obliga- tions for major aircraft and engine maintenance by third-party companies. Of the tax provisions, €99 million (previous year: €60 mil- lion) relates to VAT, €40 million (previous year: €34 million) to customs and duties, and €65 million (previous year: €53 million) to other tax provisions. Miscellaneous provisions, which include a large number of individual items, break down as follows: € m Litigation costs, of which Non-current: 50 (previous year: 55) Risks from business activities, of which Non-current: 7 (previous year: 8) Miscellaneous other provisions, of which Non-current: 271 (previous year: 226) Miscellaneous provisions 2019 2020 108 37 454 599 111 49 520 680 37.2 Maturity structure The maturity structure of the provisions recognised in the 2020 financial year is as follows: € m 2020 Other employee benefits Technical reserves (insurance) Aircraft maintenance Tax provisions Restructuring provisions Miscellaneous provisions Total Up to 1 year More than 1 year to 2 years More than 2 years to 3 years More than 3 years to 4 years More than 4 years to 5 years More than 5 years Total 181 230 72 204 41 352 1,080 159 247 34 0 7 120 567 87 79 47 0 14 56 283 66 46 67 0 3 37 219 64 33 7 0 4 35 143 362 77 56 0 3 80 578 919 712 283 204 72 680 2,870 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 147 38 Financial liabilities € m Bonds Amounts due to banks Lease liabilities 1 Liabilities at fair value through profit or loss Other financial liabilities Financial liabilities 1 Explanations can be found in note 40. Non-current Current 2019 5,164 181 8,145 1 245 2020 6,660 290 8,638 1 262 13,736 15,851 2019 303 287 2,156 22 470 3,238 2020 750 189 1,821 53 434 3,247 Total 2020 7,410 479 10,459 54 696 2019 5,467 468 10,301 23 715 16,974 19,098 The amounts due to banks mainly comprise current overdraft facilities due to various banks. The amounts reported under liabilities at fair value through profit or loss mainly relate to the negative fair values of derivative financial instruments. The decline in other financial liabilities, which relate to a large number of individual items, is the result of the partial re- payment of promissory note loans. Bonds The bond issued by Deutsche Post Finance B. V. is fully guaran- teed by Deutsche Post AG. Significant bonds Bond 2012 / 2022 Bond 2012 / 2020 Bond 2012 / 2024 Bond 2013 / 2023 Bond 2016 / 2021 Bond 2016 / 2026 Bond 2017 / 2027 Bond 2018 / 2028 Bond 2020 / 2026 Bond 2020 / 2029 Bond 2020 / 2032 Convertible bond 2017 / 2025 1 Nominal coupon % Issue volume € m Issuer Carrying amount € m Fair value € m Carrying amount € m 2019 2.950 1.875 2.875 2.750 0.375 1.250 1.000 1.625 0.375 0.750 1.000 0.050 500 Deutsche Post Finance B. V. 300 Deutsche Post AG 700 Deutsche Post AG 500 Deutsche Post AG 750 Deutsche Post AG 500 Deutsche Post AG 500 Deutsche Post AG 750 Deutsche Post AG 750 Deutsche Post AG 750 Deutsche Post AG 750 Deutsche Post AG 1,000 Deutsche Post AG 499 300 698 498 748 497 496 742 – – – 960 538 306 797 552 754 530 524 825 – – – 990 499 – 699 498 750 498 496 743 745 747 747 967 2020 Fair value € m 525 – 786 542 750 536 534 846 771 798 825 1,024 1 Fair value of the debt component; the fair value of the convertible bond 2017 / 2025 is €1,084 million (previous year: €1,024 million). Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 148 CONVERTIBLE BOND The convertible bond issued carries a conversion right that allows holders to convert the bond into a predetermined number of Deutsche Post AG shares. In addition, Deutsche Post AG was granted a call option allowing it to repay the bond 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 bond has a debt component and an equity component. In subsequent years, interest will be added to the carrying amount of the bond, up to the issue amount, using the effective interest method and recognised in profit or loss. Convertible bond 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 2017 / 2025 13 December 2017 13 December 2020 to 13 June 2025 1 2 January 2023 to 10 June 2025 €946 million €53 million Transaction costs (debt / equity component) €4.7 / 0.3 million Conversion price at issue Conversion price after adjustment 4 in 2018 in 2019 in 2020 €55.69 €55.61 €55.63 €55.74 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. 39 Other liabilities € m Tax liabilities Incentive bonuses 1 Compensated absences Wages, salaries, severance payments 1 Contract liabilities, of which Non-current: 17 (previous year: 11) Payables to employees and members of executive bodies Social security liabilities Deferred income, of which Non-current: 70 (previous year: 63) Debtors with credit balances Postage stamps (contract liabilities) Overtime claims Other compensated absences Liabilities from loss compensation, of which Non-current: 7 (previous year: 0) Insurance liabilities Liabilities from cheques issued COD liabilities Accrued insurance premiums for damages and similar liabilities Accrued rentals Miscellaneous other liabilities, of which Non-current: 195 (previous year: 235) 1 Other liabilities of which Current Non-current 1 Prior-period amounts adjusted. €1 billion €1 billion Liabilities from the sale of residential building loans, of which Non-current: 39 (previous year: 51) For purposes of transparency, bonus liabilities in respect of em- ployees have been reported in incentive bonuses since 2020. The prior-period amounts were adjusted accordingly. Of the tax liabilities, €650 million (previous year: €648 mil- lion) relates to VAT, €439 million (previous year: €427 million) to customs and duties, and €178 million (previous year: €180 mil- lion) to other tax liabilities. The liabilities from the sale of residential building loans re- late 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 individual items. Maturity structure There is no significant difference between the carrying amounts and the fair values of the other liabilities due to their short ma- turities or market interest rates. There is no significant interest rate risk because most of these instruments bear floating rates of interest at market rates. € 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 2019 4,913 155 79 54 35 37 2020 5,135 146 72 47 25 38 5,273 5,463 2019 1,255 948 370 340 235 223 179 150 147 125 98 66 30 9 63 29 37 12 16 2020 1,267 1,002 395 293 278 241 182 169 161 130 108 51 38 38 33 25 22 14 13 941 5,273 4,913 360 1,003 5,463 5,135 328 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 149 Lease disclosures 40 Lease disclosures Currency translation income on lease liabilities totalled €28 mil- lion (previous year: €30 million), whilst the related expenses amounted to €25 million (previous year: €32 million). Income from sale-and-leaseback transactions amounted to €149 million, of which €131 million were attributable to real estate develop- ment transactions. The right-of-use assets carried as non- current assets resulting from leases are presented separately in the fol- lowing table: Right-of-use assets € m 31 December 2019 Accumulated cost of which Additions Accumulated depreciation and impairment losses Carrying amount 31 December 2020 Accumulated cost of which Additions Accumulated depreciation and impairment losses Carrying amount Land and buildings Technical equipment and machinery IT systems, operating and office equipment Aircraft Transport equipment Advance payments and assets under development 10,538 2,125 2,543 7,995 11,431 1,874 3,543 7,888 232 74 88 144 227 83 90 137 9 1 7 2 8 1 6 2 1,644 292 601 1,043 2,079 534 632 1,447 866 233 343 523 899 266 402 497 0 2 0 0 0 1 0 0 Total 13,289 2,727 3,582 9,707 14,644 2,759 4,673 9,971 In the real estate area, the Group primarily leases warehouses, office buildings and mail and parcel centres. The leased aircraft are predominantly 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 62 real estate leases with remaining lease terms of more than twenty years as at 31 December 2020 (previ- ous year: 64 leases). Aircraft leases have remaining lease terms of up to twelve years. Leases may include extension and termina- note 6. The leases are negotiated individually and tion options, include a wide range of different conditions. Lease liabilities are presented in the following table: € m Non-current lease liabilities Current lease liabilities Total 2019 8,145 2,156 2020 8,638 1,821 10,301 10,459 Financial liabilities under leases of €1,894 million (previous year: €1,894 million) were repaid and interest on leases of €394 mil- lion (previous year: €416 million) was paid in the 2020 financial year. Future cash outflows amounted to €13 billion (previous note 42. Possible year: €13 billion) as at the reporting date, future cash outflows amounting to €2.0 billion (previous year: €1.5 billion) were not included in lease liabilities because it is not reasonably certain that the leases will be extended (or not terminated). Leases that the Group has entered into as a lessee but that have not yet commenced result in possible future pay- ment outflows totalling €0.2 billion (previous year: €0.2 billion). Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 150 Cash flow disclosures 41 Cash flow disclosures The following table shows the reconciliation of changes in li- abilities arising from financing activities in accordance with the IFRS requirements: Liabilities arising from financing activities € m Balance at 1 January 2019 Cash changes 2 Non-cash changes Leases Currency translation Fair value adjustment Other changes Balance at 31 December 2019 / 1 January 2020 Cash changes 2 Non-cash changes Leases Currency translation Fair value adjustment Other changes Balance at 31 December 2020 Bonds 5,472 – 93 0 0 0 88 5,467 1,853 0 –1 0 91 7,410 Amounts due to banks Lease liabilities Other financial liabilities 1 264 183 0 –3 0 24 468 41 0 – 44 0 14 479 9,859 –2,310 2,714 130 0 – 92 10,301 –2,288 2,850 – 409 0 5 10,459 630 –265 0 2 –1 –1 365 –76 0 – 8 0 43 324 Total 16,225 –2,485 2,714 129 –1 19 16,601 – 470 2,850 – 462 0 153 18,672 1 Differences from the financial liabilities presented in note 38 (other financial liabilities and financial liabilities at fair value through profit or loss) in the amount of €426 million ( previous year: €373 million) are due to factors presented in other cash flow items, e. g. derivatives, contingent consideration from company acquisitions or operating financial liabilities. 2 Differences in cash changes from the total amount of net cash used in financing activities (€–2,250 million; previous year: €–4,112 million) are due primarily to interest payments in addition to payments relating to equity transactions. The interest payments reported in the cash flow statement also include payments that do not relate to liabilities from financing activities. As at the reporting date, there were no hedges attributable solely to the liabilities arising from financing activities. The effects on cash flows from hedges are presented in the “Other financing activities” cash flow item in the amount of €–88 million. 41.1 Net cash from operating activities At €7,699 million, net cash from operating activities was €1,650 million higher than in the prior-year period (€6,049 mil- lion). The change in provisions was from €–506 million to €73 million. In the previous year, primarily provisions due to the early retirement programme in the Post & Parcel Germany div- ision were utilised or reclassified to liabilities. Non-cash income and expenses are as follows: Non-cash income and expense € m Expense from the remeasurement of assets Income from the remeasurement of liabilities Income (–) / expense (+) on asset disposals Staff costs relating to equity-settled share-based payments Loss from investments accounted for using the equity method Other 2019 86 –203 1 55 8 – 4 2020 176 –176 –3 73 34 28 Non-cash income (–) and expense (+) – 57 132 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 151 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 availabil- ity), 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 2020, the Group had central liquidity reserves of €5.9 billion (previous year: €3.5 billion), consisting of central financial investments amounting to €3.9 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: 41.2 Net cash used in investing activities Net cash used in investing activities increased sharply from €2,140 million to €3,640 million. Investments in property, plant and equipment and intangible assets declined by €690 million to €2,922 million. In the previous year, €1,100 million was paid to modernise the Express aircraft fleet; €321 million was paid for this purpose in the reporting period. A net amount of €653 mil- lion received from the sale of the Supply Chain business in China was also included in the previous year. The change in short-term financial investments resulted in a cash inflow of €527 million in the previous year; there was an outflow of €933 million in the reporting period. 41.3 Net cash used in financing activities At €2,250 million, net cash used in financing activities was signifi cantly lower, by €1,862 million, than the previous year’s figure of €4,112 million. This was attributable primarily to the bonds issued in May in the principal amount of €2.25 billion. Further details on the cash flow statement and free cash flow can be found in the Combined Management Report. Other disclosures 42 Risks and financial instruments of the Group 42.1 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 exclu- sively to mitigate non-derivative financial risks, and fluctuations in their fair value should not be assessed separately from the underlying transaction. The Group’s internal risk guidelines govern the universe of 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 relation- ships. 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 and the hedging instruments de- ployed to mitigate them. Financial instruments are accounted for and measured in accordance with IFRS 9. The Group be- gan to apply the IFRS 9 hedge accounting requirements as at 1 January 2020. Disclosures regarding risks associated with the Group’s de- fined benefit retirement plans and their mitigation can be found in note 36.5. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 152 Maturity structure of financial liabilities € m At 31 December 2020 Non-current financial liabilities 1 Non-current lease liabilities Other non-current financial liabilities Non-current financial liabilities Current financial liabilities Current lease liabilities Trade payables Other current financial liabilities Current financial liabilities At 31 December 2019 Non-current financial liabilities 1 Non-current lease liabilities Other non-current financial liabilities Non-current financial liabilities Current financial liabilities Current lease liabilities Trade payables Other current financial liabilities Current financial liabilities 1 The convertible bond 2025 is contained in the “More than 4 years to 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 679 1,833 10 2,522 487 1,843 12 2,342 656 1,491 8 2,155 904 1,547 10 2,461 939 1,151 7 2,097 692 1,236 8 1,936 1,165 949 6 2,120 567 909 7 1,483 4,355 5,050 15 9,420 3,684 4,970 14 8,668 89 0 0 89 1,428 2,198 7,309 348 11,283 75 0 0 75 1,059 2,232 7,225 327 10,843 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 153 The maturity structure of the derivative financial instruments based on cash flows is as follows: Maturity structure of derivative financial instruments € 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 At 31 December 2020 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 2019 Derivative receivables – gross settlement Cash outflows Cash inflows Net settlement Cash inflows Derivative liabilities – gross settlement Cash outflows Cash inflows Net settlement Cash outflows –2,167 2,191 0 –2,094 2,054 –11 –1,360 1,387 0 –1,870 1,853 –1 –34 35 0 –26 26 0 – 64 66 0 –11 11 0 – 6 7 0 –25 25 0 –31 32 0 –10 10 0 –1 1 0 –16 16 0 –1 1 0 –11 11 0 0 0 0 –3 3 0 0 0 0 –1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 The contract terms stipulate how the parties must meet their obligations arising from derivative financial instruments, either by net or by 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: On-balance sheet currency risks arise from the meas- urement and settlement of recognised foreign currency items if the exchange rate on the measurement or settlement date differs from the rate at initial recognition. The resulting foreign exchange differences directly impact profit or loss. In order to mitigate this impact as far as possible, all significant on- balance sheet currency risks within the Group are centralised in Deutsche Post AG’s in-house bank function. The centralised currency risks are aggregated by Corporate Treasury to calcu- late 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 €4 million (pre- vious year: €3 million) at the reporting date; the limit is currently a maximum of €5 million. The notional amount of the currency forwards and currency swaps used to manage on-balance sheet currency risks amounted to €3,562 million at the reporting date (previous year: €2,980 million); the fair value was €–16 million (previous year: €–1 million). Hedge accounting was not applied. Derivatives are accounted for as trading derivatives (free-stand- ing derivatives). Currency risks arise from planned foreign currency trans- actions if the future transactions are settled at exchange rates that differ from the originally projected rates. These currency risks are also captured centrally in Corporate Treasury. Currency risks from planned transactions and transactions with existing contracts are only hedged in selected cases. The relevant hedged items and derivatives used for hedging purposes are accounted for using cash flow hedge accounting, note 42.3. Currency risks also result from translating assets and liabil- ities of foreign operations into the Group’s currency (translation risk). No translation risks were hedged at the reporting date. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 154 Currency forwards and currency swaps in a notional amount of €4,503 million (previous year: €3,377 million) were outstanding at the reporting date. The corresponding fair value was €–24 million (previous year: €3 million). Of the unrealised gains or losses from currency derivatives recognised in equity as at 31 December 2020, €–7 million (pre- vious year: €4 million) is expected to be recognised in income in the course of the following year. 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 cal- culation (95 % confidence / one-month holding period). It is as- sumed that the portfolio as at the reporting date is representative for the full year. 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. Deutsche Post AG determines monthly exchange rates and guarantees these to the Group companies. Exchange rate-re- lated changes therefore have no effect on the profit or loss and equity of the Group companies. Where 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. The following table presents currency-related effects on value at risk: Risk data on currency risk € m Profit or loss effects Equity effects Profit or loss effects Equity effects 2019 2020 Primary financial instruments and free-standing derivatives Derivative instruments (cash flow hedges) Total value at risk 1 3 4 5 7 5 7 1 The total amount is lower than the sum of the individual amounts, owing to interdependencies. INTEREST RATE RISK AND INTEREST RATE MANAGEMENT No interest rate hedging instruments were recognised as at the reporting date. The proportion of financial liabilities with short- note 38, amounts to 17 % (previous year: term interest lock-ins, 19 %) of the total financial liabilities as at the reporting date. The effect of potential interest rate changes on the Group’s financial position remains insignificant. MARKET RISK 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. As the impact of the related fuel surcharges is delayed by one to two months, earnings may be affected temporarily if there are sig- nificant short-term fuel price variations. Remaining fuel price risks were partially hedged by means of corresponding swap transactions in the notional amount of €45 million (previous year: €5 million) and with a fair value of €–7 million (previous year: €0 million) running until the end of 2022. A 10 % increase in the commodity prices underlying the derivatives as at the balance sheet date would have increased fair values and equity by €4 million (previous year: €0 million). A corresponding decline in commodity prices would have had the opposite effect. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 155 CREDIT RISK Credit risk arises for the Group from operating activities and from financial transactions. The aggregate carrying amount of finan- cial assets represents the maximum default risk. In an effort to minimise credit risk from operating activities and financial transactions, counterparties are assigned individ- ual limits, the utilisation of which is regularly monitored. The Group’s heterogeneous customer structure means that there is no risk concentration. Financial transactions are only entered into with prime-rated counterparties. A test is performed at the reporting dates to establish whether an impairment loss needs to be charged on financial assets and the positive fair values of derivatives due to changes in credit quality. This was not the case for any of the counterparties as at 31 December 2020. The credit risk of financial assets arising from operations is managed by the divisions. As a rule, the expected credit loss associated with financial assets must be determined. Based on the expected credit loss model (impairment model), a loss allowance must be anticipated for the possible credit loss, note 6. The impairment model is applicable to non-current and current debt instruments recognised at amortised cost and to lease receivables. Debt instruments comprise mainly deposits, collateral provided and loans to third parties. The gross amounts of financial assets subject to the impair- ment model are presented in the following table: Stage 1 – twelve-month ECL € m Gross carrying amount Loss allowance Net carrying amount Balance at 1 January 2020 1,165 –28 1,137 Newly originated financial assets Impairment loss Disposal Reversal of loss allowance Increase in loss allowance Currency translation differences Changes in consolidated group Balance at 31 December 2020 Balance at 1 January 2019 Newly originated financial assets Impairment loss Disposal Reversal of loss allowance Increase in loss allowance Currency translation differences Reclassifications Changes in consolidated group Balance at 31 December 2019 623 –3 – 832 – – – 43 3 913 991 823 –2 – 643 – – 11 – 4 –11 – – – 24 –32 – – –36 –26 – – – 22 –24 – – – 623 –3 – 832 24 –32 – 43 3 877 965 823 –2 – 643 22 –24 11 – 4 –11 1,165 –28 1,137 No cash flows from debt instruments were modified in the finan- cial year and no changes were made to the model for determin- ing risk parameters. The inputs 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. There were no indications at the reporting date of any poor performance of the debt instruments and lease receiv ables. There was no reclassification between the stages in the financial year. Trade receivables from customer relationships amounting to €8,985 million were due within one year at the reporting date (previous year: €8,561 million). 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 € m Gross receivables Balance at 1 January Changes Balance at 31 December Loss allowances Balance at 1 January Changes Balance at 31 December Carrying amount at 31 December 2019 2020 8,453 275 8,728 –206 39 –167 8,561 8,728 485 9,213 –167 – 61 –228 8,985 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 156 The following table provides an overview of loss rates by age band that were used in the Group for the financial year under review: notional volume of receivables factored as at 31 December 2020 amounted to €255 million (previous year: €365 million). 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 2019 0.1 – 0.3 0.5 – 5.0 2.0 – 26.0 26.0 – 60.0 80.0 – 100.0 2020 0.1 – 0.3 1.0 – 4.0 6.0 – 31.0 42.0 – 76.0 80.0 Trade receivables are derecognised when a reasonable assess- ment indicates they are no longer recoverable. The relevant indi- cators include a delay in payment of more than 360 days. In the 2020 financial year, there were factoring agreements in place that obliged the banks to purchase existing and future trade receivables. The banks’ purchase obligations were limited to a maximum portfolio of receivables of €672 million (previous year: €836 million). Deutsche Post DHL Group can decide at its discretion whether, and to what extent, the revolving notional volume is utilised. The risks relevant to the derecognition of the receivables include credit risk and the risk of delayed payment (late payment risk). Credit risk represents primarily all the risks and rewards as- sociated 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. All of the receivables were therefore derecognised. In the 2020 financial year, the Group recognised programme fees ( interest, allowances for doubtful accounts) of €2 million (previous year: €3 million) as an expense in the context of its continuing exposure. The 42.2 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 leases (QTE leases) transactions For sureties paid 2019 2020 175 60 105 50 7 16 159 46 101 43 0 16 The collateral provided relates mainly to other financial assets. 42.3 Derivative financial instruments FAIR VALUE HEDGES There were no fair value hedges as at 31 December 2020, as in the previous year. At the reporting date, unwinding interest rate swaps resulted in carrying amount adjustments of €6 million (previous year: €13 million) which are included in the amount of €0 million in current financial liabilities (previous year: €3 mil- lion) and in the amount of €6 million in non-current financial liabilities (previous year: €10 million). The carrying amount ad- justments will be amortised using the effective interest method over the remaining term of the liabilities (until 2022) and will reduce future interest expense. CASH FLOW HEDGES The Group uses currency forwards and currency swaps to hedge the cash flow risk from future foreign currency operating rev- enue and expenses. The notional amount of these currency forwards and currency swaps amounted to €942 million at the reporting date (previous year: €396 million); the fair value was €–8 million (previous year: €4 million). The hedged items will have an impact on cash flow by 2025. Moreover cash flow hedges included swaps to hedge fuel price risks in the notional amount of €45 million (previous year: €0 million) and with a fair value of €–7 million (previous year: €0 million) running until the end of 2022. Only the product price component of the fuel price was designated as the hedged item; based on official statistics, the product price component accounted, on average, for 87 % of overall fuel price fluctuations in the past. The gains and losses on open hedging instruments recog- nised in equity at the reporting date amounted to €14 million. No ineffective portions of hedges were recognised. Due to the recognition of the hedged item in profit or loss, cash flow hedges on currency risks resulted in the recognition of net realised gains of €40 million in other operating income / expenses and realised losses of €–2 million in materials expense in the financial year. Realised losses totalling €–9 million from cash flow hedges for fuel price risks were also recognised in materials expense. 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. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 157 Notional volume of hedging instruments € m 31 December 2020 Hedges of currency risk Currency forwards buy USD / HKD Currency forwards sell EUR / CZK Currency forwards buy USD / TWD 31 December 2019 Hedges of currency risk Currency forwards buy EUR / CZK Currency forwards sell EUR / JPY Currency forwards buy EUR / USD The carrying amounts of derivative assets totalling €1 million (previous year: €5 million) and derivative liabilities totalling €–16 million (previous year: €–1 million) included in cash flow hedging did not result in ineffectiveness within the period, as in the previous year, because the relevant changes in the fair value of the hedged items (€21 million) and hedging transac- tions (€–21 million) (previous year: €–5 million and €5 million) offset each other. Total notional volume Up to 1 year 1 year to 5 years More than 5 years Average hedge rate € Remaining term 378 –199 103 –307 20 18 378 – 89 103 –179 20 18 0 –110 0 –128 0 0 0 0 0 0 0 0 7.76 26.53 28.41 26.33 124.85 1.14 NET INVESTMENT HEDGES Currency risks resulting from the translation of foreign oper- ations were not hedged in 2020. At the reporting date, there was still a positive amount of €25 million from terminated net investment hedges in the currency translation reserve, as in the previous year. 42.4 Additional disclosures on the financial instruments used in the Group The Group classifies financial instruments based on the relevant balance sheet items. The following table reconciles the finan- cial instruments to the categories and their fair values as at the reporting date: Cash flow hedging reserve € m Balance at 1 January Gains and losses on effective hedges Reclassification due to the recognition of hedged items Balance at 31 December 1 1 Excluding deferred taxes. OCI I Effective portion of the hedge OCI II Cost of hedging –3 8 –29 –24 1 3 0 4 2019 – 6 –3 7 –2 2020 –2 11 –29 –20 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 158 Reconciliation of carrying amounts in accordance with IFRS 9 and level classification € m 31 December 2019 31 December 2020 Level classification financial instruments within the scope of IFRS 9 Level classification financial instruments within the scope of IFRS 9 Financial instruments within the scope of IFRS 9 Other financial instruments outside IFRS 9 1 Carrying amount IFRS 7 fair value Level 1 Level 2 Level 3 Carrying amount Financial instruments within the scope of IFRS 9 Other financial instruments outside IFRS 9 1 IFRS 7 fair value Level 1 Level 2 Level 3 129 101 28 12,559 12,430 389 341 277 8,561 2,862 34 34 34 260 235 233 1 1 25 21 4 490 369 277 8,561 2,862 34 34 34 260 235 233 1 1 25 21 4 2,716 395 2,321 15,569 12,724 129 448 448 n. a. n. a. n. a. n. a. 34 34 34 260 235 233 1 1 25 21 4 n. a. n. a. n. a. 742 347 347 26 1 1 25 21 4 34 34 34 234 234 233 1 106 81 25 14,344 14,238 466 81 330 8,985 4,482 29 29 29 385 56 330 8,985 4,482 29 29 29 473 473 n. a. n. a. n. a. n. a. 29 29 29 29 29 29 1,485 1,485 1,485 1,461 251 249 1 1 1,234 1,211 22 1 251 249 1 1 1,234 1,211 22 1 2,645 160 2,485 250 249 1 251 249 1 1 1,234 1,211 1,211 1,211 22 1 n. a. n. a. n. a. 392 392 24 1 1 23 22 1 268 373 18,503 15,752 106 1,987 1,490 416 ASSETS Debt instruments measured at cost Non-current financial assets Current financial assets 2 Other current assets 2 Trade receivables 2 Cash and cash equivalents 2 Equity instruments at fair value through other comprehensive income Non-current financial assets Equity instruments without recycling Debt instruments and equity instruments at fair value through profit or loss Non-current financial assets Debt instruments Equity instruments Derivatives designated as hedges Current financial assets Debt instruments Trading derivatives Derivatives designated as hedges Not IFRS 7 Other non-current assets Other current assets TOTAL ASSETS Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 159 31 December 2019 31 December 2020 Level classification financial instruments within the scope of IFRS 9 Level classification financial instruments within the scope of IFRS 9 Financial instruments within the scope of IFRS 9 Other financial instruments outside IFRS 9 1 IFRS 7 fair value Level 1 Level 2 Level 3 Carrying amount Financial instruments within the scope of IFRS 9 Other financial instruments outside IFRS 9 1 IFRS 7 fair value Level 1 Level 2 Level 3 10,301 8,145 2,156 14,254 5,591 51 1,060 7,225 327 23 1 1 22 21 1 451 400 51 23 1 1 22 21 1 6,051 5,600 6,000 5,600 51 n. a. n. a. n. a. 23 1 1 22 21 1 n. a. n. a. n. a. 10,459 8,638 1,821 16,281 7,212 39 1,373 7,309 348 54 1 1 53 38 15 26,740 15,850 39 3,194 7,309 348 54 1 1 53 38 15 5,076 289 4,787 593 554 39 54 1 1 53 38 15 7,861 7,268 7,822 7,268 39 n. a. n. a. n. a. 54 1 1 53 38 15 n. a. n. a. n. a. Carrying amount 24,555 13,736 51 3,216 7,225 327 23 1 1 22 21 1 4,895 309 4,586 EQUITY AND LIABILITIES Liabilities measured at cost Non-current financial liabilities 3 Other non-current liabilities Current financial liabilities 2 Trade payables 2 Other current liabilities 2 Liabilities at fair value through profit or loss Non-current financial liabilities 3 Earn-out obligation Trading derivatives Derivatives designated as hedges Current financial liabilities Earn-out obligation Trading derivatives Derivatives designated as hedges Not IFRS 7 Other non-current liabilities Other current liabilities TOTAL EQUITY AND LIABILITIES 29,473 14,277 10,301 6,074 5,600 474 31,870 16,335 10,459 7,915 7,268 647 1 Relates to lease receivables or liabilities. 2 The fair value is assumed to be equal to the carrying amount (IFRS 7.29a). Levels are not disclosed for these financial instruments. 3 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. The bonds are therefore 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 €1,084 million as at the reporting date. The fair value of the debt component at the reporting date was €1,024 million. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 160 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, quoted market prices for simi- lar instruments or recognised valuation techniques are used to determine fair value. IFRS 13 requires financial assets to be assigned to the ap- propriate level of the fair value hierarchy: Level 1 comprises 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. In addition to financial assets and financial liabilities meas- ured at amortised cost, commodity, interest rate and currency derivatives are reported under Level 2. The fair values of assets measured at amortised cost are determined using the multiplier method, amongst other things. The fair values of the derivatives are measured on the basis of discounted expected future cash flows, taking into account forward rates for currencies, inter- est rates and commodities (market approach). For this purpose, price quotations observable in the market (exchange rates, interest rates and commodity prices) are imported from stand- ard market information platforms into the treasury management system. The price quotations reflect actual transactions involving similar instruments on an active market. All significant inputs used to measure derivatives are observable in the market. There were no Level 3 financial assets or liabilities to report. As in the previous year, no financial instruments were trans- ferred between levels in the 2020 financial year. The following table documents the net gains and losses of the categories of financial instruments: Net gains and losses by measurement category € m 2019 2020 Net gains / losses on financial assets Debt instruments at amortised cost 1 Net gains (+) / losses (–) recognised in profit or loss – 91 –176 Debt instruments at fair value through profit or loss (FVTPL) Net gains (+) / losses (–) recognised in profit or loss 40 34 Net gains / losses on financial liabilities Debt instruments at fair value through profit or loss (FVTPL) Net gains (+) / losses (–) recognised in profit or loss – 45 – 41 Debt instruments at amortised cost Net gains (+) / losses (–) recognised in profit or loss 1 0 1 Only effects from impairment losses are listed. The net gains and losses mainly include the effects of fair value measurement, impairment and disposals of financial instruments. Dividends and interest are not taken into account for the finan- cial instruments measured at fair value through profit or loss. Interest income and expenses and expenses from commission agreements relating to financial instruments measured at am- ortised cost are recognised separately in the income statement. The following tables show the impact of netting agree- ments based on master netting arrangements or similar agree- ments on financial assets and financial liabilities as at the re- porting date: Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 161 Offsetting – assets € m At 31 December 2020 Derivative financial assets Trade receivables Funds At 31 December 2019 Derivative financial assets Trade receivables Funds Offsetting – liabilities € m At 31 December 2020 Derivative financial liabilities Trade payables Funds At 31 December 2019 Derivative financial liabilities Trade payables Funds 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 Total Assets and liabilities not set off in the balance sheet 24 9,052 715 26 8,616 648 0 67 619 0 55 648 24 8,985 96 26 8,561 0 18 0 0 6 0 0 0 15 0 0 0 0 6 8,970 96 20 8,561 0 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 granted Total Assets and liabilities not set off in the balance sheet 54 7,376 619 23 7,280 656 0 67 619 0 55 648 54 7,309 0 23 7,225 8 18 0 0 6 0 0 0 0 0 0 0 0 36 7,309 0 17 7,225 8 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 162 To hedge cash flow and fair value risks, Deutsche Post AG enters into financial derivative transactions with a large number of fi- nancial services institutions. These contracts are subject to a standardised master agreement for financial derivative trans- actions. 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 tables. Settlement processes arising from services related to postal deliveries are subject to the Universal Postal Convention and the Interconnect Remuneration Agreement – Europe (IRA-E). These agreements, particularly the settlement conditions, are binding on all public postal operators in respect of 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. 43 Contingent liabilities and other financial obligations In addition to provisions and liabilities, the Group has contingent liabilities and other financial obligations. The contingent liabil- ities are broken down as follows: Contingent liabilities € m Guarantee obligations Warranties Liabilities from litigation risks Other contingent liabilities Total 2019 2020 95 22 284 485 886 96 13 183 440 732 Other contingent liabilities also include a potential obligation to make settlement payments in the USA, which had arisen in 2014 mainly 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. Other financial obligations such as the purchase obligation for investments in non-current assets amounted to €1,582 mil- lion (previous year: €1,068 million). This relates mainly to the contract for the delivery of cargo aircraft signed with Boeing in 2018. By the end of 2020, ten new aircraft had been delivered and have entered service in our network. A new contract with an order for an additional eight Boeing 777 cargo aircraft was signed in December 2020. 44 Litigation Many of the postal services rendered by Deutsche Post AG and its subsidiaries (particularly the Post & Parcel division) are subject to sector-specific regulation by Bundesnetzagentur (the Ger- man federal network agency). Bundesnetzagentur approves or reviews prices, formulates the terms of downstream access, has special supervisory powers to combat market abuse and guar- antees the provision of universal postal services. This general regulatory risk could lead to a decline in revenue and earnings in the event of negative decisions. Revenue and earnings risk can arise in particular from the price cap procedure used to determine the rates for individual pieces of letter mail. The current rates for 2019 to 2021 were approved by Bundesnetzagentur on 12 December 2019 as part of the price cap procedure; the approved rates are in effect until 31 December 2021. In its capacity as a consumer of postal services, a Ger- man courier, express and parcel (CEP) association and other customers and providers of postal services filed an action with the Cologne Administrative Court against the pricing approvals granted on 12 December 2019. On 4 January 2021, the Cologne Administrative Court ruled that the CEP association’s action sus- pends the effect of Bundesnetzagentur’s decision to raise prices for standard, compact, large format (Großbrief) and extra-large format (Maxibrief) letters within Germany. The ruling only applies to the CEP association. The proceedings in the main action are still pending. Moreover, the aforementioned CEP association had pre- viously (on 4 December 2015) filed an action against the pric- ing approvals granted for the years from 2016 to 2018. On 27 May 2020, the German Federal Administrative Court ruled on the action brought against the pricing approvals for the years from 2016 to 2018. The only one of the approvals that the court deemed unlawful concerned the increase in the price of a stand- ard domestic letter to €0.70 for the period from 2016 to 2018. The ruling is only directly applicable to the plaintiff. The amount in dispute was set by the German Federal Administrative Court at a mid-range, four-digit euro amount. In the grounds for its decision, the court stated that the pricing approval in question was unlawful because the method used to calculate the allowable profit margin under the amended provisions of the 2015 Post-Entgeltregulierungsverordnung (PEntgV – Postal Rate Regulation Act) was not in compliance with the provisions of Postgesetz (PostG – German Postal Act) Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 163 regarding the authority to issue statutory instruments. The Ger- man government plans to remedy this formal deficiency through an amendment to Postgesetz, which will allow previous regu- latory practice to continue to a significant extent. Bundes netz- agentur will examine the consequences of the German Federal Administrative Court’s ruling on the current pricing approvals granted for the years from 2019 to 2021. It cannot currently be ruled out that the effects on exist- ing pricing approvals, or on future price-cap procedures, of the court’s decisions, the change in the regulatory framework or the actions currently pending could be negative for Deutsche Post. According to current assessments, this represents a medium risk. In its ruling of 28 June 2016, Bundesnetzagentur deter- mined that the prices for the Dialogpost “Impulspost” product did not meet the pricing standards of Postgesetz. The agency ordered the prices to be adjusted immediately (adjustment request). According to Bundesnetzagentur, the prices did not cover the cost of efficiently providing the service and had an- ti-competitive effects. On 26 July 2016, Bundes netz agentur barred Deutsche Post from charging these prices and de- clared 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 Bundesnetzagentur and filed an appeal with the Cologne Ad- ministrative Court against the orders issued by the agency. The complaints were dismissed by the Cologne Administrative Court. Deutsche Post AG filed an appeal with Münster Higher Adminis- trative Court; the proceedings are underway. 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 sub- ject to individually 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 at the tax court with jurisdiction in this matter, note 43. On 30 June 2014, DHL Express France received a state- ment of objections from the French competition authority al- leging 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 mentioned above, no further details are given on their presenta- tion in the financial statements. 45 Share-based payment Assumptions regarding the price of Deutsche Post AG’s shares and assumptions regarding employee fluctuation are taken into account when measuring the value of share-based payments for executives. All assumptions are reviewed on a quarterly basis. The staff costs are recognised pro rata in profit or loss to reflect the services rendered as consideration during the vesting period (lock-up period). In the financial year, a total of €132 million (previous year: €112 million) was recognised for share-based payments, €59 million (previous year: €50 million) of which was cash-settled and €73 million (previous year: €62 million) of which was equity-settled. 45.1 Share-based payment for executives (Share Matching Scheme) Under the share-based payment system for executives (Share Matching Scheme), certain executives receive part of their variable remuneration for the financial year in the form of shares of Deutsche Post AG in the following year (deferred incentive shares). All Group executives can specify an increased equity com- ponent individually by converting a further portion of their vari- able 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 arrangements are entered into each year, with 1 December 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 classi- fied 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 com- ponent is measured due to the provisions of the Share Match- ing Scheme. The investment shares are therefore treated as cash-settled share-based payments. A total of €46 million of the expenses under the Share Matching Scheme (previous year: €37 million) was attributa- ble to equity-settled share-based payments. Some €35 million related to cash-settled share-based payments for investment shares (previous year: €25 million), all of which were unvested as at 31 December 2020. Additional information on granting and settlement of these rights can be found in notes 32 and 33. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 164 Share Matching Scheme Grant date of incentive shares and associated matching shares 1 December 2015 1 December 2016 1 December 2017 – 1 December 2019 1 December 2020 Grant date of matching shares awarded for investment shares 1 April 2016 1 April 2017 1 April 2018 1 March 2019 1 April 2020 1 April 2021 Term End of term months 52 52 52 52 52 52 March 2020 March 2021 March 2022 June 2023 March 2024 March 2025 2015 tranche 2016 tranche 2017 tranche Alternative programme 2018 tranche 2019 tranche 2020 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 2021. 2 Expected number. € € thousands thousands thousands thousands 27.12 23.98 366 n. a. n. a. 1,133 29.04 31.77 320 288 901 39.26 34.97 256 230 864 n. a. 27.30 n. a. n. a. 854 33.29 23.83 369 332 1,343 40.72 40.50 1 212 2 191 784 45.2 Long-Term Incentive Plan (2006 LTIP) for members of the Board of Management Since the 2006 financial year, the company has granted mem- bers of the Board of Management cash remuneration linked to the company’s long-term share price performance through the issue of stock appreciation rights (SAR s) as part of a Long- Term Incentive Plan (LTIP). Participation in the LTIP requires Board of Management members to make a personal invest- ment of 10 % of their annual base salary by the grant date of each tranche, primarily in shares. The SAR s granted can be fully or partly exercised after the expiration of a four-year lock-up period at the earliest, provided absolute or relative performance targets have been achieved at the end of this lock-up period. After expiration of the lock-up 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 determined in accordance with four (absolute) performance targets based on the share price and two (relative) performance targets based on a benchmark index. One-sixth of the SAR s granted are earned each time the closing price of Deutsche Post shares exceeds the issue price by at least 10, 15, 20 or 25 % at the end of the waiting period (absolute performance targets). Both relative performance targets are tied to the performance of the shares in relation to the STOXX Europe 600 Index (SXXP; ISIN EU0009658202). They are met if the share price equals the index performance or if it outperforms the index by more than 10 %. Performance is determined by comparing the average price of Deutsche Post shares and the average index value dur- ing a reference 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 lock-up period. The average (closing) price is cal- culated as the average closing price of Deutsche Post shares in Deutsche Börse AG’s Xetra trading system. If absolute or relative performance targets are not met by the end of the lock-up period, the SAR s attributable to them will expire without replacement or compensation. Each SAR exercised entitles the Board of Management member to receive a cash settlement equal to the difference between the average closing price of Deutsche Post shares for the five trading days preceding the exercise date and the exercise price of the SAR. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 165 2006 LTIP 2015 tranche 2016 tranche 2017 tranche 2018 tranche 2019 tranche 2020 tranche The Board of Management members received a total of 816,498 SAR s (previous year: 2,322,978 SAR s) with a total value, at the time of issue, of €8.0 million (previous year: €9.9 million). A stochastic simulation model is used to determine a fair value for the SAR s from the 2006 LTIP. As a result, an expense of €24 million (previous year: €26 million) for the 2020 financial year and a provision of €34 million (previous year: €23 million) as at the balance sheet date were recognised. The provision for the rights exercisable by the Board of Management amounted to €20 million at the reporting date (previous year: €17 million). For further disclosures on share-based payment for mem- bers of the Board of Management, see note 46.2. 45.3 Performance Share Plan for executives The Annual General Meeting on 27 May 2014 resolved to intro- duce the Performance Share Plan (PSP) for executives. Under the PSP, shares are issued to participants at the end of the wait- ing period. The granting of the shares at the end of the waiting period is linked to the achievement of demanding performance targets. The performance targets under the PSP are identical to the performance targets under the LTIP for members of the Board of Management. Issue date Issue price € Waiting period expires 1 September 2015 1 September 2016 1 September 2017 1 September 2018 1 September 2019 1 September 2020 25.89 28.18 34.72 31.08 28.88 37.83 31 August 2019 31 August 2020 31 August 2021 31 August 2022 31 August 2023 31 August 2024 Performance Share Units (PSUs) were issued to selected ex- ecutives 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 Decem- ber 2020, a total of €26 million (previous year: €25 million) has been appropriated 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). Fu- ture dividends were taken into account, based on a moderate increase in dividend distributions over the respective measure- ment period. The average remaining maturity of the outstanding PSUs as at 31 December 2020 was 26 months. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 166 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 2020 Rights granted Rights lapsed Rights settled at the end of the waiting period Rights outstanding at 31 December 2020 46 Related party disclosures 46.1 Related party disclosures (companies and Federal Republic of Germany) All companies that are controlled by the Group or with which a joint arrangement exists, or over which the Group can exercise significant influence, are recorded in the list of shareholdings. 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 government agencies as independent individual customers. The services provided for these customers are insignificant in re- spect of Deutsche Post AG’s overall revenue. 2016 tranche 2017 tranche 2018 tranche 2019 tranche 2020 tranche 1 September 2016 1 September 2017 1 September 2018 1 September 2019 1 September 2020 €28.18 €34.72 €31.08 €28.88 €37.83 31 August 2020 31 August 2021 31 August 2022 31 August 2023 31 August 2024 – 0.62 % 3.73 % 23.94 % 16.83 % 2.93 % – 0.48 % 3.31 % 23.03 % 16.34 % 2.78 % – 0.39 % 3.70 % 22.39 % 16.29 % 2.66 % – 0.90 % 3.98 % 21.38 % 14.79 % 2.21 % 3,238,494 2,750,538 3,163,518 3,506,304 0 623,494 2,615,000 0 0 119,052 0 2,631,486 0 121,470 0 3,042,048 0 89,040 0 – 0.72 % 3.57 % 24.89 % 16.62 % 3.05 % 0 2,649,516 4,122 0 3,417,264 2,645,394 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 pur- chased shares of Deutsche Post AG from the Federal Republic in several stages since 1997 and executed various capital mar- ket transactions using these shares. KfW’s current interest in Deutsche Post AG’s share capital is 20.49 %. Deutsche Post AG is thus considered to be an associate of the Federal Republic. RELATIONSHIPS WITH BUNDESANSTALT FÜR POST UND TELEKOMMUNIKATION (BANST PT) 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. BAnst PT continues to manage the social facilities such as the postal civil servant health insurance fund, the recreation programme, Postbeamtenversorgungskasse (PVK – Postal civil servant pension fund), Versorgungsanstalt der Deutschen Bundespost (VAP – Deutsche Bundes post institution for supplementary re- tirement 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 2020, Deutsche Post AG was invoiced for €143 million (previous year: €137 million) in instalment payments relating to services pro- vided by BAnst PT. Further disclosures on PVK and VAP can be found in notes 6 and 36. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 167 RELATIONSHIPS WITH THE GERMAN FEDERAL MINISTRY OF FINANCE In the 2001 financial year, the German Federal Ministry of Fi- nance and Deutsche Post AG entered into an agreement that gov- erns the terms and conditions of the transfer of income received by Deutsche Post AG from the levying of the settlement payment under 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. A lump-sum payment is made to the Federal Republic each year after a review. Deutsche Post AG entered into an agreement with the Ger- man 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 trans- ferred permanently if they successfully complete their probation. Once a permanent transfer is completed, Deutsche Post AG con- tributes to the cost incurred by the Federal Republic by paying a flat fee. In 2020, this initiative resulted in 39 permanent transfers (previous year: 57) and 5 secondments with the aim of a per- manent transfer in 2021 (previous year: 5). 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 vari- ous 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 €1,563 million (previous year: €1,502 million) – which can be offset as plan assets – of which Deutsche Post Pensions-Treuhand GmbH & Co. KG, Deutsche Post Altersvorsorge Sicherung e. V. & Co. Objekt Gro- nau KG and Deutsche Post Grundstücks-Vermietungsgesellschaft beta mbH Objekt Leipzig KG are the legal owners, is let – almost exclusively via Deutsche Post Immobilien GmbH – to the Group. These arrangements led to lease liabilities of €494 million as at 31 December 2020 (previous year: €509 million). In the 2020 financial year, Deutsche Post Immobilien GmbH extinguished € m RELATIONSHIPS WITH THE GERMAN FEDERAL EMPLOYMENT AGENCY Deutsche Post AG and the German Federal Employment Agency entered into an agreement dated 12 October 2009 relating to the transfer of Deutsche Post AG civil servants to the Federal Em- ployment Agency. In 2020, this initiative resulted in 4 permanent transfers (previous year: 3). Trade receivables Loans Receivables from in-house banking Financial liabilities Trade payables Income 1 Expenses 2 €24 million in lease liabilities (previous year: €21 million) and paid €16 million in interest (previous year: €17 million). Deutsche Post Pensions-Treuhand GmbH & Co. KG owns 100 % of Deutsche Post Pensionsfonds AG. Further disclosures on pension funds can be found in notes 6 and 36. RELATIONSHIPS WITH UNCONSOLIDATED COMPANIES, INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD AND JOINT OPERATIONS In addition to the consolidated subsidiaries, the Group has dir- ect and indirect relationships with unconsolidated companies, investments accounted for using the equity method and joint op- erations deemed to be related parties of the Group in the course of its ordinary business activities. Transactions were conducted in the 2020 financial year with major related parties, resulting in the following items in the consolidated financial statements: Investments accounted for using the equity method Unconsolidated companies 2019 2020 2019 2020 14 0 16 1 14 12 1 5 1 0 0 3 8 1 5 1 0 2 5 3 11 3 1 0 3 2 0 15 1 Relates to revenue and other operating income. 2 Relates to materials expense, staff costs and other operating expenses. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 168 Deutsche Post AG issued letters of commitment in the amount of €4 million (previous year: €7 million) for these companies. Of this amount, €1 million (previous year: €2 million) was attributable to investments accounted for using the equity method, €1 million (previous year: €1 million) to joint operations and €2 million (pre- vious year: €4 million) to unconsolidated companies. 46.2 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 fam- ilies. Related parties are defined as the Board of Management, the Supervisory Board and the members of their families. There were no reportable transactions or legal transactions involving these related parties in the 2020 financial year. In particular, the company granted no loans to these related parties. The remuneration of key management personnel of the Group requiring disclosure under IAS 24 comprises the remu- neration of the active members of the Board of Management and the Supervisory Board. The active members of the Board of Management and the Supervisory Board were remunerated as follows: € m Short-term employee benefits (excluding share-based payment) Post-employment benefits Termination benefits Share-based payment Total 2019 2020 Tim Scharwath 16 2 0 12 30 15 3 0 19 37 The employee representatives on the Super visory Board em- ployed by the Group also receive their normal salaries for their work in the company in addition to the aforementioned bene- fits for their work on the Supervisory Board. 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 mem- bers of the Board of Management. The corresponding liability amounted to €44 million at the reporting date (previous year: €38 million). The share-based payment amount relates to the relevant expense recognised for the 2019 and 2020 financial years; fur- notes 45.2 and 46.3. The expense is ther details can be found in itemised in the following table: Share-based payment Thousands of € Dr Frank Appel, Chairman Ken Allen Oscar de Bok (since 1 October 2019) John Gilbert (until 30 September 2019) Melanie Kreis Dr Tobias Meyer (since 1 April 2019) Dr Thomas Ogilvie John Pearson (since 1 January 2019) 2019 SAR s 5,026 3,519 0 1,595 1,518 60 276 60 292 2020 SAR s 7,625 4,484 27 – 3,422 457 1,428 457 1,518 component. An additional €3.9 million (previous year: €2.9 mil- lion) of the annual bonus was transferred to the medium-term component (deferral). In the 2020 financial year, the Board of Management members additionally received a total of 816,498 SAR s (previous year: 2,322,978 SAR s), which were valued at €8.0 million at the issue date (previous year: €9.9 million). FORMER MEMBERS OF THE BOARD OF MANAGEMENT Benefits paid to former members of the Board of Management or their surviving dependants amounted to €8.9 million (previous year: €6.3 million). The defined benefit obligation (DBO) for cur- rent pensions calculated under IFRS s was €105 million (previous year: €100 million). REMUNERATION OF THE SUPERVISORY BOARD The total remuneration of the Supervisory Board in the 2020 financial year amounted to €2.6 million; as in the prior year, €2.4 million of this amount was attributable to a fixed compo- nent and €0.2 million to attendance allowances. Further information on the itemised remuneration of the Board of Management and the Supervisory Board can be found in the remuneration report, which forms part of the Group Man- agement Report. Share-based payment 12,346 19,418 SHAREHOLDINGS OF THE BOARD OF MANAGEMENT AND 46.3 Remuneration disclosures in accordance with HGB BOARD OF MANAGEMENT REMUNERATION The remuneration paid to members of the Board of Management in the 2020 financial year totalled €12.6 million (previous year: €13.6 million). Non-performance-related components (fixed and fringe benefits) accounted for €8.3 million (previous year: €8.2 million) and €4.3 million (previous year: €5.5 million) was attributable to the annual bonus paid as a performance-related SUPERVISORY BOARD As at 31 December 2020, shares held by the Board of Manage- ment 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 can be viewed on the company’s website. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 169 47 Auditor’s fees The fee for the auditor of the consolidated financial state- ments, PricewaterhouseCoopers GmbH Wirtschaftsprüfungs- gesellschaft, amounted to €11 million in the 2020 financial year and was recognised as an expense. Auditor’s fee € m Audit services Other assurance services 1 Tax advisory services Other services 1 Total 1 Rounded below €1 million. 2020 11 0 0 0 11 The audit services category includes the fees for auditing the consolidated financial statements and for auditing the annual financial statements prepared by Deutsche Post AG and its Ger- man subsidiaries. The fees for reviewing the interim reports, support by auditors in connection with implementing new ac- counting requirements and the fees for voluntary audits beyond the statutory audit engagement, such as audits of the internal control system (ICS), are also reported in this category. Other assurance services related in particular to attestation reports relating to the internal control system. Other services was comprised mainly of services relating to upgrades to the internal control systems outside the financial organisation. 48 Exemptions under HGB and local foreign legislation For the 2020 financial year, the following German subsidiaries have exercised the simplification options under section 264(3) HGB or section 264b HGB and, if applicable, section 291 HGB: • Agheera GmbH • Albert Scheid GmbH • CSG 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 Solutions GmbH • Deutsche Post Fleet GmbH • Deutsche Post Immobilien GmbH • Deutsche Post InHaus Services GmbH • Deutsche Post Investments GmbH • Deutsche Post IT Services GmbH • Deutsche Post IT Services (Berlin) GmbH • Deutsche Post Mobility GmbH • Deutsche Post Shop Essen GmbH • Deutsche Post Shop Hannover GmbH • Deutsche Post Shop München GmbH • Deutsche Post Zahlungsdienste GmbH • DHL 2-Mann-Handling GmbH • DHL Airways GmbH • DHL Automotive GmbH • DHL Automotive Offenau GmbH • DHL Consulting GmbH • DHL Delivery GmbH • DHL Express Customer Service GmbH • DHL Express Germany GmbH • DHL Express Network Management GmbH • DHL Fashion Retail Operations GmbH • DHL FoodLogistics GmbH • DHL Freight Germany Holding GmbH • DHL Freight GmbH • DHL Global Forwarding GmbH • DHL Global Forwarding Management GmbH • DHL Global Management GmbH • DHL Home Delivery GmbH • DHL Hub Leipzig GmbH • DHL International GmbH • DHL Paket GmbH • Betreibergesellschaft Verteilzentrum GmbH (formerly: 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 Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF DEUTSCHE POST AG 170 RESPONSIBILITY STATEMENT INDEPENDENT AUDITOR’S REPORT The following companies in the UK make use of the audit exemp- tion under section 479A of the UK Companies Act: • DHL Exel Supply Chain Limited • Exel Investments Limited • Exel Overseas Limited • Freight Indemnity and Guarantee Company Limited • Ocean Overseas Holdings Limited • Power Europe Operating Limited 49 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 Conform- ity with the German Corporate Governance Code for the 2020 financial year required by section 161 AktG. This Declaration of dcgk.de/en and at the Conformity can be accessed online at company’s website. 50 Significant events after the reporting date and other disclosures No events requiring disclosure occurred after the reporting date. RESPONSIBILITY STATEMENT INDEPENDENT AUDITOR’S REPORT To the best of our knowledge, and in accordance with the ap- plicable reporting principles, the consolidated financial state- ments 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, which is combined with the management report of Deutsche Post AG, includes a fair review of the devel- opment 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. The following copy of the auditor’s report also includes a “Report on the audit of the electronic renderings of the financial state- ments and the management report prepared for disclosure pur- poses in accordance with § 317 Abs. 3b HGB” (“Separate report on ESEF conformity”). The subject matter (ESEF documents to be audited) to which the separate report on ESEF conformity relates is not attached. The audited ESEF documents can be inspected in or retrieved from the Federal Gazette. To Deutsche Post AG, Bonn Bonn, 19 February 2021 Deutsche Post AG The Board of Management Dr Frank Appel Ken Allen Oscar de Bok Melanie Kreis Dr Tobias Meyer Dr Thomas Ogilvie John Pearson Tim Scharwath Report on the Audit of the Consolidated Financial Statements and of the Group Management Report Audit Opinions We have audited the consolidated financial statements of Deutsche Post AG, Bonn, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2020, the consolidated statement of com- prehensive income, consolidated 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, 2020, and notes to the consolidated financial statements, including a summary of significant accounting pol- icies. In addition, we have audited the Group management report of Deutsche Post AG, which is summarized with the Company’s management report, for the financial year from January 1 to De- cember 31, 2020. In accordance with German legal requirements, Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT 171 we have not audited the content of those parts of the group man- agement 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 com- ply, in all material respects, with the IFRS s as adopted by the EU, and the additional requirements of German commer- cial law pursuant to § [Article] 315e Abs. [paragraph] 1 HGB [ Handelsgesetzbuch: German Commercial Code] and, in com- pliance with these requirements, give a true and fair view of the assets and financial position of the Group as at December 31, 2020, and of its financial performance for the financial year from January 1 to December 31, 2020, and • the accompanying group management report as a whole pro- vides 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 management report listed in the “Other Informa- tion” 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 state- ments 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 [Insti- tute of Public Auditors in Germany] (IDW). We performed the audit of the consolidated financial statements in supplementary compliance with the International Standards on Auditing (ISAs). Our responsibilities under those requirements, principles and standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these require- ments. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opin- ions on the consolidated financial statements and on the group management 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 consoli- dated financial statements for the financial year from January 1 to December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters. In our view, the matters of most significance in our audit were as follows: 1 Recoverability of goodwill 2 Pension obligations and plan assets 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 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 11.0 billion is reported under the balance sheet item “Intangible assets”, representing approximately 20 % of total assets and 78 % of the Group’s reported equity. Goodwill is tested for impairment by the Company on an annual basis as of November 30 or if there are indications that goodwill may be impaired. The impair- ment test of goodwill is based on the recoverable amount, which is determined by applying a measurement model using the discounted cash flow method. This matter was of particular significance in our audit, because the result of this measurement depends to a large extent on the estimation of future cash inflows by the Company’s executive directors and the discount rate used, and is therefore subject to con- siderable uncertainty. 2 We satisfied ourselves as to the appropriateness of the future cash inflows used in the calculation by, inter alia, comparing this data with the current budgets in the three- year plan prepared by the executive directors and approved by the Company’s supervisory 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 re- coverable amount calculated using this method, we also focused our testing on the parameters used to determine the discount rate applied, including the weighted average cost of capital, and evaluated the Company’s calculation Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT 172 procedure. Due to the materiality 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 analyses for those cash-generating units with comparatively lower headroom (recoverable amount compared with the car- rying amount) and found that the respective goodwill is sufficiently covered by the discounted future cash inflows. Overall, the measurement parameters and assumptions used by the executive directors to be reproduceable. The Company’s disclosures regarding goodwill are con- tained in note 21 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 5.8 billion is reported under the balance sheet item “Provisions for pensions and similar obligations”. The net pension provisions of EUR 5.8 billion were calculated on the basis of the present value of the obligations amounting to EUR 19.7 billion, netted against the plan assets of EUR 13.9 billion, which were measured at fair value. The obliga- tions from defined benefit pension plans were measured using the projected unit credit method in accordance with IAS 19. This requires in particular that assumptions be made as to the long-term salary and pension trend as well as aver- age 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 curren- cies and consistent terms. Changes to these measurement assumptions are recognized directly in equity as actuarial gains or losses. Changes in the financial measurement par- ameters resulted in actuarial losses of EUR 1.6 billion. In our view, these matters were of particular 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 sig- nificant effect on the consolidated financial statements, we assessed the appropriateness of the values adopted, in particular the measurement parameters used in the cal- culation of the pension provisions, inter alia on the basis of actuarial reports made available to us and taking 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 appraisals. On the basis of our audit procedures, we were able to satisfy ourselves that the estimates and as- sumptions made by the executive directors were sufficiently documented and supported to justify the recognition and measurement of the material pension provisions. The Company’s disclosures relating to provisions for pen- sions and similar obligations are contained in note 36 of the notes to the consolidated financial statements. 3 Other Information The executive directors are responsible for the other informa- tion. The other information comprises the following non-audited parts of the group management report: • the statement on corporate governance contained in the “Governance” section of the group management report under § 289 f HGB and § 315 d HGB • the non-financial statement under § 289 b Abs. 1 HGB and § 315 b Abs. 1 HGB contained in the “non-financial statement” section of the group management report 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 fi- nancial statements, the audited group management report and our auditor’s report. Our audit opinions on the consolidated financial state- ments 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 state- ments, 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 consolidated 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 § 315 e Abs. 1 HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial per- formance of the Group. In addition the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT 173 statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the ex- ecutive 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 responsible for financial reporting based on the going concern basis of accounting unless there is an inten- tion to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. Furthermore, the executive directors are responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and ap- propriately presents the opportunities and risks of future devel- opment. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have consid- ered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report. The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial 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 re- spects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the op- portunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the consoli- dated 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. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consoli- dated financial statements and this group management report. We exercise professional judgment and maintain profes- sional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements and of the group manage- ment report, whether due to fraud or error, design and per- form 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 mater- ial misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. • 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 executive 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 con- clude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group manage- ment report or, if such disclosures are inadequate, 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 consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the con- solidated financial statements give a true and fair view of the assets, liabilities, financial position 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 § 315 e Abs. 1 HGB. • Obtain sufficient appropriate audit evidence regarding the fi- nancial information of the entities or business activities within the Group to express audit opinions on the consolidated finan- cial statements and on the group management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions. • Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT 174 • Perform audit procedures on the prospective information pre- sented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective infor- mation, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a sep- arate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospect- ive information. 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 deficien- cies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with the relevant independ- ence 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 governance, we determine those matters that were of most sig- nificance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. Other Legal and Regulatory Requirements Assurance Report in Accordance with § 317 Abs. 3b HGB on the Electronic Reproduction of the Consolidated Financial Statements and the Group Management Report Prepared for Publication Purposes Audit Opinion We have performed an assurance engagement in accordance with § 317 Abs. 3b HGB to obtain reasonable assurance about whether the reproduction of the consolidated financial state- ments and the group management report (hereinafter the “ESEF documents”) contained in the attached electronic file DP_AG_KA+KLB_ESEF-2020-12-31.zip and prepared for pub- lication purposes complies in all material respects with the requirements of § 328 Abs. 1 HGB for the electronic reporting format (“ESEF format”). In accordance with German legal re- quirements, this assurance engagement only extends to the conversion of the information contained in the consolidated fi- nancial statements and the group management report into the ESEF format and therefore relates neither to the information contained within this reproduction nor to any other information contained in the above-mentioned electronic file. In our opinion, the reproduction of the consolidated finan- cial statements and the group management report contained in the above-mentioned attached electronic file and prepared for publication purposes complies in all material respects with the requirements of § 328 Abs. 1 HGB for the electronic report- ing format. We do not express any opinion on the information contained in this reproduction nor on any other information contained in the above-mentioned electronic file beyond this reasonable assurance conclusion and our audit opinion on the accompanying consolidated financial statements and the accom- panying group management report for the financial year from January 1 to December 31, 2020 contained in the “Report on the Audit of the Consolidated Financial Statements and on the Group Management Report” above. Basis for the Reasonable Assurance Conclusion We conducted our assurance engagement on the reproduction of the consolidated financial statements and the group manage- ment report contained in the above-mentioned attached elec- tronic file in accordance with § 317 Abs. 3b HGB and the Exposure Draft of IDW Assurance Standard: Assurance in Accordance with § 317 Abs. 3b HGB on the Electronic Reproduction of Financial Statements and Management Reports Prepared for Publica- tion Purposes (ED IDW AsS 410) and the International Stand- ard on Assurance Engagements 3000 (Revised). Accordingly, our responsibilities are further described below in the “Group Auditor’s Responsibilities for the Assurance Engagement on the ESEF Documents” section. Our audit firm has applied the IDW Standard on Quality Management: Requirements for Quality Management in the Audit Firm (IDW QS 1). Responsibilities of the Executive Directors and the Supervisory Board for the ESEF Documents The executive directors of the Company are responsible for the preparation of the ESEF documents including the electronic reproduction of the consolidated financial statements and the group management report in accordance with § 328 Abs. 1 Satz 4 Nr. 1 HGB and for the tagging of the consolidated financial state- ments in accordance with § 328 Abs. 1 Satz 4 Nr. 2 HGB. In addition, the executive directors of the Company are responsible for such internal control as they have considered necessary to enable the preparation of ESEF documents that are free from material non-compliance with the requirements of § 328 Abs. 1 HGB for the electronic reporting format, whether due to fraud or error. Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT – INDEPENDENT PRACTITIONER’S REPORT 175 The executive directors of the Company are also respon- sible for the submission of the ESEF documents together with the auditor’s report and the attached audited consolidated finan- cial statements and audited group management report as well as other documents to be published to the operator of the German Federal Gazette [Bundesanzeiger]. The Supervisory Board is responsible for overseeing the preparation of the ESEF documents as part of the financial re- porting process. Group Auditor’s Responsibilities for the Assurance Engagement on the ESEF Documents Our objective is to obtain reasonable assurance about whether the ESEF documents are free from material non-compliance with the requirements of § 328 Abs. 1 HGB, whether due to fraud or error. We exercise professional judgment and maintain professional skepticism throughout the assurance engagement. We also: • Identify and assess the risks of material non-compliance with the requirements of § 328 Abs. 1 HGB, whether due to fraud or error, design and perform assurance procedures responsive to those risks, and obtain assurance evidence that is sufficient and appropriate to provide a basis for our assurance conclusion. • Obtain an understanding of internal control relevant to the as- surance engagement on the ESEF documents in order to design assurance procedures that are appropriate in the circumstances, but not for the purpose of expressing an assurance conclusion on the effectiveness of these controls. • Evaluate the technical validity of the ESEF documents, i. e., whether the electronic file containing the ESEF documents meets the requirements of the Delegated Regulation (EU) 2019 / 815 in the version applicable as at the balance sheet date on the technical specification for this electronic file. • Evaluate whether the ESEF documents enable a XHTML repro- duction with content equivalent to the audited consolidated fi- nancial statements and to the audited group management report. • Evaluate whether the tagging of the ESEF documents with Inline XBRL technology (iXBRL) enables an appropriate and complete machine-readable XBRL copy of the XHTML reproduction. Further Information pursuant to Article 10 of the EU Audit Regulation We were elected as group auditor by the annual general meet- ing on August 27, 2020. We were engaged by the Supervisory Board on November 30, 2020. We have been the group auditor of Deutsche Post AG, Bonn without interruption since the Company first met the requirements of a public-interest entity within the meaning of Section 319a Abs. 1 Satz 1 HGB in financial year 2000. We declare that the audit opinions expressed in this audi- tor’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, 19 February 2021 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Dietmar Prümm Wirtschaftsprüfer (German Public Auditor) Verena Heineke Wirtschaftsprüferin (German Public Auditor) INDEPENDENT PRACTITIONER’S REPORT on a Limited Assurance Engagement on Non-financial Reporting PricewaterhouseCoopers GmbH has performed a limited as- surance engagement on the German version of the combined non-financial statement and issued an independent practitioner’s report in German language, which is authoritative. The following text is a translation of the independent practitioner’s report. To Deutsche Post AG, Bonn We have performed a limited assurance engagement on the combined non-financial statement pursuant to §§ (Articles) 289b (paragraph) Abs. 1 and 315b Abs. 1 HGB (“Handelsgesetz- buch”: “German Commercial Code”) contained in section “Non- financial Statement” of the combined management report of Deutsche Post AG, Bonn, (hereinafter the “Company”) for the period from 1 January to 31 December 2020 (hereinafter the “Non-financial Statement”). Responsibilities of the Executive Directors The executive directors of the Company are responsible for the preparation of the Non-financial Statement in accordance with §§ 315 c in conjunction with 289c to 289e HGB. This responsibility of Company’s executive directors in- cludes the selection and application of appropriate methods of non-financial reporting as well as making assumptions and estimates related to individual non-financial disclosures which Deutsche Post DHL Group – 2020 Annual Report CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT PRACTITIONER’S REPORT 176 are reasonable in the circumstances. Furthermore, the executive directors are responsible for such internal controls as they have considered necessary to enable the preparation of a Non-finan- cial Statement that is free from material misstatement whether due to fraud or error. Independence and Quality Control of the Audit Firm We have complied with the German professional provisions regarding independence as well as other ethical requirements. Our audit firm applies the national legal requirements and professional standards – in particular the Professional Code for German Public Auditors and German Chartered Auditors (“Berufssatzung für Wirtschaftsprüfer und vereidigte Buch- prüfer”: “BS WP / vBP”) as well as the Standard on Quality Control 1 published by the Institut der Wirtschaftsprüfer (Institute of Pub- lic Auditors in Germany; IDW): Requirements to quality control for audit firms (IDW Qualitätssicherungsstandard 1: Anforderun- gen an die Qualitätssicherung in der Wirtschaftsprüferpraxis – IDW QS 1) – and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Practitioner’s Responsibility Our responsibility is to express a limited assurance conclusion on the information in the Non-financial Statement based on the assurance engagement we have performed. the assurance engagement to allow us to conclude with limited assurance that nothing has come to our attention that causes us to believe that the Company’s Non-financial Statement for the period from 1 January to 31 December 2020 has not been prepared, in all material aspects, in accordance with §§ 315 c in conjunction with 289c to 289e HGB. In a limited assurance engagement the assurance proced- ures are less in extent than for a reasonable assurance engage- ment, and therefore a substantially lower level of assurance is obtained. The assurance procedures selected depend on the practitioner’s judgment. Within the scope of our assurance engagement, we per- formed amongst others the following assurance procedures and further activities: • Obtaining an understanding of the structure of the sustain- us to believe that the Company’s Non-financial Statement for the period from 1 January to 31 December 2020 has not been prepared, in all material aspects, in accordance with §§ 315 c in conjunction with 289c to 289e HGB. Intended Use of the Assurance Report We issue this report on the basis of the engagement agreed with the Company. The assurance engagement has been performed for purposes of the Company and the report is solely intended to inform the Company about the results of the limited assurance engagement. The report is not intended for any third parties to base any (financial) decision thereon. Our responsibility lies only with the Company. We do not assume any responsibility towards third parties. ability organization and of the stakeholder engagement Düsseldorf, 19 February 2021 • Inquiries of Company’s management and personnel involved in the preparation of the Non-financial Statement regarding the preparation process, the internal control system relating to this process and selected disclosures in the Non-financial Statement • Identification of the likely risks of material misstatement of the Non-financial Statement • Inspection of processes for collecting, controlling, analyzing and aggregating selected data at specific sites of the Company • Analytical evaluation of selected disclosures in the Non- financial Statement PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Hendrik Fink Wirtschaftsprüfer (German public auditor) ppa. Thomas Groth Within the scope of our engagement we did not perform an audit on external sources of information or expert opinions, referred to in the Non-financial Statement. • Comparison of selected disclosures with corresponding data in the consolidated financial statements and in the group man- agement report We conducted our assurance engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised): Assurance Engagements other than Audits or Reviews of Historical Financial Information, issued by the IAASB. This Standard requires that we plan and perform • Evaluation of the presentation of the non-financial information Assurance Conclusion Based on the assurance procedures performed and assurance evidence obtained, nothing has come to our attention that causes Deutsche Post DHL Group – 2020 Annual Report FINANCIAL CALENDAR – CONTACTS 177 FINANCIAL CALENDAR CONTACTS Deutsche Post AG Headquarters 53250 Bonn Germany Investor Relations + 49 (0) 228 182-6 36 36 ir @ dpdhl.com Press Office + 49 (0) 228 182-99 44 pressestelle @ dpdhl.com ORDERING External Order form Internal GeT and DHL Webshop Mat. no. 675-602-553 2021 5 May Results of the first quarter of 2021 6 May 2021 Annual General Meeting 11 May Dividend payment 5 August Results of the first half of 2021 4 November Results of the first nine months of 2021 2022 9 March Results of financial year 2021 3 May Results of the first quarter of 2022 6 May 2022 Annual General Meeting 11 May Dividend payment 5 August Results of the first half of 2022 8 November Results of the first nine months of 2022 Updates to the financial calendar as well as information on live webcasts can be found on our Reporting hub. Deutsche Post DHL Group – 2020 Annual Report